-----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, Hg4y1WKi0vpsOaym2EGqj+bJrdSTYMmmvPUyx5HILzHXABv+pTvQWoNmTG7quSeb MsqAOydlcR+AFMMMutY3qg== 0000043340-96-000014.txt : 19960613 0000043340-96-000014.hdr.sgml : 19960613 ACCESSION NUMBER: 0000043340-96-000014 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 45 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960610 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: INVESTORS INSURANCE GROUP INC CENTRAL INDEX KEY: 0000043340 STANDARD INDUSTRIAL CLASSIFICATION: LIFE INSURANCE [6311] IRS NUMBER: 132574130 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-08069 FILM NUMBER: 96578952 BUSINESS ADDRESS: STREET 1: 7200 W CAMINO REAL CITY: BOCA RATON STATE: FL ZIP: 33433 BUSINESS PHONE: 4073915043 MAIL ADDRESS: STREET 1: 3030 HARTLEY ROAD STREET 2: SUITE 390 CITY: JACKSONVILLE STATE: FL ZIP: 32257 FORMER COMPANY: FORMER CONFORMED NAME: GEMCO NATIONAL INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: GREAT EASTERN MANAGEMENT CORP DATE OF NAME CHANGE: 19790617 10-K 1 IIG 1995 FORM 10K FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1995 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File No. 1-8069 INVESTORS INSURANCE GROUP, INC. (Exact name of registrant as specified in its charter) Florida 13-2574130 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification no.) 7200 W. Camino Real Boca Raton, Florida 33433 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (407) 391-5043 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered Common Stock $.50 par value American Stock Exchange Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ____ NO __X__ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] The aggregate market value of the voting stock held by non-affiliates of the registrant as of April 8, 1996 was $1,596,977. The number of shares of Registrant's Common Stock, par value $.50, outstanding on April 8, 1996 was 2,767,789 shares. Documents incorporated by reference: Form 8K dated February 13, 1996. 2 PART I Item 1. Business Investors Insurance Group, Inc. ("IIG" or the "Company") is a holding company which manages its subsidiaries' operations and recruits agents for its life insurance subsidiary. IIG was incorporated under the laws of the State of Florida on May 11, 1993 and is the successor corporation of the former Gemco National, Inc. ("Gemco"), a New York corporation founded in 1966. The change in corporate identity was made to increase investor awareness of IIG's current market focus and was approved by Gemco's shareholders at the Annual Meeting of Shareholders on June 11, 1993. The actual change was accomplished by the merger of Gemco National, Inc. into a new Florida corporation, Investors Insurance Group, Inc., on September 1, 1993. The Company specializes in the sale of flexible premium deferred annuity products through its wholly-owned subsidiary, Investors Insurance Corporation ("Investors"), a life insurance company founded in 1956. The Company has two other subsidiaries, IIC, Inc. and Investors Marketing Group, Inc. ("IMG"). IIC, Inc. is an insurance holding company which serves as the intermediate parent of Investors, while IMG performs agent recruitment services for a select group of unaffiliated life insurance companies. Annuities have traditionally been used by individuals as a tax-deferred savings vehicle for retirement planning and the Company designs its products and directs its marketing efforts towards this savings and retirement market. U.S. Census Bureau statistics indicate that the pre-retirement segment of this market, ages 45-64, is the fastest growing age group in the country and project a 30% increase in the number of individuals in this age group during the 1990s. The Company believes that this demographic trend, longer life expectancy, and rising per capita income (as well as the tax deferred savings advantage of annuity products) will increase the demand for annuities in retirement planning. To date, the 50 and older age group has accounted for the majority of all annuity premiums received by the Company and management believes that as this group expands, it will have an increasing interest in saving for retirement and unanticipated medical costs. The Company seeks to make sales of retirement savings products by offering annuity products that meet the demands of agents and the pre- and post- retirement population. The Company markets its products through independent agents licensed in 21 states. Investors' agents are recruited by IIG, as well as through other national marketing agencies ("NMAs"). As of December 31, 1995, the Company had approximately 2,000 independent agents licensed to sell the Company's products. Since 1990, approximately 90% of annuity premiums received by Investors have been produced by agents recruited by IIG or its predecessor. The Company's Corporate Headquarters is located at 7200 West Camino Real, Suite 203, Boca Raton, Florida 33433. The Corporate Headquarters' telephone number is (407) 391-5043. The Company's Administrative and Financial operations are located at 3030 Hartley Road, Jacksonville, Florida 32257. The telephone number at this location is (904) 260-6990. 3 Products The Company specializes in the sale of flexible premium deferred annuity ("FPDA") products to individuals. During each of the past five years, sales of FPDAs have accounted for over 95% of the Company's premiums received. FPDAs begin with a specific initial premium deposit by the policyowner at the time of issuance and allow additional contributions to the policy whenever the policyowner wants to make them. Following an accumulation period, the policyowner is entitled to receive the accumulated value of the policy as a lump-sum payment or through annuity payments over a certain period, or for life. Interest credited during the accumulation period generally is not subject to federal or state income tax. Investors currently sells several variations of FPDA products with different benefits, interest rates and commission structures. These products offer tax- deferred accumulation of interest, one year interest rate guarantees, guaranteed cash values, and a choice of guaranteed income options on the selected maturity date. The products are continuously reviewed and modifications made to remain competitive within the target market. The Company's operating earnings are derived from its coinsurance ceding commission and the excess of its actual investment income, including realized gains (losses), over interest credited to annuity contracts and expenses. In determining credited rates, Investors takes into account the profitability of its annuity business and the relative competitive position of its products. Credited rates during the initial and any renewal period are based on assumptions and estimates relating principally to persistency, investment yield and expenses as well as management's judgment with respect to market and competitive conditions. Investors' FPDAs have an initial credited interest rate that is guaranteed for one year. Following the initial guarantee period, Investors may adjust the credited interest rate annually, subject to the guaranteed minimum interest rates specified in the contracts of 3.0% or 4.0% (minimum rates of 6.0% to 7.0% during the surrender charge period apply to a portion of the business). At December 31, 1995, initial crediting rates ranged from 7.0% to 12.0%, based on contract provisions; renewal crediting interest rates ranged from 4.0% to 7.0%. The Company incorporates a number of features in its annuity products designed to reduce the occurrence and adverse effect of premature termination of the policy. Premature termination of an annuity contract results in the loss of the Company's anticipated future investment earnings related to the annuity deposit and in the accelerated recognition of expenses related to policy acquisition, principally commissions, which are otherwise recoverable over the life of the policy. However, if the policy were coinsured, premature termination will accelerate recognition of the coinsurance ceding commission (see Note 1 to the Financial Statements in Item 8). The primary feature incorporated by the Company into its products to minimize premature terminations is a surrender charge. While the policyowner is permitted to withdraw all, or a portion, of the accumulated value, such withdrawals are generally subject to a declining surrender charge during the first nine years of the policy's life. The Company permits free annual withdrawals following the first policy anniversary, but such withdrawals are limited to 10% of the eligible accumulated value. In addition, one of the Company's annuity products has a mandatory five year payout feature which requires that all policy withdrawals, except 10% free withdrawals, be paid out over a period of no less than five years. This product feature provides the 4 Company protection from large withdrawal activity in rising interest rate scenarios as policyholders move funds in search of higher interest rates. The Company expanded its senior oriented product line in 1993 with the addition of a Medicare Supplement health insurance plan and an accelerated benefit life insurance product, both of which are considered important coverages to senior age individuals. The Company's Medicare supplement plan was specifically designed to attract female non-smokers, while the accelerated life product was designed to provide a 100% acceleration of the death benefit upon the diagnosis of a 12 month terminal illness. Development and marketing efforts were quite extensive and related expenses totaled over $630,000 during 1993. Following the introduction of the Medicare Supplement product, this very competitive market became subject to much uncertainty, primarily attributed to the intense scrutiny placed on health care by federal and state governments. In addition, the promotion of Medicare HMOs put a significant strain on the Company's ability to compete effectively in this market. In December 1993, with expected premium volumes well below breakeven levels, management withdrew the Medicare supplement policy from the market. To further reduce its exposure to future losses, in April 1994, the Company negotiated the sale of this business to Old Surety Life Insurance Company. The Company's accelerated life product, while well received by some agents, did not generate significant interest in the marketplace and was withdrawn from the market in December 1994. The reinsurance agreement with Winterthur Life Re ("WLR") will continue to provide the Company protection from adverse loss experience on this product. Investments The Company's long term profitability is largely determined by its ability to maintain a spread between its investment earnings and the interest credited on its annuity products. At December 31, 1995, the Company had $172 million of cash and invested assets, of which $170 million or approximately 98.8% represented cash or investments in fixed income securities. The Company's fixed income investments are comprised exclusively of securities issued by the U.S. Government, or U.S. Government agencies and sponsored enterprises. All investments are made in accordance with guidelines established by the Board of Directors as to type, liquidity, maturity and duration of investment. These guidelines were developed in order to match the cash flows of the investments with the expected cash requirements of policy liabilities. The management of the Company's fixed income investments, in accordance with these guidelines, is handled by Asset Allocation and Management Companies ("AAM") of Chicago, Illinois. Approximately 57% of the Company's fixed income investments are collateralized mortgage obligations ("CMOs"). Like all mortgage-backed investments, CMO securities are subject to prepayment risk, especially in periods of declining interest rates when the mortgages which collateralize the security are repaid more rapidly than scheduled, as individuals refinance higher rate mortgages to take advantage of the lower prevailing rates. As a result, holders of CMOs could receive prepayments on their investments which the holder may not be able to reinvest at interest rates comparable to the rate on the prepaying security. The Company has reduced this risk of prepayment by investing its mortgage- backed investment portfolio in planned amortization class ("PAC") and targeted 5 amortization class ("TAC") instruments. These investments are designed to amortize in a more predictable manner by shifting the primary risk of prepayment of the underlying collateral to investors in other tranches ("support classes") of the CMO. In the first quarter of 1995, the Company began to redirect its investments away from CMOs and toward other types of securities backed by the U. S. Government or its agencies. Ultimately the Company plans to reduce its CMO holdings to approximately 50% of its portfolio. The Company uses expected prepayment assumptions to account for its mortgage-backed securities. Accordingly, as prepayment rates on mortgage- backed securities change, the Company adjusts its income realization on mortgage-backed securities to reflect the best estimate of future cash flows and the corresponding income resulting from the accretion of discounts and the amortization of premiums. The Company attempts to manage its assets and liabilities so that income and principal payments received from investments are adequate to meet the cash flow requirements of its policyholder liabilities. The estimated weighted average duration of the Company's fixed income investment portfolio was 5.63 years as of December 31, 1995. The relatively short nature of the investment portfolio reflects the characteristics of the Company's liabilities. The majority of the Company's policy and deposit liabilities represent reserves for FPDAs that may be partially or totally surrendered at the policyholders' option, subject to surrender charges, when applicable. The cash flows of the Company's liabilities are affected by actual maturities, surrender experience and credited interest rates. The Company periodically performs cash flow studies under various interest rate scenarios to evaluate the adequacy of expected cash flows from its assets to meet the expected cash requirements of its liabilities. The Company utilizes these studies to determine if it is necessary to lengthen or shorten the average life and duration of its investment portfolio. Reinsurance Under generally accepted accounting principles, amounts recoverable from the reinsurer for future contract benefits are reflected as assets ("investment contract benefits recoverable") and the related policy liability is presented separately. Under statutory accounting, the recoverable amounts are off set against the related policy liabilities. In 1991, the Delaware Department of Insurance ("Delaware") expressed concern over Investors' ratio of statutory policy liabilities to its capital and surplus. To address this concern, on October 1, 1991 Investors entered into a coinsurance agreement with Republic-Vanguard Life Insurance Company ("RVL"), a member of Winterthur Swiss Insurance Group, one of the largest Swiss insurance companies. Under the terms of this agreement 80% of all new annuity contracts written by Investors was coinsured with RVL. This agreement enabled the Company to slow the growth of its policy liabilities while at the same time adding additional capital and surplus from the profits on the coinsured portion of the business. By 1994, however, the growth of the unreinsured portion of the business had raised the ratio of statutory policy liabilities to capital and surplus to a level that brought renewed concern from Delaware. To address this concern, Investors increased the coinsurance rates for new business from 80% to 90% on October 1, 1994 and to 100% on May 1, 1995 while at the same time it developed plans to raise additional capital. Raising the coinsurance rates stopped the ratio from significantly increasing, but by late 1995 the ratio was still in excess of twenty to one, in excess of Delaware's target of fifteen to one, and 6 it became clear that additional capital could not be raised prior to the end of the 1995. Therefore, in early 1996, Investors entered into an agreement to cede a block of annuity policies with statutory policy reserves of $76,306,929 to New Era Life Insurance Company ("New Era"). This reinsurance agreement provides for an initial coinsurance period (up to five years) followed by full assumption of the specified policies. Investors will continue to service these policies through December 31, 2000. Under its terms, this agreement became effective on December 31, 1995 and, with Delaware's approval, was reflected in Investors' 1995 statutory statement. (However, since the agreement did not actually close until 1996, it was reflected as a 1996 transaction under generally accepted accounting principles.) This additional reinsurance reduced the ratio below Delaware's target. During 1996, the Company plans to continue its efforts to raise additional capital (see discussion below under Regulations and Licensing). This additional capital will enable it to reduce its coinsurance rate on new business and grow its block of inforce business while avoiding Delaware's concern about the ratio. Investors receives acquisition ceding commissions and continuing service fees on coinsured business. Until December 31, 1993, the Company's accounting policy was to reduce the deferred acquisition costs related to the ceded annuity contracts by the portion of the costs recovered through the ceding commission and to recognize the excess ceding commission at the time it was received. Effective January 1, 1994, the Company adopted a new accounting policy under which the recovered acquisition cost and excess ceding commission are recognized over the life of the related annuity contracts. The new accounting policy is derived from provisions of Statement of Financial Accounting Standards (SFAS) No. 113, "Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration Contracts." Under SFAS 113, ceding profits of an insurance company resulting from ceding insurance risks (as specifically defined) are recognized over the life of the related insurance policy, rather than as the risk is ceded. SFAS No. 113 provides specific guidance on accounting for the excess ceding commissions that result from the transfer of insurance risks. For other types of risk transfer arrangements, such as the Company's coinsurance of its annuity contracts, SFAS No. 113 simply specifies "deposit accounting" and does not provide specific guidance for applying this method of accounting. Many insurance companies have adopted a type of "deposit accounting" very similar to the accounting specified for insurance risks, under which excess ceding commissions are recognized over the life of the related contracts. In view of this emerging consensus, and in the interest of comparability of its financial statements with those of other insurance companies, the Company has decided to adopt this approach to accounting for its excess ceding commissions. Under the new accounting method, the deferred acquisition costs related to the annuities are not reduced; the full ceding commission, including the ceding profit and the recovery of the annuity acquisition costs, is treated as unearned income. This unearned ceding commission is treated as earned in direct relation to the present value of expected gross profits of the related annuity contracts, which is the same manner in which the related deferred amortization costs are amortized. Like deferred acquisition costs, the unearned ceding commission will be adjusted retrospectively when changes are made to the current or future estimated gross profits. As the ceding commission is earned, the profit portion is recognized as commission income and the cost recovery portion is offset against the amortization of deferred acquisition costs. 7 Normally, the Company plans to recover its acquisition cost and make its profit from the excess of investment income over interest credited and other expenses. If the policy is prematurely terminated, the Company may not recover its acquisition costs. However, if the risk is coinsured, premature termination will accelerate recognition of the unearned ceding commission. In May of 1992, Investors Insurance negotiated a stop loss reinsurance treaty with RVL. This treaty (INVE0002) was entered into in an effort to further increase consumer confidence in the Company's financial stability. Under the terms of this agreement, RVL will provide excess of loss coverage on the 20% of Investors' annuities not directly ceded to them and will pay any losses in excess of 120% of the sum of premiums plus investment income plus any positive net capital gains on the policies covered. This treaty became effective June 1, 1992 for all annuity premium written through December 31, 1992. In 1993, the stop loss terms were revised to reduce the cost to Investors from 0.020% of premiums to 0.014% of premiums. This reduction was accomplished by increasing the attachment point for the beginning of coverage from 120% to 130% of the sum of premiums plus investment income plus any positive net capital gains. The new treaty (INVE0003, amended by INVE004 and INVE005) became effective on January 1, 1993 and covered all annuity policies written through December 31, 1994. Policies issued after December 31, 1994 are not covered by these stop loss arrangements. To offset the surplus strain on the accelerated benefit life product, Investors negotiated a reinsurance agreement with Winterthur Life Re ("WLR"), another member of the Winterthur Swiss Insurance Group. This agreement (INVEWL01) provided that 80% of all accelerated benefit life policies written be coinsured with WLR. The commissions and expense allowance for this product equals 145% of first year premium with additional amounts for renewal premiums ranging from 17% in years 2 through 10 to 15% for years eleven and after. Employees and Independent Contractors As of February 15, 1996, the Company and its subsidiaries had 27 full-time employees and 3 part-time employees. As of the same date, Investors had approximately 2,000 independent insurance agents licensed directly to it. All of these agents are independent contractors who also represent other insurance companies and are not employees of Investors. Competition The life insurance industry is highly competitive with many life insurance companies offering diverse products with many alternative marketing or distribution systems. Many of these life insurance companies have been in business for a longer time, are more widely known by reason of such factors as age and size and have greater financial resources than the Company. However, due to the specialized nature of Investors' products, the Company competes directly with a relatively small number of other insurance companies nationwide and in regional and state markets. Management believes that Investors has been able to attract and will continue to be able to attract, motivate and retain productive independent marketing organizations and agents by providing quality products and service. Currently, banks and bank holding companies are entering the insurance and securities businesses resulting in increased competition for the Company's products. The banking industry can be expected to continue to seek expanded powers to sell insurance and annuities through both changes in the law or 8 interpretation of current laws. The ultimate outcome and timing of such changes are not easily anticipated, but the Company will continue to monitor developments in order to respond quickly to new opportunities or increased competition. Regulation and Licensing As an insurance company, Investors is subject to regulation and supervision in the states in which it is authorized to do business. This regulation is designed primarily to protect policyholders. Although the extent of regulation varies from state to state, in general the insurance laws of the states establish supervisory agencies with broad administrative powers. These powers include the granting and revocation of licenses to transact business, licensing of agents, approval of products and policy forms, determination of permissible investments, and establishment of minimum reserve requirements and capital and surplus levels. The state regulations require Investors to file detailed periodic financial reports with the supervisory authorities in each of the states in which it does business. These reports are prepared based on what is known as the statutory accounting principles, which differs from the generally accepted accounting principles ("GAAP"). The primary differences between these two sets of accounting principles are: Deferred Acquisition Costs. These costs are treated as a period expense on a statutory basis, but are amortized over the expected gross profits under GAAP; Policy Liabilities. The calculation of the liability for future policy benefits is based on different assumptions for statutory purposes than for GAAP and is reported net of reinsurance; Unearned Ceding Commission. Subsequent to the change in GAAP accounting described in footnote 1, the excess ceding commission (GAAP profit) is deferred and amortized based on the expected gross profit of the related annuity contracts. Prior to this change, both statutory and GAAP profits were consistently recognized as the business was ceded; Investment Market Value Adjustment. All fixed maturity securities are reported at amortized cost for statutory purposes, while GAAP requires the fixed maturities classified as "available for sale" to be reported at market value for 1995 and 1994 and at the lower of aggregate amortized cost or market in prior years; Goodwill. The excess of the purchase price of Investors over its identifiable assets and liabilities is deferred and amortized for GAAP. These costs are not recognized under statutory accounting; Interest Maintenance and Asset Valuation Reserves. These reserves are treated as liabilities for statutory purposes, but are restored to capital and surplus for GAAP; Non-Admitted Assets. Certain designated assets are not recognized under statutory accounting; 9 Deferred Income Taxes. Under certain conditions, the impact of certain variances from taxable income is recognized as an adjustment to income tax expense for GAAP, but not for statutory accounting purposes; and Premium Revenue. Under GAAP, premiums related to certain interest sensitive products is excluded from revenue. In addition to these differences, from time to time, insurance companies may record transactions in different periods for regulatory purposes than under generally accepted accounting principles. The New Era reinsurance agreement was recorded in 1995 for statutory accounting but in 1996 under generally accepted accounting principles. Since Investors is incorporated in Delaware, the Delaware Department of Insurance is the primary regulatory body which supervises Investors' operations. However, other states' agencies (such as Florida, Arizona and California) exercise regulatory authority over Investors where the majority of its products are sold. Under the rules of the National Association of Insurance Commissioners ("NAIC"), one or more of the supervisory agencies will examine Investors periodically (usually at three year intervals) on behalf of all the states in which it is licensed to conduct business. During 1993, Investors was examined by the Delaware Department of Insurance for the three year period ended December 31, 1992. The official examination report contained no significant adjustments with respect to Investors' statutory financial statements or capital and surplus. In February 1996, the Delaware Department of Insurance began its regular triennial examination for the period ended December 31, 1995. This examination is expected to be completed near the end of 1996. The NAIC has established risk-based capital standards to determine the capital requirements of a life insurance company based on the type and mixture of risks inherent in its operations. These standards require the computation of a risk-based capital amount which is then compared to a company's actual total adjusted capital. The computation involves applying factors to various statutory financial data to address four primary risks: asset default, adverse insurance experience, interest rate risk and external events. These standards, effective in 1993, provide for regulatory attention when the percentage of total adjusted capital to authorized control level risk-based capital is below certain levels. At December 31, 1995, Investors' percentage of total adjusted capital is well in excess of ratios which would require regulatory action. The NAIC has formulated twelve ratios which are referred to as the Insurance Regulatory Information System ("IRIS") ratios. The IRIS ratios are used to help evaluate each life insurance company's financial performance. Companies which have four or more ratios falling outside of the "expected" ranges may be subject to additional regulatory review. In 1995, Investors had five IRIS ratios falling outside the expected ranges. Investors will furnish an explanation of the exceptions to the Delaware Department of Insurance, which may then disseminate the information to other insurance departments. Investors may experience future IRIS ratios outside of industry standards due to continued growth and extensive use of reinsurance, but management does not anticipate any substantial regulatory issues to result. During 1995, Delaware expressed increased concern over Investors' high ratio of statutory policy liabilities to capital and surplus. In December 1995, the IIG signed a definitive agreement to sell Investors to Standard Management Corporation ("SMC") in exchange for stock of SMC and relief from IIG's $8 million note. However, in the first quarter of 1996, the agreement was 10 terminated and a controversy ensued between IIG and SMC regarding the basis of this termination. In April 1996, IIG agreed to settle all the disputes arising from this agreement and its termination by paying SMC $8,000 in cash and 72,000 restricted shares of IIG stock. Simultaneously with IIG's search for additional capital, Investors responded directly to Delaware's concern by structuring a reinsurance agreement for a significant block of its business. As described in Note 5 of the Company's financial statements, in the first quarter of 1996, Investors closed a reinsurance agreement with New Era. This agreement was effective December 31, 1995 and, based on Delaware's approval, was recorded in Investors' statutory financial statements for 1995 (under generally accepted accounting principles, this transaction was recorded in 1996). As a result, Investors' ratio of statutory liabilities to capital and surplus was reduced below Delaware's target. However, Delaware continues to monitor Investors closely, including reviewing and approving certain expenditures. Because of the amount of business Investors writes in California (approximately 33% of its total in 1995), that State considers Investors to be "commercially domiciled" in California and regulates it accordingly. Therefore, in addition to Delaware's approval, Investors had to obtain approval for the New Era reinsurance agreement from the California Department of Insurance ("California"). California approved the coinsurance portion on the New Era agreement, but wanted additional time to review the assumption portion of the agreement. Investors agreed to arrange a capital infusion that would raise its statutory capital and surplus to $11 million by June 30, 1996 in order to continue to write new business in California. The Arizona Department of Insurance ("Arizona") has raised questions about Investors' continuing ability to write new business at, or above, its 1995 level based on its current statutory capital and surplus. In 1995, Investors wrote approximately 24% of its new business in Arizona. To satisfy both California and Arizona, the Company signed a definitive agreement on April 29, 1996 with AAM Capital Partners, L. P. ("AAM") for the sale of up to $7,000,000 of convertible voting preferred stock (70,000 shares). This infusion of capital will be used to recapitalize IIG's insurance subsidiary, Investors Insurance Corporation. The insurance company will then be able to retain a larger portion of its profitable annuity business that is currently being ceded to a reinsurer. AAM has in-depth expertise of insurance operations and plans to help IIG utilize its marketing expertise in a number of new and expanding markets. AAM is an equity investment fund which participates in investments in the insurance industry. Under the terms of the agreement, which is scheduled to close on June 30, 1996, IIG's Board of Directors will expand to seven members. As separate groups, the owners of the preferred and common shares will each separately elect three directors. The remaining director will be elected by all the shareholders. Each preferred share will be convertible at any time into 100 shares of common stock or, after December 31, 2001, redeemable for $100 per share, plus accrued dividends at the option of the holder. In conjunction with this agreement, IIG will exchange 250,000 restricted shares of its common stock for all of IIG's currently outstanding warrants to purchase 1,000,000 shares of common stock. These warrants are currently held by Chester County Fund, Inc., IIG's largest shareholder. In addition to the normal and customary contingencies, final closing of the agreement is subject to regulatory approval and the full subscription of AAM's coinvestor group. 11 If this agreement closes as scheduled, the additional capital should satisfy the conditions set by both California and Arizona and reduce the level of regulatory scrutiny from Delaware. Item 2. Properties The Company leases approximately 1,300 square feet of office space on the second floor of a building at 7200 West Camino Real, Boca Raton, Florida 33433. This lease expires on September 30, 1998. Investors leases approximately 6,700 square feet of office space on the third floor of a building at 3030 Hartley Road, Jacksonville, Florida 32257. This lease expires on October 31, 1996. Neither the Company or its subsidiaries own any commercial real estate. Item 3. Legal Proceedings There is action pending against the Company in the Supreme Court of the State of New York, County of New York entitled Federal Insurance Company v. Gemco National, Inc. in which Federal Insurance Company ("Federal") seeks compensatory damages of $596,000 for an alleged breach of contract. Federal alleges that the Company breached its agreement with Federal to pay the premiums on its automobile, worker's compensation and commercial insurance policies underwritten by Federal for the Company's former subsidiary, the Ampat Group Inc. Oral depositions in regard to this matter commenced in the Spring of 1990. There has been no activity with regards to this matter since that time. Management intends to vigorously defend this action. Management believes the Company has valid defenses which it will assert in defense of this matter. There exists a dispute between the Pennsylvania Department of Insurance, as statutory liquidator of Corporate Life Insurance Company, and the Delaware Department of Insurance, as liquidator of National Heritage Life Insurance Company, as to the ownership of the Secured Subordinated Debenture issued in 1989 by Gemco National, Inc. to Corporate Life Insurance Company in connection with the purchase by Gemco of all of the outstanding shares of stock of IIC, Inc., Investors Insurance Corporation and Westchester Reinsurance, Ltd. To avoid being subject to double liability, the Company filed a Complaint in Equity for Interpleader with the Pennsylvania Commonwealth Court captioned Investors Insurance Group, Inc. v. Insurance Commissioner of Pennsylvania Department of Insurance and Insurance Commissioner of Delaware Department of Insurance, (518 MD 1995, PA Cmwlth Ct. 1995). The parties involved in this action had entered into a 90 day standstill agreement, however, no resolution of the issues involved in this action was reached. On March 4, 1996, Defendant, Insurance Commissioner of Delaware Department of Insurance, filed preliminary objections to the original complaint and on April 16, 1996 to an amended complaint filed by the Company in response to the preliminary objections originally filed. Defendant, Insurance Commissioner of Pennsylvania Department of Insurance has been granted two additional 30 day extensions to file and answer. The resolution of the above action will not cause additional liability to the Company. In connection with the above action, the Delaware Department of Insurance filed on March 14, 1996, a Petition for Declaratory Judgment, Specific Performance and Injunctive Relief against Investors Insurance Group, Inc. in the case entitled, In The Matter of the Liquidation of National Heritage Life 12 Insurance company, (C. A. Nd 13530, DE Ct. Chancery, 1996). The Delaware Department of Insurance has requested the Court to enter a declaratory judgment that it is the owner of the Secured Subordinated Debenture and as such, is entitled to receipt of interest payments being held in escrow, and is entitled to have the Debenture registered in its name. The action also requests the Court to declare that the Debenture is a negotiable instrument and that the Company does not have any claim to offset the principal amount of the Debenture and further seeks indemnification from the Company. The Company is currently reviewing these filings and extensions. The ultimate outcome of this case cannot be determined at this time. Item 4. Submission of Matters to a Vote of Security Holders At its Annual Meeting on November 17, 1995, the shareholders elected five directors and approved an Amendment to the Articles of Incorporation authorizing a class of Preferred Stock, and granting exclusive authority to the Board of Directors to determine the rights, preferences an limitations of the Preferred Stock. The results of the vote were as follows: For Against Abstained --------- ------- --------- Directors: Melvin C. Parker 2,166,068 28,904 0 Ronald W. Hayes 2,166,068 28,904 0 Donald F. U. Goebert 2,166,068 28,904 0 Ernest D. Palmarella 2,165,968 29,004 0 Jack L. Howard 2,165,968 29,004 0 Amendment Authorizing Preferred Stock 1,406,515 130,769 7,195 13 PART II Item 5. Market for the Registrant's Common Stock and Related Shareholder Matters. (A) Market Information The Registrant's common stock is traded on the American Stock Exchange. The following table sets forth the high and low sale prices for the stock by calendar quarter for 1995 and 1994. 1995 1994 ---------------- ---------------- HIGH LOW HIGH LOW ------ ------- ------- ------- First Quarter............... 2 3/8 1 3/4 2 5/8 1 9/16 Second Quarter.............. 2 1/8 1 15/16 2 3/8 1 9/16 Third Quarter............... 1 13/16 1 1/8 2 1/8 1 5/8 Fourth Quarter.............. 1 3/8 15/16 1 15/16 1 9/16 (B) Holders. As of April 8, 1996, there were 751 shareholders of record of common stock of the Registrant. The Registrant has no precise knowledge as to the number of beneficial holders of the Registrant's common stock. (C) Dividends The Registrant has not paid any dividends during the past two years and at the present time it is not expected that dividends will be paid in 1996. 14 Item 6. Selected Financial Data (in thousands except per share amounts) As of and for the year ended December 31, ---------------------------------------------- INCOME SUMMARY 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- Revenues $ 15,260 $ 12,453 $15,268 $12,885 $10,797 Net Investment Income 11,598 10,751 10,052 8,459 5,882 Income (Loss) before income taxes (517) (2,973) (498) 334 874 Net Income (Loss) (381) (7,030) (864) 313 265 PER SHARE OF COMMON STOCK Income (Loss) before income taxes $ (0.19 $ (1.07) $ (0.18) $ 0.12 $ 0.32 Net Income (Loss) (0.14) (2.54) (0.31) 0.11 0.10 BALANCE SHEET Total Assets $574,486 $462,041 $322,147 $229,675 $140,861 Total Investments 160,619 143,746 130,887 121,217 103,784 Investment contract benefits recoverable 351,489 262,058 162,351 86,717 16,841 Future policy benefit - - Investment Contracts 511,315 422,937 304,734 212,966 123,611 Note Payable 8,000 8,000 8,000 8,000 8,000 Shareholders' Equity 1,428 (16,318)2 585 1,328 1,710 _______________________ 1 In 1994, the Company changed its method of accounting for ceding commissions. For a discussion of this issue, see "Change in Accounting for Ceding Commission" in Note 1 to the financial statements in Item 8. If the new accounting principle had been in effect in prior years, the results above would have been different. Those pro forma amounts that would have been changed are presented in the table below. 15 Summary of Selected Pro Forma Financial Data that would have been different if the change in accounting adopted in 1994 had been in effect in prior years 1993 1992 1991 ---- ---- ---- Revenue $13,614 $ 11,236 $10,241 Income (loss) before income tax (2,152) (1,315) 318 Net loss (2,518) (1,336) (291) Shareholders' Equity (3,274) (877) 1,154 Per Share Items: Income (loss) before income tax $ (0.78) $ (0.48) $ 0.11 Net loss (0.91) (0.48) (0.11) 2 Balance reflects the impact of adopting Statement of Financial Accounting Standard No. 115, "Accounting for Certain Investments in Debt and Equity Securities. 16 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations General The following analysis discusses the results of operations and financial condition of Investors Insurance Group, Inc. (the "Company") and its wholly- owned subsidiaries, primarily Investors Insurance Corporation ("Investors"), and should be read in conjunction with the Company's consolidated financial statements and notes thereto included elsewhere in this report. Primary Product The Company, through its subsidiary Investors, specializes in the sale of flexible premium deferred annuity products ("FPDA") as a retirement savings vehicle for individuals. During the past three years, sales of FPDAs have accounted for over 95% of the Company's total premiums received and were $106.3 million, $123.8 million and $95.9 million in 1995, 1994 and 1993, respectively. Under generally accepted accounting principles ("GAAP"), premiums received on FPDAs are not recognized as revenue at the time of sale but rather are reflected as future policy liabilities. Similarly, policy acquisition costs (primarily commissions) related to such sales are not recognized as expenses but rather are capitalized as deferred acquisition costs ("DAC"). As a result of this process, no profit or loss is realized at the time of sale. The Company's operating earnings from this product are derived from the excess of investment income (including interest and investment gains (losses) and surrender fees over the sum of interest credited to annuity contracts and acquisition and maintenance expenses. Over the life of an annuity, net investment income, net investment gains (losses) and policy fees are recognized as revenue and DAC is amortized as an expense. The timing of the DAC amortization is based on the estimated gross profits which is adjusted based on actual experience. The Company's earnings depend, in large part, upon persistency of its annuities to enable it to recover the unamortized portion of its DAC. The Company uses surrender charges in annuity policies both to discourage, and to mitigate, the effect of premature withdrawals. Reinsurance Under generally accepted accounting principles, amounts recoverable from the reinsurer for future contract benefits are reflected as assets ("investment contract benefits recoverable") and the related policy liability is presented on a gross basis. Under statutory accounting, the amounts are off-set against the related policy liabilities. In 1991, the Delaware Department of Insurance ("Delaware") expressed concern over Investors' ratio of statutory policy liabilities to its capital and surplus. To address this concern, on October 1, 1991 Investors entered into a coinsurance agreement with Republic-Vanguard Life Insurance Company ("RVL"), a member of Winterthur Swiss Insurance Group, one of the largest Swiss insurance companies. Under the terms of this agreement 80% of all new annuity contracts written by Investors was coinsured with RVL. This agreement enabled the Company to slow the growth of its policy liabilities while at the same time adding additional capital and surplus from the profits on the coinsured portion of the business. 17 By 1994, however, the growth of the unreinsured portion of the business had raised the ratio of statutory policy liabilities to capital and surplus to a level that brought renewed interest from Delaware. To address this concern, Investors increased the coinsurance rates for new business from 80% to 90% on October 1, 1994 and to 100% on May 1, 1995 while at the same time it developed plans to raise additional capital. Raising the coinsurance rates stopped the ratio from significantly increasing, but by late 1995 the ratio was still in excess of twenty to one, well in excess of Delaware's target of fifteen to one, and it became clear that additional capital could not be raised prior to the end of the 1995. Therefore, Investors began working on an additional reinsurance arrangement. In early 1996, Investors entered into an agreement to cede a block of annuity policies with statutory policy reserves of $76,306,929 to New Era Life Insurance Company ("New Era"). This reinsurance agreement provides for an initial coinsurance period (up to five years) followed by full assumption of the specified policies. Investors will continue to service these policies through December 31, 2000. Under its terms, this agreement became effective on December 31, 1995 and, with Delaware's approval, was reflected in Investors' 1995 statutory statement. (However, since the agreement did not actually close until 1996, it was reflected as a 1996 transaction under generally accepted accounting principles.) This additional reinsurance reduced the ratio below Delaware's target. During 1996, the Company plans to continue its efforts to raise additional capital (see discussion below under Liquidity and Capital Resources). This additional capital will enable the Company to reduce its coinsurance rate on new business and grow its block of inforce business without adversely impacting the ratio. Reinsurance Accounting Investors receives acquisition ceding commissions and continuing service fees on coinsured business. Until December 31, 1993, the Company's accounting policy was to reduce the deferred acquisition costs related to the ceded annuity contracts by the portion of the costs recovered through the ceding commission and to recognize the excess ceding commission at the time it was received. Effective January 1, 1994, the Company adopted a new accounting policy under which the recovered acquisition cost and excess ceding commission are recognized over the life of the related annuity contracts. The new accounting policy is derived from provisions of Statement of Financial Accounting Standards (SFAS) No. 113, "Accounting and Reporting for Reinsurance of Short-Duration and Long-Duration Contracts." Under SFAS 113, ceding profits of an insurance company resulting from ceding insurance risks (as specifically defined) are recognized over the life of the related insurance policy, rather than as the risk is ceded. SFAS No. 113 provides specific guidance on accounting for the excess ceding commissions that result from the transfer of insurance risks. For other types of risk transfer arrangements, such as the Company's coinsurance of its annuity contracts, SFAS No. 113 simply specifies "deposit accounting" and does not provide specific guidance for applying this method of accounting. Many insurance companies have adopted a type of "deposit accounting" very similar to the accounting specified for insurance risks, under which excess ceding commissions are recognized over the life of the related contracts. In view of this emerging consensus, and in the interest of comparability of its financial statements with those of other insurance companies, the Company decided to adopt this approach to accounting for its excess ceding commissions. 18 Under the new accounting method the deferred acquisition costs related to the annuities are not reduced; the full ceding commission, including the ceding profit and the recovery of the annuity acquisition costs, is treated as unearned income. This unearned ceding commission is treated as earned in direct relation to the present value of expected gross profits of the related annuity contracts, which is the same manner in which the related deferred acquisition costs are amortized. Like deferred acquisition costs, the unearned ceding commission will be adjusted retrospectively when changes are made to the current or future estimated gross profits. As the ceding commission is earned, the profit portion is recognized as commission income and the cost recovery portion is offset against the amortization of deferred acquisition costs. Normally, the Company plans to recover its acquisition cost and make its profit from the excess of investment income over interest credited and other expenses. If the policy is prematurely terminated, the Company may not fully recover its acquisition costs. However, if the risk is coinsured, premature termination will accelerate recognition of the unearned ceding commission. Ancillary Products The Company expanded its senior oriented product line in 1993 with the addition of a Medicare supplement health insurance plan and an accelerated benefit life insurance product. The Company's Medicare supplement plan was specifically designed to attract female non-smokers, while the accelerated benefit plan was designed to provide a 100% acceleration of the death benefit upon the diagnoses of a 12 month terminal illness. Development and marketing efforts were quite extensive and cost over $630,000 during 1993. Following the introduction of the Medicare supplement product, this very competitive market became subject to much uncertainty, primarily attributed to the intense scrutiny placed on health care by federal and state governments. In addition, the promotion of Medicare HMOs put a significant strain on the Company's ability to compete effectively in this market. In December 1993, with expected premium volumes well below break-even levels, management withdrew the Medicare supplement policy from the market. To further reduce its exposure to future losses, in April 1994, the Company negotiated the sale of its in force Medicare supplement business to Old Surety Life Insurance Company. The accelerated benefit life product, while well received by some agents, did not generate significant interest in the marketplace and management withdrew the product from the market in December 1994. Results of Operations Premiums and policy fees increased $397,000, or 31.4%, to $1.7 million in 1995 from $1.3 million in 1994. This increase is primarily attributable to the surrender or conversion of annuity policies. As these transactions take place, the Company earns fees from surrender charges and premium income from conversion to policies with life-contingent settlement options. Premiums and policy fees decreased $162,000, or 11.4%, to $1.3 million in 1994 from $1.4 million in 1993. This decrease is attributed to the reduction in premiums on the Medicare Supplement business following withdrawal of the product from the market. 19 Net investment income increased $.8 million, or 7.9%, to $11.6 in 1995 from $10.8 million in 1994, due primarily to the 8.5% growth of the weighted average portfolio base. This increase was partially offset by a slight decline in the average yield. Net investment income increased $.7 million, or 7%, to $10.8 in 1994 from $10.1 million in 1993, due to growth in the portfolio asset base. The increase from asset growth was mitigated, however, by a decline in the average yield on the portfolio from 7.9% in 1993 to 7.4% in 1994. The average yield decline resulted from amortization/accretion adjustments required by revised CMO cash flow estimates utilized in projecting amortization/accretion of bond premium/discount. Realized investment gains (losses) increased $1.4 million, or 414.1%, to $1.1 million in 1995 from $(0.3) million in 1994. The 1995 gains are primarily the result of the following: a). a gain of $242,000 resulting from the merger of Jupiter Tequesta National Bank ("JNB") into First United Bancorp ("FUB") in which the Company received cash and shares of FUB in exchange for the Company's shares of Jupiter TNB, b). a gain of $132,000 from the settlement of a litigation matter related to an investment that was written off several years ago, and c). gains of approximately $716,000 resulting from a program to reduce its investment in CMO type securities. Realized investment gains (losses) decreased $2.0 million, or 120.9%, to $(0.3) million in 1994 from $1.7 million in 1993. This decrease is the combined result of the stabilization of market interest rates (which resulted in fewer security trades needed to maintain balance between the investment portfolio and the related policyholder liabilities) and recognition of a loss of $1.3 million to adjust the cost basis of an investment in the common stock of an affiliate to reflect its current market trading range. Management believes the decline in market value of this investment is other than temporary. Commission and other income increased $0.1 million, or 15.9%, to $0.9 million in 1995 from $0.8 million in 1994. This increase is primarily due to the increasing service fees on the growing block of reinsured policies. This increase in service fee income is partially off-set by the reduction of reinsurance commission income related to Medicare supplement and accelerated life products which were discontinued in 1994. Commission and other income decreased $1.3 million, or 61.9%, to $0.8 million in 1994 from $2.1 million in 1993. Commission income makes up the majority of this item and relates to compensation for the Company's sales and distribution system received from its coinsurer. This change is primarily the result of the change in the timing of the recognition of the ceding commission income from the specific ceding date to recognition over the life of the related annuity contract. Current and future insurance benefits increased $0.2 million, or 34.0%, to $0.9 million in 1995 from $0.7 in 1994. This increase reflects the combined impact of the discontinuation of the Medicare supplement and accelerated life products in 1994 and the increasing value of the life contingent polices (primarily due to interest) issued as annuity settlement options. Current and future insurance benefits increased only $26,000, or 4.0%, to $0.68 million in 1994 from $0.65 million in 1993. The increase is attributed to benefits recorded for the Medicare supplement and accelerated benefit life products introduced and sold during 1993 and 1994. 20 Interest on investment contracts increased $0.5 million, or 5.8%, to $9.6 in 1995 from $9.1 million in 1994. While the weighted average crediting rate continued to decline in 1995, the weighted average policy reserve balance increased approximately 6.9% over 1994. Interest on investment contracts increased $0.4 million, or 4.5%, to $9.1 in 1994 from $8.7 million in 1993. The increase in interest on investment contracts of 4.2% in 1994 compared to 1993 is attributed to the growth of investment contracts inforce. Partially off-setting this increase, the weighted average crediting rate for investment contract deposits declined from 6.5% in 1993 to 6.0% in 1994, as credited rates on contracts issued in 1993 and 1992 were renewed in the 4% to 5% range. Underwriting, acquisition and insurance expenses decreased $0.3 million in 1995, or 6.9%, to $4.3 million in 1995 from $4.6 million in 1994. This cost reduction is primarily the result of the reduction of promotional expenses supporting the discontinued Medicare Supplemental and Accelerated Benefit Life products and the disposal cost of the remaining Medicare Supplemental policies which were incurred in 1994. Also, based on the Company's actual experience, there was some slowing of the amortization of deferred acquisitions costs in 1995. Underwriting, acquisition and insurance expenses increased $0.9 million, or 16.1%, to $4.6 in 1994 from $5.6 million in 1993. The decrease of 15.9% in 1994 compared to 1993 is attributed to cost savings in printing and postage for agent recruiting, coupled with a significant decrease in product development expenses. The 1993 development of Medicare Supplement and Accelerated Benefit Life products generated over $630,000 of expenses which did not recur in 1994. Other expenses decreased $0.1 million, or 9.3%, to $0.9 million in 1995 from $1.0 million in 1994. This cost reduction is primarily related to the 1994 provision of an allowance on a receivable described below. Other expenses increased $0.2 million in 1994, or 32.4%, to $1.0 million in 1994 from $0.8 million in 1993. This category consists of interest expense on the $8.0 million secured subordinated debenture and amortization on the cost in excess of net assets of businesses acquired asset. Effective December 1, 1994, management revised the estimated life of the cost in excess of net assets of businesses acquired asset from 40 to 20 years. As a result of this revision, the remaining unamortized balance of the cost in excess of net assets of businesses acquired asset will be amortized over approximately 13 years, and the 1994 amortization was increased by $13,000. In 1994, other expenses also includes an allowance of $237,000 against a reduction of the original purchase cost of Investors. The former owner of Investors is currently under state supervision and it is unclear whether any of this purchase price reduction will be realized. Income taxes decreased $0.3 million, or 168.7%, to $(0.1) million in 1995 from $0.2 million in 1994. The Company maintains a 100% allowance against its net deferred tax assets until the realization of such assets is more readily determinable. Therefore, the tax expense balances shown reflect only the current tax incurred by Investors. Investors' reinsurance transaction with New Era Life Insurance Company, which was recognized in its 1995 statutory basis financial statements, created a tax loss which can be carried back to prior tax years. While the Company can consolidate its life and non-life subsidiaries in 1995, the non-life tax losses can not be used to carryback 21 against prior year returns. These non-life losses will be available for carryforward in future years. However, the "change in control" that could result from the issuance of the preferred stock to new investors as discussed below could substantially reduce the Company's ability to utilize its non-life loss carryforwards. Income taxes decreased $0.2 in 1994, or 54.0%, to $0.2 million in 1994 from $0.4 million in 1993. Net loss decreased $6.6 million, or 94.6%, to $0.4 in 1995 from $7.0 million in 1994. This decrease is primarily due to the change in accounting in 1994 and the change in realized investment gains (losses). Net loss increased $6.1 million, or 813.6%, to $7.0 million in 1994 from $0.9 in 1993. The increase in loss from 1993 to 1994 is primarily attributable to the change in accounting related to the timing of the recognition of ceding commission income and the recognition of the unrealized loss on the common stock of an affiliate. Liquidity and Capital Resources The Company is an insurance holding company whose principal asset is the common stock of Investors. The Company's primary cash requirements are to meet debt service and to pay operating expenses. As a holding company, the Company relies on funds received from Investors in the form of commissions paid under a management and service agreement whereby the Company provides agent recruiting and administrative services. The insurance laws of the State of Delaware generally limit the ability of Investors to pay cash dividends in excess of certain amounts without prior regulatory approval and also require that certain agreements relating to the payment of fees and charges to the Company by Investors be approved by the Delaware Insurance Department. As reflected in the parent only statement of cash flows in Note 9 to the Company's financial statements, the parent company's cash flow from operations has been insufficient to meet its operating needs for several years. In prior years, IIG met this cash drain by liquidating its other investments. If this cash drain continues at the level it experienced in 1995, there is substantial doubt that IIG can continue to meet its obligations on a timely basis without an additional source of funds. While not available at this time, the Company is currently trying to develop new sources of cash (see discussion below). On March 31, 1997, the Company will need to retire its $ 8 million note payable which is secured by its shares of IIC, Inc. which owns all the outstanding shares of Investors. This note originated as part of the purchase of IIC, Inc and its subsidiary Investors. As described more fully in Note 6 to the Company's financial statements, the Company believes the balance of the note is overstated because certain warranties made by seller were false. Subsequent to the purchase, the seller (an insurance company), attempted to transfer the non-negotiable note to another insurance company. Thereafter, both insurance companies went into rehabilitation, one in Pennsylvania and the other in Delaware. At this time, the Company cannot negotiate an appropriate adjustment to the note amount since both Pennsylvania and Delaware claim ownership. The Company plans to refinance this note or raise sufficient capital to retire it, but no assurance can be given that this will be accomplished. The liquidity needs of Investors are met by premiums received from annuity sales, net investment income received, the proceeds from investments upon 22 maturity, sale or redemption and commissions received from its coinsurer on annuity contracts transferred. The primary uses of funds by Investors are the payment of surrenders, policy benefits, operating expenses and commissions, and the purchase of assets for investment purposes. No material capital expenditures are planned. Investors tests the ability of its investment portfolio to fund its liability to its policyholders under several possible future interest rate environments. The results of these tests are used by the state regulatory authorities to assess the adequacy of Investors' stated liabilities. Based on the results of these tests, no adjustments to the stated liability have been required. The NAIC has established risk-based capital standards to determine the capital requirements of a life insurance company based on the type and mixture of risks inherent in its operations. These standards require the computation of a risk-based capital amount which is then compared to a company's actual total adjusted capital. The computation involves applying factors to various statutory financial data to address four primary risks: asset default, adverse insurance experience, interest rate risk and external events. These standards provide for regulatory attention when the percentage of total adjusted capital to authorized control level risk-based capital is below certain levels. At December 31, 1995, Investors percentage of total adjusted capital is well in excess of the ratios which would require regulatory action. Investors must maintain adequate statutory capital and surplus in order to continue producing annuity premium in the jurisdictions in which it is licensed. As discussed above, Delaware has expressed concern over Investors' ratio of capital and surplus to policyholder liabilities, which was approximately twenty to one at the end of 1994. At the end of 1995, as a result of the increase in the coinsurance rates and the New Era agreement, this ratio is less than fourteen to one, below Delaware's target of fifteen to one. Both California and Arizona (which together account for approximately 57% of Investors new business in 1995) have expressed concern about Investors' ability to continue writing new business unless its capital is substantially increased. Investors has agreed to arrange a capital infusion that would raise its statutory capital and surplus to $11 million by June 30, 1996 in order to continue writing new business in California. The Company signed a definitive agreement on April 29, 1996 with AAM Capital Partners, L. P. ("AAM") for the sale of up to $7,000,000 of convertible voting preferred stock (70,000 shares). This infusion of capital will be used to recapitalize IIG's insurance subsidiary, Investors Insurance Corporation. The insurance company will then be able to retain a larger portion of its profitable annuity business that is currently being ceded to a reinsurer. AAM has in-depth expertise of insurance operations and plans to help IIG utilize its marketing expertise in a number of new and expanding markets. AAM is an equity investment fund which participates in investments in the insurance industry. Under the terms of the agreement, which is scheduled to close on June 30, 1996, IIG's Board of Directors will expand to seven members. As separate groups, the owners of the preferred and common shares will each separately elect three directors. The remaining director will be elected by all the shareholders. Each preferred share will be convertible at any time into 100 shares of common stock or, after December 31, 2001, redeemable for $100 per share, plus accrued 23 dividends at the option of the holder. In conjunction with this agreement, IIG will exchange 250,000 restricted shares of its common stock for all of IIG's currently outstanding warrants to purchase 1,000,000 shares of common stock. These warrants are currently held by Chester County Fund, Inc., IIG's largest shareholder. In addition to the normal and customary contingencies, final closing of the agreement is subject to regulatory approval and the full subscription of AAM's coinvestor group. The Company's independent auditors have included an explanatory paragraph in their report on the Company's financial statements stating that the Company's significant operating losses, accumulated deficit and liquidity problems raise substantial doubt about the Company's ability to continue as a going concern. If this agreement closes as scheduled, management believes the resulting funds should be adequate to assure that both IIG and Investors can continue to operate in the normal course of business. If the agreement fails to close as scheduled, management will attempt to develop alternative plans to obtain the needed funds. However, there can be no assurance that this could be done in a timely or economical manner. Inflation and Changing Prices The Company does not believe that inflation has had a material effect on its consolidated results of operations. Interest rate changes may have temporary effects on the sales levels and profitability of the annuity products offered by the Company. For example, regardless of whether interest rates rise or fall, competing investment products (such as annuities offered by the Company's competitors, bank certificates of deposit and mutual funds) may temporarily become more attractive to potential customers. The Company constantly monitors interest rates with respect to a spectrum of durations and sells annuities that permit flexible responses to interest rate changes as part of its management of interest spreads. As required, the Company adjusts the rate credited to its policyholders to maintain its competitive position and to achieve its required interest spread. While the Company's CMO investment policy limits its investment in CMOs to low risk tranches (PACs, TACs, etc.), Delaware encouraged the Company to reduce its concentration in CMO investments. During 1995, it replaced several CMO investments and reduced the portion of CMO investment to approximately 57% of its bond portfolio as of December 31, 1995. The Company manages its investment portfolio in part to reduce its exposure to interest rate fluctuations. In general, the market value of the Company's fixed maturity portfolio increases or decreases in inverse relationship with fluctuations in interest rates, and the Company's net investment income increases or decreases in direct relationship to interest rate changes. For example, if interest rates decline, the Company's fixed maturity investments generally will increase in market value, while net investment income will decrease as fixed income investments mature or are sold and proceeds are reinvested at the declining rates, and vice versa. 24 Interest rate changes significantly effect the market value of the Company's investment portfolio. Since the Company carries most of its investments at market value, these changes, net of the related effects on the amortization of deferred acquisition cost and unearned commission, and the related deferred tax accounts, directly effect total shareholders' equity. New Pronouncements by the Financial Accounting Standards Board The FASB has issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets Being Disposed of," which provides guidance on how and when impairment losses are recognized on long-lived assets. This statement, when adopted, is not expected to have a material impact on the Company. SFAS No. 123, "Accounting for Stock-Based Compensation" was issued by FASB in October 1995. The accounting requirements of this Statement are effective for transactions entered into in fiscal years that begin after December 15, 1995. Disclosure requirements are also effective for fiscal year beginning after December 15, 1995 although pro-forma disclosure is required for all awards granted in fiscal years beginning after December 15, 1994. Disclosures for awards granted in the first fiscal year beginning after December 15, 1994 (i.e. 1995 awards) are not required in financial statements for that fiscal year but must be represented subsequently whenever financial statements for that fiscal year are presented for comparative purposes. SFAS No. 123 encourages all entities to adopt a fair value based method of accounting for all employee stock compensation plans. Under these fair value based method, compensation cost is measured at the grant date based upon the fair value (as defined by the Statement) of the award at that date and is recognized over the service period. Companies not electing to adopt this fair value based method may continue to account for these plans using the intrinsic value based method prescribed by APB Opinion No. 25, although they must make program disclosures of net income and earnings per share as if the fair value based method had been used. The Company intends to continue to account for employee stock compensation plans using APB No. 25 and will begin providing required pro forma disclosures in 1996. _________________________________________________ Caution on Forward-Looking Statements The 1995 Private Securities Litigation Reform Act provides issuers the opportunity to make cautionary statements regarding forward-looking statements. Accordingly, any forward-looking statement contained herein or in any other oral or written statement by the Company or any of its officers, director or employees is qualified by the fact that actual results of the Company may differ materially from such statement due to the following important factor, among other risks and uncertainties inherent in the Company's business: Prevailing interest rate levels, including any continuation of the current relatively flat yield curve for short-term investments, which may affect the ability of the Company to sell its products, the market value of the Company's investments or the lapse rate of the Company's policies, notwithstanding product design features intentioned to enhance persistency of the Company's products. 25 Changes in the federal income tax laws and regulations which may affect the relative tax advantage of the Company's products. Changes in the regulation of financial services, including bank sales of insurance products, which may affect the competitive environment for the Company's products. 26 Item 8. Financial Statements and Supplementary Data INVESTORS INSURANCE GROUP, INC. AND SUBSIDIARIES TABLE OF CONTENTS Page ---- INDEPENDENT AUDITORS' REPORTS 27-28 FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993: Consolidated Balance Sheets 29-30 Consolidated Statements of Operations 31-32 Consolidated Statements of Shareholders' Equity and Capital Deficit 33 Consolidated Statements of Cash Flows 34-35 Notes to Consolidated Financial Statements 36-59 Unaudited Consolidated Quarterly Financial Data 60 SCHEDULES OF THE REGISTRANT: (A) Schedule II - Condensed Financial Information of Registrant (incorporated in Note 9 of Notes to Consolidated Financial Statements) SCHEDULES OF THE REGISTRANT AND CONSOLIDATED SUBSIDIARIES: (A) Schedule I - Summary of Investments 61 (B) Schedule IV - Reinsurance (incorporated in Note 5 of Notes to Consolidated Financial Statements) 27 Report of Independent Certified Public Accountants The Board of Directors Investors Insurance Group, Inc. and Subsidiaries Jacksonville, Florida We have audited the accompanying consolidated balance sheet of Investors Insurance Group, Inc. and Subsidiaries as of December 31, 1995 and the related consolidated statements of operations, shareholders' equity (capital deficit) and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Investors Insurance Group, Inc. and Subsidiaries at December 31, 1995 and the results of their operations and their cash flows for the year then ended in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As described in Note 1 to the financial statements, the Company has experienced significant operating losses, has an accumulated deficit and is experiencing liquidity problems at December 31, 1995. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. BDO Seidman, LLP Orlando, Florida May 3, 1996 28 Independent Auditors' Report ---------------------------- The Board of Directors and Stockholders Investors Insurance Group, Inc. and Subsidiaries: We have audited the consolidated balance sheet of Investors Insurance Group, Inc. and subsidiaries as of December 31, 1994, and the consolidated statements of operations, shareholder's equity, and cash flows for the years ended December 31, 1994 and 1993. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform our audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Investors Insurance Group, Inc. and subsidiaries as of December 31, 1994, and the results of their operations and their cash flows for the years ended December 31, 1994 and 1993, in conformity with generally accepted accounting principles. As discussed in Note 1 to the consolidated financial statements, the Company adopted the provisions of the Financial Accounting Standard Board's Statement of Financial Accounting Standard No. 115 "Accounting for Certain Investments in Debt and Equity Securities." and changed its method of accounting for excess ceding commissions. Jacksonville, Florida June 30, 1995 29 INVESTORS INSURANCE GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1995 AND 1994 (Dollars in thousands) ASSETS 1995 1994 ---- ---- Investments: Fixed maturities held to maturity, at amortized cost (market $10,556 in 1995 and $8,957 in 1994) $ 9,504 $ 9,509 Securities available for sale: Fixed maturities, at market in 1995 (amortized cost $141,474 in 1995 and $144,426 in 1994) 149,231 132,025 Equity securities, at market (cost $339 in 1995 and $407 in 1994) 366 662 Short-term investments 356 312 Mortgage loans on real estate 564 648 Policy loans 598 590 -------- -------- Total 160,619 143,746 Cash and cash equivalents 11,372 3,530 Investment in common stock of affiliate, at market (costs $992 in both 1995 and 1994) 803 874 Accrued investment income 1,090 999 Deferred acquisition costs 42,468 45,405 Investment contract benefits recoverable 351,489 262,058 Reinsurance benefits recoverable 2,438 1,069 Cost in excess of net assets of businesses acquired (less accumulated amortization of $1,014 in 1995 and $738 in 1994) 3,666 3,942 Other assets 541 418 -------- -------- Total Assets $574,486 $462,041 ======== ======== See notes to consolidated financial statements. 30 INVESTORS INSURANCE GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Continued) DECEMBER 31, 1995 AND 1994 (Dollars in thousands) LIABILITIES AND SHAREHOLDERS' EQUITY (CAPITAL DEFICIT) 1995 1994 ---- ---- Liabilities: Future policy benefits and claims: Investment contracts $511,315 $422,937 Life insurance reserves 7,189 5,325 Accident & health claim reserves 5 11 Unearned ceding commission (including deferred gross profits of $7,031 in 1995 and $6,959 in 1994) 38,062 36,755 Note payable 8,000 8,000 Amounts due to coinsurer 5,998 2,988 Accrued expenses 250 267 Other liabilities 2,239 2,076 -------- -------- Total 573,058 478,359 -------- -------- Commitments & Contingencies Shareholders' Equity (Capital Deficit): Preferred Stock, no par, authorized 20,000,000 shares, none issued - - Common Stock, $.50 par value; authorized 30,000,000 shares; issued 2,767,782 in 1995 and 2,766,982 in 1994; outstanding 2,763,782 in 1995 and 2,766,982 in 1994 1,384 1,383 Additional paid-in capital 3,651 3,651 Net unrealized investment gains (losses) 7,083 (11,051) Accumulated deficit (10,682) (10,301) Treasury stock, at cost (4,000 shares in 1995) (8) - ------- ------- 1,428 (16,318) ------- ------- Total Liabilities and Shareholders' Equity (Capital Deficit) $574,486 $462,041 ======== ======= See notes to consolidated financial statements. 31 INVESTORS INSURANCE GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (Dollars in thousands, except per share data) 1995 1994 1993 Revenue: ---- ---- ---- Premium and policy fees $ 1,660 $ 1,263 $ 1,425 Net investment income 11,598 10,751 10,052 Realized investment gains (losses) 1,090 (347) 1,661 Commission and other income 912 786 2,130 -------- -------- -------- Total revenue 15,260 12,453 15,268 Benefits and Expenses: Current and future insurance benefits 915 680 654 Interest on investment contracts 9,614 9,085 8,722 Underwriting, acquisition and insurance expenses 4,326 4,645 5,623 Other expenses 922 1,016 767 ------ ------ ------ Total benefits and expenses 15,777 15,426 15,766 ------ ------ ------ Loss before income taxes (517) (2,973) (498) Income tax expense (benefit) (136) 198 366 ------ ------ ------ Loss before cumulative effect of change in accounting principle (381) (3,171) (864) Cumulative effect to December 31, 1993 of changing to a different method of recognizing ceding commission income - (3,859) - ------ ------- ------- Net loss $ (381) $(7,030) $ (864) ====== ====== ======= See notes to consolidated financial statements. 32 INVESTORS INSURANCE GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Continued) YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (Dollars in thousands, except per share data) 1995 1994 1993 ---- ---- ---- Per Share of Common Stock: Loss before cumulative effect of change in accounting principle $ (0.14) $ (1.15) $ (0.31) Cumulative effect to December 31, 1993 of changing to a different method of recognizing ceding commission income - (1.39) - ------- ------- ------- Net loss $ (0.14) $ (2.54) $ (0.31) ======== ========= ======== Weighted Average Number of Shares Outstanding 2,764,205 2,766,982 2,766,982 ========= ========= ========= Pro forma amounts assuming the new ceding commission recognition method is applied retroactively: Net loss $ (3,172) $ ( 2,518) ============ ========== Net loss per share of common stock $ (1.15) $ (0.91) ======== ========== See notes to consolidated financial statements. 33 INVESTORS INSURANCE GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (CAPITAL DEFICIT) YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (Dollars in thousands) Common Stock Net -------------- Additional unrealized Number of Paid-in investment Accumulated Treasury shares Amount capital gains (losses) deficit stock --------- ------- ------- ------------- --------- ------- Balance at January 1, 1993 2,831,482 $ 1,417 $ 3,657 $ (1,299) $ (2,407) $ (40) Retirement of treasury shares (52,926) (26) (5) - - 31 Change in net unrealized losses - - - 121 -- Net loss - - - - (864) - --------- ------- ------- --------------- --------- ------- Balance at December 31, 1993 2,781,556 1,391 3,652 (1,178) (3,271) (9) Cumulative effect of change in accounting principle regarding fixed maturity securities - - - 2,540 - - Retirement of treasury shares (14,574) (8) (1) - - 9 Change in net unrealized losses - - - (12,413) - - Net loss - - - - (7,030) - --------- ------- ------- --------------- --------- ------- Balance at December 31, 1994 2,766,982 1,383 3,651 (11,051) (10,301) - Treasury shares purchased - - - - - (8) Common shares issued 800 1 - - - - Change in net unrealized losses - - - 18,134 - - Net Loss - - - - (381) - --------- ------- ------- --------------- --------- ------- Balance at December 31, 1995 2,767,782 $1,384 $3,651 $ 7,083 $(10,682) $ (8) ========= ======= ======= =============== ========= ======= See notes to consolidated financial statements. 34 INVESTORS INSURANCE GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (Dollars in thousands) 1995 1994 1993 ---- ---- ---- Cash flows from operating activities: Net loss $ (381) $ (7,030) $ (864) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Cumulative effect to December 31, 1994 of changing to a different method of recognizing ceding commission income - 3,859 - Net accretion of fixed maturities (594) (535) (565) Realized investment losses (gains) (1,112) 347 (1,661) Amortization of costs in excess of net assets of businesses acquired 288 140 127 Amortization of deferred acquisition costs 1,351 1,610 1,779 Amortization of unearned ceding commissions (230) (255) - Deferral of unearned ceding commission 12,420 12,776 - Deferred acquisition costs recovered upon transfer of investment contract - - 7,437 of investment contract deposits Deferral of acquisition costs (11,038) (12,724) (9,348) Change in assets and liabilities: Increase in investment contract benefits recoverable (18,899) (12,405) (8,649) Increase in insurance reserves and interest on investment contracts 30,190 21,880 18,199 Increase in other assets, net (1,595) (21) (812) Increase in other liabilities, net 3,159 1,263 661 ------- ------- ------ Net cash provided by operating activities 13,559 8,905 6,305 ------- ------- ------ Cash flows from investing activities: Investment repayments: Fixed maturities, held to maturity - - 250 Fixed maturities, available for sale - - 283 Mortgage loans 84 514 472 Policy loans, net (9) 128 110 Investments sold: Fixed maturities, available for sale 75,751 36,807 26,572 Equity securities 793 - - Investments in: Fixed maturities, held to maturity - (500) (1,510) Fixed maturities, available for sale (71,471) (60,537) (37,051) Equity securities (343) - (11) Short-term investments, net (44) 42 3,443 -------- -------- -------- Net cash provided by (used in) investing activities 4,761 (23,546) (7,442) -------- -------- -------- See notes to consolidated financial statements. 35 INVESTORS INSURANCE GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (Dollars in thousands) 1995 1994 1993 ---- ---- ---- Cash flows from financing activities: Investment contract deposits $ 107,214 $124,263 $ 96,256 Investment contract withdrawals (47,168) (27,363) (21,902) Investment contract funds transferred (99,960) (101,479) (75,048) Investment contract funds recovered 29,443 14,177 8,064 Treasury stock purchased (8) - - Common stock issued 1 - - --------- --------- --------- Net cash provided by (used in) financing activities (10,478) 9,598 7,370 ---------- --------- -------- Net increase (decrease) in cash and cash equivalents 7,842 (5,043) 6,233 Cash and cash equivalents, beginning of year 3,530 8,573 2,340 --------- -------- -------- Cash and cash equivalents, end of year $ 11,372 $ 3,530 $ 8,573 ======== ========== ======= Supplemental disclosure of cash flow information: Cash paid during the year for: Interest $ 640 $ 640 $ 640 Income taxes 30 487 147 See notes to consolidated financial statements. 36 INVESTORS INSURANCE GROUP, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995 (1) SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation: The accompanying consolidated financial statements of Investors Insurance Group, Inc. ("IIG") and subsidiaries ("the Company") are prepared in accordance with generally accepted accounting principles ("GAAP"). All significant intercompany items have been eliminated in consolidation. IIG was incorporated under the laws of the State of Florida on May 11, 1993, and is the successor corporation of the former Gemco National, Inc. ("Gemco"), a New York corporation founded in 1966. The change in corporate identity was approved by Gemco's shareholders at the Annual Meeting of Shareholders on June 11, 1993. The actual change was accomplished by the merger of Gemco into a new Florida corporation, Investors Insurance Group, Inc., on September 1, 1993. The Company operates predominantly in the life insurance industry, with its primary product emphasis on the sale of flexible premium deferred annuities. All of the Company's insurance operations are conducted through Investors Insurance Corporation ("Investors"), which was organized in 1957 and is licensed to sell life, annuity and health insurance in 21 states. Another subsidiary, IIC, Inc., is an insurance holding company and is the direct parent of Investors. Investors Marketing Group, Inc. ("IMG") was formed in June of 1994 to market annuities for a select group of unaffiliated life insurance companies. A former subsidiary, IICAM, Inc., was dissolved in 1993 and its operating function of providing marketing management and agent recruiting services for Investors was assumed by IIG. The dissolution of IICAM, Inc. had no significant effect on the consolidated financial statements of the Company. Going Concern Consideration: The Company's financial statements are presented on the going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Delaware insurance law and regulations restrict Investors ability to pay dividends or enter into other arrangements with IIG, while at the same time the Note Payable (see Note 6) requires IIG to pay interest. In prior years, IIG met this cash drain by liquidating its other investments. If this cash drain continues at the level it experienced in 1995, there is substantial doubt that IIG can continue to meet its obligations on a timely basis without an additional source of funds. At the same time, the successful product marketing efforts of Investors have increased its need for capital which it has agreed to raise. The combined impacts of these forces require the Company to raise additional funds. As described more fully in Note 11, the Company has signed an agreement to issue preferred stock in exchange for up to $7,000,000. While the agreement is subject to certain contingencies, if it closes as scheduled, the Company believes the resulting funds should be adequate to assure that both IIG and Investors can continue operating in the normal course of business. If the agreement fails to close as scheduled, management will develop alternative plans to obtain the needed funds. However, there can be no assurance that 37 this could be done in a timely or economical manner. The accompanying financial statements do not include any adjustments to reflect the possible future effects that may result from the inability of the Company to continue as a going concern. Investments: Fixed-maturity investments are securities that mature at a specified future date more than one year after being issued. Fixed-maturity securities that the Company intends to hold until maturity are classified as "held to maturity" and are carried at amortized cost. Amortized cost is based on the purchase price and is adjusted periodically in order that the carrying value will equal the face or par value at maturity. Fixed-maturity securities which may be sold prior to maturity due to changes in interest rates, prepayment risks, liquidity needs, tax planning purposes or other similar factors, are classified as "available for sale." On January 1, 1994, the Company adopted Statement of Financial Accounting Standard ("FSAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities," which requires that fixed-maturity securities classified as available for sale be reported at market value. Prior to SFAS No. 115, such securities were carried at the lower of aggregate cost or market. The difference between the aggregate carrying value for fixed maturities available for sale and the aggregate amortized cost of such securities, is reported, net of the related impacts on the amortization of deferred acquisition costs, unearned ceding commission and deferred income taxes, as a separate component of shareholders' equity. Premiums and discounts related to mortgage based investments are amortized based on expected prepayments. As differences arise between actual and expected prepayments, the effective yield is recalculated to reflect the actual prepayments to date and anticipated future prepayments. The net investment is then adjusted to the amount that would have existed had the new effective yield been applied since its acquisition. Equity securities (common stocks) are carried at current market value. If the current market value of equity securities is higher than the purchase cost, the excess is an unrealized gain, and if lower than cost and the decline is temporary, the difference is an unrealized loss. The net unrealized gains or losses on equity securities, net of the related impacts on the amortization of deferred acquisition costs and deferred income taxes, are reported in a separate component of shareholders' equity, along with the net unrealized gains or losses on fixed-maturity securities available for sale. Short-term investments are carried at cost, which approximates market value. These investments consist of highly liquid investments with maturities of one year or less from date of purchase. Mortgage loans on real estate and policy loans are carried at their unpaid balances. The mortgage loans are secured by the underlying real estate. Policy loans are fully collateralized by the related policy's cash value. Net realized investment gains and losses are included in the determination of net earnings. If a decline in the market value of an individual investment is considered to be other than temporary, the difference between amortized book value and net realizable value is recorded as a realized investment loss. The cost of investments sold is determined using the specific identification basis. 38 Cash Equivalents: Cash equivalents consist of highly liquid investments with maturities of three months or less at the date of purchase. Deferred Acquisition Costs: Costs which vary with and are primarily related to the acquisition of new business have been deferred to the extent that such costs are deemed recoverable through future earnings. These costs include commissions and certain expenses related to policy issuance, underwriting and marketing. For traditional life products, deferred acquisition costs ("DAC") are amortized with interest over the premium paying period in proportion to the ratio of anticipated annual premium revenue to the anticipated total premium revenue. DAC for universal life and annuity contracts is amortized in relation to the present value of expected gross profits on the products. Retrospective adjustments of these amounts are made when the Company revises its estimates of current or future gross profits to be realized from a group of policies, including both realized and unrealized investment gains and losses related to changes in market interest rates for those investments segmented against interest sensitive liabilities. Anticipated investment income is considered in the determination of recoverability of deferred acquisition costs. (see below - Change in Accounting for Ceding Commissions) Cost in Excess of Net Assets of Businesses Acquired: Cost in excess of net assets of businesses acquired relates to IIG's acquisition of IIC and Investors in 1989. Prior to December 1, 1994, this balance was being amortized over 40 years on the straightline method. As of December 1, 1994, management changed its amortization estimate for this asset to a total of 20 years and revised the amortization schedule accordingly. The Company determines the recoverability of cost in excess of net assets of businesses acquired by ensuring that the gross profit stream, after recovering DAC, exceeds the balance of this asset. Future Policy Benefits and Claims: The liability for future policy benefits for traditional life insurance products has been computed based upon mortality, lapse and interest assumptions applicable to these coverages, including provision for adverse deviations. Interest rates range from 3.00% to 9.25%. Mortality, morbidity and withdrawal rate assumptions are based on the experience of the Company and are periodically reviewed against industry standards and experience. With respect to investment contracts, the Company uses the retrospective deposit accounting method. Future policy benefits represent the premium deposits received plus accumulated interest, less mortality and administration charges. Interest credited to these contracts ranged from 4.0% to 12.0% during 1995, 4.15% to 12.0% during 1994 and 5.0% to 8.0% during 1993. Accident & health reserves and claims represent amounts recorded to pay claims received on various accident & health policies in force and an allowance for premiums received but not yet earned on such policies. 39 Participating Policies: A portion of the life insurance business in force is participating policies. The provision for the policyholders' dividend liability, based on dividend scales contemplated when the policies were issued, is included in the liability for policy reserves. Dividends are determined annually and are payable only upon declaration by the Board of Directors. Coinsurance Accounting: The Company coinsures portions of its life insurance and annuity contract exposure under traditional coinsurance arrangements. Generally, the Company enters into these arrangements to assist in diversifying its insurance and investment risks and to manage its statutory capital and surplus. The Company's liability for Future Policy Benefits and Claims includes amounts that are recoverable under these coinsurance agreements. Recoverable amounts related to the transfer of insurance risks are presented as Reinsurance Benefits Recoverable; Recoverable amounts related to the transfer of investment risks represented as Investment Contract Benefits Recoverable. (see below - Change in Accounting for Ceding Commissions) Amounts received from, or paid to, the coinsurer for Interest Credited on Investment Contracts and surrender fees are offset against the related expense and revenue accounts in the Statement of Earnings. Recognition of Insurance Revenues: Traditional life insurance premiums are recognized as revenue over the premium-paying period, adjusted for premiums due and advance premiums. Policy fee revenue includes surrender, mortality and administrative charges earned on annuity, universal life and other contracts. The Company receives a commission on the transfer of investment contracts risk to the coinsurer. This commission is compensation for the Company's annuity sales and distribution system that originated the contracts. The Company has no future obligation with respect to this commission and, prior to January 1, 1994, the portion representing excess ceding commission was recognized in earnings and the portion representing recovery of acquisition expenses was charged to deferred acquisition costs when the risk was transferred to the coinsurer. As discussed below under Change in Accounting for Ceding Commissions, after 1993, these commissions are deferred and recognized in earnings in proportion to the earnings generated directly from the related annuity contracts (without consideration of the impact of the coinsurance agreement). Federal Income Taxes: Currently, IIG and its non-life subsidiaries file a consolidated federal income tax return. Beginning in 1995, Investors may be included in this consolidated return. Life insurance companies with total assets less that $500 million are allowed a deduction which is not available to larger life companies. As a "small" life insurance company, 60% of the first $3 million of "life insurance company taxable income" is deductible. This deduction phases out on a pro-rata basis 40 as income increases from $3 million to $15 million. The Company uses the asset and liability method of accounting for income tax expense prescribed by SFAS No. 109, "Accounting for Income Taxes." Under this method of accounting, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. Deferred tax assets are recorded net of the applicable valuation allowance. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Net Income (Loss) per Common Share: Net income (loss) per common share is based on the weighted average number of shares and share equivalents outstanding during the year. Change in Accounting for Ceding Commission: As the Company sells an annuity contract, it cedes a significant portion of the resulting investment risk and benefit to another insurance company under a coinsurance agreement. Similar to an insurance agency, the Company receives a commission from the coinsurer to compensate it for its sales and distribution efforts. Any excess of this ceding commission over the related policy acquisition cost is profit to the Company. The Company's right to this commission is in no way contingent; other than the risk of default on the part of the coinsurer, the Company has no further potential for profit or loss from the portion of the business ceded. Prior to January 1, 1994, the Company used an accounting policy that recognized the earnings process as completed when these investment risks and benefits were ceded. Thus, the related excess ceding commissions were recognized at the time of receipt of the ceding commission. Under the provisions of Statement of Financial Accounting Standards (SFAS) No. 113, "Accounting and Reporting for Reinsurance of Short-Duration and Long- Duration Contracts", excess ceding commissions of an insurance company resulting from ceding insurance risks (as specifically defined) are recognized over the life of the related insurance policy, rather than as the risk is ceded. SFAS No. 113 provides specific accounting guidance for accounting for the excess ceding commissions that result from the transfer of insurance risks. For other types of arrangements where insignificant amounts of insurance risk is transferred, such as the Company's coinsurance of its annuity contracts, SFAS No. 113 simply specifies "deposit accounting" and does not provide specific guidance for applying this method of accounting. Many insurance companies have adopted a type of "deposit accounting" very similar to the accounting specified for insurance risks: excess ceding commissions are recognized over the life of the related contracts. In view of this emerging consensus, and in the interest of comparability of its financial statements with those of other insurance companies, the Company has decided to adopt this approach to accounting for its excess ceding commissions. Under the prior accounting method, as investment risks were ceded, the deferred acquisition costs related to the annuity contracts were reduced by the portion of the costs recovered through the ceding commission; the 41 remaining excess ceding commission was recognized as revenue in the period the investment risks and benefits were transferred. Under the new accounting method, which was retroactively adopted effective January 1, 1994, the deferred acquisition costs related to the annuities are not reduced; the full ceding commission, including the excess ceding commissions and the recovery of the annuity acquisition costs, is treated as unearned income. This unearned ceding commission is treated as earned in direct relation to the present value of expected gross profits of the related annuity contracts, which is the same manner in which the related deferred amortization costs are amortized. Like deferred acquisition costs, the unearned ceding commission will be adjusted retrospectively when changes are made to the current or future estimated gross profits. As the ceding commission is earned, the excess ceding commission is recognized as commission income and the cost recovery portion is offset against the amortization of deferred acquisition costs. The cumulative effect of this change in accounting practice, $3.8 million as of January 1, 1994, has been included as a adjustment to earnings for the year ended December 31, 1994. Fair Value of Financial Instruments: Statement of Financial Accounting Standards No. 107, "Disclosures about Fair Value of Financial Instruments," requires disclosure of fair value information about financial instruments. Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of December 31, 1995. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values. These financial instruments include cash and cash equivalents, accrued investment income and accrued expenses. Fair values were assumed to approximate carrying values for these financial instruments since they are short term in nature and their carrying amounts approximate fair values or they are receivable or payable on demand. The fair value of the Company's investment securities were based on quoted market values, if available. If quoted market prices were not available, fair values were estimated using quoted market prices for similar securities. Since the ultimate cash flow related to the note payable is not determinable, calculation of its theoretical market value is not practicable. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of he financial statements and the reported amounts of revenues and expense during the reporting period. Actual results could differ from those estimates. New Financial Accounting Standards: The FASB has issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets Being Disposed of," which provides guidance on how and when impairment losses are recognized on long-lived assets. This statement, when adopted, is not expected to have a material impact on the Company. 42 SFAS No. 123, "Accounting for Stock-Based Compensation" was issued by FASB in October 1995. The accounting requirements of this Statement are effective for transactions entered into in fiscal years that begin after December 15, 1995. Disclosure requirements are also effective for fiscal year beginning after December 15, 1995 although pro-forma disclosure is required for all awards granted in fiscal years beginning after December 15, 1994. Disclosures for awards granted in the first fiscal year beginning after December 15, 1994 (i.e. 1995 awards) are not required in financial statements for that fiscal year but must be represented subsequently whenever financial statements for that fiscal year are presented for comparative purposes. SFAS No. 123 encourages all entities to adopt a fair value based method of accounting for all employee stock compensation plans. Under the fair value based method, compensation cost is measured at the grant date based upon the fair value (as defined by the Statement) of the award at that date and is recognized over the service period. Companies not electing to adopt this fair value based method may continue to account for these plans using the intrinsic value based method prescribed by APB Opinion No. 25, although they must make program disclosures of net income and earnings per share as if the fair value based method had been used. The Company intends to continue to account for employee stock compensation plans using APB No. 25 and will begin providing required pro forma disclosures in 1996. Reclassification: Certain amounts in the 1994 and 1993 financial statements have been reclassified to conform with the 1995 presentation. 43 (2) INVESTMENTS ----------- The amortized cost and fair values of fixed maturity and equity investments as of December 31 are summarized as follows (in thousands): Gross Gross Amortized Unrealized Unrealized Fair Cost Gain Loss Value --------- ------ -------- ------- 1995: Held to maturity: U.S. Treasury obligations $ 9,004 $1,052 $ - $ 10,056 Progress Financial Corporation 500 - - 500 Available for sale: Securities issued by U.S. Government agencies and authorities 141,474 7,791 34 149,231 Equity securities 339 27 - 366 --------- ------ ------- -------- 151,317 8,870 34 160,153 1994: --------- ------ ------- -------- Held to maturity: U.S. Treasury obligations $ 9,009 $ - $ 552 $ 8,457 Progress Financial Corporation 500 - - 500 Available for sale: Securities issued by U.S. Government agencies and authorities 144,426 - 12,401 132,025 Equity securities 407 255 - 662 --------- ------ ------- -------- Total $154,342 $ 255 $12,953 $141,644 ========= ====== ======= ======== Fair values for investments are based on quoted market prices, except for the common stock of Jupiter Tequesta National Bank ("Jupiter") in 1994. Jupiter was a small local bank located in Jupiter, Florida whose stock was not actively traded on any major exchange. Prior to December 31, 1994, Jupiter's fair value was considered to be its purchase cost which approximated the book value of its shares. The fair value at December 31, 1994 was based upon a definitive agreement of sale with 1st United Bancorp ("FUB") of Boca Raton, Florida, whereby FUB acquired all the outstanding stock of Jupiter in 1995. The purchase price, which translates to approximately $16.36 per share, was used as the fair value at December 31, 1994. The sale was completed in April 1995. In a 1994 private placement, the Company purchased a $500,000 redeemable, subordinated debenture issued by Progress Financial Corporation ("PFC") with which the Company shares a common director. The bond, which pays 8.25% interest quarterly and matures on June 30, 2004, was accompanied by warrants to purchase 50,000 shares of PFC common stock for $6.00. No cost or value has been assigned to these warrants. The Company owns 188,971 shares, or 3.7%, of the capital stock of an affiliate with which it shares a common director. After closely monitoring this investment for several years, in 1994, the Company concluded the decline in market value of these shares was other than temporary. Therefore, in 1994 the cost basis of this investment was reduced to its then most recent trading range (market value of $992,098) and the Company recognized an investment loss of $1,275,555. 44 The table below summarizes the cost and market value of this investment as of as of December 31: 1995 1994 ---- ---- Market Value $803,127 $873,991 ======== ======== Cost $992,098 $992,098 ======== ======== Cash equivalents and other investments totaling $9,968,000 and $8,064,000 at December 31, 1995 and 1994, respectively, were on deposit with state agencies to meet regulatory requirements. The expected maturities of the Company's fixed maturity investments at December 31, 1995 were as follows (in thousands): Amortized Cost Fair Value -------------- ---------- Due in one year or less $ 4,834 $ 5,116 Due after one year through five years 22,800 24,130 Due after five years through ten years 60,142 63,651 Due after ten years 63,202 66,890 -------- -------- $ 150,978 $ 159,787 ======= ======= This table includes mortgage-backed securities whose expected maturities are based on the forecasted cash flows from the underlying mortgages. Realized investments gains (losses) and changes in the unrealized investment gains (losses) for the year ended December 31 were as follows (in thousands): Realized Investment Gains (Losses) ---------------------------------- 1995 1994 1993 ---- ---- ---- Fixed maturity securities $ 730 $ 754 $ 1,611 Equity securities 360 - - Investment in Affiliate - (1,276) - Other - 175 50 ------- ------- -------- $ 1,090 $ (347) $ 1,611 ======= ======= ======== 45 Unrealized Investment Gains (Losses) ------------------------------------ As of Change During the December 31, Year Ended -------------- ----------------------- 1995 1994 1995 1994 1993 ---- ---- ---- ---- ---- Securities available for sale $7,784 $(12,146) $19,930 $(17,966) $ 3 Investment in affiliates (189) (118) (71) 1,063 118 Deferred acquisition costs (4,433) 6,370 (10,803) 17,017 - Deferred tax asset 1,148 4,419 (3,271) 1,409 - Deferred tax valuation allowance 1,778 (2,776) 4,554 (3,105) - ----- ------- ----- ------- ---- Impact of assets 6,088 (4,251) 10,339 (1,582) 121 ----- ------- ------ ------- ---- Unearned ceding commission (3,921) 5,157 (9,078) 12,527 - Deferred tax liability 2,926 1,643 1,283 (1,696) - ----- ----- ----- ------- ---- Impact of liabilities (995) 6,800 (7,795) 10,831 - ----- ----- ------- ------ ---- Impact on shareholder's equity $7,083 $(11,051) $18,134 $(12,413) $ 121 ===== ======= ====== ======= ===== The components of net investment income for the year ended December 31 are as follows (in thousands): 1995 1994 1993 ---- ---- ---- Fixed maturities $ 11,093 $ 10,533 $ 9,830 Mortgage and policy loans 90 111 147 Short-term investments 545 228 198 ------ ------ ------ Gross investment income 11,728 10,872 10,175 Less investment expenses 130 121 123 ------ ------ ------ Net investment income $ 11,598 $ 10,751 $ 10,052 ====== ====== ====== (3) COMMITMENTS AND CONTINGENCIES There is action pending against the Company in the Supreme Court of the State of New York, County of New York, entitled Federal Insurance Company vs. Gemco National, Inc. in which Federal Insurance Company ("Federal") seeks compensatory damages in excess of $550,000 for an alleged breach of contract. Federal alleges that Gemco breached its agreement with Federal to pay the premiums on its automobile, workers' compensation and commercial insurance policies underwritten by Federal for the Gemco's subsidiary, the Ampat Group, Inc. No activity with respect to this action has occurred since early 1990. However, under New York law, lawsuits remain pending indefinitely. Although management believes the Company has valid defenses to this claim, the ultimate outcome cannot be predicted with any degree of certainty. 46 (4) INCOME TAXES Income tax expense (benefit) consist of the following (in thousands): Year ended December 31, ----------------------- 1995 1994 1993 ---- ---- ---- Current income tax expense (benefit) $ (136) $ 198 $ 366 Deferred income taxes: Change in net deferred tax asset 190 (2,015) 596 Change in valuation allowance (190) 2,015 (596) ---- ---- ---- Total income tax expense (benefit) $ (136) $ 198 $ 366 ==== ==== ==== The net deferred tax assets related to unrealized gains and losses on investments for the year ended December 31 are as follows (in thousands): 1995 1994 1993 ---- ---- ---- Net deferred tax asset, beginning $2,777 $ 307 $ 308 Change during year (4,555) 2,470 (1) ------- ----- ---- Net deferred tax asset (liability), ending (1,778) 2,777 307 Valuation allowance 1,778 (2,777) (307) ----- ------- ----- Net balance $ - $ - $ - ===== ======= ===== The valuation allowance related to the deferred tax asset accounts is calculated on both an aggregate basis and for those items effecting income. The difference between these calculations is combined with the impacts of the unrealized investment gains (losses) which effect shareholder's equity directly. Therefore, while the aggregate valuation allowance is a contra- asset, the residual allowance assigned to the unrealized investment gains (losses) may be either positive or negative. 47 Actual income tax expense (benefit) for 1995, 1994 and 1993 differed from the "expected" tax expense for those years as computed by applying the U.S. Federal corporate income tax rate of 34% to income before income taxes by the following: 1995 1994 1993 ---- ---- ---- Computed "expected" tax expense (benefit) (34)% (34)% (34)% Increase (reduction) in income taxes resulting from: Changes in the valuation allowance for deferred tax assets,allocated to income tax expense (54)% 47 % 179 % Non-deductible expenses including amortization of intangibles 21 % 2 % 9 % Small life insurance company deduction - % (8)% (83)% State income taxes, net of federal income tax benefit (1)% - 2 % Impact of tax loss carryback 38 % - - Other, net 1 % - - ----- ---- ----- (29)% 7 % 73 % ===== ===== ===== 48 The components of the deferred tax assets and liabilities at December 31 are as follows (in thousands): 1995 1994 ---- ---- Deferred tax assets: Life insurance company: Policyholder reserves and liabilities $23,241 $4,763 Unrealized losses on investments - 3,101 Investment in affiliates 366 354 Unearned ceding commission 9,516 9,189 Alternative minimum tax carryforward 185 186 Other 4 2 Non-life company: Operating loss carryforward 1,428 1,356 Other 75 185 ------ ------ Total deferred tax assets 34,815 19,136 Valuation allowance (3,319) (8,064) Net deferred tax assets 31,496 11,072 ------ ------ Deferred tax liabilities: Life insurance company: Deferred acquisition costs (10,472) (11,000) Unrealized gains on investments (1,945) - New Era reinsurance premium (19,077) - Other (1) (17) Non-life company - other (1) (55) -------- -------- Total deferred tax liabilities (31,496) (11,072) -------- -------- Net deferred tax assets and liabilities $ - $ - ======== ======== The net increase (decrease) in the total valuation allowance for the years ended December 31, 1995, 1994 and 1993 was $(4,745,000), $4,486,000 and $596,000, respectively. Based on the continuing losses, the Company cannot be assured of realizing its deferred tax assets. Therefore, a 100% valuation allowance will be assigned to the net deferred tax asset until realization of this asset is considered more likely than not. 49 At December 31, 1995, in addition to an alternative minimum tax carryforward in the life insurance company of $186,000 (which does not expire), IIG had the following tax carryforward items (in thousands): Operating Loss Capital Loss Year of expiration Carryforward Carryforward ------------------ -------------- ------------ 1996 $ - $ 45 1997 - 190 2001 3,392 - 2002 752 - 2003 248 - 2004 742 - 2005 895 - 2007 136 - 2008 397 - 2009 322 - 2010 375 - ----- ------ $7,259 $ 235 ====== ======= When the Preferred Shares discussed in Notes 10 and 11 are issued, the resulting "change in control" could substantially reduce the Company's ability to utilize its non-life loss carryforwards. Investors' "policyholders surplus account," which arose under prior tax law, is generally that portion of the gain from operations that has not been subjected to tax, plus certain deductions. The balance of this account, which, under provision of the Tax Reform Act of 1984, will not increase after 1983, is approximately $1.7 million. This amount has not been subjected to current income taxes but, under certain conditions that management considers to be remote, may become subject to income taxes in future years. At current tax rates, the maximum amount of such tax (for which no provision has been made in the financial statements) is approximately $595,000. 50 (5) COINSURANCE Investors reduces its overall risk on whole life, immediate annuity and health insurance policies through an uncollateralized program of quota share coinsurance and excess of loss reinsurance. As the direct insurer, Investors retains primary liability to the policyholder on all risks transferred. The premium income and benefit expenses presented in the Statement of Operations for the year ended December 31 are reflected net of the reinsurance transactions outlined below (in thousands): 1995 1994 1993 Quota Share Contracts: ---- ---- ---- Premium ceded $ 1,850 $ 617 $ 703 Surrender Fees $ 1,674 $ 834 $ 451 Benefits recovered $ 225 $ 465 $ 612 Interest on investment contracts recovered $ 19,273 $12,367 $ 8,580 Amortization of deferred acquisition cost $ 1,130 $ 1,375 $ 505 Excess of Loss Contracts: Premium ceded $ - $ 79 $ 55 Benefits recovered $ - $ - $ - Republic-Vanguard Life Insurance Company ("RVL"), is the Company's primary reinsurer and a member of the Winterthur Swiss Insurance Group (one of the largest Swiss insurance companies). The substantial portion of the Company's reinsurance is coinsurance related to investment risks transferred to RVL totaling approximately $351.5 million at December 31, 1995 and recorded as investment contract benefits recoverable on the accompanying balance sheet. From October 1, 1991 through September 30, 1994, 80% of Investors's annuity production was transferred to RVL. For contracts issued subsequent to October 1, 1994 and May 1, 1995, this percentage was revised to 90% and 100%, respectively, due to concerns over Investors' ratio of statutory policy liabilities to capital and surplus (See Note 8). See Note 1 for additional information on the accounting for coinsurance arrangements. The Company's Accelerated Benefit life policies are being reinsured with WLR on a 80% coinsurance contract. As a result of Delaware's continued concern over Investors' ratio of statutory policy liabilities to capital and surplus, in early 1996, Investors entered into an agreement to cede a block of annuity policies with statutory policy reserves of $76,306,929 to New Era Life Insurance Company ("New Era"). This reinsurance agreement provides for an initial coinsurance period (up to five years) followed by full assumption of the specified policies. Investors will continue to service these policies through December 31, 2000. Investors will pay New Era coinsurance allowances of 1% of the average statutory policy liability for the first 5 years. Thereafter, New Era will pay Investors 2% of the average statutory policy for the following five years. The profit related to these allowances will be deferred until its realization is assured. Since under its terms, this agreement became effective on December 31, 1995 and, based on Delaware's approval, was reflected in Investors' 1995 statutory statement, Investors' ratio of statutory policy liabilities to capital and surplus the ratio was reduced below Delaware's target. The Company expects this to help allay Delaware's concerns (see Notes 8 and 11). (Since this transaction was closed in 1996, it will be treated as a 1996 event under generally accepted accounting principles.) 51 (6) NOTE PAYABLE In connection with its acquisition of IIC and Investors, the Company issued an $8,000,000 secured subordinated note payable due March 31, 1997, with interest at 8% payable quarterly. The note is secured by the stock of IIC. This security interest is subordinate to any senior indebtedness. As a result of material misrepresentations by the seller, the Company has several significant claims which, if sustained, should reduce the principal amount of the note and result in a refund of previously paid interest. However, these issues cannot be settled at this time since ownership of the note is in dispute. The seller, a Pennsylvania insurance company, allegedly transferred the non-negotiable note to a Delaware insurer. Subsequently, both companies came under orders of rehabilitation from the insurance departments of their respective states. Now, in their roles as liquidators, both states claim ownership of the note. To avoid being subject to double liability, the Company filed a Complaint in Equity for Interpleader with the Pennsylvania Commonwealth Court in late 1995. While the parties have had numerous discussions regarding settlement, there has been no agreement to date. In connection with this action, on March 14, 1996, the Delaware Department of Insurance filed a petition for Declaratory Judgment against the Company in Delaware court. This action requests the court to declare that the note is negotiable and that the Company does not have any claim to offset the principal amount of the note and seeks indemnification from the Company. The Company is currently reviewing these filings and extensions. Ultimately, settlement of this dispute will not result in any additional liability to the Company, but should make it possible to settle the Company's claims against the note. Since the ultimate cash flow related to this note is not determinable, calculation of its theoretical market value is not practicable. (7) STOCK OPTIONS AND WARRANTS The Company has instituted three incentive stock option plans for the benefit of employees or agents of the Company and its subsidiaries ("1982 Plan," "1992 Plan" and "Agents Plan"). Under the 1982 Plan, options for up to 147,074 shares of the Company's common stock are authorized and outstanding. These options may be exercised at a price of $.625 per share. The 1992 Plan was approved by the shareholders in June 1992. This plan allows options on up to 500,000 shares of the Company's common stock to be granted to employees of the Company and/or its subsidiaries. During 1992, 340,000 options were granted under this plan of which 112,000 were vested at issue. The remaining 228,000 options vest over a four year period starting January 1, 1993, in amounts totaling 72,000; 72,000; 72,000 and 12,000, respectively. During 1994 and 1993, respectively, 17,500 and 87,500, additional options were granted under this plan, all of which vested at issue. No options were granted under this plan in 1995, however, 27,500 options expired due to employee resignations and will be returned to the pool of options available 52 for grant under this plan. The Agents Plan was initiated by the Board of Directors in September 1994 and is subject to renewal annually at the discretion of the Board of Directors. This Plan allows issuance of options on up to 75,000 shares of common stock annually to Investors' most productive agents. However, in 1995, the Board authorized the issuance of options on 97,000 shares. If unexpired, these options expire two years after the date of grant. Outstanding options to purchase common stock at December 31, 1995 were as follows: Average Outstanding Options Option Year of Options Exercisable Price Expiration 1982 Plan 147,074 147,074 $ 0.6250 2000 1992 Plan 417,500 405,500 $ 1.6164 2002-04 Agents Plan 82,200 82,200 $ 1.8212 1997 The Company makes no charges against income for these stock options since the exercise price of all options is equal to or greater than the market value of the Company's common stock at the date of each grant. Upon exercise of any of these stock options, the excess of the option price over the par value would be credited to additional paid-in capital. In 1989, the Company issued warrants, exercisable at issue, to purchase 1,000,000 shares of its common stock at $2.00 per share. The agreement issuing these warrants contained an adjustment clause whereby the number of shares and the purchase price might require adjustment based on the issuance of common stock and stock options. As of December 31, 1995, the adjusted number of shares and share price were 1,062,438 and $1.8825, respectively. These warrants expire on March 31, 1997 (see Note 11). (8) STATUTORY CAPITAL AND SURPLUS AND DIVIDEND RESTRICTIONS The statutory accounting practices prescribed or permitted by regulatory authorities differ in certain respects from GAAP. The principal differences between GAAP and statutory accounting are as follows: -Deferred Acquisition Costs. These costs are treated as a period expense on a statutory basis, but are amortized over the expected gross profits under GAAP; -Policy Liabilities. The calculation of the liability for future policy benefits is based on different assumptions for statutory purposes than for GAAP and is reported net of reinsurance; -Unearned Ceding Commission. Subsequent to the change in GAAP accounting described in Note 1, the GAAP profit of the ceding commission is deferred and amortized based on the expected gross profit of the related annuity contracts. Prior to this change, both statutory and GAAP profits were consistently recognized as the business was ceded. 53 -Investment Market Value Adjustment. All fixed maturity securities are reported at amortized cost for statutory purposes, while GAAP requires the fixed maturities classified as "available for sale" to be reported at market value; -Goodwill. The excess of the purchase price of Investors over its identifiable assets and liabilities is deferred and amortized for GAAP. These costs are not recognized under statutory accounting. -Interest Maintenance and Asset Valuation Reserves. These reserves are treated as liabilities for statutory purposes, but are restored to capital and surplus for GAAP; -Non-Admitted Assets. Certain designated assets are not recognized under statutory accounting; -Deferred Income Taxes. Under certain conditions, the impact of certain variances from taxable income is recognized as an adjustment to income tax expense for GAAP, but not for statutory accounting purposes; and -Premium Revenue. Under GAAP, premiums related to certain interest sensitive products is excluded from revenue. In addition to these differences, from time-to-time, insurance companies may record transactions in different periods for regulatory purposes than under generally accepted accounting principles. The New Era reinsurance agreement (see Note 5) was recorded in 1995 for statutory accounting but in 1996 under generally accepted accounting principles. As a result of these differences, the statutory net income (loss) was $ (1,279,992), $ 297,634 and $430,623 in 1995, 1994 and 1993, respectively. The impact of these differences on the reported net worth of the Company is summarized below: 1995 1994 ---- ---- Investors' statutory capital and surplus $ 5,457,006 $ 7,107,826 Deferred acquisition costs 42,467,973 45,404,640 Policy liability adjustment (89,888,981) (18,765,202) Unearned ceding commission (38,062,255) (36,754,673) Investment market value adjustment 7,756,735 (12,402,028) Goodwill 3,665,559 3,942,195 Interest maintenance and asset valuation reserves 1,272,892 2,357,143 Reinsurance payable to New Era 76,306,929 0 Non-admitted assets 208,584 120,008 Other, net 155,710 254,194 ---------- ---------- IIG's investment in Investors 9,340,152 (8,735,897) IIG's note payable (8,000,000) (8,000,000) Other assets and liabilities of IIG 88,024 417,241 ---------- ----------- IIG's GAAP basis shareholder's equity $ 1,428,176 $ (16,318,656) ========== =========== 54 At December 31, 1995, Investors' capital and surplus exceeded the $550,000 minimum required by the insurance laws of its state of domicile, which is Delaware. The Delaware Insurance Department had expressed concern over Investors' ratio of capital and surplus to policyholder liabilities. The Company stabilized this ratio by increasing the coinsurance percentage for new business to 100%, and later reduced this ratio to the level that Delaware believes is appropriate by consummating a coinsurance arrangement with New Era Life Insurance Company to reinsure a significant block of business (see Note 5). Investors tests the ability of its investment portfolio to fund its liability to its policyholders under several possible future interest rate environments. The results of these tests are used by the state regulatory authorities to assess the adequacy of Investors' statutory liabilities. Based on the results of these tests, no adjustments to the statutory liabilities have been required. The NAIC has established risk-based capital standards to determine the capital requirements of a life insurance company based on the type and mixture of risks inherent in its operations. These standards require the computation of a risk-based capital amount which is then compared to a company's actual total adjusted capital. The computation involves applying factors to various statutory financial data to address four primary risks: asset default, adverse insurance experience, interest rate risk and external events. These standards, effective in 1993, provide for regulatory attention when the percentage of total adjusted capital to authorized control level risk-based capital is below certain levels. At December 31, 1995, Investors percentage of total adjusted capital is in excess of ratios which would require regulatory action. Interest rate changes significantly effect the market value of the Company's investment portfolio. Since the Company carries most of its investments at market value, these changes, net of the related effects on the amortization of deferred acquisition cost and unearned ceding commission, and the related deferred tax accounts, directly effect total shareholders' equity. Dividends and other distributions to IIG from Investors are restricted. Investors is required to maintain minimum capital and surplus, determined in accordance with regulatory practices. Distributions are further limited by insurance regulations and may require prior approval of the regulatory insurance departments. Under the terms of a pledge agreement executed in conjunction with the issuance of the secured subordinated note payable described in Note 6, any dividend distributions from the subsidiaries to IIG will be held in an escrow account as collateral. IIG may only use the escrow account to increase the surplus of Investors in the form of a capital contribution. In the event of default, the escrow account would be available to satisfy any accrued interest and the principal balance due under the terms of the secured subordinated note payable. 55 (9) CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY CONDENSED BALANCE SHEETS PARENT COMPANY (in thousands) December 31, -------------------- ASSETS 1995 1994 ---- ---- Cash and cash equivalents $ 272 $ 206 Equity securities, at market 16 446 Investments in affiliate and wholly-owned subsidiary 9,430 - Other assets 10 28 ----- ----- Total assets $9,728 $ 680 ===== ===== LIABILITIES AND SHAREHOLDERS' EQUITY (CAPITAL DEFICIT) Liabilities: Note payable $ 8,000 $ 8,000 Deficit investment in wholly-owned subsidiary - 8,668 Accrued expenses 300 330 ------- ------- Total liabilities 8,300 16,998 ------- ------- Shareholders' Equity (Capital Deficit): Common stock 1,384 1,383 Additional paid-in capital 3,652 3,651 Net unrealized investment gains (losses) 7,060 (11,051) Accumulated deficit (10,660) (10,301) Treasury stock (8) - ------- ------- Total Shareholders' Equity (Capital Deficit) 1,428 (16,318) ------- ------- Total Liabilities and Shareholders' Equity (Capital Deficit) $ 9,728 $ 680 ======= ====== 56 (9) CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY (continued) ------------------------------------------------------------- CONDENSED STATEMENTS OF OPERATIONS PARENT COMPANY (in thousands) Year Ended December 31, ------------------------------- 1995 1994 1993 ---- ---- ---- Revenue: Investment income $ 7 $ 2 $ 6 Realized investment gains (losses) 382 (1,276) - Management fees 995 1,216 982 ----- ------- ------ Total revenue 1,384 (58) 988 ----- ------- ------ Expenses: General and administrative expenses 803 1,023 743 Interest expense 640 640 640 ----- ------- ----- Total expenses 1,443 1,663 1,383 ----- ------- ----- Loss before equity in net income (loss) of subsidiaries and income taxes (59) (1,721) (395) Equity in net income (loss) of subsidiaries 299 (1,450) (468) ----- ------- ----- Loss before income taxes (358) (3,171) (863) Income tax expense - - 1 ------ ------- ----- Loss before cumulative effect of change in accounting principle (358) (3,171) (864) Cumulative effect to December 31, 1994 of changing to a different method of recognizing ceding commission income - (3,859) - ------ ------- ----- Net Loss $ (358) $(7,030) $ (864) ====== ======= ===== 57 (9) CONDENSED FINANCIAL INFORMATION OF PARENT COMPANY (continued) ------------------------------------------------------------- CONDENSED STATEMENTS OF CASH FLOWS PARENT COMPANY (in thousands) Year Ended December 31, ------------------------- 1995 1994 1993 ---- ---- ---- Cash flows from operating activities: Net loss $ (358) (7,030) $(864) Adjustments to reconcile net loss to net cash used in operating activities: Cumulative effect to December 31, 1993 of changing to a different method of recognizing ceding commission income - 3,859 - Equity in net loss of subsidiaries 299 1,450 468 Realized investment (gains) losses (382) 1,276 - Change in other assets and other liabilities, net (48) 131 82 ------ ------ ------- Net cash used in operating activities (489) (314) (314) ------ ------- ------- Cash flows from investing activities: Proceeds from the sale of investments 577 216 - Purchases of equity securitie (15) - (12) ------ ------- ------- Net cash provided by (used in) investing activities 562 216 (12) ------ ------- ------- Cash flows from financing activities: Common stock issued 1 - - Treasury shares purchased (8) - - ------ ------- ------- Net cash used in financing activities (7) - - ------ ------- ------- Net increase (decrease) in cash and cash equivalents 66 (98) (326) Cash and cash equivalents, beginning of year 206 304 630 ------ ------- ------- Cash and cash equivalents, end of year $ 272 $ 206 $ 304 ====== ======= ======= Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $ 640 $ 640 $ 640 Income taxes - - 1 58 (10) PREFERRED STOCK At the annual shareholders meeting held on November 17, 1995, the shareholders authorized the Company to issue up to 20,000,000 shares of no par preferred stock. Further, the shareholders authorized the Board of Directors to establish the actual number of shares to be issued in a series, and to fix the designations, powers, preferences and rights within a series of shares and the qualifications, limitations or restrictions thereof without further shareholder approval. As of May 1, 1996, the Board has taken no action relating to these shares and none have been issued. (11) SIGNIFICANT SUBSEQUENT EVENTS During 1995, Delaware expressed increased concern over Investors' high ratio of statutory policy liabilities to capital and surplus. In late 1995, IIG decided to reconsider all its options, including the possible sale of Investors and reinsuring a large block of its inforce business. In December 1995, the IIG signed a definitive agreement to sell Investors to Standard Management Corporation ("SMC") in exchange for stock of SMC and relief from IIG's $8 million note. However, in the first quarter of 1996, the agreement was terminated and a controversy ensued between IIG and SMC regarding the basis of this termination. In April 1996, IIG agreed to settle all the disputes arising from this agreement and its termination by paying SMC $8,000 in cash and 72,000 restricted shares of IIG stock. The accompanying financial statements reflect the provision for this settlement. Simultaneously with IIG's search for additional capital, Investors responded to Delaware's concern by structuring a reinsurance agreement for a significant block of its business. As described in Note 5, in the first quarter of 1996, Investors closed a reinsurance agreement with New Era. This agreement was effective December 31, 1995 and, with Delaware's approval, was recorded in Investors' statutory financial statements for 1995 (but in 1996 under generally accepted accounting principles). As a result, Investors' ratio of statutory liabilities to capital and surplus was reduced below Delaware's targeted amount. However, Delaware continues to monitor Investors closely, including reviewing and approving certain expenditures. Under the terms of the New Era reinsurance agreement, Investors elected to transfer cash rather than securities to New Era. Therefore, in January and February of 1996 Investors sold the securities supporting this block of business and realized an investment gain of $3.7 million. Under generally accepted accounting principles, this gain accelerates the amortization of the deferred acquisition costs related to this block of business by approximately $2.1 million, leaving approximately of $1.6 million as a contribution to profits for the first quarter of 1996. Because of the amount of business Investors writes in California (approximately 33% of its total in 1995), that State considers Investors to be "commercially domiciled" in California and regulates it accordingly. Therefore, in addition to Delaware's approval, Investors had to obtain approval for the New Era reinsurance agreement from the California Department of Insurance ("California"). California approved the coinsurance portion on the New Era agreement, but wanted additional time to review the assumption portion of the agreement. Investors agreed to arrange a capital infusion that would raise its statutory capital and surplus to $11 million by June 30, 1996 in order to continue to write new business in California. The Arizona Department of Insurance ("Arizona") has raised questions about Investors' continuing ability to write new business at, or above, its 1995 level based on 59 its current statutory capital and surplus. In 1995, Investors wrote approximately 24% of its new business in Arizona. To satisfy both California and Arizona, the Company signed a definitive agreement on April 29, 1996 with AAM Capital Partners, L. P. ("AAM") for the sale of up to $7,000,000 of convertible voting preferred stock (70,000 shares). This infusion of capital will be used to recapitalize IIG's insurance subsidiary, Investors Insurance Corporation. The insurance company will then be able to retain a larger portion of its profitable annuity business that is currently being ceded to a reinsurer. AAM has in-depth expertise of insurance operations and plans to help IIG utilize its marketing expertise in a number of new and expanding markets. AAM is an equity investment fund which participates in investments in the insurance industry. Under the terms of the agreement, which is scheduled to close on June 30, 1996, IIG's Board of Directors will expand to seven members. As separate groups, the owners of the preferred and common shares will each separately elect three directors. The remaining director will be elected by all the shareholders. Each preferred share will be convertible at any time into 100 shares of common stock or, after December 31, 2001, redeemable for $100 per share, plus accrued dividends at the option of the holder. In conjunction with this agreement, IIG will exchange 250,000 restricted shares of its common stock for all of IIG's currently outstanding warrants to purchase 1,000,000 shares of common stock. These warrants are currently held by Chester County Fund, Inc., IIG's largest shareholder. In addition to the normal and customary contingencies, final closing of the agreement is subject to regulatory approval and the full subscription of AAM's coinvestor group. If this agreement closes as scheduled, the additional capital should satisfy the conditions set by both California and Arizona and reduce the level of regulatory scrutiny from Delaware. (12) Related Party Transactions: Under a consulting agreement which was terminated in March 1996, Mr. Goebert (one of the Company's directors) received $100,000 in 1995 and 1994. The law firm of Palmarella & Sweeney, P. C., in which Mr. Palmarella (one of the Company's directors) is a principal shareholder, received legal fees of $117,415 and $90,900 in 1995 and 1994, respectively. 60 INVESTORS INSURANCE GROUP, INC. AND SUBSIDIARIES UNAUDITED CONSOLIDATED QUARTERLY FINANCIAL DATA The following is a tabulation of the unaudited quarterly results of operations for the years ended December 31, 1995 and 1994 (in thousands, except per share amounts): Net Net Total Income Income (Loss) Revenues (Loss) Per Share -------- -------- --------- 1995 Quarters First $ 3,630 $ (324) $ (0.12) Second 4,234 24 0.01 Third 3,511 (593) (0.21) Fourth 3,885 512 0.18 1994 Quarters First $3,165 $(4,472) $(1.62)* Second 4,132 (1,461 (0.53) Third 3,445 (131) (0.05) Fourth 1,711 (966) (0.35) * Includes the cumulative affect through December 31, 1993 of retroactively applying the change in accounting for ceding commissions of $(3,858,552), or $(1.39) per share. 61 INVESTORS INSURANCE GROUP, INC. AND SUBSIDIARIES SCHEDULE I - SUMMARY OF INVESTMENTS DECEMBER 31, 1995 (Dollars in thousands) Amount at Cost or which Amortized Fair shown Type of Investment Cost Value in the ------------------ balance sheet --------- ----- ------------- Held to maturity: Fixed maturities: U.S. Government treasury obligations $ 9,004 $10,056 $ 9,004 Banks 500 500 500 ------- ------- ------- Total held to maturity 9,504 10,556 9,504 ------- ------- ------- Securities available for sale: Fixed maturities: U.S. Government agencies and authorities 141,474 149,231 149,231 Equity securities: Common stocks - banks and insurance companies 339 366 366 ------- ------- ------- Total securities available for sale 141,813 149,597 149,597 ------- ------- ------- Total debt and equity securities 151,317 160,153 159,101 Mortgage loans on real estate 564 564 564 Policy loans 598 598 598 Short-term investments 356 356 356 ------- ------- ------- Total investments $ 152,835 $161,671 $ 160,619 ======= ======= ======= 62 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The information required by Item 9 is incorporated by reference to Form 8K filed February 13, 1996. 63 PART III Item 10. Directors and Executive Officers of the Registrant Directors The Board of Directors of the Company currently consists of four directors whose terms expire at the 1996 Annual Meeting. The four directors are Messrs. Melvin C. Parker, Ronald W. Hayes, Donald F.U. Goebert and Ernest D. Palmarella. On April 4, 1996, Mr. Jack L. Howard resigned as a director. The Board has not decided when, or if, it will name a new director for the remainder of Mr. Howard's term. The following table sets forth the age and address of each currently active director, the principal occupation or employment of each director during the previous five years, the year in which each individual initially became a director of the Company and other directorships in any company with a class of securities registered pursuant to section 12 of the Exchange Act or subject to the requirements of sections 15(d) of such Act or any company registered as and investment company under the Investment Company Act of 1940. Position with the Company and Principal Occupation or Employment Director Name During Past Five Years Since ---------------- ------------------------------- ------------ Melvin C. Parker (1)(3) Chairman of the Board of Directors of January 3, 1992 7200 W. Camino Real the Company since March 15, 1996; Boca Raton, FL 33433 President, Chief Executive Officer and Age 52 a Director of the Company since January 1992; Treasurer of the Company since November 1995; President, Chief Executive Officer and a Director of IIC, Inc. and Investors Insurance Corporation since June 1990; President, Treasurer and a Director of Investors Marketing Group, Inc. since June 1994; President and Chief Marketing Officer of Financial Benefit Life Insurance Company from August 1988 to June 1990. Ronald W. Hayes (1) Chairman of the Board from January June 11, 1987 7200 W. Camino Real 1989 to March 15, 1995; President and Boca Raton, FL 33433 Chief Executive Officer of the Company Age 58 from January 1989 to January 1992; Director of IIC, Inc.; Director and Vice President of Investors; until 1995, Director of Jupiter Tequesta Bank; President and 100% shareholder of Lincoln Consulters and Investors, Inc. for more than the past five years. 64 Donald F.U. Goebert (1) Vice President and a Director of the June 11, 1987 615 Willowbrook Lane Company from June 1987 to present; West Chester, PA 19382 Secretary and Treasurer of the Company Age 59 from June 1987 to June 1992; until 1995, Director of Jupiter Tequesta Bank; Director of Progress Financial Corporation; Chairman of the Board and President of Adage, Inc. for more than the past five years. Ernest D. Palmarella Vice President of the Company from January 13,1987 (2) (3) January 1989 to March 1996; Director 2 Radnor Corporate of the Company since January 1989; Center attorney and principal shareholder in Radnor, PA 19087 the law firm of Palmarella and Age 44 Sweeney, P.C. since September 1994; attorney and principal shareholder in the law firm of Mirarchi & Palmarella, P.C. from May 1990 to September 1994; associate in the law firm of Boroff, Harris and Heller, P.C. from April 1989 to May 1990. - ------------------------------ (1) Designates member of Executive Committee (2) Designates member of Finance/Audit Committee (3) Designates member of Compensation Committee Directors Compensation A director receives a fee in the amount of $500 for each meeting of the Board of Directors and receives a fee in the amount of $300 for each meeting of any standing committee of the Board of Directors. The Company has no other arrangements regarding compensation for services as a director. Executive Officers The name and age of each executive officer of the Company, the office or offices held by such person and the date on which such person initially held such office or offices are set forth below. Initial Date Name Office Age of Office -------------- --------------------- --- -------------- Melvin C. Parker Chairman of the Board 52 March 1996 of Directors President January 1992 Treasurer November 1995 Donald F.U. Goebert Vice President 59 July 1989 Susan F. Powell Vice President 47 January 1992 Secretary November 1995 65 Each officer is elected to serve until the next annual meeting of directors is held and until his/her successor is elected and has qualified or until his/her earlier death, resignation or removal from office. On March 15, 1996, the board of directors selected Mr. Melvin C. Parker to succeed Mr. Ronald W. Hayes as Chairman of the Board for the Company. Mr. Hayes continues to serve as a director of the Company. On March 15, 1996, Mr. Ernest D. Palmarella resigned as Vice President of the Company, but continues to serve as a director and general counsel. The business experience for the previous five (5) years of Melvin C. Parker and Donald F.U. Goebert is set forth above under "Directors". Susan F. Powell has served as Secretary of the Company since November 1995, Vice President of the Company since June 11, 1993, and Assistant Secretary of the Company from June 1992 to November 1995. At various times over the last five years, Ms. Powell has served as Executive Vice President, Senior Vice President and Secretary of Investors Insurance Corporation and IIC, Inc., and Secretary of Investors Marketing Group, Inc., all subsidiaries of the Company. The employment agreements of both Melvin C. Parker and Susan F. Powell may be canceled with sixty days notice. Mr. Goebert has no employment agreement. 66 Item 11. Executive Compensation The following table shows the compensation paid or accrued by the Company or its Subsidiaries for the fiscal years ended December 31, 1995, 1994 and 1993 to, or for the account of, the Chief Executive Officer and each of the four highest paid executive officers whose cash compensation exceeded $100,000. SUMMARY COMPENSATION TABLE ---------------------------------------------------- Long Annual Compensation Term (5) ---------------------- ------- All Other Name and Salary Bonus Other Options/ Compensation Principle Position Year ($) ($) ($) SARs (#) ($)(3)(4)(6) - ------------------ ---- ------- ------ -------- ------- ------------ Melvin C. Parker, 1995 208,586 67,056 6,000(1) - 27,300 President and CEO 1994 208,586 64,640 6,000(1) - 26,600 1993 203,908 44,194 6,000(1) 25,000 24,660 Ronald W. Hayes, 1995 120,134 - - - 15,500 Chairman of the Board (7) 1994 120,135 - - - 14,800 1993 120,000 - - - 13,000 Susan F. Powell, 1995 115,300 20,117 - - 13,452 Executive Vice President 1994 114,152 19,692 - - 13,379 of Investors Insurance 1993 112,149 10,226 - 20,000 12,238 Corporation Donald F. U. Goebert, 1995 100,000(2) - - - 3,500 Vice President and 1994 100,000(2) - - - 2,800 Director 1993 100,000(2) - - - 1,000 - -------------------------- (1) Represents car allowance. (2) Represents fee paid under investment consulting contract. This agreement was terminated in March 1996. (3) Includes contributions to the deferred compensation plan described below (4) Includes contributions made by the Company or its subsidiaries, on behalf of the named officer, to the Investors Insurance Group, Inc. Simplified Employee Pension Plan. Under the Plan, the Company or its subsidiaries may make annual contributions not in excess of the lesser of fifteen (15%) percent of an employee's salary or thirty thousand ($30,000) dollars. (5) There are no restricted stock awards or LTIP payments. (6) Includes directors fees. (7) Mr. Hayes' employment agreement was terminated in March 1996. 67 Executive and Other Employee Benefit Plans Incentive Stock Option Plan No. 1 The Company currently has in effect an Incentive Stock Option Plan adopted by the Shareholders of the Company in 1982 which provides that (a) options for up to 200,000 shares of common stock may be issued to employees of the Company and/or its subsidiaries; (b) the exercise price shall not be less than fair market value on the date of grant; (c) the term of an option may not exceed ten (10) years and will end no later than three (3) months after termination of employment, death or retirement or one (1) year after date of permanent disability; and (d) such other terms as set forth in the Plan or as may be set by the Company's Board of Directors. The Plan and each option is subject to the provisions of section 422 of the Internal Revenue Code of 1986, as amended. The Plan is applicable only to those options currently outstanding (147,074 shares) and no additional options may be granted under the Plan. Incentive Stock Option Plan No. 2 The Company currently has in effect an Incentive Stock Option Plan adopted by the Shareholders of the Company on June 18, 1992 which provides that (a) options for up to 500,000 shares of common stock, par value $.50 per share, may be issued to employees of the Company and/or its subsidiaries; (b) the exercise price shall be not less than the fair market value of the shares on the date on which the option is granted; (c) the term of the option may not exceed ten (10) years and will end no later than three (3) months after an employee's death, retirement or termination from service for any reason other than disability and shall expire no later than one (1) year after an employee's termination from service due to disability; and (d) such other terms set forth in the Plan or as may be approved by the Board of Directors of the Company. The Plan and each option is subject to Section 422 of the Internal Revenue Code of 1986, as amended. There were no stock options issued to executive officers under Stock Option Plan No. 2, in 1995. 68 Option Exercises and Fiscal Year End Values The following table provides information as to the unexercised options to purchase the Company's Common Stock granted in fiscal year 1995 and prior fiscal years to the named officers and the value of said options held by them as of the end of the year. OPTION VALUES AS OF DECEMBER 31, 1995 --------------------------------------------------------------- Value of Unexercised Number of Unexercised Options at In-the-Money options December 31, 1995 (#) at December 31, 1995 ($) ---------------------------------- --------------------------- Name Exercisable Unexercisable Exercisable Unexercisable ------------ ---------- --------- ----------- ------------- Melvin C. Parker 313,000 12,000 $ - $ - Susan F. Powell 40,000 - - - Ronald W. Hayes 67,409 - 21,065 - Donald F.U. Goebert 67,409 - 21,065 - Ernest D. Palmarella 12,256 - 3,830 - * Value determined from market price at the fiscal year end ($0.9375) less exercise price. The actual value, if any, an executive may realize will depend on the stock price on date of exercise of option, so there is no assurance the value stated will be equal to the value realized by the executive. Simplified Employee Pension Plan On January 1, 1992, the Company's subsidiary, Investors Insurance Corporation, adopted a Simplified Employee Pension Plan. This same plan was subsequently adopted by the Company on June 11, 1993. Under the Plan, the Company may contribute each year for each employee the lesser of fifteen percent (15%) of each employee's salary (not to exceed $150,000) or thirty thousand dollars ($30,000). A ten percent (10%) of salary contribution was made for the 1995 and 1994 fiscal years. Contributions under the Plan are not mandatory. Deferred Compensation Plan The Company executed a Deferred Compensation Plan with Melvin C. Parker in 1994. The terms of this Plan provide for the annual payment of $8,500 to a Trust Account for the benefit of Mr. Parker. Upon Mr. Parker's retirement, disability or death, such amount which is existing in said Trust Account shall be paid to him or his beneficiary. The Trust Account is maintained pursuant to a Trust Agreement, the trustees of which are Ronald W. Hayes and Jack L. Howard. The Trust Account is subject to the claims of the general creditors of the Company in the event the Company becomes insolvent, but other than for insolvency, the monies deposited into the Trust Account cannot revert back to the Company. 69 Item 12. Security Ownership of Certain Beneficial Owners and Management The following table sets forth information concerning the beneficial security ownership of the Company's common stock by the Directors and Executive Officers, individually and as a group. The table also sets forth the only persons who, to the company's knowledge, are the beneficial owners of more than five (5%) percent of the outstanding voting securities of the company. Shares Owned Name and Address Beneficially as of Percent of of Beneficial Owner April 8, 1996 Class (1) - ------------------- ------------------ ---------- Melvin C. Parker 395,075 (2) 12.8% 7200 W. Camino Real Boca Raton, Florida 33433 Ronald W. Hayes 173,909 (3) 6.1% 7200 W. Camino Real Boca Raton, Florida 33433 Donald F.U. Goebert 2,012,059 (4) 51.6% 615 Willowbrook Lane West Chester, PA 19382 Ernest D. Palmarella 12,816 (5) * 2 Radnor Corporate Center Radnor, PA 19087 Susan F. Powell 40,000 (6) 1.5% 3030 Hartley Road Jacksonville, FL 32257 All Directors and Officers of the Company 2,634,859 (2-6) 60.7% - ----------------- * Less than 1% ownership interest. (1) These percentages are computed by dividing the number of shares of common stock shown for each person by the sum of (i) the number of shares of common stock outstanding on April 8, 1996, and (ii) the number of shares which that particular person beneficially owns pursuant to stock options and stock warrants. (2) The shares listed as being beneficially owned by Mr. Parker include a 1992 option, granted pursuant to Incentive Stock Option Plan 2, which is currently exercisable in the amount of 300,000 shares. The actual grant to Mr. Parker is for 300,000 shares, which vest 24% a year for four years, commencing in 1992 and a final vesting of 4% on January 1, 1996. Mr. Parker's 1993 option of 25,000 shares is also included in the calculation of his beneficial ownership as of April 8, 1996. 70 (3) The shares listed as being beneficially owned by Mr. Hayes are held of record by Lincoln Consulters and Investors, Inc. The shares listed as being beneficially owned by Mr. Hayes include an option granted to him to purchase 67,409 shares pursuant to Incentive Stock Option Plan 1. (4) Mr. Goebert is the direct owner of 195,554 shares and has options to purchase 67,409 shares of the Company's Stock pursuant to Incentive Stock Option Plan 1. In addition, Mr. Goebert has beneficial ownership through Chester County Fund, Inc. of 686,658 shares and a warrant to purchase 1,062,438 shares of the Company's common stock. (5) The shares listed as being beneficially owned by Mr. Palmarella include an option granted to him to purchase 12,256 shares of the Company's common stock pursuant to Incentive Stock Option Plan 1. (6) The shares listed as beneficially owned by Ms. Powell include options granted to her to purchase 40,000 shares pursuant to Incentive Stock Option Plan 2. The Securities and Exchange Commission requires filing of public reports by directors, officers and beneficial owners of more than ten (10%) percent of any class of Securities of a company registered pursuant to Section 12 of the Securities Exchange Act. The new rules require proxy statement disclosure of those directors, officers and more than ten (10%) percent beneficial owners that fail to file required reports or that fail to timely file such reports. The Company is not aware of any failure to file the required documents. Item 13. Certain Relationships and Related Transactions Transactions Involving Directors and Officers During 1995, the Company and its Subsidiaries engaged in various transactions with directors or with organizations with which directors are associated in their principal occupations. As indicated in the Compensation Table, Mr. Goebert received $100,000 of compensation for consulting services. These fees were paid to Mr. Goebert as non-employee compensation under a consulting agreement which terminated in March 1996. Mr. Goebert is a director of Progress Financial Corporation from whom Investors purchased a $500,000 bond and warrants in a 1994 private placement. The bond pays 8.25% interest quarterly and matures in 2004. During 1995, the law firm of Palmarella & Sweeney, P.C. and/or Mirarchi & Palmarella, P.C., in which Mr. Palmarella is a principal shareholder, received fees from the Company and its subsidiaries, in the amount of $117,415, for legal services and related costs and expenses. All the aforesaid transactions were in the ordinary course of business and at normal or lower than commercial prices and terms. 71 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a) 1. Financial Statements (i) Reports of Independent Certified Public Accountants (ii) Consolidated Balance Sheets (iii) Consolidated Statements of Operations (iv) Consolidated Statements of Shareholders' Equity (v) Consolidated Statements of Cash Flows (vi) Notes to Consolidated Financial Statements See Index to Financial Statements on page 26. 2. Financial Statement Schedules Required schedules are included in Part II of this Annual Report on Form 10-K. All other schedules are omitted either because they are not applicable or because the required information is shown in the consolidated financial statements or the notes thereto. 3. Exhibits See the Exhibit Index of this Annual Report on Form 10-K at page 73. (b) Reports on Form 8-K The Company filed the following Forms 8-K during the last quarter of 1995 and the first quarter of 1996: December 12, 1995 Agreement to sell all the outstanding shares of Investors Marketing Group, Inc. and Investors Insurance Corporation. February 8, 1996 Cancellation of agreement to sell all the outstanding shares of Investors Marketing Group, Inc. and Investors Insurance Corporation. February 13, 1996 Selection of BDO Seidman LLP as the Company's primary accountant. March 5, 1996 Reinsurance agreement with New Era Life Insurance Company. 72 SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. INVESTORS INSURANCE GROUP, INC. June 3, 1996 By: /s/ Melvin C. Parker ----------------------- Melvin C. Parker, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. The duties and responsibilities of the chief financial officer and controller have been distributed among the officers and directors. By: /s/ Melvin C. Parker June 3, 1996 -------------------------------------------- Melvin C. Parker, President, Chief Executive Officer and Director By: /s/ Donald F. U. Goebert June 3, 1996 -------------------------------------------- Donald F. U. Goebert, Director By: /s/ Ernest D. Palmarella June 3, 1996 -------------------------------------------- Ernest D. Palmarella, Director 73 Investors Insurance Group, Inc. Exhibit Index Regulation S-K Exhibit Table Reference Description of Exhibit Document ============== ================================================== ======== 2 Stock Purchase Agreement, dated December 12, 1995 02.01 among Investors Insurance Group, Inc., Investors Marketing Group, Inc., Investors Insurance Corporation, and Standard Management Corporation. (Note: This agreement was terminated; see Form 8K filed on February 8, 1996) 3 Articles of Incorporation of Registrant 03.01 3 Amendment to the Articles of Incorporation of 03.02 Registrant to authorize preferred stock 3 Bylaws of Registrant 03.03 4 Stock Purchase Agreement, dated March 31, 1989, 04.01 among Gemco National, Inc., Corporate Life Insurance Company and IIC, Inc., relating to the capital stock of IIC, Inc., Investors Insurance Corporation and Westchester Reinsurance, Ltd. 4 Common Stock Purchase Warrant, dated March 31, 04.02 1989, to Corporate Life Insurance Company covering 1,000,000 shares of common stock at an exercise price of $2.00 per share, subject to adjustment. 4 Assignment of Common Stock Purchase Warrant, 04.03 dated March 5, 1991, transferring rights under the March 31, 1989 warrant from Corporate Life Insurance Company to Chester County Fund, Inc. 4 Series A Preferred Stock Purchase Warrant, dated 04.04 April 26, 1996, between Investors Insurance Group, Inc. and listed parties. 10 Incentive Stock Option Plan, effective June 8, 1982. 10.01 10 Incentive Stock Option Plan, effective June 18, 1992. 10.02 10 Reinsurance Agreement, INVE0001, between Regristrant's 10.03 subsidiary, Investors Insurance Corporation and Republic-Vanguard Life Insurance Company, effective October 1, 1991. 10 Addendum No. 1, effective January 1, 1993, to 10.05 Reinsurance Agreement INVE0001 between Registrant's subsidiary, Investors Insurance Corporation and Republic-Vanguard Life Insurance Company. 74 10 Addendum No. 2, effective December 1, 1993, to 10.06 Reinsurance Agreement INVE0001 between Registrant's subsidiary, Investors Insurance Corporation and Republic-Vanguard Life Insurance Company. 10 Addendum No. 3, effective March 1, 1994, to 10.07 Reinsurance Agreement INVE0001 between Registrant's subsidiary, Investors Insurance Corporation and Republic-Vanguard Life Insurance Company. 10 Addendum No. 4, effective April 1, 1994, to 10.08 Reinsurance Agreement INVE0001 between Registrant's subsidiary, Investors Insurance Corporation and Republic-Vanguard Life Insurance Company. 10 Addendum No. 5, effective August 1, 1994, to 10.09 Reinsurance Agreement INVE0001 between Registrant's subsidiary, Investors Insurance Corporation and Republic-Vanguard Life Insurance Company. 10 Addendum No. 6, effective October 1, 1994, to 10.10 Reinsurance Agreement INVE0001 between Registrant's subsidiary, Investors Insurance Corporation and Republic-Vanguard Life Insurance Company. 10 Addendum No. 7, effective March 27, 1995 to 10.11 Reinsurance Agreement INVE0001 between Registrant's subsidiary, Investors Insurance Corporation and Republic-Vanguard Life Insurance Company. 10 Addendum No. 8, effective May 1, 1995 to 10.12 Reinsurance Agreement INVE0001 between Registrant's subsidiary, Investors Insurance Corporation and Republic-Vanguard Life Insurance Company. 10 Reinsurance Agreement, INVEWL01, between Registrant's 10.13 subsidiary, Investors Insurance Corporation and Winterthur Life Re, effective May 1, 1993. 10 Reinsurance Agreement No. G-65000-1 between 10.14 Registrant's subsidiary, Investors Insurance Corporation and Lincoln National Health & Casualty Insurance Company, effective December 1, 1992. 10 Reinsurance Agreement between Registrant's 10.15 subsidiary, Investors Insurance Corporation and New Era Life Insurance Company, effective December 31, 1995 75 10 Management and Service Agreement between Registrant 10.16 and Registrant's subsidiary, Investors Insurance Corporation, effective January 1, 1993. 10 Management Agreement between Registrant and 10.17 Registrant's subsidiary, Investors Marketing Group, Inc., effective June 10, 1994. 10 Independent Contractor agreement between Registrant's 10.18 subsidiary, Investors Insurance Corporation and Donald F.U. Goebert, dated December 30, 1991. 10 Termination of independent contractor agreement 10.19 between Registrant's subsidiary, Investors Insurance Corporation and Donald F.U. Goebert, effective June 30, 1994. 10 Independent Contractor agreement between Registrant 10.20 and Donald F.U. Goebert, dated July 1, 1994. 10 Termination of independent contractor agreement between 10.21 Registrant and Donald F.U. Goebert, effective March 1, 1996. 10 Employment agreement between Registrant's 10.22 subsidiary, Investors Insurance Corporation, and Ronald W. Hayes, dated December 31, 1991. 10 Termination of employment agreement between 10.23 Registrant's subsidiary, Investors Insurance Corporation, and Ronald W. Hayes, effective June 30, 1994. 10 Employment agreement between Registrant and Ronald W. 10.24 Hayes, Chairman of the Board of Directors, effective July 1, 1994. 10 Termination of employment agreement between Registrant 10.25 and Ronald W. Hayes, effective March 15, 1996. 10 Employment agreement between Registrant's 10.26 subsidiary, Investors Insurance Corporation, and Melvin C. Parker, dated July 1, 1993. 10 Deferred compensation agreement between Registrant's 10.27 subsidiary, Investors Insruance Corporation, and Melvin C. Parker, dated December 12, 1994 10 Employment agreement between registrant and Melvin 10.28 C. Parker, dated April 19, 1996 10 Employment agreement between Registrant's 10.29 subsidiary, Investors Insurance Corporation, and Susan F. Powell, dated July 1, 1993. 10 Employment agreement between Registrant's 10.30 subsidiary, Investors Insurance Corporation, and Richard T. Magsam, dated July 1, 1993. 76 10 Resignation of Richard T. Magsam effective March 31, 10.31 1995 10 Indemnity agreement between Registrant and 10.32 Melvin C. Parker, re: service as an officer of Investors Marketing Group, Inc., dated June 10, 1994. 10 Indemnity agreement between Registrant and 10.33 Susan F. Powell, re: service as an officer of Investors Marketing Group, Inc., dated June 10, 1994. 10 Agreement with California to raise additional capital for Investors Insurance Corporation dated February 20, 1996 10 Amendment Agreement with California to raise additional capital for Investors Insurance Corporation 11 Statement of Computation of Earnings per Share. See Consolidated Statement of Operations and Note 1 to the Consolidated Financial Statements. 18 Letter from KPMG Peat Marwick LLP on change 18.01 in accounting principles 21 Subsidiaries of Registrant. 21.01 27 Financial Data Schedule 27.01 EX-2 2 02.01 STOCK PURCHASE AGREEMENT 02.01.001 STOCK PURCHASE AGREEMENT DATED AS OF DECEMBER 12, 1995 By and Among INVESTORS INSURANCE GROUP, INC. West Chester, Pennsylvania; INVESTORS INSURANCE CORPORATION Jacksonville, Florida; INVESTORS MARKETING GROUP, INC. Jacksonville, Florida; and STANDARD MANAGEMENT CORPORATION Indianapolis, Indiana 02.01.002 TABLE OF CONTENTS Page ARTICLE I DEFINITIONS 1 1.1 Terms Defined 1 1.2 Other Definitional Provisions 1 ARTICLE II - SALE OF SHARES AND CLOSING 2 2.1 Purchase and Sale 2 2.2 Purchase Price 2 2.3 Adjustment 2 2.4 Closing 2 2.5 Shareholders Meeting 3 2.6 Registration Statement 3 2.7 IIC Holding Company 4 ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER 4 3.1 Organization 4 3.2 Authority 4 3.3 Capital Stock 5 3.4 No Subsidiaries 5 3.5 No Conflicts or Violations 5 3.6 Books and Records 6 3.7 SAP Statements 6 3.8 No Other Financial Statements 7 3.9 Reserves 7 3.10 Absence of Changes 7 3.11 No Undisclosed Liabilities 11 3.12 Taxes 11 3.13 Litigation 14 3.14 Compliance With Laws 14 3.15 Benefit Plans. ERISA 16 3.16 Properties 18 3.17 Contracts 19 3.18 Insurance Issued by the Company 21 3.19 Threats of Cancellation 22 3.20 Licenses and Permits 23 3.21 Operations Insurance 23 i 02.01.003 3.22 Intercompany Accounts 23 3.23 Bank Accounts 24 3.24 Brokers 24 3.25 Disclosure 24 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER 24 4.1 Organization 24 4.2 Authority 24 4.3 No Conflicts or Violations 25 4.4 Litigation 26 4.5 Purchase for Investment 26 4.6 Capitalization 26 4.7 Taxes 27 4.8 Compliance With Laws 29 4.9 Employee Benefit Plans 29 4.10 Properties 31 4.11 Contracts 32 4.12 Licenses and Permits 33 4.13 Brokers 34 4.14 Disclosure 34 ARTICLE V COVENANTS OF SELLER. THE COMPANY AND MARKETING 34 5.1 Lender and Regulatory Approvals 34 5. Investigation by the Buyer 35 5.2 No Negotiations, etc 35 5.3 Conduct of Business 36 5.4 Financial Statements and Reports 37 5.5 Investments 38 5.6 Employee Matters 38 5.7 No Charter Amendments 39 5.8 No Issuance of Securities 39 5.9 No Dividends 39 5.10 No Disposal of Property 39 5.11 No Breach or Default 40 5.12 No Indebtedness 40 5.13 No Acquisitions 40 5.14 Intercompany Accounts 40 5.15 Resignations of Officers and Directors 40 5.16 Tax Matters 40 5.17 New ERA Life Insurance Comnany Reinsurance Agreement 41 5.18 Senior Subordinated Debenture 41 ii 02.01.004 5.19 Adage, Inc. Stock 41 5.20 Disclosure schedule 41 5.21 Notice and Cure 41 5.22 Shareholder Distribution List 41 ARTICLE VI COVENANTS OF BUYER 41 6.1 Regulatory Approvals 42 6.2 Investigation by the Seller 42 6.3 Conduct of Business 42 6.4 Financial Statements and Reports 43 6.5 No Breach or Default 44 6.6 Notice and Cure 44 6.7 Approval By Shawmut 44 6.8 No Charter Amendments 44 6.9 No Dividends 45 6.10 Disclosure Schedule 45 6.11 Director and Officer Liability 45 ARTICLE VII CONDITIONS TO OBLIGATIONS OF BUYER 45 7.1 Representations and Warranties 45 7.2 Performance 45 7.3 Officer's Certificates 45 7.4 No Injunction 46 7.5 No Proceeding or Litigation 46 7.6 Consents, Authorizations, etc 46 7.7 No Adverse Change 46 7.8 Opinion of Counsel 47 7.9 New ERA Agreement 47 7.10 Shareholder Approval 47 7.11 Hart-Scott 47 7.12 Registration Statement 47 7.13 Approval by Shawmut 47 7.14 Resignation of Officers and Directors 47 7.15 Employment Agreement 47 7.16 Lockup Agreement 48 ARTICLE VIII CONDITIONS TO OBLIGATIONS OF SELLER 48 8.1 Representations and Warrantes 48 8.2 Performance 48 8.3 Officer's Certificates 48 iii 02.01.005 8.4 No Injunction 48 8.5 No Proceeding or Litigation 48 8.6 Consents, Authorizations, etc 49 8.7 Opinion of Counsel 49 8.8 Indiana Business Corporation Law 49 ARTICLE IX SURVIVAL OF PROVISIONS REMEDIES 49 9.1 Survival 49 9.2 Available Remedies 50 ARTICLE X INDEMNIFICATION 50 10.1 Tax Indemnification 50 10.2 Benefit Plan lndemnification 51 10.3 Other Indemnification 52 10.4 Method of Asserting Claims 53 10.5 After-Tax Damages 55 10.6 Assignment of Indemnification 56 10.7 Hold Back of Portion of Purchase Price 56 ARTICLE XI TERMINATION 56 11.1 Termination 56 11.2 Effect of Termination 57 ARTICLE XII MISCELLANEOUS 58 12.1 Notices 58 12.2 Entire Agreement 59 12.3 Expenses 59 12.4 Public Announcements 59 12.5 Confidentiality 60 12.6 Further Assurances 60 12.7 Waiver 60 12.8 Amendment 60 12.9 Counterparts 61 12.10 No Third Party Beneficiary 61 12.11 Governing Law 61 12.12 Binding Effect 61 12.13 Assignment 61 12.14 Headings, etc 61 12.15 Invalid Provisions 61 iv 02.01.006 STOCK PURCHASE AGREEMENT THIS STOCK PURCHASE AGREEMENT ("Agreement") is made and entered into as of December 12, 1995 by and among Standard Management Corporation, an Indiana corporation (the "Buyer"); Investors Insurance Corporation, a Delaware Corporation (the "Company") and Investors Marketing Group, Inc., a Florida corporation ("Marketing"); and Investors Insurance Group, Inc., a Florida corporation (the "Seller"). WITNESSETH: WHEREAS, Seller is the beneficial owner of all 100 shares of the authorized, issued and outstanding capital common stock, $.01 par value per share of IIC, Inc. ("IIC"); WHEREAS, Seller is the beneficial owner and Seller is the indirect beneficial owner of all 750 shares of the authorized, issued and outstanding capital common stock ("Common Stock"), $2,000.00 par value per share ("the Shares") of Investors Insurance Corporation; and WHEREAS, Seller is the beneficial owner of all 1,000 shares of the authorized, issued and outstanding capital common stock ("Common Stock"), no par value per share ("the Shares") of Investors Marketing Group, Inc., and WHEREAS, Seller desires to sell, and Buyer desires to purchase from Seller, all of the Shares of Investors Insurance Corporation and Investors Marketing Group, Inc.; NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE I DEFINITIONS 1.1 Terms Defined. The capitalized terms used in this Agreement and not defined herein shall have the meanings specified in Exhibit A. 1.2 Other Definitional Provisions. Unless the context otherwise requires, (a) references in this Agreement to the singular number shall include the plural, and the plural number shall include the singular; (b) words denoting gender shall include the masculine, feminine and neuter; (c) the words "hereof," "herein" and "hereunder" and words of similar import refer to this Agreement as a whole and not to any particular provision of this Agreement, (d) unless otherwise specified, all Article and Section references pertain to this Agreement; (e) the term "or" means "and/or"; and (f) the phrase "ordinary course of business and consistent with past practice" refers to the business and practice of the Seller or the Company, as the case may be. 02.01.007 ARTICLE II SALE OF SHARES AND CLOSING 2.1 Purchase and Sale. The Seller agrees to sell to the Buyer and the Buyer agrees to purchase from the Seller the Shares at the Closing upon the terms and subject to the conditions set forth in this Agreement. 2.2 Purchase Price. Subject to adjustment pursuant to Section 2.3 hereof, the purchase price for the Shares payable at the Closing shall be equal to the issuance of 750,000 shares of the Buyer's registered, free trading common stock, plus the assumption by the Buyer of a certain Senior Subordinated Debenture dated March 31, 1989 in the principal amount of $8,000,000 (the "Debenture") including the accrued and escrowed interest therein. Said shares of Buyer's common stock, less the 50,000 shares escrow pursuant to Section 10.7 hereof, shall be distributed to Seller's shareholders at the Closing, by Buyer's transfer agent. 2.3 Adjustment (a) On the day prior to Closing, the Seller will determine and will deliver to the Buyer a certificate of the president of the Seller setting forth the Seller's determination of the Adjusted Capital and Surplus of Company as of the Closing Date, together with true and complete copies of all Work Papers related thereto (collectively, the "Closing Adjusted Capital and Surplus"). (b) The Adjusted Capital and Surplus of the Company shall be determined in accordance with the Formula set forth on Exhibit B hereto. (c) If the Closing Adjusted Capital and Surplus is less than $5,300,000, the Seller shall cause the difference to be paid to the Company at Closing in cash or in securities acceptable to Buyer. (d) If the Closing Adjusted Capital and Surplus is greater than $5,300,000, the Buyer shall cause the difference to be paid to Seller at Closing in the form of a dividend from the Company. 2.4 Closing. The Closing of the transactions contemplated by this Agreement will take place at the offices of Investors Insurance Corporation, 3030 Hartley Road, Jacksonville, Florida 32257 or at such other place as the Buyer shall specify, at 10:00 a.m., local time, on the Closing Date. At the Closing, the Seller will deliver to the Buyer such documents and instruments as the Buyer may reasonably request for the purpose of effectuating the purchase and sale of the Shares and the transactions contemplated hereby, including, without limitation, a certificate or certificates representing the Shares issued in the name of the Buyer, or accompanied by executed stock powers 2 02.01.008 transferring the Shares to the Buyer, subject to a certain pledge agreement (the "Pledge Agreement") between the Company and Corporate Life Insurance Company ("CLIC") dated March 31, 1989. 2.5 Shareholders Meeting. Seller shall promptly take all action necessary in accordance with the Florida Business Corporate Law and its Articles of Incorporation and By-Laws to convene a meeting of its shareholders on the earliest. practicable date to consider and vote on the sale contemplated herein and shall use its best efforts to obtain shareholder approval thereof. The shareholder meeting shall be held as soon as practicable following the date upon which the Registration Statement becomes effective. The Board of Directors of Seller shall recommend that Seller's shareholders vote to approve the sale and not rescind its declaration that such sale is advisable shall use its best efforts to solicit from shareholders of Seller proxies in favor of the sale and shall take all other action in its judgement reasonable necessary and appropriate to secure the vote of shareholders required to effect the sale and the obligations imposed herein. At any such meeting all shares of Seller then owned by Donald F.U. Goebert, Chester County Fund, Inc., Melvin C.Parker, Ronald W. Hayes and Jack L. Howard (the "Control Group") shall be voted in favor of such sale. No member of the Control Group shall, prior to the Closing Date, sell, transfer, assign or otherwise dispose of any share of Seller then owned by him, her or it. 2.6 Registration Statement. Promptly following execution and delivery of this Agreement, Buyer shall prepare a Registration on Form S-4 Statement, covering the issuance of Buyer's shares in accordance with the purchase contemplated herein (the "Registration Statement"), file it in preliminary form with the SEC under the Securities Act, and use all reasonable efforts to have it declared effective as promptly as possible by the SEC, and cleared by the NASD, if required. Buyer shall also use all reasonable efforts to obtain the approval of any "blue sky" authorities necessary for the issuance of such shares. Seller shall cooperate with Buyer in the preparation of the Registration Statement and provide Buyer all information regarding the Seller and its affiliates required to be included therein and the Seller shall take such other action as Buyer may reasonably request in connection with the preparation of the Registration Statement and the actions to be taken by Buyer pursuant to this Section 2.6. Buyer shall cause the Registration Statement to comply as to form in all material respects with the Securities Act. None of the information supplied by Buyer specifically for inclusion in the Registration Statement shall contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. Promptly following execution and delivery of this Agreement, the Seller shall prepare and file with the SEC, in preliminary form, the Proxy statement. As promptly as practicable after the Registration Statement has been cleared by the SEC, Seller shall prepare the Proxy Statement/Prospectus in definitive form and mail it to the shareholders of Seller as of the record date for the Meeting and shall file the same with the SEC, the American Stock Exchange and each "blue sky" authority with which the Registration Statement is required to be filed." Seller shall notify Buyer of its intention to mail the Proxy Statement to its shareholders, both orally and in writing, at least 48 hours prior to the intended time of such mailing. 3 02.01.009 Seller shall cause the Proxy Statement-Prospectus to comply as to form in all material respects with the Exchange Act. None of the information supplied by Seller specifically for inclusion in the Proxy Statement-Prospectus shall contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. 2.7 IIC Holding Company. Seller shall advise Buyer within five (5) days of the date of this Agreement as to its position with respect to the sale of IIC to Buyer. Buyer shall advise Seller within ten (10) days of the date of this Agreement as to Buyer's position with respect to the purchase of IIC. Buyer and Seller shall negotiate in good faith for up to fifteen (15) days from the date of this Agreement to resolve any differences with respect to the acquisition of IIC. If Buyer and Seller are unable to resolve their differences with respect to IIC, either party may terminate this Agreement without penalty or liability within fifteen (15) days after the date of this Agreement. ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLER The Seller hereby represents and warrants to the Buyer as follows: 3.1 Orqanization. Seller is a corporation duly organized, validly existing, and in good standing under the laws of the State of Florida and, subject to the approval of Seller's stockholders of this Agreement, has full corporate power and authority to enter into this Agreement and to perform its obligations under this Agreement. The Company is an insurance company duly organized, validly existing, and in good standing under the Laws of the State of Delaware and Marketing is an insurance marketing company duly organized, validly existing, and in good standing under the Laws of the State of Florida. Both the Company and Marketing are duly licensed, qualified, or admitted to do business and are in good standing in all jurisdictions in which the failure to be so licensed, qualified, or admitted and in good standing, individually or in the aggregate with other such failures, has or may reasonably be expected to have a material adverse effect on the validity or enforceability of this Agreement, on the ability of the Company or Marketing to each perform its obligations under this Agreement, or on the Business or Condition of the Company or Marketing. Section 3.1 of the Disclosure Schedule contains a true and complete list of the states in which the Company or Marketing is licensed to write life and health insurance. The Seller has furnished to the Buyer true and complete copies of the articles of incorporation (as certified by the appropriate governmental or regulatory authorities) and the Bylaws of each the Company and Marketing, including all amendments thereto. 3.2 Authority. The Boards of Directors of the Seller, the Company and Marketing, respectively, have duly and validly approved this Agreement and the transactions contemplated hereby. Subject to the approval of Seller's stockholders of this Agreement, the execution and delivery of this Agreement by the Seller, the Company and Marketing and the performance by the Seller, the Company or Marketing of their respective obligations under this Agreement have been 4 02.01.010 duly and validly authorized by all necessary corporate action on the part of the Seller, the Company and Marketing. This Agreement constitutes a legal, valid, and binding obligation of the Seller, the Company and Marketing and is enforceable against the Seller, the Company and Marketing in accordance with its terms, except to the extent that (a) enforcement may be limited by or subject to any bankruptcy, insolvency, reorganization, moratorium, or similar Laws now or hereafter in effect relating to or limiting creditors' rights generally and (b) the remedy of specific performance and injunctive and other forms of equitable relief are subject to certain equitable defenses and to the discretion of the court or other similar Person before which any proceeding therefor may be brought. 3.3 Capital Stock. The authorized capital stock of the Company consists of 1,000 shares of common stock, $2,000.00 par value per share, of which all 750 shares are validly issued and out-standing, fully paid and nonassessable, and owned beneficially and of record by the Seller, and the authorized capital stock of Marketing consists of 1,000 shares of common stock, no par value per share, of which all 1,000 shares are validly issued and outstanding, fully paid and nonassessable, and owned beneficially and of record by the Seller, free and clear of all Liens, except for Liens disclosed in Section 3.3 of the Disclosure Schedule. Except as disclosed in Section 3.3 of the Disclosure Schedule, there are no outstanding securities, obligations, rights, subscriptions, warrants, options, charter or founders insurance policies, phantom stock rights, or (except for this Agreement) other Contracts of any kind that give any Person the right to (a) purchase or otherwise receive or be issued any shares of capital stock of the Company or Marketing (or any interest therein) or any security or Liability of any kind convertible into or exchangeable for any shares of capital stock of the Company or Marketing (or any interest therein) or (b) receive any benefits or rights similar to any rights enjoyed by or accruing to a holder of the Common Stock, or any rights to participate in the equity, income, or election of directors or officers of the Company or Marketing. 3.4 No Subsidiaries. Neither the Company nor Marketing controls (whether directly or indirectly, whether through the ownership of securities or by Contract or proxy, and whether alone or in combination with others) any corporation, partnership, business organization, or other similar Person. 3.5 No Conflicts or Violations. The execution and delivery of this Agreement by the Seller, the Company and Marketing does not, and the performance by the Seller, the Company and Marketing of their respective obligations under this Agreement will not: (a) subject to the approval of Seller's stockholders of this Agreement and subject to obtaining the approvals contemplated by Sections 5.1 and 6.2 hereof, violate any term or provisions of any Law or any writ, judgment, decree, injunction, or similar order applicable to the Seller, the Company or Marketing; (b) conflict with or result in a violation or breach of, or constitute (with or without notice or lapse of time or both) a default under, any of the terms, conditions, or provisions of the articles or certificate of incorporation or Bylaws of the Seller, the Company or Marketing; 5 02.01.011 (c) result in the creation or imposition of any Lien upon the Seller, the Company, Marketing or any of their respective Assets and Properties that individually or in the aggregate with any other Liens has or may reasonably be expected to have a material adverse effect on the validity or enforceability of this Agreement, on the ability of the Seller, the Company or Marketing to perform their respective obligations under this Agreement, or on the Business or Condition of the Seller, the Company or Marketing; (d) except for the Debenture, conflict with or result in a violation or breach of, or constitute (with or without notice or lapse of time or both) a default under, or give to any Person any right of termination, cancellation, acceleration, or modification in or with respect to, any Contract to which the Seller, the Company or Marketing is a party or by which any of their respective Assets or Properties may be bound and as to which any such conflicts, violations, breaches, defaults, or rights individually or in the aggregate have or may reasonably be expected to have a material adverse effect on the validity or enforceability of this Agreement, on the ability of the Seller, the Company or Marketing to perform its respective obligations under this Agreement, or on the Business or Condition of the Seller, the Company or Marketing; or (e) subject to the approval of Seller's stockholders of this Agreement, require the Seller, the Company or Marketing to obtain any consent, approval, or action of, or make any filing with or give any notice to, any Person except: (i) as contemplated in Section 5.1 hereof; (ii) as disclosed in Section 3.5(e) of the Disclosure Schedule; or (iii) those which the failure to obtain, make, or give individually or in the aggregate with any other such failures has or may reasonably be expected to have no material adverse effect on the validity or enforceability of this Agreement, on the ability of the Seller, the Company or Marketing to perform its respective obligations under this Agreement, or on the Business or Condition of the Seller, the Company or Marketing. 3.6 Books and Records. The minute books and other similar records of the Company and Marketing contain a true and complete record, in all material respects, of all actions taken at all meetings and by all written consents in lieu of meetings of the stockholder, Board of Directors, and each committee thereof of the Company and Marketing. The Books and Records of the Company and Marketing accurately reflect in all material respects the Business or Condition of the Company and Marketing, and have been maintained in all material respects in accordance with good business and bookkeeping practices. 3.7 SAP Statements. The Seller has previously delivered to the Buyer true and complete copies of the following SAP Statements: (a) Annual Statements of the Company for each of the years ended December 31, 1992, 1993, and 1994 (and the notes relating thereto, whether or not included therein); and 6 02.01.012 (b) Audited SAP statements of the Company for each of the years ended December 3, 1992, 1993 and 1994 (and the notes thereto, whether or not included therein); and (c) Quarterly Statements of the Company for each of the first three quarters of 1995 (and the notes, if any, relating thereto, whether or not included therein). Except as disclosed in Section 3.7 of the Disclosure Schedule, each such SAP Statement complied in all material respects with all applicable Laws when so filed, and all material deficiencies known to Seller or Company with respect to any such SAP Statement have been cured or corrected. Each such SAP Statement, (and the notes relating thereto, whether or not included therein), including, without limitation, each balance sheet and each of the statements of operations, capital and surplus account, and cash flow contained in the respective SAP Statement, was prepared in accordance with SAP, is true and complete in all material respects, and fairly presents the financial condition , the Assets and Properties, and the Liabilities of the Company as of the respective dates thereof and the results of operations and changes in capital and surplus and in cash flow of the Company for and during the respective periods covered thereby. 3.8 No Other Financial Statements. Except for the financial statements described in Section 3.7 (collectively, the "Financial Statements"), since October 31, 1995 no other financial statements have been prepared by or with respect to the Company (whether on a GAAP, SAP, or other basis). 3.9 Reserves. All reserves and other similar amounts with respect to insurance and annuities as established or reflected in the SAP Statements of the Company dated as of December 31, 1994 and September 30, 1995 were determined in accordance with generally accepted actuarial principles that are in accordance with those called for by the provisions of the related insurance and annuity Contracts and in the related reinsurance, coinsurance, and other similar Contracts of Company, and meet the requirements of the insurance Laws of the State of Delaware and states in which such insurance and annuity Contracts were issued or delivered. All such reserves and other similar amounts will be adequate (under generally accepted actuarial principles consistently applied) to cover the total amount of all reasonably anticipated matured and unmatured benefits, dividends, claims, and other Liabilities of the Company under all insurance and annuity Contracts under which the Company has or will have any Liability (including, without limitation, any Liability arising under or as a result of any reinsurance, coinsurance, or other similar Contract) on the respective dates of such SAP Statements. The Company owns assets that qualify as legal reserve assets under applicable insurance Laws in an amount at least equal to all such required reserves and other similar amounts. 3.10 Absence of Changes. Except as disclosed in Section 3.10 of the Disclosure Schedule or as specifically reflected in the September 30, 1995 SAP Statement, or except for changes or developments relating to the conduct of the business of the Company or Marketing after the date of this Agreement in conformity with this Agreement or the requests of the Buyer since 7 02.01.013 December 31, 1994, there has not been, occurred, or arisen any change in, or any event (including without limitation any damage, destruction, or loss whether or not covered by insurance), condition, or state of facts of any character that individually or in the aggregate has or may reasonably be expected to have a material adverse effect on the Business or Condition of the Company or Marketing. Except as disclosed in Section 3.10 of the Disclosure Schedule (with paragraph references corresponding to those set forth below), or except as specifically reflected in the September 30, 1995 SAP Statement, or except for changes or developments relating to the conduct of the business of the Company or Marketing after the date of this Agreement in conformity with this Agreement or the requests of the Buyer since December 31, 1994, the Company and Marketing have operated only in the ordinary course of business and consistent with past practice, and (without limiting the generality of the foregoing) there has not been, occurred, or arisen: (a) any declaration, setting aside, or payment of any dividend or other distribution in respect of the capital stock of the Company or Marketing or any direct or indirect redemption, purchase, or other acquisition by the Company or Marketing of any such stock or of any interest in or right to acquire any such stock; (b) any employment, deferred compensation, or other salary, wage, or compensation Contract entered into between the Company or Marketing and any of its officers, directors, employees, agents, consultants, or similar representatives, except for normal and customary Contracts with agents and consultants in the ordinary course of business and consistent with past practice; or any increase in the salary, wages, or other compensation of any kind, whether current or deferred, of any officer, director, employee, agent, consultant, or other similar representative of the Company or Marketing other than routine increases that were made in the ordinary course of business and consistent with past practice and that did not result in an increase of more than five percent (5%) of the respective salary, wages, or compensation of any such Person; or any creation of any Benefit Plan or any contribution to or amendment or modification of any Benefit Plan; (c) any issuance, sale, or disposition by the Company or Marketing of any debenture, note, stock, or other security issued by the Company or Marketing, or any modification or amendment of any right of the holder of any outstanding debenture, note, stock, or other security issued by the Company or Marketing; (d) any Lien created on or in any of the Assets and Properties of the Company or Marketing, or assumed by the Company or Marketing with respect to any of such Assets and Properties, which Lien relates to Liabilities individually or in the aggregate exceeding $25 000 for the Company or Marketing or which Lien individually or in the aggregate with any other Liens has or may reasonably be expected to have a material adverse effect on the Business or Condition of the Company or Marketing; (e) any prepayment of any Liabilities individually or in the aggregate exceeding $10,000; 8 02.01.014 (f) any Liability involving the borrowing of money by the Company or Marketing; (g) any Liability incurred by the Company or Marketing in any transaction (other than pursuant to any insurance or annuity Contract entered into in the ordinary course of business and consistent with past practice) not involving the borrowing of money, except such Liabilities incurred by the Company or Marketing, the result of which individually or in the aggregate cannot reasonably be expected to have a material adverse effect on the Business or Condition of the Company or Marketing; (h) any damage, destruction, or loss (whether or not covered by insurance) affecting any of the Assets and Properties of the Company or Marketing, which damage, destruction, or loss individually exceeds $25,000 or the result of which individually or in the aggregate has or may reasonably be expected to have a material adverse effect on the Business or Condition of the Company or Marketing; (i) any work stoppage, strike, slowdown, other labor difficulty, or (to the best knowledge of the Seller, the Company or Marketing) union organizational campaign (in process or threatened) at or affecting the Company or Marketing; (j) any material change in any underwriting, actuarial, investment, financial reporting, or accounting practice or policy followed by the Company or Marketing, or in any assumption underlying such a practice or policy, or in any method of calculating any bad debt, contingency, or other reserve for financial reporting purposes or for any other accounting purposes; (k) any payment, discharge, or satisfaction by the Company or Marketing of any Lien or Liability other than Liens or Liabilities that were paid, discharged, or satisfied since December 31, 1994 in the ordinary course of business and consistent with past practice, or were paid, discharged, or satisfied as required under this Agreement; (l) any cancellation of any Liability owed to the Company or Marketing by any other Person; (m) any write-off or write-down of, or any determination to write off or down any of, the Assets and Properties of the Company or Marketing or any portion thereof, except for write-offs or write-downs that do not exceed $10,000 individually or in the aggregate for the Company or Marketing; (n) any sale, transfer, or conveyance of any investments, or any other Assets and Properties, of the Company or Marketing with an individual book value or with an aggregate 9 02.01.015 book value in excess of $10,000, except as contemplated in Section 5.6 and except in the ordinary course of business and consistent with past practice; (o) any amendment, termination, waiver, disposal, or lapse of, or other failure to preserve, any license, permit, or other form of authorization of the Company or Marketing, the result of which individually or in the aggregate has or may reasonably be expected to have a material adverse effect on the Business or Condition of the Company or Marketing; (p) any transaction or arrangement under which the Company or Marketing paid, lent, or advanced any amount to or in respect of, or sold, transferred, or leased any of its Assets and Properties or any service to, any officer or director of the Seller, the Company or Marketing (except for payments of salaries and wages in the ordinary course of business and consistent with past practice, and except for payments made pursuant to any Contract disclosed in Section 3.10(b) or Section 3.17(a) of the Disclosure Schedule), or of any Affiliate of the Seller, the Company or Marketing, or of any such officer of director; (ii) any business or other Person in which the Seller, the Company or Marketing, any such officer or director, or any such Affiliate has any material interest except, for advances made to, or reimbursements of, officers or directors of the Seller, the Company or Marketing for travel and other business expenses in reasonable amounts in the ordinary course of business and consistent with past practice; or any Affiliate of the Company or Marketing pursuant to any Contract of the type described in Section 3.I7(g); (q) any material amendment of, or any failure to perform all of its obligations under, or any default under, or any waiver of any right under, or any termination (other than on the stated expiration date) of, any Contract that involves or reasonably would involve the annual expenditure or receipt by the Company or Marketing of more than $25,000 or that individually or in the aggregate is material to the Business or Condition of the Company or Marketing; (r) any decrease in the amount of, or any material change in the nature of, the insurance or annuities in force of the Company or any material change in the amount or nature of the reserves, liabilities or other similar amounts of the Company with respect to insurance and annuity Contracts (including, without limitation, reserves and other similar amounts of a type required to be reflected respectively on lines __ through _on page __ of an Annual Statement of the Company); (s) any amendment to the articles or certificate of incorporation or Bylaws of the Company or Marketing; (t) except for the New ERA Life Insurance Company Reinsurance Agreement (the "New ERA Agreement"), any termination, amendment, or execution by the Company of any reinsurance, coinsurance, or other similar Contract, as ceding or assuming insurer; 10 02.01.016 (u) any expenditure or commitment for additions to property, plant, equipment or other tangible or intangible capital assets of the Company or Marketing, except for any expenditure or commitment that does not exceed $25,000 individually or the result of which individually or in the aggregate does not have and may not reasonably be expected to have a material adverse effect on the Business or Condition of the Company or Marketing; (v) any amendment or introduction by the Company of any insurance or annuity Contract other than in the ordinary course of business and consistent with past practice; or (w) any Contract to take any of the actions described in this Section other than actions expressly permitted under this Section. 3.11 No Undisclosed Liabilities. Except to the extent specifically reflected in the balance sheet included in the December 31, 1994 SAP Statement (or in the notes relating thereto), or except as disclosed in Section 3.11 of the Disclosure Schedule, there were no Liabilities (other than policyholder benefits payable in the ordinary course of business and consistent with past practice) against, relating to, or affecting the Company or Marketing as of December 31, 1994 that individually or in the aggregate have or may reasonably be expected to have a material adverse effect on the Business or Condition of the Company or Marketing. Except to the extent specifically reflected in the balance sheet included in the September 30, 1995 SAP Statement (or in the notes relating thereto), or except as disclosed in Section 3.11 of the Disclosure Schedule, since December 31, 1994, neither the Company nor Marketing has incurred any Liabilities (other than policyholder benefits payable in the ordinary course of business and consistent with past practice) that individually or in the aggregate have or may reasonably be expected to have a material adverse effect on the Business or Condition of the Company or Marketing. 3.12 Taxes. Except as disclosed in Section 3.12 of the Disclosure Schedule (with paragraph references corresponding to those set forth below): (a) All Tax Returns required to be filed with respect to the Company or Marketing have been duly and timely filed, and, to the best of Seller's knowledge, all such Tax Returns are true and complete in all material respects. The Company and Marketing have duly and timely paid all Taxes that are due, or claimed or asserted by any taxing authority to be due, from the Company or Marketing for the periods covered by such Tax Returns or have duly provided for all such Taxes in the Books and Records of the Company or Marketing and in accordance with GAAP and SAP, including, without limitation, in the Financial Statements. There are no Liens with respect to Taxes (except for Liens with respect to real property Taxes not yet due) upon any of the Assets and Properties of the Company or Marketing. (b) With respect to any period for which Tax Returns have not yet been filed, or for which Taxes are not yet due or owing, the Seller, the Company and Marketing have made due and sufficient current accruals for such Taxes in their respective Books and Records and 11 02.01.017 in accordance with SAP and GAAP, and such current accruals through September 30, 1995 are duly and fully provided for in the Financial Statements of the Seller, the Company and Marketing for the period then ended. (c) The United States federal income Tax Returns of the Seller, the Company and Marketing and of each affiliated group (within the meaning of the Code) of which the Seller, the Company and Marketing are or have been members have not been audited or examined by the IRS, and the statute of limitations for all periods through the year 1991 has expired. The state, local, and foreign income Tax Returns of the Seller, the Company and Marketing and of each affiliated or consolidated group of which the Seller, the Company and Marketing are or have been members have not been audited or examined, and all statutes of limitation for all applicable state, local, and foreign taxable periods through the respective years specified in Section 3.12(c) of the Disclosure Statement have expired. There are no outstanding agreements, waivers, or arrangements extending the statutory period of limitation applicab]e to any claim for, or the period for the collection or assessment of, Taxes due from the Seller, the Company or Marketing for any taxable period. The Seller has previously delivered to the Buyer true and complete copies of each of the most recent audit reports relating to the United States federal, state, local, and foreign income Taxes due from the Seller, the Company and Marketing and the United States federal, state, local, and foreign income Tax Returns, for each of the last three taxable years, filed by the Seller, the Company and Marketing (insofar as such returns relate to either the Seller, the Company or Marketing) filed by any affiliated or consolidated group of which the Seller, the Company or Marketing was then a member. (d) No audit or other proceeding by any court, governmental or regulatory authority, or similar Person is pending or (to the knowledge of the Seller) threatened with respect to any Taxes due from the Seller, the Company or Marketing or any Tax Return filed by or relating to the Seller, the Company or Marketing. To the best knowledge of the Seller, no assessment of Tax is proposed against the Seller, the Company or Marketing or any of their Assets and Properties. (e) No election under any of Sections 108, 168, 338, 441, 463, 472, 1017, 1033, or 4977 of the Code (or any predecessor provisions) has been made or filed by or with respect to the Seller, the Company or Marketing or any of their Assets and Properties. No consent to the application of Section 341(f)(2) of the Code (or any predecessor provision) has been made or filed by or with respect to the Seller, the Company or Marketing or any of their Assets and Properties. None of the Assets and Properties of the Seller, the Company or Marketing is an asset or property that the Buyer or any of its Affiliates is or will be required to treat as being owned by any other Person pursuant to the provisions of Section 168(f)(8) of the Internal Revenue Code of 1954, as amended and in effect immediately before the enactment of the Tax Reform Act of 1986, or tax-exempt use property within the meaning of Section 168(h)(l) of the Code. No closing agreement pursuant to Section 7121 of the Code (or any predecessor provision) or any similar provision 12 02.01.018 of any state, local, or foreign Law has been entered into by or with respect to the Seller, the Company or Marketing or any of their Assets and Properties. (f) Neither the Seller, the Company nor Marketing has agreed to or is required to make any adjustment pursuant to Section 48 1(a) of the Code (or any predecessor provision) by reason of any change in any accounting method of the Seller, the Company or Marketing, and neither the Seller, the Company nor Marketing has any application pending with any taxing authority requesting permission for any changes in any accounting method of the Seller, the Company or Marketing. To the best knowledge of the Seller the IRS has not proposed any such adjustment or change in accounting method. (g) Neither the Seller, the Company nor Marketing has been or is in violation (or with notice or lapse of time or both, would be in violation) of any applicable Law relating to the payment or withholding of Taxes. The Seller, the Company and Marketing have duly and timely withheld from employee salaries, wages, and other compensation and paid over to the appropriate taxing authorities all amounts required to be so withheld and paid over for all periods under all applicable Laws. (h) Neither the Seller, the Company nor Marketing is a party to, is bound by, or has any obligation under, any Tax sharing Contract or similar Contract; notwithstanding any disclosure contained in the Disclosure Schedule, the Seller represents and warrants that, at the Closing, neither the Seller, the Company nor Marketing shall be a party to, be bound by or have any obligation under, any Tax sharing Contract or similar Contract or arrangement. Neither the Company nor Marketing is not a foreign person within the meaning of Section 1445(f)(3) of the Code. (i) There are no reinsurance, coinsurance, or other similar Contracts under which the Company receives or has received surplus relief. (j) Neither the Seller, the Company nor Marketing has made any direct, indirect, or deemed distributions that have been or could be taxed under Section 815 of the Code. (k) All ceding commission expenses paid or accrued by the Company in connection with any reinsurance arrangement or Contract. or transaction have been capitalized and amortized over the life or lives of such reinsurance arrangement or Contract in accordance with the decision of the United States Supreme Court in Colonial American Life Insurance Company vs. Commissioner of Internal Revenue, 109 S.Ct. 240 (1980). (l) No material Liabilities have been proposed in connection with any audit or other proceeding by any court, governmental or regulatory authority, or similar Person with respect to any Taxes due from the Seller, the Company nor Marketing or any Tax Return filed by or relating to the Seller, the Company or Marketing. 13 02.01.019 (m) Neither the Seller, the Company nor Marketing is a party to any agreement, contract, plan or arrangement that has resulted, or would result, separately or in the aggregate, in the payment of any "excess parachute payments" within the meaning of Section 280G of the Code. 3.13 Litigation. Except as disclosed in Section 3.13 of the Disclosure Schedule (with paragraph references corresponding to those set forth below): (a) There are no actions, suits, investigations, or proceedings pending, or (to the best knowledge of the Seller) threatened, against the Seller, the Company or Marketing or any of their Assets and Properties, at law or in equity, in, before, or by any Person that individually or in the aggregate have or may reasonably be expected to have a material adverse effect on the validity or enforceability of this Agreement, on the ability of the Seller, the Company or Marketing to perform its respective obligations under this Agreement, or on the Business or Condition of the Seller, the Company or Marketing. (b) There are no actions, suits, investigations, or proceedings pending, or (to the best knowledge of the Seller) threatened, against the Seller, the Company or Marketing or any of their respective Assets and Properties, at law or in equity, in, before, or by any Person that individually involve a claim or claims for any injunction or similar relief or for damages exceeding $25,000 or an unspecified amount of damages. (c) There are no writs, judgments, decrees, or similar orders of any Person outstanding against the Seller, the Company or Marketing that individually exceed $10,000 or that individually or in the aggregate have or may reasonably be expected to have a material adverse effect on the Business or Condition of the Seller, the Company or Marketing, and there are no injunctions or similar orders of any Person outstanding against the Seller, the Company or Marketing. 3.14 Compliance With Laws. Except as disclosed in Section 3.14 of the Disclosure Schedule, neither the Company nor Marketing have or are in violation (or with or without notice or lapse of time or both, would be in violation) of any term or provision of any Law or any writ, judgment, decree, injunction, or similar order applicable to the Company or Marketing or any of their respective Assets and Properties, the result of which violation individually or violations in the aggregate has or may reasonably be expected to have a material adverse effect on the Business or Condition of the Company or Marketing. Without limiting the generality of the foregoing: (a) Since January 1, 1995, the Company and Marketing have duly and validly filed or caused to be so filed all reports, statements, documents, registrations, filings, or submissions that were required by Law to be filed with any Person and as to which the failure to so file, individually in the aggregate with other such failures, has or may reasonably be expected to have a material adverse effect on the Business or Condition of the Company or Marketing; all such filings complied with applicable Laws in all material 14 02.01.020 respects when filed and, no material deficiencies have been asserted by any Person with respect to any such filings. (b) The Seller has previously delivered to the Buyer the reports reflecting the results of the most recent financial examination of the Company issued by the State of Delaware. Except as disclosed in Section 3.13(b) of the Disclosure Schedule, all material deficiencies or violations in such report have been resolved to the satisfaction of the State of Delaware. (c) Except as disclosed in Section 3.13(c) of the Disclosure Schedule, all outstanding insurance and annuity Contracts issued, reinsured, or underwritten by the Company are, to the extent required under applicable Laws, on forms approved by the insurance regulatory authority of the jurisdiction where issued or have been filed with and not objected to by such authority within the period provided for objection. (d) Section 3.13(d) of the Disclosure Schedule contains a true and complete list of each master or prototype (as well as any individually designed) pension, profit sharing, defined benefit, Code Section 401(k), and other retirement or employee benefit plan or Contract (including, but not limited to, simplified employee pension plans, Code Section 403(a), (b) and (c) annuities, Keogh plans, and individual retirement accounts and annuities) offered or sold by the Company to, or maintained or sponsored for the benefit of any employees of, any other Person, and each determination letter relating to the creation or amendment of any such plan or Contract. Except as disclosed in Section 3.13(d) of the Disclosure Schedule, each such plan or Contract in all material respects conforms with, and has been offered, sold, maintained, and sponsored in accordance with, all applicable Laws. Except as disclosed in Section 3.13(d) of the Disclosure Schedule, the Company or Marketing is not a fiduciary with respect to any plan or Contract referenced in this Section 3.13(d). (l) The Company does not provide administrative or other contractual services for any plan or Contract referenced in this Section 3.l3(d), including, but not limited to, any third party administrative services for an Employee Welfare Benefit Plan. (2) To the extent that the Company maintains any collective or commingled funds or accounts which restrict the Persons who may invest therein to tax-exempt entities or qualified plans, each such fund or account (of which a true and complete list and description is disclosed in Section 3.13(d)(3) of the Disclosure Schedule) has been established, maintained and operated in accordance with all applicable Laws, has maintained its tax-exempt status and has no non-qualified plans or trusts or other taxable entities investing in it. 15 02.01.021 (3) In addition to the representations and warranties contained in Section 3.12, there are no claims pending, or (to the best knowledge of the Seller, the Company or Marketing) threatened, against the Company or Marketing or any of their respective Assets and Properties, under any fiduciary liability insurance policy issued by or to the Company or Marketing that individually or in the aggregate has or may reasonably be expected to have a material adverse effect on the Business or Condition of the Company or Marketing. 3.15 Benefit Plans, ERISA. (a) Section 3.15(a) of the Disclosure Schedule contains a true and complete list and description of, and discloses the annual amount accrued or payable for each of the years ended December 31, 1992, 1993, and 1994 under, each of the Benefit Plans and identifies each of the Benefit Plans that is an Employee Pension Benefit Plan or an Employee Welfare Benefit Plan, and sets forth the valuation date of each such Benefit Plan. Neither the Seller, the Company nor Marketing, nor any of their respective Affiliates has any Contract, plan, or commitment, whether legally binding or not, to create any additional Benefit Plan or to modify or change any existing Benefit Plan. Each contribution or other payment required to be made or to be voluntarily made by each of the Seller, the Company and Marketing on or before December 31, 1994 with respect to any of the Benefit Plans is disclosed in Section 3.15(a) of the Disclosure Schedule, together with the date such contribution or payment is due or is to be made. Except as disclosed in Section 3.15(a) of the Disclosure Schedule, no stock or other security issued by the Seller, the Company or Marketing or any of their respective Affiliates forms or has formed a material part of the Assets and Properties of any Benefit Plan. (b) None of the Benefit Plans is or has been a multi-employer plan, as that term is defined in Section 3(37) of ERISA. There has been no transaction, action, or omission involving the Seller, the Company or Marketing, any ERISA Affiliate, or (to the best knowledge of the Seller) any fiduciary, trustee, or administrator of any Benefit Plan, or any other Person dealing with any such Benefit Plan or the related trust or funding vehicle, that in any manner violates or will result in a violation (with or without notice or lapse of time or both) of Sections 404 or 406 of ERISA or constitutes or will constitute (with or without notice or lapse of time or both) a prohibited transaction (as defined in Section 4975(c)(I) of the Code or Section 406 of ERISA) for which there exists neither a statutory nor a regulatory exemption and which could subject the Seller, the Company or Marketing or any party in interest (as defined in Section 3(14) of ERISA) to criminal or civil sanctions under Section 501 or 502 of ERISA, or to Taxes under Code Section 4975, or to any other Liability. (c) Except as disclosed in Section 3.15(c) of the Disclosure Schedule, there has been no reportable event (as defined in Section 4043(b) of ERISA) with respect to any Employee Pension Benefit Plan or any Employee Welfare Benefit Plan for which notice to 16 02.01.022 the PBGC has not been waived by rule or regulation. Neither the Seller, the Company nor Marketing, nor any EPISA Affiliate has any Liability to the PBGC (other than any Liability for insurance premiums not yet due to the PBGC), to any present or former participant in or beneficiary of any Benefit Plan (or any beneficiary of any such participant or beneficiary), or to any Employee Pension Benefit Plan or any Employee Welfare Benefit Plan. To the best knowledge of the Seller, no event, fact, or circumstance has arisen or occurred that has resulted or may reasonably be expected to result in any such Liability or a claim against the Seller, the Company or Marketing by the PBGC, by any present or former participant in or any beneficiary of any Employee Pension Benefit Plan or any Employee Welfare Benefit Plan (or any beneficiary of any such participant or beneficiary), or by any such Benefit Plan. Except as provided in Section 5.8 hereof or as disclosed in Section 3.15(c) of the Disclosure Schedule, no filing has been or will be made by the Seller, the Company or Marketing, or any ERISA Affiliate, and no proceeding has been commenced, for the complete or partial termination of any Employee Pension Benefit Plan or any Employee Welfare Benefit Plan, and no complete or partial termination of any such Benefit Plan has occurred or, as a result of the execution or delivery of this Agreement or the consummation of the transactions contemplated hereby, will occur. (d) All amounts that each of the Seller, the Company and Marketing is required to pay by Law or under the terms of the Benefit Plans as a contribution or other payment to or in respect of such Benefit Plans as of the last day of the most recent fiscal year of each of the Benefit Plans have been paid. The funding method used in connection with each Benefit Plan that is or at any time has been subject to the finding requirements of Title I, Subtitle B, Part 3 of ERISA, meets the requirements of ERISA and the Code. No Benefit Plan subject to Title IV of ERISA (or any trust established thereunder) has ever incurred any accumulated funding deficiency (as defined in Section 302 of ERISA and Section 412 of the Code), whether or not waived, as of the last day of the most recent fiscal year of such Benefit Plan. With respect to any period for which any contribution or other payment to or in respect of any Benefit Plan is not yet due or owing, each of the Seller, the Company and Marketing has made due and sufficient current accruals for such contributions and other payments in accordance with GAAP and SAP, and such current accruals through September 30, 1995 are duly and fully provided for in the SAP Statement of the Company for the period then ended. (c) Each Benefit. Plan is and has been operated and administered in all material respects in accordance with all applicable Laws, including, without limitation, ERISA and the Code. Each of the Employee Pension Benefit Plans and Employee Welfare Benefit Plans that is intended to be qualified within the meaning of Section 401(a) of the Code is so qualified and satisfies the requirements of Sections 401(a) and 501(a) of the Code. There exists no fact, condition, or set of circumstances that has or may reasonably be expected to have a material adverse effect on the qualified status of any Employee Pension Benefit Plan or any Employee Welfare Benefit Plan intended to be so qualified or the intended United States Federal Income Tax treatment or consequences of any Employee Pension Benefit Plan or any Employee Welfare Benefit Plan. None of the Benefit Plans, or any related trust 17 02.01.023 or funding vehicle, conducts or has conducted any unrelated trade or business as that term is defined in Section 513 of the Code. All necessary governmental approvals, determinations, and notifications for all Employee Pension Benefit Plans and all Employee Welfare Benefit Plans have been obtained. (f) The actuarial assumptions utilized, where appropriate, in connection with determining the funding of each Employee Pension Benefit Plan (as set forth in the actuarial report for such Benefit Plan) are reasonable in all material respects. Based on such actuarial assumptions, as of December 31, 1994 the fair market value of the Assets or Properties held under each Employee Pension Benefit Plan exceeds the actuarially determined present value of all accrued benefits of such Benefit Plan (whether or not vested) determined on an ongoing-Benefit Plan basis. (g) Except as disclosed in Section 3.l5(g) of the Disclosure Schedule, and except for claims by third parties for benefits owed to participants or beneficiaries under the Benefit Plans, and except for divorce proceedings, there are no pending or (to the best knowledge of the Seller) threatened actions, suits, investigations, or other proceedings by any present or former participant or beneficiary under any Benefit Plan (or any beneficiary of any such participant or beneficiary) involving any Benefit Plan or any rights or benefits under any Benefit Plan or any rights or benefits under any Benefit Plan other than ordinary and usual claims for benefits by participants or beneficiaries thereunder. There is no writ, judgment, decree, injunction, or similar order of any court, governmental or regulatory authority, or other similar Person outstanding against or in favor of any Benefit Plan or any fiduciary thereof. 3.16 Properties. Except as disclosed in Section 3.16 of the Disclosure Schedule (with paragraph references corresponding to those set forth below): (a) The Company has good and valid title to all debentures, notes, stocks, securities, and other assets that are of a type required to be disclosed in Schedules B through DB of its Annual Statement and that are owned by it, free and clear of all Liens. (b) Each of the Company and Marketing owns good and indefeasible title to, or has a valid leasehold interest in, all real property used in the conduct of its business, operations, or affairs or, with respect to the Company, of a type required to be disclosed in Schedule A of the Company's Annual Statement, free and clear of all Liens. All such real property, other than raw land, is in good operating condition and repair and is suitable for its current uses. No improvement on any such real property owned, leased, or held by the Company or Marketing encroaches upon any real property of any other Person. The Company and Marketing owns, leases, or has a valid right under Contract to use adequate means of ingress and egress to, from, and over all such real property. 18 02.01.024 (c) The Company and Marketing owns good and indefeasible title to, or has a valid leasehold interest in or has a valid right under Contract to use, all tangible personal property that is used in the conduct of their respective business, operations, or affairs, free and clear of all Liens. All such tangible personal property is in good operating condition and repair and is suitable for its current uses. (d) Each of the Company and Marketing has, and at all times after the Closing will have, the right to use, free and clear of any royalty or other payment, obligations, claims of infringement or alleged infringement, or other Liens, all marks, names, trademarks, service marks, patents, patent rights, assumed names, logos, trade secrets, copyrights, trade names, and service marks that are used in the conduct of their respective business, operations, or affairs (of which a true and complete list and description is disclosed in Section 3.16(e) of the Disclosure Schedule), and all computer software, programs, and similar systems owned by or licensed to the Seller, the Company or Marketing or any Affiliate of the Company or Marketing or used in the conduct of their business, operations, or affairs (of which a true and complete list and description is disclosed in Section 3.16(e) of the Disclosure Schedule). Neither the Seller, the Company nor Marketing is in conflict with or in violation or infringement of; nor has the Seller, the Company or Marketing received any notice of any conflict with or violation or infringement of or any claimed conflict with, any asserted rights of any other Person with respect to any intellectual property or any computer software, programs, or similar systems, including, without limitation, any of such items disclosed in Section 3.16(e) of the Disclosure Schedule. 3.17 Contracts. Section 3.17 of the Disclosure Schedule (with paragraph references corresponding to those set forth below) contains a true and complete list of each of the following Contracts or other documents or arrangements (true and complete copies, or, if none, written descriptions, of which have been made available to the Buyer, together with all amendments thereto), to which the Company or Marketing is a party or by which any of their respective Assets and Properties is or may be bound: (a) all employment, agency, consultation, or representation Contracts or other Contracts of any type (including, without limitation, loans or advances) with any present officer, director, employee, agent, consultant, or other similar representative of the Company or Marketing (or former officer, director, employee, agent, consultant or similar representative of the Company or Marketing, if there exists any present or future liability with respect to such Contract, whether now existing or contingent) (other than Contracts with consultants and similar representatives who do not receive compensation of $50,000 or more per year and other than employment or agency Contracts, not containing terms which are unduly burdensome to the Company or Marketing, with agents who do not receive compensation of $50,000 or more per year), and the name, position, and rate of compensation of each such Person and the expiration date of each such Contract, as well as all sick leave, vacation, holiday, and other similar practices, procedures, and policies of each 19 02.01.025 of the Seller, the Company or Marketing established or administered other than as Benefit. Plans; (b) all Contracts with any Person containing any provision or covenant limiting the ability of the Company or Marketing to engage in any line of business or to compete with or to obtain products of services from any Person or limiting the ability of any Person to compete with or to provide products or services to the Company or Marketing; (c) all partnership, joint venture, profit-sharing, or similar Contracts with any Person (other than Benefit Plans); (d) all Contracts relating to the borrowing of money by the Company or Marketing or to the direct or indirect guarantee by the Company or Marketing of any obligation for borrowed money in excess of $25,000 in the aggregate for the Company or Marketing or any of their respective Affiliates, or any other Liability in respect of indebtedness of any other Person, including without limitation any Contract relating to the maintenance of compensating balances that are not terminable by the Company or Marketing without penalty upon not more than sixty (60) calendar days' notice, any line of credit or similar facility, the payment for property, products, or services of any other Person even if such property, products, or services are not conveyed, delivered, or rendered, or the obligation to take-or-pay, keep-well, make-whole, or maintain surplus or earnings levels or perform other financial ratios or requirements; Section 3.17(d) of the Disclosure Schedule contains a true and complete list of any requirements for consents or approvals of creditors needed to consummate the transactions contemplated hereby; (e) all leases or subleases of real property used in the Company's or Marketing's business, operations, or affairs, and all other leases, subleases, or rental or use Contracts for which the Company or Marketing is liable; (f) all Contracts relating to the future disposition or acquisition of any investment in or security of any Person or of any interest in any business enterprise (other than the disposition or acquisition of investments in the ordinary course of business and consistent with past practice); (g) all Contracts or arrangements (including, without limitation, those relating to the sharing or allocation of expenses, personnel, services, or facilities) between or among the Seller, the Company and Marketing and any of their respective Affiliates or any other Person who is described in Section 3.l0(p); (h) all reinsurance, coinsurance, or other similar Contracts indicating, with respect to each such Contract, the information required to be disclosed in Schedule 5 of the Company's Annual Statement; 20 02.01.026 (i) all outstanding proxies, powers of attorney, or similar delegations of authority of the Company or Marketing, except for powers of attorney for the service of process pursuant to applicable insurance Laws with respect to the Company; (j) all Contracts for any product, service, equipment, facility, or similar item (other than insurance and annuity Contracts issued, reinsured, or underwritten by the Company and other than reinsurance, coinsurance, and other similar Contracts) that by their respective terms do not expire or terminate or are not terminable by the Company or Marketing, without penalty or other Liability, within six (6) months after December 31, 1995; and (k) all other Contracts (other than insurance and annuity Contracts issued, reinsured, or underwritten by the Company) that involve the payment or potential payment, pursuant to the terms of such Contracts, by or to the Company or Marketing of more than $10,000 individually or in the aggregate or that are otherwise material to the Business or Condition of the Company or Marketing. Each Contract disclosed or required to be disclosed in the Disclosure Schedule pursuant to this Section is in full force and effect and constitutes a legal, valid, and binding obligation of the Company or Marketing and of each other Person that is a party thereto in accordance with its terms; and neither the Company nor Marketing nor (to the best knowledge of the Seller, the Company and Marketing) any other party to such Contract is in violation or breach of or default under any such Contract, (or with or without notice or lapse of time or both, would be in violation or breach of or default under any such Contract). Except as disclosed in Section 3.17 of the Disclosure Schedule (with a specific reference to this sentence), neither the Company nor Marketing is a party to or bound by any Contract that was not entered into in the ordinary course of business and consistent with past practice or that has or may reasonably be expected to have, individually or in the aggregate with any other Contracts, a material adverse effect on the Business or Condition of the Company or Marketing. Neither the Company nor Marketing is not a party to or bound by any collective bargaining or similar labor Contract. 3.18 Insurance Issued by the Company. Except as required by Law or except as disclosed in Section 3.18 of the Disclosure Schedule (with paragraph references corresponding to those set forth below): (a) All insurance or annuity Contract benefits payable to the Company by any other Person that is a party to or bound by any reinsurance, coinsurance, or other similar Contract with the Company have in all material respects been paid in accordance with the terms of the insurance, annuity, and other Contracts under which they arose, except for such benefits for which the Company reasonably believes there is a reasonable basis to contest payment. 21 02.01.027 (b) No outstanding insurance or annuity Contract issued, reinsured, or underwritten by the Company entitles the holder thereof or any other Person to receive dividends, distributions, or to share in the income of the Company or receive any other benefits based on the revenues or earnings of the Company or any other Person. (c) The underwriting standards utilized and ratings applied by the Company and (to the best knowledge of the Seller and the Company) by any other Person that is a party to or bound by any reinsurance, coinsurance, or other similar Contract with the Company conform in all material respects to industry accepted practices and to the standards and ratings required pursuant to the terms of the respective reinsurance, coinsurance, or other similar Contracts. (d) To the best knowledge of the Seller and the Company, all amounts to which the Company is entitled under reinsurance, coinsurance, or other similar Contracts (including without limitation amounts based on paid and unpaid losses) are fully collectible. (e) To the best knowledge of the Seller and the Company, each insurance agent, at the time such agent wrote, sold, or produced business for the Company, was duly licensed as an insurance agent (for the type of business written, sold, or produced by such insurance agent) in the particular jurisdiction in which such agent wrote, sold, or produced such business for the Company. (f) To the best knowledge of the Seller and the Company, no such insurance agent violated (or with or without notice or lapse of time or both, would have violated) any term or provision of any Law or any writ, judgment, decree, injunction, or similar order applicable to the writing, sale, or production of business for the Company. (g) The tax treatment under the Code of all insurance, annuity or investment policies, plans, or contracts; all financial products, employee benefit plans, individual retirement accounts or annuities; or any similar or related policy, contract, plan, or product., whether individual, group, or otherwise, issued or sold by the Company is and at all times has been the same or more favorable to the Buyer, policyholder or intended beneficiaries thereof as the tax treatment under the Code for which such contracts qualified or purported to qualify at the time of its issuance or purchase. For purposes of this Section 3.18(g), the provisions of the Code relating to the tax treatment of such contracts shall include, but not be limited to, Sections 72, 79, 89, 101, 104, 105, 106, 125, 130, 401, 402, 403, 404, 408, 412, 415, 419, 419A, 501, 505, 817, 818, 7702, and 7702A of the Code. 3.19 Threats of Cancellation. Except as disclosed in Section 3.19 of the Disclosure Schedule, since December 31, 1994 no policyholder, group of policyholder Affiliates, or Persons writing, selling, or producing insurance business that. individually or in the aggregate accounted for five percent 5% or more of the premium or annuity income of the Company for the year ended 22 02.01.028 December 31, 1993, has terminated or (to the best knowledge of the Seller or the Company) threatened to terminate its relationship with the Company. 3.20 Licenses and Permits. Except as disclosed in Section 3 20 of the Disclosure Schedule (with paragraph references corresponding to those set forth below): (a) Each of the Company and Marketing owns or validly holds, all licenses, franchises, permits, approvals, authorizations, exemptions, classifications, certificates, registrations, and similar documents or instruments that are required for its business, operations, and affairs and that the failure to so own or hold has or may reasonably be expected to have a material adverse effect on its Business or Condition. (b) All such licenses, franchises, permits, approvals, authorizations, exemptions, classifications, certificates, registrations, and similar documents or instruments are valid and in full force and effect and free of any restrictions imposed by any Person. 3.21 Operations Insurance. Section 3.21 of the Disclosure Schedule contains a true and complete list and description of all liability, property, workers compensation, directors and officers liability, and other similar insurance contracts that insure the business, operations, or affairs of the Company or Marketing or affect or relate to the ownership, use, or operations of any of the Assets and Properties of the Company or Marketing and that have been issued to the Company, Marketing or any of their Affiliates (including, without limitation, the names and addresses of the insurers, the expiration dates thereof, and the annual premiums and payment terms thereof) or that are held by the Company, Marketing or by any Affiliate of the Seller for the benefit of the Company or Marketing following the Closing. All such insurance is in full force and effect and (to the best knowledge of the Seller, the Company and Marketing) is with financially sound and reputable insurers and, in light of the business, operations, and affairs of the Company and Marketing, is in amounts and provides coverage that are reasonable and customary for Persons in similar businesses. 3.22 Intercompany Accounts. Except as reflected in the September 30, 1995 SAP Statement, or except as disclosed in Section 3.22 of the Disclosure Schedule, there are no intercompany accounts (receivable or payable) between the Company, Marketing and any of their Affiliates, and neither the Seller nor any of its Affiliates provides or causes to be provided to the Company or Marketing any products, services, equipment, facilities, or similar items that, in the case of this clause (b), individually or in the aggregate are or may reasonably be expected to be material to the Business or Condition of the Company or Marketing. Except as disclosed in Section 3.22 of the Disclosure Schedule, since December 31, 1994 no such intercompany accounts in excess of $10,000 have been received or paid, and all settlements of such intercompany accounts have been made, and all allocations of such intercompany expenses have been applied, in the ordinary course of business and consistent with past practice. 3.23 Bank Accounts. Section 3.23 of the Disclosure Schedule contains a true and complete list of the names and locations of all banks, trust companies, securities brokers, and other 23 02.01.029 financial institutions at which each of the Company and Marketing has an account or safe deposit box or maintains a banking, custodial, trading, or other similar relationship and a true and complete list and description of each such account, box, and relationship, indicating in each case the account number and the names of the officers, employees, agents, or other similar representatives of the Company or Marketing transacting business with respect thereto. 3.24 Brokers. All negotiations relative to this Agreement and the transactions contemplated hereby have been carried out by the Seller directly with the Buyer, without the intervention of any Person on behalf of the Seller in such manner as to give rise to any valid claim by any Person against the Buyer or the Seller for a finder's fee, brokerage commission, or similar payment. 3.25 Disclosure. Neither this Agreement nor any certificate furnished by the Seller, the Company or Marketing to the Buyer in connection with this Agreement or the transactions contemplated hereby contains any untrue statement of a material fact by the Seller, the Company or Marketing or omits to state a material fact by the Seller, the Company or Marketing necessary to make the statements herein or therein not misleading in light of the circumstances in which they were made. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER The Buyer hereby represents and warrants to the Seller as follows: 4.1 Organization. The Buyer is a corporation duly organized, validly existing, and in good standing under the Laws of the State of Indiana and has fill corporate power and authority to enter into this Agreement, and to perform its obligations under this Agreement. The Buyer is duly licensed, qualified, or admitted to do business and is in good standing in all jurisdictions in which the failure to be so licensed, qualified, or admitted and in good standing, individually or in the aggregate with other such failure, has or may reasonably be expected to have a material adverse effect on the validity or enforceability of this Agreement, on the ability of the Buyer to perform its obligations under this Agreement or on the Business or Condition of the Buyer. 4.2 Authority. The Board of Directors of the Buyer has duly and validly approved this Agreement and the transactions contemplated hereby. The execution and delivery of this Agreement by the Buyer and the performance by the Buyer of its obligations under this Agreement have been duly and validly authorized by all necessary corporate action on the part of the Buyer. This Agreement constitutes a legal, valid, and binding obligation of the Buyer and is enforceable against the Buyer in accordance with its terms, except to the extent that enforcement may be limited by or subject to any bankruptcy, insolvency, reorganization, moratorium, or similar Laws now or hereafter in effect relating to or limiting creditors' rights generally and the remedy of specific performance and injunctive and other forms of equitable relief are subject to certain equitable defenses and to the discretion of the court, 24 02.01.030 or other similar Person before which any proceeding therefor may be brought. 4.3 No Conflicts or Violations. The execution and delivery of this Agreement by the Buyer do not, and the performance by the Buyer of its obligations under this Agreement will not: (a) subject to obtaining the approvals contemplated by Section 6.1 hereof, violate any term or provision of any Law or any writ, judgment, decree, injunction, or similar order applicable to the Buyer; (b) conflict with or result in a violation or breach of, or constitute (with or without notice or lapse of time or both) a default under, any of the terms, conditions, or provisions of the articles of incorporation or Bylaws of the Buyer; (c) result in the creation or imposition of any Lien upon the Buyer or any of its Assets and Properties that individually or in the aggregate with any other Liens has or may reasonably be expected to have a material adverse effect on the validity or enforceability of this Agreement or on the ability of the Buyer to perform its obligations under this Agreement; (d) conflict with or result in a violation or breach of, or constitute (with or without notice or lapse of time or both) a default under, or give to any person any right of termination, cancellation, acceleration, or modification in or with respect to, any Contract to which the Buyer is a party or by which any of its Assets and Properties may be bound and as to which any such conflicts, violations, breaches, defaults, or rights individually or in the aggregate have or may reasonably be expected to have a material adverse effect on the validity or enforceability of this Agreement or on the ability of the Buyer to perform its obligations under this Agreement; or (e) require the Buyer to obtain any consent, approval, or action of, or make any filing with or give any notice to, any Person except as contemplated in Sections 6.1 or 6.7, as disclosed in writing to the Seller, or those which the failure to obtain, make, or give individually or in the aggregate with other such failures has or may reasonably be expected to have no material adverse effect on the validity or enforceability of this Agreement or on the ability of the Buyer to perform its obligations under this Agreement. 25 02.01.031 4.4 Litigation. (a) There are no actions, suits, investigations, or proceedings pending against the Buyer, or (to the best knowledge of the Buyer) threatened against the Buyer at law or in equity, in, before, or by any Person, that individually or in the aggregate have or may reasonably be expected to have a material adverse effect on the validity or enforceability of this Agreement, on the ability of the Buyer to perform its obligations under this Agreement or on the Business and Condition of the Buyer. (b) Except as disclosed in Section 4.4 of the Disclosure Schedule, there are no actions, suits, investigations, or proceedings pending, or (to the best knowledge of the Buyer) threatened, against Buyer or any of its respective Assets and Properties, at law or in equity, in, before, or by any Person that individually involve a claim or claims for any injunction or similar relief or for Damages exceeding $25,000 or an unspecified amount of Damages. (c) There are no writs, judgments, decrees, or similar orders of any Person outstanding against Buyer that individually exceed $10,000 or that individually or in the aggregate have or may reasonably be expected to have a material adverse effect on the Business or Condition of Buyer, and there are no injunctions or similar orders of any Person outstanding against Buyer. 4.5 Purchase for Investment The Shares will be acquired by the Buyer for its own account for the purpose of investment. The Buyer agrees that: it will not offer, sell, pledge, hypothecate, or otherwise dispose of the shares unless such offer, sale, pledge, hypothecation or other disposition is (i) registered under the Securities Act of 1933 and any other applicable securities laws, or (ii) in compliance with an opinion of counsel to the Buyer, delivered to the Seller and reasonably acceptable to it, to the effect that such offer, sale, pledge, hypothecation or other disposition does not violate the Securities Act of 1933 or such other securities laws; and the certificate(s) representing the Shares shall bear a legend evidencing the restrictions or transfer set forth in the foregoing clause (a). 4.6 Capitalization. The authorized capital stock of Buyer consists of 20,000,000 shares of common stock and 1,000,000 shares of preferred stock. As of November 30, 1995, there were: issued and outstanding 5,459,573 shares of common stock, of which 502,025 shares are in the treasury; stock options to acquire 1,116,235 shares of common stock of which options to acquire 726,071 shares of common stock were exercisable; and warrants to acquire 593,790 shares of common stock, of which warrants to acquire 575,790 shares of common stock were exercisable. No shares of preferred stock were outstanding, but 300,000 shares of Class 5 Convertible Cumulative Redeemable Preferred Stock ("Class 5 Preferred"), which is convertible into common stock, were designated and reserved for issuance. Buyer is obligated to issue the Class 5 Preferred, and such issuance has been approved pursuant to a final, non-appealable order of the United States District Court, Southern District of Indiana, Indianapolis Division. All outstanding shares of capital stock of Buyer have been duly authorized and validly issued and are fully paid and nonassessable 26 02.01.032 and free of preemptive rights. Except as set forth in this Section 4.6, there are outstanding (a) no other shares of capital stock or other voting securities of Buyer, (b) no securities of Buyer convertible into or exchangeable for shares of capital stock or voting securities of Buyer, and (c) no other options or other rights to acquire from Buyer, and no obligation of Buyer to issue, any capital stock, voting securities or securities convertible into or exchangeable for, or options or warrants to purchase, capital stock or voting securities of Buyer (the items in clauses (a), (b) and (c) being referred to, together with the common stock, collectively as the "Buyer Securities"). There are no outstanding obligations of Buyer to repurchase, redeem or otherwise acquire any of Buyer's Securities. 4.7 Taxes. Except as disclosed in Section 4.7 of the Disclosure Schedule (with paragraph references corresponding to those set forth below): (a) All Tax Returns required to be filed with respect to Buyer have been duly and timely filed, and to the best of Buyer's knowledge, all such Tax Returns are true and complete in all material respects. The Buyer has duly and timely paid all Taxes that are due, or claimed or asserted by any taxing authority to be due, from Buyer for the periods covered by such Tax Returns or has duly provided for all such Taxes in the Books and Records of Buyer and in accordance with GAAP and SAP, including, without limitation, in the Financial Statements. There are no Liens with respect to Taxes (except for Liens with respect to real property Taxes not yet due) upon any of the Assets and Properties of Buyer. (b) With respect to any period for which Tax Returns have not yet been filed, or for which Taxes are not yet due or owing, Buyer has made due and sufficient current accruals for such Taxes in its Books and Records and in accordance with SAP and GAAP, and such current accruals through September 30, 1995 are duly and fully provided for in the Financial Statements of Buyer for the period then ended. (c) The United States federal income Tax Returns of Buyer and of each affiliated group (within the meaning of the Code) of which Buyer is or has been a member have not been audited or examined by the IRS, and the statute of limitations for all periods through the year 1991 has expired. The state, local, and foreign income Tax Returns of Buyer and of each affiliated or consolidated group of which Buyer is or has been a member have not been audited or examined, and all statutes of limitation for all applicable state, local, and foreign taxable periods through the respective years specified in Section 4.7(c) of the Disclosure Statement have expired. There are no outstanding agreements, waivers, or arrangements extending the statutory period of limitation applicable to any claim for, or the period for the collection or assessment of, Taxes due from Buyer for any taxable period. The Buyer has previously delivered to the Seller true and complete copies of each of the most recent audit reports relating to the United States federal, state, local, and foreign income Taxes due from Buyer and the United States federal, state, local, and foreign income Tax Returns, for each of the last three taxable years, filed by Buyer (insofar as such returns relate to Buyer) filed by any affiliated or consolidated group of which Buyer was then a member. 27 02.01.033 (d) No audit or other proceeding by any court, governmental or regulatory authority, or similar Person is pending or (to the knowledge of the Buyer) threatened with respect to any Taxes due from Buyer or any Tax Return filed by or relating to Buyer. To the best knowledge of Buyer, no assessment of Tax is proposed against Buyer or any of its Assets and Properties. (e) No election under any of Sections 108, 168, 338, 441, 463, 472, 1017, 1033, or 4977 of the Code (or any predecessor provisions) has been made or filed by or with respect to Buyer or any of its Assets and Properties. No consent to the application of Section 341(f)(2) of the Code (or any predecessor provision) has been made or filed by or with respect to Buyer or any of its Assets and Properties. No closing agreement pursuant to Section 7121 of the Code (or any predecessor provision) or any similar provision of any state, local, or foreign Law has been entered into by or with respect to Buyer or any of its Assets and Properties. (f) Buyer has not agreed to nor is required to make any ad- justment pursuant to Section 481(a) of the Code (or any predecessor provision) by reason of any change in any accounting method of Buyer, and Buyer does not have any application pending with any taxing authority requesting permission for any changes in any accounting method of Buyer. To the best knowledge of Buyer, the IRS has not proposed any such adjustment or change in accounting method. (g) Buyer has not been or is not in violation (or with notice or lapse of time or both, would be in violation) of any applicable Law relating to the payment or withholding of Taxes. Buyer has duly and timely withheld from employee salaries, wages, and other compensation and paid over to the appropriate taxing authorities all amounts required to be so withheld and paid over for all periods under all applicable Laws. (h) Buyer is not a party to, is not bound by, nor has any obligation under, any Tax sharing Contract or similar Contract; notwithstanding any disclosure contained in the Disclosure Schedule, Buyer represents and warrants that, at the Closing, Buyer shall not be a party to, be bound by or have any obligation under, any Tax sharing Contract or similar Contract or arrangement. Buyer is not a foreign person within the meaning of Section 1445(f)(3) of the Code. (i) Buyer has not made any direct, indirect, or deemed distributions that have been or could be taxed under Section 815 of the Code. (j) No material Liabilities have been proposed in connection with any audit or other proceeding by any court, governmental or regulatory authority, or similar Person with respect to any Taxes due from Buyer or any Tax Return filed by or relating to Buyer. 28 02.01.034 (k) Buyer is not a party to any agreement, contract, plan or arrangement that has resulted, or would result, separately or in the aggregate, in the payment of any "excess parachute payments" within the meaning of Section 2800 of the Code. 4.8 Compliance With Laws. Except as disclosed in Section 4.8 of the Disclosure Schedule, Buyer is not in violation (or with or without notice or lapse of time or both, would be in violation) of any term or provision of any Law or any writ, judgment, decree, injunction, or similar order applicable to Buyer or any of its respective Assets and Properties, the result of which violation individually or violations in the aggregate has or may reasonably be expected to have a material adverse effect on the Business or Condition of Buyer. Without limiting the generality of the foregoing: (a) Since January 1, 1995, Buyer has duly and validly filed or caused to be so filed all reports, statements, documents, registrations, filings, or submissions that were required by Law to be filed with any Person and as to which the failure to so file, individually in the aggregate with other such failures, has or may reasonably be expected to have a material adverse effect on the Business or Condition of Buyer; all such filings complied with applicable Laws in all material respects when filed and, no material deficiencies have been asserted by any Person with respect to any such filings. (b) The Buyer has previously delivered to the Seller the reports reflecting the results of the most recent financial examination of Standard Life Insurance Company of Indiana ("Standard Life") issued by the State of Indiana. Except as disclosed in Section 4.8(b) of the Disclosure Schedule, all material deficiencies or violations in such report have been resolved to the satisfaction of the State of Indiana. (c) Except as disclosed in Section 4.8(c) of the Disclosure Schedule, all outstanding insurance and annuity Contracts issued, reinsured, or underwritten by Standard Life are, to the extent required under applicable Laws, on forms approved by the insurance regulatory authority of the jurisdiction where issued or have been filed with and not objected to by such authority within the period provided for objection. 4.9 Employee Benefit Plans. (a) Section 4.9 of the Disclosure Schedule contains a list of each employee benefit plan (as defined in Section 3(3) of ERISA, hereinafter referred to individually as a "Buyer Plan" and collectively as the "Buyer Plans") pursuant to which Buyer has any material present or future obligations or liabilities with respect to its employees or former employees or their dependents or beneficiaries; (b) Buyer has delivered or made available to Seller, or will deliver or make available prior to the Closing, copies of the following documents, as they may have been amended to the date hereof, embodying or relating to Buyer Plans: (i) each of Buyer Plans listed in the 29 02.01.035 Section 4.9 of the Disclosure Schedule, including all amendments thereto, and any related trust agreements, group annuity contracts, insurance policies or other funding agreements or arrangements; (ii) the most recent determination letter, if any, from the Internal Revenue Service with respect to the plans that are pension plans as defined in Section 3(2) of ERISA (hereinafter referred to as "Buyer Pension Plans"); (iii) current summary plan descriptions; and (iv) the most recently filed annual return/report on Form 5500 for each of the Buyer Plans. (c) Except as disclosed in Section 4.9(c) of the Disclosure Schedule: (i) the written terms of each of Buyer's Plans and any related trust agreement, group annuity contract, insurance policy or other funding arrangement are in substantial compliance with ERISA and the Code, and each of Buyer's Plans has been administered in substantial compliance with such requirements; (ii) each Buyer Plan which is a Pension Plan meets the requirements of section 401(a) of the Code and has been so qualified since it inception date and each trust forming a part thereof is exempt from income tax pursuant to section 501(a) of the Code; (iii) no "prohibited transaction" (as defined in section 4975 of the Code or section 406 or 407 of ERISA) has occurred which could subject Buyer to any material tax or penalty under section 4975 of the Code or Title I of ERISA; (iv) as of the date of this Agreement, there are no actions, suits, arbitrations or claims pending (other than routine claims for benefits), legal, administrative or other proceedings or governmental investigations pending or, to Buyer's knowledge, threatened, against Buyer Plans or their assets; (v) all contributions due and payable from Buyer with respect to each of the Plans through September 30, 1995 have been made or are reflected on the financial statements of Buyer and each of Buyer's Subsidiaries; (vi) no Pension Plan which is a "single-employer plan," within the meaning of Section 4001(a) (15) of ERISA, nor any single-employer plan of any entity which is considered a predecessor of Buyer or one employer with Buyer under section 4001 of ERISA or section 414 of the Code (a "Buyer ERISA Affiliate") is subject to section 412 of the Code or Title IV of ERISA; (vii) no Buyer Plan currently maintained by Buyer or a Buyer ERISA Affiliate, and no other "employee benefit plan" under which Buyer or a Buyer ERISA Affiliate has any liability or other obligation, is or was a "multiple employer plan" (within the meaning of section 413(c) of the Code) or a "multi-employer plan" (as defined in section 3(37) of ERISA); viii) neither Buyer nor any of Buyer's ERISA Affiliates has incurred any withdrawal liability under Subtitle E of Title IV of ERISA with respect to a multi-employer plan; and (ix) neither Buyer nor any of the Buyer's subsidiaries has any obligations for retiree health and life benefits under any Buyer Plan. (d) Section 4.9(d) of the Disclosure Schedule lists each employment, severance or other similar contract, arrangement or policy and each plan or arrangement (written or oral) providing for insurance coverage (including any self-insured arrangements), workers' compensation, disability benefits, supplemental unemployment benefits, vacation benefits, retirement benefits or for deferred compensation, profit-sharing, bonuses, stock options, stock appreciation or other forms of incentive compensation or post retirement insurance, compensation or benefits which (i) is not a Buyer Plan, and (ii) is entered into, maintained or contributed to, as the case may be, 30 02.01.036 by Buyer or any of the Buyer ERISA Affiliates. Such contracts, plans and arrangements as are described above, copies of descriptions of all of which have been furnished previously to Seller, are referred to collectively herein as the "Buyer Benefit Arrangements." Each Buyer Benefit Arrangement has been maintained in substantial compliance with its terms and with the requirements prescribed by any and all statutes, orders, rules and regulations that are applicable to such Buyer Benefit Arrangement, except where the failure to maintain such Buyer Benefit. Arrangement in such compliance would not have a Buyer material adverse effect. (e) Except as disclosed in Section 4.9(e) of the Disclosure Schedule, Buyer is not a party to or subject to any collective bargaining agreement with any union or any employment contract or arrangement providing for annual future compensation of any officer, consultant, director or employee. 4.10 Properties. Except as disclosed in Section 4 10 of the Disclosure Schedule (with paragraph references corresponding to those set forth below) (a) Buyer has good and valid title to all debentures, notes, stocks, securities, and other assets and that are owned by it free and clear of all Liens. (b) Buyer owns good and indefeasible title to, or has a valid leasehold interest in, all real property used in the conduct of its business, operations, or affairs or, with respect to Buyer, free and clear of all Liens. All such real property, other than raw land, is in good operating condition and repair and is suitable for its current uses. No improvement on any such real property owned, leased, or held by Buyer encroaches upon any real property of any other Person. Buyer owns, leases, or has a valid right under Contract to use adequate means of ingress and egress to, from, and over all such real property. (c) Buyer owns good and indefeasible title to, or has a valid leasehold interest in or has a valid right under Contract to use, all tangible personal property that is used in the conduct of its business, operations, or affairs, free and clear of all Liens. All such tangible personal property is in good operating condition and repair and is suitable for its current uses. (d) Buyer has, and at all times after the Closing will have, the right to use, free and clear of any royalty or other payment obligations, claims of infringement or alleged infringement, or other Liens, all marks, names, trademarks, service marks, patents, patent rights, assumed names, logos, trade secrets, copyrights, trade names, and service marks that are used in the conduct of Buyer's business, operations, or affairs (of which a true and complete list and description is disclosed in Section 4.10(d) of the Disclosure Schedule), and all computer software, programs, and similar systems owned by or licensed to Buyer or any Affiliate of Buyer or used in the conduct of its business, operations, or affairs (of which a true and complete list and description is disclosed in Section 4.10(d) of the Disclosure Schedule). Buyer is not in conflict with or in violation or infringement of, and Buyer has not received any notice of any conflict 31 02.01.037 with or violation or infringement of or any claimed conflict with, any asserted rights of any other Person with respect to any intellectual property or any computer software, programs, or similar systems, including, without limitation, any of such items disclosed in Section 4.10(d) of the Disclosure Schedule. 4.11 Contracts. Section 4.11 of the Disclosure Schedule (with paragraph references corresponding to those set forth below) contains a true and complete list. of each of the following Contracts or other documents or arrangements (true and complete copies, or, if none, written descriptions, of which have been made available to Seller, together with all amendments thereto), to which Buyer is a party or by which any of its respective Assets and Properties is or may be bound: (a) all employment, agency, consultation, or representation Contracts or other Contracts of any type (including, without limitation, loans or advances) with any present officer, director, employee, agent, consultant, or other similar representative of Buyer (or former officer, director, employee, agent, consultant or similar representative of Buyer, if there exists any present or future liability with respect to such Contract, whether now existing or contingent) (other than Contracts with consultants and similar representatives who do not receive compensation of $50,000 or more per year and other than employment or agency Contracts, not containing terms which are unduly burdensome to Buyer, with agents who do not receive compensation of $50,000 or more per year), and the name, position, and rate of compensation of each such Person and the expiration date of each such Contract, as well as all sick leave, vacation, holiday, and other similar practices, procedures, and policies of Buyer established or administered other than as Benefit Plans; (b) all Contracts with any Person containing any provision or covenant limiting the ability of Buyer to engage in any line of business or to compete with or to obtain products of services from any Person or limiting the ability of any Person to compete with or to provide products or services to Buyer; (c) all partnership, joint venture, profit-sharing, or similar Contracts with any Person (other than Benefit Plans); (d) all Contracts relating to the borrowing of money by Buyer or to the direct or indirect guarantee by Buyer of any obligation for borrowed money in excess of $25,000 in the aggregate for Buyer or any of its Affiliates, or any other Liability in respect of indebtedness of any other Person, including without limitation any Contract relating to the maintenance of compensating balances that are not terminable by Buyer without penalty upon not more than sixty (60) calendar days' notice, any line of credit or similar facility, the payment for property, products, or services of any other Person even if such property, products, or services are not conveyed, delivered, or rendered, or the obligation to take-or-pay, keep-well, make-whole, or maintain surplus or earnings levels or perform other financial ratios or requirements; Section 4.11(d) of the Disclosure Schedule contains a 32 02.01.038 true and complete list any requirements for consents or approvals of creditors needed to consummate the transactions contemplated hereby; (e) all leases or subleases of real property used in Buyer's business, operations, or affairs, and all other leases, subleases, or rental or use Contracts for which Buyer is liable; (f) all Contracts relating to the future disposition or acquisition of any investment in or security of any Person or of any interest in any business enterprise (other than the disposition or acquisition of investments in the ordinary course of business and consistent with past practice); (g) all Contracts or arrangements (including, without limitation, those relating to the sharing or allocation of expenses, personnel, services, or facilities) between or among Buyer and any of its Affiliates; (h) all outstanding proxies, powers of attorney, or similar delegations of authority of Buyer; (i) all Contracts for any product, service, equipment, facility, or similar item that by their respective terms do not expire or terminate or are not terminable by Buyer, without penalty or other Liability, within six (6) months after December 31, 1995; and (j) all other Contracts that involve the payment or potential payment pursuant to the terms of such Contracts, by or to Buyer of more than $10,000 individually or in the aggregate or that are otherwise material to the Business or Condition of Buyer. Each Contract disclosed or required to be disclosed in the Disclosure Schedule pursuant to this Section is in full force and effect and constitutes a legal, valid, and binding obligation of Buyer and of each other Person that is a party thereto in accordance with its terms; and to the best knowledge of Buyer, no party to such Contract is in violation or breach of or default. under any such Contract (or with or without notice or lapse of time or both, would be in violation or breach of or default under any such Contract). Except as disclosed in Section 4.11 of the Disclosure Schedule (with a specific reference to this sentence), the Buyer is not a party to or bound by any Contract that was not entered into in the ordinary course of business and consistent with past practice or that has or may reasonably be expected to have, individually or in the aggregate with any other Contracts, a material adverse effect on the Business or Condition of the Buyer. The Buyer is not a party to or bound by any collective bargaining or similar labor Contract. 4.12 Licenses and Permits. Except as disclosed in Section 4.12 of the Disclosure Schedule (with paragraph references corresponding to those set forth below): (a) Buyer owns or validly holds, all licenses, franchises, permits, approvals, authorizations, exemptions, classifications, certificates, registrations, and similar documents or instruments 33 02.01.039 that are required for its business, operations, and affairs and that the failure to so own or hold has or may reasonably be expected to have a material adverse effect on its Business or Condition. (b) All such licenses, franchises, permits, approvals, authorizations, exemptions, classifications, certificates, registrations, and similar documents or instruments are valid and in full force and effect, and free of any restrictions imposed by any Person. 4.13 Brokers. All negotiations relative to this Agreement and the transactions contemplated hereby have been carried out by the Buyer directly with the Seller, without the intervention of any Person on behalf of the Buyer in such manner as to give rise to any valid claim by any Person against the Seller or the Buyer for a finder's fee, brokerage commission, or similar payment, except for Conning & Company, which firm was engaged by Buyer and whose fees shall be the sole responsibility of the Buyer. 4.14 Disclosure. Neither this Agreement nor any certificate furnished by the Buyer to the Seller in connection with this Agreement or the transactions contemplated hereby contains any untrue statement by the Buyer of material fact or omits to state a material fact by the Buyer necessary to make the statements herein or therein not misleading in light of the circumstances in which they were made. ARTICLE V COVENANTS OF SELLER THE COMPANY AND MARKETING The Seller, the Company and Marketing covenant and agree with the Buyer that, at all times before the Closing, the Seller, the Company and Marketing will comply with all of the covenants and provisions of this Article V, except to the extent the Buyer may otherwise consent in writing or to the extent otherwise required or permitted by this Agreement. 5.1 Lender and Regulatory Approvals. The Seller, the Company and Marketing will take all commercially reasonable steps necessary or desirable, and proceed diligently and in good faith and use all commercially reasonable efforts to obtain, as promptly as practicable, all approvals and consents required by the applicable Contract of any holder of indebtedness of the Seller, the Company or Marketing; take all commercially reasonable steps necessary or desirable, and proceed diligently and in good faith and use all commercially reasonable efforts to obtain, as promptly as practicable, all approvals, authorizations, and clearances of governmental and regulatory authorities required of the Seller, the Company or Marketing to consummate the transactions contemplated hereby, and provide such other information and communications to such governmental and regulatory authorities as the Buyer or such authorities may reasonably request; and cooperate with the Buyer in obtaining, as promptly as practicable, all approvals, authorizations, and clearances of governmental, lender or regulatory authorities and others required of the Buyer to consummate the transactions contemplated hereby, including, without limitation, any required approvals of the 34 EX-3 3 03.01 ARTICLES OF INCORPORATION 03.01.001 State of Florida Department of State I certify from the records of this office that GEMCO NATIONAL, INC. is a corporation organized under the laws of the State of Florida, filed on May 11, 1993. The document number of this corporation is P93000035479. I further certify that said corporation has paid all fees and penalties due this office through December 31, 1993, and its status is active. I further certify that said corporation has not filed Articles of Dissolution. Given under my hand and the Great Seal of the State of Florida, at Tallahassee, the Capital, this the Eighteenth Day of May, 1993 /s/ Jim Smith GREAT SEAL OF THE STATE OF FLORIDA Jim Smith IN GOD WE TRUST Secretary of State 03.01.002 Exhibit "A" ARTICLES OF INCORPORATION OF GEMCO NATIONAL, INC. The undersigned, incorporator, for the purpose of forming a corporation under the Florida Business Corporation Act, hereby adopts the following Articles of Incorporation. ARTICLE I NAME The name of the corporation shall be: GEMCO NATIONAL, INC. ARTICLE II PRINCIPAL OFFICE The mailing address of this corporation shall be: 7200 West Camino Real, Boca Raton, Florida 33433 ARTICLE III CAPITAL STOCK The number of shares of stock that this corporation is authorized to have outstanding at any one time is: Thirty Million (30,000,000) Shares Par Value $.50 Per Share ARTICLE IV INITIAL REGISTERED AGENT AND ADDRESS Melvin C. Parker, 7200 West Camino Real, Boca Raton, Florida 33433 ARTICLE V INITIAL DIRECTORS The name and address of the initial directors are: Melvin C. Parker 7200 West Camino Real, Boca Raton, FL 33433 Ronald W. Hayes 7200 West Camino Real, Boca Raton, FL 33433 Donald F.U. Goebert 615 Willowbrook Lane, West Chester, PA 19382 Ernest D. Palmarella 310 Bldg.2. Radnor Corp. Ctr, Radnor, PA 19087 Jack L. Howard 2927 Montecito Avenue, Santa Rosa, CA 95404 ARTICLE VI INCORPORATOR The name and street address of the incorporator to these Articles of Incorporation is: Melvin C. Parker 7200 West Camino Real, Boca Raton, FL 33433 03.01.003 ARTICLE VII AFFILIATED TRANSACTIONS The corporation expressly elects not to be subject to the Florida Business Corporation Law, Affiliated Transactions Statute, Fla. , Stat. 1989, Section 607.0901(1989 Fla. Laws. C 89-154 Section 94), as amended or as may hereinafter be amended ARTICLE VIII CONTROL-SHARE ACQUISITIONS The corporation expressly elects not to be subject to the Florida Business Corporation Law, Control-Share Acquisition Statutes, Fla. Stat. 1989, Sections 607.0902 and 607.0903 (1989 Fla. Laws, C. 89- 154 Section 95 and 96) , as amended or as may hereinafter be amended . The, undersigned as executed these Articles of Incorporation this 24th day of April, 1993 /s/Melvin L. Parker Melvin L. Parker Incorporator 03.01.004 CERTIFICATE OF DESIGNATION AGENT/REGISTERED OFFICE Pursuant to the provisions of Section 607.0501, Florida Statutes, the undersigned corporation, organized under the laws of the State of Florida submits the following statement in designating the registered office/registered agent, in the State of Florida. l. The name of the corporation is: GEMCO NATIONAL , INC. 2. The name and address of the registered agent and office is Melvin C. Parker 7200 West Camino Real, Boca Raton, FL 33433 SIGNATURE /s/ Melvin C. Parker Melvin C. Parker TITLE: Incorporator DATE: 4-25-93 HAVING BEEN NAMED AS REGISTERED AGENT AND TO ACCEPT SERVICE OF PROCESS FOR THE ABOVE STATED CORPORATION AT THE PLACE DESIGNATED IN THIS CERTIFICATE, I HEREBY ACCEPT THE APPOINTMENT AS REGISTERED AGENT AND AGREE TO ACT IN THIS CAPACITY. I FURTHER AGREE TO COMPLY WITH THE PROVISIONS OF ALL STATUTES RELATING TO THE PROPER AND COMPLETE PER- FORMANCE OF MY DUTIES, AND I AM FAMILIAR WITH AND ACCEPT THE OBLIGA- TIONS OF MY POSITION AS REGISTERED AGENT. SIGNATURE /s/ Melvin C. Parker DATE: 4-25-93 03.01.005 ARTICLES OF AMENDMENT TO ARTICLES OF INCORPORATION OF GEMCO NATIONAL, INC. In compliance with the requirements of Section 607.1006, Florida Statutes, the undersigned corporation, desiring to amend its Articles of Incorporation, does hereby certify: l. The name of the corporation is GEMCO NATIONAL, INC. 2. The amendment so adopted is as follows: "'RESOLVED, That Article I of the Articles of Incorporation be amended to read as follows: The name of the Corporation shall be: INVESTORS INSURANCE GROUP, INC. 3. The date of the adoption of the amendment was June 11, 1993 4. The amendment was approved by the shareholders of the single class of shares which the corporation has authority to issue and the number of shares cast for the amendment was sufficient for approval. IN WITNESS WHEREOF, the undersigned corporation has caused these Articles of Amendment to be signed by its President and Secretary this 20 day of July, 1993.' By: /s/ Melvin C. Parker Melvin C. Parker President Attest /s/ Richard T. Magsam Richard Magsam Secretary EX-3 4 03.02 AMENDMENT TO ARTICLES OF INCORPORATION 03.02.001 ARTICLES of AMENDMENT TO ARTICLES of INCORPORATION OF INVESTORS INSURANCE GROUP, INC. In compliance with the requirements of Section 607.1006, Florida Statutes, the undersigned corporation, desiring to amend its Articles of Incorporation does hereby certify: 1. The name of the Corporation is INVESTORS INSURANCE GROUP, INC. 2. The amendment so adopted is as follows: "RESOLVED, that Article III of the Articles of Incorporation, entitled "CAPITAL STOCK" be deleted in its entirety and replaced with the following: (A) The number of shares of stock that this Corporation is authorized to have outstanding at any one time shall be equal to Fifty Million (50,000,000) consisting of: 1. Twenty Million (20,000,000) Preferred Shares, no par value. 2. Thirty Million (30,000,000) Common Shares, par value $.50 per share. (B) The Board of Directors is authorized, subject to the limitations prescribed by law and the provisions of this Article III, to provide for the issuance of the shares of Preferred Stock in series, and by filing an amendment pursuant to section 607.0602 of the Florida Corporation Laws, to establish from time to time the number of shares to be included in such series, and to fix the designation, powers, preferences and rights of the shares of such series and the qualifications, limitations or restrictions thereof, without shareholder action. The authority of the Board of Directors with respect to each series shall include, but not be limited to, determination of the following: (a) The number of shares constituting that series and the distinctive designation of that series; (b) The dividend rate on the shares of that series, if any, whether dividends shall be cumulative, and, if so, from which date or dates, and the relative rights of priority, if any, of payment of dividends on shares of that series; 03.02.002 (c) Whether that series shall have voting rights, and if so the terms of such voting rights; (d) Whether that series shall have conversion privileges, and, if so, the terms and conditions of such conversion, including provision for adjustment of the conversion rate in such events as the Board of Directors shall determine; (e) Whether or not the shares of that series shall be redeemable, and, if so, the terms and conditions of such redemption, including the date or dates upon or after which they shall be redeemable, and the amount per share payable in case of redemption, which amount shall vary under different conditions and at different redemption dates; (f) Whether that series shall have a sinking fund for the redemption or purchase of shares of that series, and, if so, the terms and amount of such sinking fund; (g) The rights of the shares of that series in the event of voluntary or involuntary liquidation, dissolution or winding up of the corporation, and the relative rights of priority, if any, of payment of shares of that series; (h) Any other relative rights, preferences and limitations of that series. Dividends on outstanding shares of Preferred Stock shall be paid or declared and set apart for payment before any dividends shall be paid or declared and set apart for payment on the common shares with respect to the same dividend period." 3. The date of the adoption of the amendment was November 17, 1995. 4. The amendment was approved by the shareholders of the single class of shares which the corporation has authority to issue and the number of shares cast for the amendment was sufficient for approval. IN WITNESS WHEREOF, the undersigned corporation has caused these Articles of Amendment to be signed by its President and Secretary this 9th day of February, 1996. By: /s/ Melvin C. Parker Attest: /s/ Susan F. Powell -------------------- -------------------- Melvin C. Parker, President Susan F. Powell, Assistant Secretary (SEAL) EX-3 5 03.03 IIG BYLAWS 03.03.001 CORPORATE RECORDS OF GEMCO NATIONAL, INC. ***** INCORPORATED UNDER THE LAWS OF THE STATE OF FLORIDA ***** LAW OFFICES OF MIRARCHI & PALMARELLA, P.C. 310 BUILDING 2 100 MATSONFORD ROAD RADNOR, PENNSYLVANIA 19087 03.03.002 BYLAWS OF GEMCO NATIONAL, INC. (a Florida corporation) ARTICLE I OFFICES AND FISCAL YEAR Section 1.01. REGISTERED OFFICE. The registered office of the corporation shall be at 7200 West Camino Real, Boca Raton, Florida 33433 until otherwise established by an amendment of the articles or by the board of directors and a record of such change is filed with the Department of State in the manner provided by law. Section 1.02. OTHER OFFICE. The corporation may also have offices at such other places within or without Florida as the board of directors may from time to time appoint or the business of the corporation may require. Section 1.03. FISCAL YEAR. The fiscal year of the corporation shall begin on the 1st day of January in each year. ARTICLE II NOTICES - WAIVERS - MEETINGS GENERALLY Section 2.01. MANNER OF GIVING NOTICE. (a) General rule. Whenever written notice is required to be given to any person under the provisions of the Business Corporation Law or by the Articles or these bylaws, it may be given to the person either personally or by sending a copy thereof by first class or express mail, postage prepaid, or by telecopier, to the address (or to the telex, TWX, telecopier or telephone number) of the person appearing on the books of the corporation or, in the case of directors, supplied by the directors to the corporation for the purpose of notice. If the notice is sent by mail, telegraph or courier service, it shall be deemed to have been given to the person entitled thereto when deposited in the United States mail or with a telegraph office or courier service for delivery to that person or, in the case of telex or TWX, when dispatched or, in the case of telecopier, when received. A notice of meeting shall specify the place, day and hour of the meeting any other information required by any other provision of the Business Corporation Law, the articles or these bylaws. (b) Adjourned shareholder meetings. When a meeting of shareholders is adjourned, it shall not be necessary to give any notice of the adjourned meeting or of the business to be transacted at an adjourned meeting, other than by announcement at the meeting at which the adjournment is taken, unless the 03.03.003 board fixes a new record date for the adjourned meeting. Section 2.02 NOTICE OF MEETINGS OF BOARD OF DIRECTORS. Notice of a regular meeting of the board of directors need not be given. Notice of every special meeting of the board of directors shall be given to each director by telephone or in writing at least 48 hours (in the case of notice by telephone, telex, TWX, telecopier, by telegraph, courier service or express mail) or five days (in the case of notice by first class mail) before the time at which the meeting is to be held. Every such notice shall state the time and place of the meeting. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the board need be specified in a notice of a meeting. Section 2.03. NOTICE OF MEETINGS OF SHAREHOLDERS. (a) General rule. Written notice of every meeting of the shareholders shall be given by, or at the direction of, the secretary to each shareholder of record entitled to vote at the meeting at least ten (10) days but no more than sixty (60) days prior to the date of the meeting. If the secretary neglects or refuses to give notice of a meeting, the person or persons calling the meeting may do so. In the case of a special meeting of shareholders, the notice shall specify the purpose or purposes for which the meeting is called. (b) Notice of action by shareholders on bylaws. In the case of a meeting of shareholders that has as one of its purposes action on the bylaws, written notice shall be given to each shareholder that the purpose, or one of the purposes, of the meeting is to consider the adoption, amendment or repeal of the bylaws. There shall be included in, or enclosed with, the notice a copy of the proposed amendment or a summary of the changes to be effected thereby. Section 2.04. WAIVER OF NOTICE. (a) Written waiver. Whenever any written notice is required to be given under the provisions of the Business Corporation Law, the articles or these bylaws, a waiver thereof in writing, signed by the person or persons entitled to the notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of the notice. Except as otherwise required by this subsection, neither the business to be transacted at, nor the purpose of, a meeting need be specified in the waiver of notice of the meeting. In the case of a special meeting of shareholders, the waiver of notice shall specify the general nature of the business to be transacted. (b) Waiver by attendance. Attendance of a person at any meeting shall constitute a waiver of notice of the meeting except where a person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting was not lawfully called or convened. 03.03.004 Section 2.05. MODIFICATION OF PROPOSAL CONTAINED IN NOTICE. Whenever the language of a proposed resolution is included in a written notice of a meeting required to be given under the provisions of the Business Corporation Law or the articles or these bylaws, the meeting considering the resolution may without further notice adopt it with such clarifying or other amendments as do not enlarge its original purpose. Section 2.06. EXCEPTION TO REQUIREMENT OF NOTICE. (a) General rule. Whenever any notice or communication is required to be given to any person under the provisions of the Business Corporation Law or by the articles or these bylaws or by the terms of any agreement or other instrument or as a condition precedent to taking any corporate action and communication with that person is then unlawful, the giving of the notice or communication to that person shall not be required. (b) Shareholders without forwarding addresses. Notice or other communications shall not be sent to any shareholder with whom the corporation has been unable to communicate for more than 24 consecutive months because communications to the shareholder are returned unclaimed or the shareholder has otherwise failed to provide the corporation with a current address, the corporation shall commence sending notices and other communications to the shareholder in the same manner as to other shareholders. Section 2.07. USE OF CONFERENCE TELEPHONE AND SIMILAR EQUIPMENT. One or more persons may participate in a meeting of the board of directors or the shareholders of the corporation by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. Participation in a meeting pursuant to this section shall constitute presence in person at the meeting. ARTICLE III SHAREHOLDERS Section 3.01. PLACE OF MEETING. All meetings of the shareholders of the corporation shall be held at the registered office of the corporation unless another place is designated by the board of directors in the notice of a meeting. Section 3.02. ANNUAL MEETING. The board of directors may fix the date and time of the annual meeting of the shareholders, but if no such date and time is fixed by the board, the meeting for any calendar year shall be held on the last Thursday of June in such year, if not a legal holiday under the laws of Florida, and, if a legal holiday, then on the next succeeding business day, not a Saturday, at the principal office of the company, and at said meeting the shareholders then entitled to vote shall elect directors and shall transact such other business as may properly be brought before the meeting. If the annual meeting shall not have been called and held within six months after the designated time, any shareholder may call the meeting at any time thereafter. 03.03.005 Section 3.03. SPECIAL MEETINGS. (a) Call of special meetings. Special meetings of the shareholders may be called at any time by the board of directors or by the president or secretary at the written request of the shareholders entitled to cast at least twenty- five (25%) percent of the vote that all shareholders are entitled to cast at the particular meeting. (b) Fixing of time of meeting. At any time, upon written request of any person who has called a special meeting, it shall be the duty of the secretary to fix the time of the meeting which shall be held not more than 60 days after the receipt of the request. If the secretary neglects or refuses to fix a time of the meeting, the person or persons calling the meeting may do so. Section 3.04. QUORUM AND ADJOURNMENT. (a) General rule. A meeting of shareholders of the corporation duly called shall not be organized for the transaction of business unless a quorum is present. The presence of shareholders entitled to cast at least a majority of the votes that all shareholders are entitled to cast on a particular matter to be acted upon at the meeting shall constitute a quorum for the purposes of consideration and action on the matter. Shares of the corporation owned, directly or indirectly, by it and controlled, directly or indirectly, by the board of directors of this corporation, as such, shall not be counted in determining the total number of outstanding shares for quorum purposes at any given time. (b) Withdrawal of a quorum. The shareholders present at a duly organized meeting can continue to do business until adjournment notwithstanding the withdrawal of enough shareholders to leave less than a quorum. (c) Adjournment for lack of quorum. If a meeting cannot be organized because a quorum has not attended, those present may, except as provided in the Business Corporation Law, adjourn the meeting to such time and place as they may determine. (d) Adjournments generally. Any meeting at which directors are to be elected shall be adjourned only from day to day, or for such longer periods not exceeding fifteen (15) days each as the shareholders present and entitled to vote shall direct, until the directors have been elected. Any other regular or special meeting may be adjourned for such period as the shareholders present and entitled to vote shall direct. (e) Electing directors at adjourned meeting. Those shareholders entitled to vote who attend a meeting called for the election of directors that has been previously adjourned for lack of a quorum, although less than a quorum as fixed in this section, shall nevertheless constitute a quorum for the purpose of electing directors. (f) Other action in absence of quorum. Those shareholders entitled to vote who attend a meeting of 03.03.006 shareholders that has been previously adjourned for one or more periods aggregating at least fifteen (15) days because of an absence of a quorum, although less than a quorum as fixed in this section, shall nevertheless constitute a quorum for the purpose of acting upon any matter set forth in the notice of the meeting, if the notice states that those shareholders who attend the adjourned meeting shall nevertheless constitute a quorum for the purpose of acting upon the matter. Section 3.05. ACTION BY SHAREHOLDERS. Except as otherwise provided in the Business Corporation Law or the articles or these bylaws, whenever any corporate action is to be taken by vote of the shareholders of the corporation, it shall be authorized by a majority of the votes cast at a duly organized meeting of shareholders by the holders of shares entitled to vote thereon. Section 3.06. ORGANIZATION. At every meeting of the shareholders, the chairman of the board, if there be one, or, in the case of vacancy in office or absence of the chairman of the board, the president, or a person appointed by the chairman of the board or present, shall act as chairman of the meeting. The secretary or, in the absence of the secretary, an assistant secretary, or in the absence of both the secretary and assistant secretaries, a person appointed by the chairman of the meeting, shall act as secretary. Section 3.07. VOTING RIGHTS OF SHAREHOLDERS. Unless otherwise provided in the articles, every shareholder of the corporation shall be entitled to one vote for every share standing in the name of the shareholder on the books of the corporation. Section 3.08. VOTING AND OTHER ACTION BY PROXY. (a) General rule. (1) Every shareholder entitled to vote at a meeting of shareholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person to act for the shareholder by proxy. (2) The presence of, or vote or other action at a meeting of shareholders, or the expression of consent or dissent to corporate action in writing, by a proxy of a shareholder shall constitute the presence of, or vote or action by, or written consent or dissent of the shareholder. (3) Where two or more proxies of a shareholder are present, the corporation shall, unless otherwise expressly provided in the proxy, accept as the vote of all shares represented thereby the vote cast by a majority of them and, if a majority of the proxies cannot agree whether the shares represented shall be voted or upon the manner of voting the shares, the voting of the shares shall be divided equally among those persons. (b) Minimum requirements. Every proxy shall be executed in writing by the shareholder or by the duly authorized 03.03.007 attorney-in-fact of the shareholder and filed with the secretary of the corporation. A proxy, unless coupled with an interest, shall be revocable at will, notwithstanding any other agreement or any provision in the proxy to the contrary, but the revocation of a proxy shall not be effective until written notice thereof has been given to the secretary of the corporation. An unrevoked proxy shall not be valid after three years from the date of its execution unless a longer time is expressly provided therein. A proxy shall not be revoked by the death or incapacity of the maker unless, before the vote is counted or the authority is exercised, written notice of the death or incapacity is given to the secretary of the corporation. (c) Expenses. Unless otherwise restricted in the articles, the corporation shall pay the reasonable expenses of solicitation of votes, proxies or consents of shareholders by or on behalf of the board of directors or its nominees for election to the board, including solicitation by professional proxy solicitors and otherwise. Section 3.09. VOTING BY FIDUCIARIES AND PLEDGEES. Shares of the corporation standing in the name of a trustee or other fiduciary and shares held by an assignee for the benefit of creditors or by a receiver may be voted by the trustee, fiduciary, assignee or receiver. A shareholder whose shares are pledged shall be entitled to vote the shares until the shares have been transferred into the name of the pledgee, or a nominee of the pledgee, but nothing in this section shall affect the validity of a proxy given to a pledgee or nominee. Section 3.10. VOTING BY JOINT HOLDERS OF SHARES. (a) General rule. Where shares of the corporation are held jointly or as tenants in common by two or more persons, as fiduciaries or otherwise: (1) if only one or more of such persons is present in person or by proxy, all of the shares standing in the names of such persons shall be deemed to be represented for the purpose of determining a quorum and the corporation shall accept as the vote of all the shares the vote cast by a joint owner or a majority of them; and (2) if the persons are equally divided upon whether the shares held by them shall be voted or upon the manner of voting the shares, the voting of the shares shall be divided equally among the persons without prejudice to the rights of the joint owners or the beneficial owners thereof among themselves. (b) Exception. If there has been filed with the secretary of the corporation a copy, certified by an attorney at law to be correct, of the relevant portions of the agreement under which the shares are held or the instrument by which the trust or estate was created or the order of court appointing them or of an order of court directing the voting of the shares, the persons specified as having such voting power in the document latest in date of operative effect so filed, and only those persons, shall be entitled to vote the shares but only in accordance therewith. 03.03.008 Section 3.11. VOTING BY CORPORATIONS (a) Voting by corporate shareholders. Any corporation that is a shareholder of this corporation may vote by any of its officers or agents, or by proxy appointed by any officer or agent, unless some other person, by resolution of the board of directors of the other corporation or provision of its articles or bylaws, a copy of which resolution or provision certified to be correct by one of its officers has been filed with the secretary of this corporation, is appointed its general or special proxy in which case that person shall be entitled to vote the shares. (b) Controlled shares. Shares of this corporation owned, directly or indirectly, by it and controlled, directly or indirectly, by the board of directors of this corporation, as such, shall not be voted at any meeting and shall not be counted in determining the total number of outstanding shares for voting purposes at any given time. Section 3.12. DETERMINATION OF SHAREHOLDERS OF RECORD. (a) Fixing record date. The board of directors may fix a time prior to the date of any meeting of shareholders as a record date for the determination of the shareholders entitled to notice of, or to vote at, the meeting, which time, except in the case of an adjourned meeting, shall be not more than seventy (70) days prior to the date of the meeting of shareholders. Only shareholders of record on the date fixed shall be so entitled notwithstanding any transfer of shares on the books of the corporation after record date fixed as provided in this subsection. The board of directors may similarly fix a record date for the determination of shareholders of record for any other purpose. When a determination of shareholders of record has been made as provided in this section for purposes of a meeting, the determination shall apply to any adjournment thereof unless the board fixes a new record date for the adjourned meeting. (b) Determination when a record date is not fixed. If a record date is not fixed: (1) The record date for determining shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close of business on the date next preceding the day on which notice is given or, if notice is waived, at the close of business on the day immediately preceding the day on which the meeting is held. (2) The record date for determining shareholders entitled to express consent or dissent to corporate action in writing without a meeting, when prior action by the board of directors is not necessary, shall be the close of business on the day on which the first written consent or dissent is filed with the secretary of the corporation. (3) The record date for determining shareholders for any other purpose shall be at the close of business on the 03.03.009 day on which the board of directors adopts the resolution relating thereto. Section 3.13. VOTING LISTS. (a) General rule. The officer or agent having charge of the transfer books for shares of the corporation shall make a complete list of the shareholders entitled to vote at any meeting of shareholders, arranged in alphabetical order, with the address of and of the number of shares held by each. The list shall be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any shareholder during the whole time of the meeting for the purposes thereof. (b) Effect of list. Failure to comply with the requirements of this section shall not effect the validity of any action taken at a meeting prior to a demand at the meeting by any shareholder entitled to vote thereat to examine the list. The original share register or transfer book, or a duplicate thereof kept in this Commonwealth, shall be prima facie evidence as to who are the shareholders entitled to examine the list or share registered or transfer book or to vote at any meeting of shareholders. Section 3.14. JUDGES OF ELECTION. (a) Appointment. In advance of any meeting of shareholders of the corporation, the board of directors may appoint judges of election, who need not be shareholders, to act at the meeting or any adjournment thereof. If judges of election are not so appointed, the presiding officer of the meeting may, and on the request of any shareholder shall, appoint judges of election at the meeting. The number of judges shall be one or three. A person who is a candidate for office to be filed at the meeting shall not act as a judge. (b) Vacancies. In case any person appointed as a judge fails to appear or fails or refuses to act, the vacancy may be filled by appointment made by the board of directors in advance of the convening of the meeting or at the meeting by the presiding officer thereof. (c) Duties. The judges of election shall determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum, the authenticity, validity and effect of proxies, receive votes or ballots, hear and determine all challenges and questions in any way arising in connection with the right to vote, count and tabulate all votes, determine the result and do such acts as may be proper to conduct the election or vote with fairness to all shareholders. The judges of election shall perform their duties impartially, in good faith, to the best of their ability and as expeditiously as is practical. If there are three judges of election, the decision, act or certificate of a majority shall be effective in all respects as the decision, act or certificate of all. (d) Report. On request of the presiding officer of the meeting, or of any shareholder, the judge shall make a report 03.03.010 in writing of any challenge or question or matter determined by them, and execute a certificate of any fact found by them. Any report or certificate made by them shall be prima facie evidence of the facts stated therein. Section 3.15. CONSENT OF SHAREHOLDERS IN LIEU OF MEETING. (a) Unanimous written consent. Any action required or permitted to be taken at a meeting of the shareholders or of a class of shareholders may be taken without a meeting if, prior or subsequent to the action, a consent or consents thereto by all of the shareholders who would be entitled to vote at a meeting for such purpose shall be filed with the secretary of the corporation. (b) Partial written consent. Any action required or permitted to be taken at a meeting of the shareholders or of a class of shareholders may be taken without a meeting upon the written consent of shareholders who would have been entitled to cast the minimum number of votes that would be necessary to authorize the action at a meeting at which all shareholders entitled to vote thereon were present and voting. The consents shall be filed with the secretary of the corporation. The action shall not become effective until after at lest ten (10) days' written notice of the action has been given to each shareholder entitled to vote thereon who has not consented thereto. Section 3.16. MINORS AS SECURITY HOLDERS. The corporation may treat a minor who holds shares or obligations of the corporation as having capacity to receive and to empower others to receive dividends, interest, principal and other payments or distributions, to vote or express consent or dissent and to make elections and exercise rights relating to such shares or obligations unless, in the case of payments or distributions on shares, the corporate officer responsible for maintaining the list of shareholders or the transfer agent of the corporation or, in the case of payments or distribution son obligations, the treasurer or paying officer or agent has received written notice that the holder is a minor. ARTICLE IV BOARD OF DIRECTORS Section 4.01. POWERS; PERSONAL LIABILITY. (a) General rule. Unless otherwise provided by statute all powers vested by law in the corporation shall be exercised by or under the authority of, and the business and affairs of the corporation shall be managed under the direction of, the board of directors. (b) Standard of care; justifiable reliance. A director shall stand in fiduciary relation to the corporation and shall perform his or her duties as a director, including duties as a member of any committee of the board upon which the director may serve, in good faith, in a manner the director reasonably believes to be in the best interests of the corporation and with 03.03.011 such care, including reasonable inquiry, skill and diligence, as a person of ordinary prudence would use under similar circumstances. In performing his or her duties, a director shall be entitled to rely in good faith on information, opinions, reports or statements, including financial statements and other financial data, in each case prepared or presented by any of the following: (1) One or more officers or employees of the corporation whom the director reasonably believes to be reliable and competent in the matters presented. (2) Counsel, public accountants or other persons as to matters which the director reasonably believes to be within the professional or expert competence of such person. (3) A committee of the board upon which the director does not serve, duly designated in accordance with law, as to matters within its designated authority, which committee the director reasonably believes to merit confidence. A director shall not be considered to be acting in good faith if the director has knowledge concerning the matter in question that would cause his or her reliance to be unwarranted. (c) Consideration of factors. In discharging the duties of their respective positions, the board of directors, committees of the board and individual directors may, in considering the best interests of the corporation, consider the effects of any action upon employees, upon suppliers and customers of the corporation and upon communities in which offices or other establishments of the corporation are located, and all other pertinent factors. The consideration of those factors shall not constitute a violation of subsection (b). (d) Presumption. Absent breach of fiduciary duty, lack of good faith or self-dealing, actions taken as a director or any failure to take any action shall be presumed to be in the best interests of the corporation. (e) Personal liability of directors. (1) A director shall not be personally liable, as such, for monetary damages for any action taken, or any failure to take any action, unless: (i) the director has breached or failed to perform the duties of his or her officer under this section; and (ii) the breach or failure to perform constitutes self-dealing, willful misconduct or recklessness; or (iii) the director derived an improper personal benefit from the breach or failure to perform his duties; or (iv) the director voted for or assented to an unlawful distribution in violation of the articles of incorp- oration or section 607.06401 of the Business Corporation law: or 03.03.012 (v) the breach or failure to perform constituted a violation of criminal law, unless the director had no reasonable cause to believe his conduct was unlawful. (2) The provisions of paragraph (1) shall not apply to the responsibility or liability of a director for payment of taxes pursuant to Local, State or Federal law. (f) Notation of dissent. A director who is present at a meeting of the board of directors, or of a committee of the board, at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless his or her dissent is entered in the minutes of the meeting or unless his or her dissent is a written dissent to the action with the secretary of the meeting before the adjournment thereof or transmits the dissent in writing to the secretary of the corporation immediately after the adjournment of the meeting. The right to dissent shall not apply a director who voted in favor of the action. Nothing in this section shall bar a director from asserting that minutes of the meeting incorrectly omitted his or her dissent if, promptly upon receipt of a copy of such minutes, the director notifies the secretary in writing, of the asserted omission or inaccuracy. Section 4.02. QUALIFICATION AND SELECTION OF DIRECTORS. (a) Qualifications. Each director of the corporation shall be a natural person of full age who need not be a resident of Florida or a shareholder of the corporation. (b) Election of directors. Except as otherwise provided in these bylaws, directors of the corporation shall be elected by the shareholders. Each shareholder shall vote his shares to elect himself and the other shareholders as directors. In elections for directors, voting need not be by ballot, except upon demand made by a shareholder entitled to vote at the election and before the voting begins. The candidates receiving the highest number of votes from each class or group of classes, if any, entitled to elect directors separately up to the number of directors to be elected by the class or group of classes shall be elected. If at any meeting of shareholders, directors of more than one class are to be elected, each class of directors shall be elected in a separate election. Section 4.03. NUMBER AND TERM OF OFFICE. (a) Number. The board of directors shall consist of five (5) directors. (b) Term of office. Each director shall hold office until the expiration of the term for which he or she was elected and until a successor has been selected and qualified or until 03.03.013 his or her earlier death, resignation or removal. A decrease in the number of directors shall not have the effect of shortening the term of any incumbent director. (c) Resignation. Any director may resign at any time upon written notice to the corporation. The resignation shall be effective upon receipt thereof by the corporation or at such subsequent time as shall be specified in the notice of resignation. Section 4.04. VACANCIES. (a) General rule. Vacancies in the board of directors, including vacancies resulting from an increase in the number of directors, may be filled by a majority vote of the remaining members of the board though less than a quorum, or by a sole remaining director, and each person so selected shall be a director to serve for the balance of the unexpired term, and until a successor has been selected and qualified or until his or her earlier death, resignation or removal. (b) Action be resigned directors. When one or more directors resign from the board effective at a future date, the directors then in office, including those who have so resigned, shall have power by the applicable vote to fill the vacancies, the vote thereon to take effect when the resignations become effective. Section 4.05. REMOVAL OF DIRECTORS. (a) Removal by the shareholders. The entire board of directors, or any class of the board, or any individual director may be removed from office without assigning any cause by the vote of shareholders, or of the holders of a class or series of shares, entitled to elect directors, or the class of directors. In case the board or a class of the board or any one or more directors are so removed, new directors may be elected at the same meeting. (b) Removal by the board. The board of directors may declare vacant the office of a director who has been judicially declared of unsound mind or who has been convicted of an offense punishable by imprisonment for a term of more than one year or if, within 60 days after notice of his or her selection, the director does not accept the office either in writing or by attending a meeting of the board of directors. Section 4.06. PLACE OF MEETINGS. Meetings of the board of directors may be held at such place within or without Florida as the board of directors may from time to time appoint or as may be designated in the notice of the meeting. Section 4.07. ORGANIZATION OF MEETINGS. At every meeting of the board of directors, the chairman of the board shall preside. In the case of vacancy in the office or absence of the chairman of the board, the president or in his absence, a chairman chosen by the directors shall preside. The secretary or, in the absence of the secretary an assistant secretary, or in the 03.03.014 absence of the secretary and the assistant secretaries, any person appointed by the chairman of the meeting, shall act as secretary. Section 4.08. REGULAR MEETINGS. Regular meetings of the board of directors shall be held at such time and place as shall be designated from time to time by resolution of the board of directors. Section 4.09. SPECIAL MEETINGS. Special meetings of the board of directors shall be held whenever called by the chairman or by two (2) or more of the directors. Section 4.10. QUORUM OF AND ACTION BY DIRECTORS. (a) General rule. A majority of the directors in office of the corporation shall be necessary to constitute a quorum for the transaction of business and the action of a majority of the directors present and voting at a meeting at which a quorum is present shall be the acts of the board of directors. (b) Action by written consent. Any action required or permitted to be taken at a meeting of the directors may be taken without a meeting if, prior or subsequent to the action, a consent or consents thereto by all of the directors in office is filed with the secretary of the corporation. Section 4.11. EXECUTIVE AND OTHER COMMITTEES. (a) Establishment and powers. The board of directors may, by resolution adopted by a majority of the directors in office, establish one or more committees to consist of one or more directors of the corporation. Any committee, to the extent provided in the resolution of the board of directors, shall have and may exercise all of the powers and authority of the board of directors except that a committee shall not have any power or authority as to the following: (1) The submission to shareholders of any action requiring approval of shareholders under the Business Corporation Law. (2) The creation or filling of vacancies in the board of directors. (3) The adoption, amendment or repeal of these bylaws. (4) The amendment or repeal of any resolution of the board that by its terms is amendable or repealable only by the board. (5) Action on matters committed by a resolution of the board of directors to another committee of the board. (b) Alternate committee members. The board may designate one or more directors as alternate members of any committee who may replace any absent or disqualified member at any meeting of the committee or for the purposes of any written 03.03.015 action by the committee. In the absence of disqualification of a member and alternate member or members of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not constituting a quorum, may unanimously appoint another director to act at the meeting in the place of the absent or disqualified member. (c) Term. Each committee of the board shall serve at the pleasure of the board. (d) Committee procedures. The term "board of directors" or "Board," when used in any provision of these bylaws relating to the organization or procedures of or the manner of taking action by the board of directors, shall be construed to include and refer to any executive or other committee of the board. Section 4.12. COMPENSATION. The board of directors shall have the authority to fix compensation of directors for their services as directors and a director may be a salaried officer of the corporation. ARTICLE V OFFICERS Section 5.01. OFFICERS GENERALLY. (a) Number, qualification and designation. The officers of the corporation shall be a president, a secretary, a treasurer, and such other officers as may be elected in accordance with the provisions of Section 5.03. Officers may but need not be directors or shareholders of the corporation. The president and secretary shall be natural persons of full age. The treasurer may be a corporation, but if a natural person shall be of full age. The board of directors may elect from among the members of the board a chairman of the board and a vice chairman of the board who shall be officers of the corporation. Any number of offices may be held by the same person. (b) Resignations. Any officer may resign at any time upon written notice to the corporation. The resignation shall be effective upon receipt thereof by the corporation or at such subsequent time as may be specified in the notice of resignation. (c) Bonding. The corporation may secure the fidelity of any or all of its officers by bond or otherwise. (d) Standard of care. Except as otherwise provided in the articles, an officer shall perform his or her duties as an officer in good faith, in a manner he or she reasonably believes to be in the best interests of the corporation and with such care, including reasonable inquiry, skill and diligence, as a person of ordinary prudence would use under similar circumstances. A person who so performs his or her duties shall not be liable by reason of having been an officer of the corporation. 03.03.016 Section 5.02. ELECTION AND TERM OF OFFICE. The officers of the corporation, except those elected by delegated authority pursuant to Section 5.03, shall be elected annually by the board of directors, and each such officer shall hold office for a term of one year and until a successor has been selected and qualified or until his or her earlier death, resignation or removal. Section 5.03. SUBORDINATE OFFICERS, COMMITTEES AND AGENTS. The board of directors may from time to time elect such other officers and appoint such committees, employees or other agents as the business of the corporation may require, including one or more assistant secretaries, and one or more assistant treasurers, each of whom shall hold office for such period, have such authority, and perform such duties as are provided in these bylaws or as the board of directors may from time to time determine. The board of directors may delegate to any officer or committee the power to elect subordinate officers and to retain or appoint employees or other agents, or committees thereof and to prescribe the authority and duties of such subordinate officers, committees, employees or other agents. Section 5.04. VACANCIES. A vacancy in any office because of death, resignation, removal, disqualification, or any other cause, shall be filled by the board of directors or by the officer or committee to which the power to fill such office has been delegated pursuant to Section 5.03, as the case may be, and if the office is one for which these bylaws prescribe a term, shall be filled for the unexpired portion of the term. Section 5.05. AUTHORITY. All officers of the corporation, as between themselves and the corporation, shall have such authority and perform such duties in the management of the corporation as may be provided by or pursuant to resolution or orders of the board of directors or in the absence of controlling provisions in the resolutions or orders to the board of directors, as may be determined by or pursuant to these bylaws. Section 5.06. THE CHAIRMAN OF THE BOARD. The chairman of the board if there be one, or in the absence of the chairman, the vice chairman of the board, shall preside at all meetings of the shareholders and of the board of directors and shall perform such other duties as may from time to time be requested by the board of directors. Section 5.07. THE PRESIDENT. The president shall be the chief executive officer of the corporation and shall have general supervision over the business and operations of the corporation, subject however, to the control of the board of directors. The president shall sign, execute, and acknowledge, in the name of the corporation, deeds, mortgages, contracts or other instruments authorized by the board of directors, except in cases where the signing and execution thereof shall be expressly delegated by the board of directors, or by these bylaws, to some other officer or agent of the corporation; and, in general, shall perform all duties incident to the office of president and such other duties as from time to time may be assigned by the board of directors. 03.03.017 Section 5.08. THE SECRETARY. The secretary or an assistant secretary shall attend all meetings of the shareholders and of the board of directors and shall record all votes of the shareholders and of the directors and the minutes of the meetings of the shareholders and of the board of directors and of committees of the board in a book or books to be kept for that purpose; shall see that notices are given and records and reports properly kept and filed by the corporation as required by law; shall be the custodian of the seal of the corporation and see that it is affixed to all documents to be executed on behalf of the corporation under its seal; and, in general, shall perform all duties incident to the office of secretary, and such other duties as may from time to time be assigned by the board of directors or the president. Section 5.09. THE TREASURER. The treasurer or an assistant treasurer shall have or provide for the custody of the funds or other property of the corporation; shall collect and receive or provide for the collection and receipt of moneys earned by or in any manner due to or received by the corporation; shall deposit all funds in his or her custody as treasurer in such banks or other places of deposit as the board of directors may from time to time designate; shall, whenever so required by the board of directors, render an account showing all transactions as treasurer and the financial condition of the corporation; and, in general, shall discharge such other duties as may from time to time be assigned by the board of directors or the president. Section 5.10. SALARIES. The salaries of the officers elected by the board of directors shall be fixed from time to time by the board of directors or by such officer as may be designated by resolution of the board. The salaries or other compensation of any other officers, employees and other agents shall be fixed from time to time by the officer or committee to which the power to elect such officers or to retain or appoint such employees or other agents has been delegated pursuant to Section 5.03. No officer shall be prevented from receiving such salary or other compensation by reason of the fact that the officer is also a director of the corporation. Section 5.11. DISALLOWED COMPENSATION. Any payments made to an officer or employee of the corporation such as a salary, commission, bonus, interest, rent, travel or entertainment expenses incurred by him, which shall be disallowed in whole or in part as a deductible expenses by the Internal Revenue Service, shall be reimbursed by such officer or employee to the corporation to the full extent of such disallowance. It shall be the duty of the directors, as a Board, to enforce payment of each such amount disallowed. In lieu of payment by the officer or employee, subject to the determination of the directors, proportionate amounts may be withheld from future compensation payments until the amount owed to the corporation has been recovered. ARTICLE VI CERTIFICATES OF STOCK, TRANSFER, ETC. 03.03.018 Section 6.01. SHARE CERTIFICATES. Certificates for shares of the corporation shall be in such form as approved by the board of directors, and shall state that the corporation is incorporated under the laws of Florida, the name of the person to whom issued, and the number and class of shares and the designation of the series (if any) that the certificate represents. The share register or transfer books and blank share certificate shall be kept by the secretary or by any transfer agent or registrar designated by the board of directors for that purpose. Section 6.02. ISSUANCE. The share certificates of the corporation shall be numbered and registered in the share register or transfer books of the corporation as they are issued. They shall be signed by the president or a vice president and by the secretary or an assistant secretary or the treasurer or an assistant treasurer, and shall bear the corporate seal, which may be a facsimile, engraved or printed; but where such certificate is signed by a transfer agent or a registrar the signature of any corporate officer upon such certificate may be a facsimile, engraved or printed. In case any officer who has signed, or whose facsimile signature has been placed upon, any share certificate shall have ceased to be such officer because of death, resignation or otherwise, before the certificate is issued, it may be issued with the same effect as if the officer had not ceased to be such at the date of its issue. The provisions of this Section 6.02 shall be subject to any inconsistent or contrary agreement at the time between the corporation and any transfer agent or registrar. Section 6.03. TRANSFER. Transfers of shares shall be made on the share register or transfer books of the corporation upon surrender of the certificate therefor, endorsed by the person named in the certificate or by an attorney lawfully constituted in writing. Section 6.04. RECORD HOLDER OF SHARES. The corporation shall be entitled to treat the person in whose name any share or shares of the corporation stand on the books of the corporation as the absolute owner thereof, and shall not be bound to recognize any equitable or other claim to, or interest in, such share or shares on the part of any other person. Section 6.05. LOST, DESTROYED OR MUTILATED CERTIFICATES. The holder of any shares of the corporation shall immediately notify the corporation of any loss, destruction or mutilation of the certificate therefor, and the board of directors may, in its discretion, cause a new certificate or certificates to be issued to such holder, in case of mutilation of the certificate, upon the surrender of the mutilated certificate or, in case of loss or destruction of the certificate, upon satisfactory proof of such loss or destruction and, if the board of directors shall so determine, the deposit of a bond in such form and in such sum, and with such surety or sureties, as it may direct. 03.03.019 ARTICLE VII INDEMNIFICATION OF DIRECTORS, OFFICERS AND OTHER AUTHORIZED REPRESENTATIVES Section 7.01. INDEMNIFICATION. The corporation shall indemnify each director, officer, employee and agent of the corporation, his heirs, executors, administrators, and all other persons whom the corporation is authorized to indemnify under the provisions of the Business Corporation Law of the State of Florida, to the fullest extent permitted by law, (a) against all expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with any action, suit or proceeding, whether civil, criminal, administrative or investigative, or in connection with any appeal therein, or otherwise, and (b) against all expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of any action or suit by or in connection with any appeal therein, or otherwise; and no provisions of the bylaws is intended to be construed as limiting, prohibiting, denying or abrogating any of the general or specific powers or rights conferred under the Business Corporation Law of the State of Florida upon the Corporation to furnish, or upon any court to furnish, or upon any court to award, such indemnification, or indemnification as otherwise authorized pursuant to the Business Corporation Law of the State of Florida or any other law now or hereafter in effect. Section 7.02. INSURANCE. The Board of Directors of the corporation may, in its discretion, authorize the corporation to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the corporation as director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him or incurred by him in any such capacity , or arising out his status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of Section 7.01 of this Article VII. Section 7.03. SCOPE OF INDEMNIFICATION. The indemnification and advancement of expenses granted pursuant to this Article VII shall not be exclusive or limiting of any other rights to which any person seeking indemnification or advancement of expenses may be entitled when authorized by (i) a resolution of shareholders, (ii) a resolution of directors or (iii) an agreement providing for such indemnification; provided that no indemnification may be made to or on behalf of any such person if a judgment or other final adjudication adverse to such person establishes that his acts were committed in bad faith or were the results of active and deliberate dishonesty and were material to the cause of action so adjudicated, or that he personally gained a financial profit or other advantage to which he was not legally entitled. Section 7.04. EFFECT OF AMENDMENT. No amendment, modification or rescission of these bylaws shall be effective to limit any person's right to indemnification with respect to any alleged cause of action that occurs or other incident or matter that occurs prior to the date on which such modification, amendment or rescission is adopted. 03.03.020 ARTICLE VIII MISCELLANEOUS Section 8.01. CORPORATE SEAL. The corporation seal shall have inscribed thereon the name of the corporation, the year of its organization and the words "Corporate Seal, Florida." Section 8.01. CHECKS. All checks, notes, bills of exchange or other orders in writing shall be signed by such person or persons as the board of directors or any person authorized by resolution of the board of directors may from time to time designate. Section 8.03. CONTRACTS. (a) General rule. Except as otherwise provided in the Business Corporation Law in the case of transactions that require action by the shareholders, the board of directors may authorize any officer or agent to enter into any contract or to execute or deliver any instrument on behalf of the corporation, and such authority may be general or confined to specific instances. (b) Statutory form of execution of instruments. Any note, mortgage, evidence of indebtedness, contract or other document, or any assignment or endorsement thereof, executed or entered into between the corporation and any other person, when signed by one or more officers or agents having actual or apparent authority to sign it, or by the president or vice president and secretary or assistant secretary or treasurer or assistant treasurer of the corporation, shall be held to have been properly executed for and on behalf of the corporation, without prejudice to the rights of the corporation against any person who shall have executed the instrument in excess of his or her actual authority. Section 8.04. INTERESTED DIRECTORS OR OFFICERS; QUORUM. (a) General rule. A contract or transaction between the corporation and one or more of its directors or officers or between the corporation and another corporation, partnership, joint venture, trust or other enterprise in which one or more of its directors or officers are directors or officers or have a financial or other interest, shall not be void or voidable solely for that reason, or solely because the director or officer is present at or participates in the meeting of the board of directors that authorizes the contract or transaction, or solely because his, her or their votes are counted for that purpose, if: (1) the material facts as to the relationship or interest and as to the contract or transaction are disclosed or are known to the board of directors and the board authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors even though the disinterested directors are less than a quorum; 03.03.021 (2) the material facts as to his or her relationship or interest and as to the contract or transaction are disclosed or are known to the shareholders entitled to vote thereon and the contract or transaction is specifically approved in good faith by vote of those shareholders; or (3) the contract or transaction is fair as to the corporation as of the time it is authorized, approved or ratified by the board of directors or the shareholders. (b) Quorum. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the board which authorizes a contract or transaction specified in subsection (a). Section 8.05. DEPOSITS. All funds of the corporation shall be deposited from time to time to the credit of the corporation in such banks, trust companies or other depositaries as the board of directors may approve or designate, and all such funds shall be withdrawn only upon checks signed by such one or more officers or employees as the board of directors shall from time to time determine. Section 8.06. CORPORATE RECORDS. (a) Required records. The corporation shall keep complete and accurate books and records of account, minutes of the proceedings of the incorporators, shareholders and directors and a share register giving the names and addresses of all shareholders and the number and class of shares held by each. The share register shall be kept at either the registered office of the corporation in Florida or at is principal place of business wherever situated or at the office of its registrar or transfer agent. Any books, minutes or other records may be in written form or any other form capable of being converted into written form within a reasonable time. (b) Right of inspection. Every shareholder shall, upon written verified demand stating the purpose thereof, have a right to examine, in person or by agent or attorney, during the usual hours for business for any proper purpose, the share register, books and records of account, and records of the proceedings of the incorporators, shareholders and directors and to make copies or extracts therefrom. A proper purpose shall mean a purpose reasonably related to the interest of the person as a shareholder. In every instance where an attorney or other agent is the person who seeks the right of inspection, the demand shall be accompanied by a verified power of attorney or other writing that authorizes the attorney or other agent to so act on behalf of the shareholder. The demand shall be directed to the corporation at its registered office in Florida or at its principal place of business wherever situated. Section 8.07. FINANCIAL REPORTS. Unless otherwise agreed between the corporation and a shareholder, the corporation shall furnish to its shareholders annual financial statements, including at least a balance sheet as of the end of each fiscal year and a statement of income and expenses for the fiscal year. The financial statements shall be prepared on the basis of 03.03.022 generally accepted accounting principles, if the corporation prepares financial statements for the fiscal year on that basis for any purpose, and may be consolidated statements of the corporation and one or more of its subsidiaries. The financial statements shall be mailed by the corporation to each of its shareholders entitled thereto within one hundred eight (180) days after the close of each fiscal year and, after the mailing and upon written request, shall be mailed by the corporation to any shareholder or beneficial owner entitled thereto to whom a copy of the most recent annual financial statements has not previously been mailed. Statements that are audited or reviewed by a public accountant shall be accompanied by the report of the accountant; in other cases, each copy shall be accompanied by a statement of the person in charge of the financial records of the corporation: (1) Stating his reasonable belief as to whether or not the financial statements were prepared in accordance with generally accepted accounting principles and, if not, describing the basis of presentation. (2) Describing any material respects in which the financial statements were not prepared on a basis consistent with those prepared for the previous year. Section 8.08. AMENDMENT OF BYLAWS. These bylaws may be amended or repealed, or new bylaws may be adopted, either (i) by vote of the shareholders at any duly organized annual or special meeting of shareholders, or (ii) with respect to those matters that are not by statute committed expressly to the shareholders and regardless of whether the shareholders have previously adopted or approved the bylaw being amended or repealed, by vote of a majority of the board of directors of the corporation in office at any regular or special meeting of directors. Any change in these bylaws shall take effect when adopted unless otherwise provided in the resolution effecting the change. See Section 2.03(b) (relating to notice of action by shareholders on bylaws). EX-4 6 04.01 STOCK PURCHASE AGREEMENT 04.01.001 STOCK PURCHASE AGREEMENT Among GEMCO NATIONAL, INC., CORPORATE LIFE INSURANCE COMPANY and IIC, INC. Relating to the Capital Stock of IIC, INC. , INVESTORS INSURANCE CORPORATION AND WESTCHESTER REINSURANCE, LTD. 04.01.002 TABLE OF CONTENTS Page RECITALS .................................................. 1 ARTICLE I REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE STOCKHOLDER..................... 1 1.1 Organization ..................................... 1 1.2 Subsidiaries ..................................... 2 1.3 Authority......................................... 2 1.4 Capital Structure................................. 2 1.5 No Distributions on Capital Stock................. 3 1.6 Financial Statements.............................. 3 1.7 Material Changes Since December 31, 1988.......... 4 1.8 Availability of Assets and Legality of Use.......................................... 4 1.9 Title to Property................................. 4 1.10 Accounts Receivable............................... 4 1.11 Governmental Permits.............................. 5 1.12 Real Property and Leases.......................... 5 1.13 Insurance......................................... 6 1.14 Conduct of Business............................... 6 1.15 No Undisclosed Liabilities........................ 7 1.16 No Default, Violation or Litigation............... 7 1.17 Tax Liabilities................................... 7 1.18 Contracts......................................... 8 1.19 Employee Agreements............................... 9 1.20 Employee Relations................................ 9 1.21 Employee Retirement Income Security Act........... 9 1.22 Conflicts; Sensitive Payments..................... 10 1.23 Corporate Name.................................... 11 1.24 Trademarks and Proprietary Rights................. 11 1.25 No Omissions...................................... 11 1.26 Finders........................................... 11 1.27 Representations and Warranties True on the Closing Date........................ 12 ARTICLE II REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF GEMCO............................. 12 2.1 Organization...................................... 12 2.2 Subsidiaries...................................... 12 2.3 Authority......................................... 12 2.4 Capital Structure................................. 13 2.5 Financial Statements.............................. 13 2.6 Material Changes Since December 31, 1988.......... 13 2.7 No Omissions...................................... 14 2.8 Finders........................................... 14 2.9 Representations and Warranties to Be True on the Closing Date........................ 14 (i) 04.01.003 ARTICLE III ACTION PRIOR TO THE CLOSING DATE..................... 14 3.1 Investigation........................................ 14 3.2 Confidential Nature of Information................... 15 3.3 Preserve Accuracy of Representations and Warranties..................................... 15 3.4 Maintain IIC and the Company As a Going Concern...................................... 16 3.5 Make No Material Change in IIC and the Company........................................ 16 3.6 No Public Announcement............................... 17 ARTICLE IV PURCHASE PRICE AND CLOSING........................... 18 4.1 Closing Date......................................... 18 4.2 Transfer of Shares................................... 18 4.3 Issuance of Debentures and Warrants.................. 18 4.4 Delivery by the Stockholder.......................... 18 4.5 Delivery by GEMCO.................................... 18 ARTICLE V CONDITIONS PRECEDENT TO OBLIGATIONS OF GEMCO........................................... 19 5.1 No Misrepresentation or Breach of Covenants and Warranties............................ 19 5.2 No Changes in or Destruction of Property............................................ 19 5.3 Legal Matters......................................... 19 5.4 Opinion of Counsel for the Stockholder................ 20 5.5 Net Capital and Surplus of the Company................ 22 5.6 Approval by Counsel................................... 22 5.7 Investment Representation............................. 22 ARTICLE VI CONDITIONS PRECEDENT TO OBLIGATIONS OF THE STOCKHOLDER AND IIC.......................... 23 6.1 No Misrepresentation or Breach of Covenants and Warranties............................ 23 6.2 No Changes in or Destruction of Property............................................ 23 6.3 Legal Matters......................................... 23 6.4 Opinion of Counsel for GEMCO.......................... 23 6.5 Approval by Counsel................................... 25 6.6 Investment Representation............................. 25 ARTICLE VII TERMINATION........................................... 25 7.1 Termination (ii) 04.01.004 ARTICLE VIII SURVIVAL OF OBLIGATIONS; INDEMNIFICATION..................................... 26 8.1 Survival of Obligations............................... 26 8.2 Indemnification....................................... 26 ARTICLE IX MISCELLANEOUS......................................... 28 9.1 Notices............................................... 28 9.2 Expenses.............................................. 28 9.3 Governing Law 9.4 Successors and Assigns................................ 28 9.5 Partial Invalidity.................................... 28 9.6 Waivers............................................... 28 9.7 Execution in Counterparts............................. 29 9.8 Titles and Headings................................... 29 9.9 Exhibits and Schedules................................ 29 9.10 Entire Agreement; Amendments and Waivers............................................. 29 SIGNATURES ...................................................... 30 SCHEDULES: 1.1 Admitted Jurisdictions 1.6 Financial Statements of the Company and IIC 1.7 Material Changes Since December 31, 1988 1.8 Non-Available Assets; Non-Conforming Assets 1.12 Real Property and Leases 1.13 Insurance 1.14 Pending and Threatened Claims 1.16 Defaults; Violations; Litigation 1.17 Tax Sharing 1.18 Contracts 1.19 Employee Agreements 1.20 Employee Compensation 1.22 Conflicts; Sensitive Payments 1.24 Trademarks and Proprietary Rights 2.5 Financial Statements of GEMCO (iii) 04.01.005 STOCK PURCHASE AGREEMENT THIS STOCK PURCHASE AGREEMENT, made and entered into as of the 31st day of March, 1989 (the "Agreement") among GEMCO NATIONAL, INC., a corporation organized under the laws of New York ("GEMCO"), CORPORATE LIFE INSURANCE COMPANY, a stock life insurance company organized under the laws of Pennsylvania (the "Stockholder") , which owns all of the issued and outstanding shares (the "Shares") of capital stock of IIC, INC. ("IIC"), of INVESTORS INSURANCE CORPORATION, a Delaware stock life insurance company (the "Company") and WESTCHESTER REINSURANCE, LTD., a Bermuda life insurance company ("Westchester Re") and IIC, WITNESSETH : WHEREAS, the Company is engaged in the business of issuing various life insurance products; WHEREAS, the Stockholder desires to transfer the Shares to GEMCO in exchange for secured debentures (the "Debentures") and warrants (the "Warrants") of GEMCO pursuant to the terms and conditions set forth in this Agreement; and WHEREAS, GEMCO desires to acquire the Shares from the Stockholder in exchange for the Debentures and the Warrants on the terms and conditions set forth in this Agreement. NOW, THEREFORE, GEMCO and the Stockholder, in consideration of the agreements, covenants and conditions contained herein and intending to be legally bound hereby, hereby make the following representations and warranties, give the following covenants and agree as follows: ARTICLE 1 REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE STOCKHOLDER As an inducement to GEMCO to enter into this Agreement to consummate the transactions contemplated herein, the Stockholder represents and warrants to GEMCO and agrees as follows : 1.1 Organization. IIC and the Company are each corporations duly organized, validly existing and in good standing under the laws of the States of Oregon and Delaware, respectively. Westchester Re is duly organized validly existing and in good standing under the laws of Bermuda. IIC and Westchester Re are not required to be qualified to transact business as a foreign corporation in any other jurisdiction. The Company is admitted to transact insurance business and is in good -1- 04.01.006 standing in each of the jurisdictions listed in Schedule 1.1 hereto. IIC, the Company and Westchester Re each have the corporate power and authority and other authorizations necessary or required in order for each to own or lease and operate its respective properties and to carry on its respective business as now conducted. 1.2 Subsidiaries. IIC has no subsidiaries, except for the Company. The Company has no subsidiaries, except for Westchester Re. 1.3 Authority. This Agreement and the transactions contemplated herein have been duly approved by all necessary action on the part of the Stockholder. This Agreement, when executed and delivered by the Stockholder and assuming the due execution hereof by GEMCO, will constitute the valid, legal and binding agreement of the Stockholder enforceable in accordance with its terms. Neither the execution nor the delivery of this Agreement nor the consummation of the transactions contemplated herein, nor compliance with nor fulfillment of the terms and provisions hereof, will (i) conflict with or result in a breach of the terms, conditions or provisions of or constitute a default under the Articles of Incorporation or By-laws of the Stockholder, any instrument, agreement, mortgage, judgment, order, award, decree or other restrictions to which the Stockholder is a party or by which the Stockholder is bound or any statute or regulatory provisions affecting the Stockholder; (ii) give any party to or with rights under any such instrument, agreement, mortgage, judgment, order, award, decree or other restriction the right to terminate, modify or otherwise change the rights or obligations of the Stockholder under such instrument, agreement, judgment, order, award, decree, mortgage or other restriction or (iii) require the approval, consent or authorization of or any filing with or notification to any federal, state or local court, governmental authority or regulatory body. The Stockholder has full power and authority to sell, assign, transfer and deliver the Shares to GEMCO pursuant to this Agreement and to do and perform all acts and things required to be done by the Stockholder under this Agreement. True and complete copies of the Certificate or Articles of Incorporation and By-laws of IIC, the Company and Westchester Re have been delivered to GEMCO 1.4 Capital Structure. The authorized capital stock of IIC consists of 100 shares of common stock, par value $.0l per share, of which 100 shares are issued and outstanding, and none of which is held by IIC as treasury shares. The authorized capital stock of the Company consists of 2,000,000 shares of common stock, par value $1.00 per share, of which 1,500,000 shares are issued and outstanding, and none of which is held by the Company as treasury shares. Except for this Agreement, there are no agreements, arrangements, options, warrants or other rights or commitments of -2- 04.01.007 any character relating to the issuance, sale, purchase or redemption of any shares of capital stock of IIC, the Company or Westchester Re, and no such agreements, arrangements, options, warrants or other rights or commitments will be entered into or granted between the date hereof and the Closing Date. All of the outstanding shares of IIC, the Company and Westchester Re are validly issued, fully paid and nonassessable with no liability attaching to the ownership thereof, and are owned of record and beneficially by the Stockholder, in the case of the shares of IIC, by IIC, in the case of the Company, and by the Company, in the case of Westchester Re, free and clear of any liens, claims, encumbrances and restrictions of any kind; and the transfer and delivery of the outstanding shares of IIC, the Company and Westchester Re to GEMCO by the Stockholder as contemplated by this Agreement will be sufficient to transfer good and marketable record and beneficial title to such outstanding shares to GEMCO, free and clear of liens, claims, encumbrances and restrictions of any kind. 1.5 No Distributions on Capital Stock. Neither IIC, Westchester Re nor the Company has ever purchased or redeemed any shares of its respective outstanding capital stock and, since December 31, 1988, neither IIC, Westchester Re nor the Company has declared or paid any dividend or made any other distribution in respect of its capital stock. 1.6 Financial Statements. Attached hereto as Schedule 1.6 are the balance sheets of IIC, the Company and Westchester Re as of December 31, 1987 and 1988 and the related statements of income and of changes in financial position for the periods then ended, together with appropriate notes to such financial statements. The balance sheets as of December 31, 1987 and 1988 and the related statements of income and changes in financial position for the years then ended are accompanied by the report thereon by McDade Abbott & Co., independent certified public accountants. All of such financial statements are correct and complete in all material respects and fairly present the respective financial position of IIC, the Company and Westchester Re as at the respective dates thereof and the results of their respective operations, and their respective changes in financial position, for the respective periods covered thereby, and, in the case of IIC, have been prepared in accordance with generally accepted accounting principles consistently applied throughout all periods, and, in the case of the Company, have been prepared in conformity with accounting principles and practices prescribed or permitted by the Delaware Insurance Department consistently applied throughout all periods. There is set forth in Schedule 1.6 hereto a correct and complete list of all (i) accounts, borrowing resolutions and deposit boxes maintained by IIC, Westchester Re or the Company at any bank or other financial institution, (ii) the names of the -3- 04.01.008 persons authorized to sign or otherwise act with respect thereto, (iii) powers of attorney for IIC, Westchester Re or the Company, (iv) deposits with regulatory agencies, (v) security given to others in connection with insurance arrangements and (vi) security held in connection with insurance agreements. 1.7 Material Changes Since December 31, 1988. Since December 31, 1988, the respective businesses of IIC, Westchester Re and the Company has been operated only in the ordinary course and, whether or not in the ordinary course of business, other than as disclosed in this Agreement or Schedule 1.7 or any other schedule referred to herein, there has not been, occurred or arisen (i) any material adverse change in the financial condition of IIC, Westchester Re or the Company from that shown on the December 31, 1988 balance sheets referred to in Section 1.6 hereof; (ii) any damage or destruction in the nature of a casualty loss, whether covered by insurance or not, to any property or business of IIC, Westchester Re or the Company which is material to the financial condition, operations or business of IIC, Westchester Re or the Company; (iii) any material increase in any employee benefit plan listed in Schedule 1.19 hereto; (iv) any amendment or termination of any agreement, or cancellation or reduction of any debt owing to IIC, Westchester Re or the Company or waiver or relinquishment of any right of material value to IIC, Westchester Re or the Company or (V) any other event, condition or state of facts of any character which materially and adversely affects the results of operations or business, financial condition or property of IIC, Westchester Re or the Company. 1.8 Availability of Assets and Legality of Use. Except as specified in Schedule 1.8 hereto, the assets respectively owned or leased by IIC, Westchester Re or the Company constitute all of the assets which are being used in its respective business, and such assets are in good and serviceable condition, normal wear and tear excepted, and suitable for the uses for which intended and such assets and their uses conform in all material respects to all applicable laws. 1.9 Title to Property. Except as shown on Schedule 1.8 hereto, IIC, Westchester Re and the Company each has good and marketable title to all of its respective assets, including the assets reflected on the December 31, 1988 balance sheets referred to in Section 1.6 hereto, and all of the assets thereafter acquired by either of them except to the extent that such assets have thereafter been disposed of for fair value in the ordinary course of business. 1.10 Accounts Receivable. All accounts receivable reflected on the December 31, 1988 balance sheets referred to in Section 1.6 hereto arising prior to the date hereof, and not collected at the date hereof, have arisen from bona fide -4- 04.01.009 transactions in the ordinary course of business. None of such receivables is subject to counter-claims or set-offs or is in dispute and all of such accounts are good and collectible in the ordinary course of business at the aggregate recorded amounts thereof, subject in each case to the allowance for doubtful accounts shown on such balance sheets. All accounts receivable existing on the Closing Date will be good and collectible in the ordinary course of business at the aggregate recorded amounts thereof, net of any applicable allowance for doubtful accounts, which allowance will be determined on a basis consistent with the basis used in determining the allowance for doubtful accounts reflected in the December 31, 1988 balance sheets referred to in Section 1.6 hereof. 1.11 Governmental Permits. Except as set forth in Schedule 1.11 hereto, IIC, Westchester Re and the Company each possess all licenses, permits and other authorizations necessary to own or lease and operate its respective properties and to conduct its respective business as now conducted. All of such licenses, permits and authorizations are hereinafter collectively called the "Permits". All Permits are in full force and effect and will continue in effect after the date hereof and the Closing Date without the consent, approval or act of, or the making of any filing with, any governmental or regulatory agency, commission or authority. IIC, Westchester Re and the Company are not, to the best knowledge and belief of the Stockholder, in violation of the terms of any Permit, and neither IIC, Westchester Re nor the Company has received notice of any violation or claimed violation thereunder. 1.12 Real Property and Leases. IIC, Westchester Re and the Company do not own any real property except as set forth on Schedule 1.12 hereto. Attached hereto as part of Schedule 1.12 are true and correct copies of every lease or agreement under which IIC, Westchester Re or the Company is lessee or sublessee of, or holds or operates, any real property owned by any third party. Each of such leases and agreements is in full force and effect and constitutes a legal, valid and binding obligation of IIC, Westchester Re or the Company, as the case may be, and, to the best of the knowledge of the Stockholder, the other parties thereto. Neither IIC, Westchester Re nor the Company is in default in any material respect under any such lease or agreement nor has any event occurred which with the passage of time or giving of notice would constitute such a default nor will IIC, Westchester Re or the Company take any action or fail to take required action between the date hereof and the Closing Date which would permit any such default or event to occur. Except as set forth on Schedule 1.12, none of such leases and agreements requires the consent of any party thereto to the transactions contemplated by this Agreement. -5- 04.01.010 1.13 Insurance. IIC, Westchester Re and the Company maintain policies of fire and casualty, product and other liability and other forms of insurance in such amounts and against such risks and losses as are described on Schedule 1.13 hereto which lists and accurately describes all policies of insurance that are or were owned, held or maintained by or for the benefit of IIC, Westchester Re or the Company or under which IIC, Westchester Re or the Company is or was a named insured from January 1, 1987 to the date hereof, including policy numbers, nature of coverage, limits, deductibles, carriers, premiums and effective and termination dates, under which IIC, Westchester Re or the Company has any remaining coverage. IIC, Westchester Re and the Company have complied with each of such policies and has not failed to give any notice or present any known claim thereunder. IIC, Westchester Re and the Company will keep such insurance in full force and effect through the Closing Date. Neither IIC, Westchester Re nor the Company has received, and, to the best knowledge of the Stockholder after due inquiry, no event or omission has occurred which may cause it to receive, notice that any such policies will be cancelled or will be reduced in amount or scope. 1.14 Conduct of Business. (a) Schedule 1.14 hereto lists all claims which are pending or, to the knowledge of the Stockholder threatened, against IIC, Westchester Re or the Company and correctly sets forth the data reflected therein. No insurance carrier listed therein has denied coverage of any claim listed opposite its name or accepted investigation of any such loss or defense of any such claim under a reservation of rights. The reserves established by IIC, Westchester Re and the Company as of December 31, 1988 are adequate to cover IIC's, Westchester Re's and the Company's liability, net of insurance coverage, for all such claims. (b) To the best knowledge of the Stockholder after due inquiry, no employee, agent or representative of IIC, Westchester Re or the Company has, in relation to the Company's or Westchester Re's insurance business, at any time exceeded the authority or abused or wrongfully exercised any discretion granted to him with regard to the acceptance of business on behalf of the Company or Westchester Re. Neither the Company nor Westchester Re has failed to have underwritten any risk in respect of which evidence of insurance coverage has been issued and has not failed to obtain adequate insurance coverage thereof and no risk has been accepted for which the Company may be liable. The Company and Westchester Re have not exceeded any authority granted to either of them by any party to bind it in connection with the Company's or Westchester Re's business. Without limiting the generality of the foregoing, no factual basis exists for any claim against the Company or Westchester Re based on any act or omission: (i) in the placing or failing to place insurance coverage or any tiers or layers of insurance -6- 04.01.011 coverage, (ii) in advice given or representations made with respect to (x) the availability or non-availability of insurance coverage, the existence, adequacy, amount, scope or nature of any such coverage, the acts or occurrences covered, deductibles or required primary or co-insurance or (y) the financial condition or rating of any insurance carrier or (iii) in the making of declarations or furnishing of information to any insurance carrier. 1.15 No Undisclosed Liabilities. Neither IIC, Westchester Re nor the Company is subject to any material liability (including unasserted claims) , absolute or contingent, which is not shown or which is in excess of amounts shown or reserved for in the December 31, 1988 balance sheets referred to in Section 1.6 hereto, other than liabilities of the same nature as those set forth in such balance sheets and reasonably incurred in the ordinary course of its respective business after December 31, 1988. 1.16 No Default, Violation or Litigation. Except as set forth in Schedule 1.16 hereto, neither IIC, Westchester Re nor the Company is in default in any material respect under any agreement, lease or other document to which it is a party, or in violation of any law, rule, order, writ, injunction or decree of any court or federal, state, municipal or other governmental department, commission, board, bureau, agency or instrumentality. Except as set forth and described in Schedules 1.14 and 1.16, there are no lawsuits, proceedings, claims or governmental investigations pending or, to the best knowledge of the Stockholder, threatened against IIC, Westchester Re or the Company or against the respective properties or businesses thereof, and the Stockholder knows of no factual basis for any such lawsuits, proceedings, claims or investigations and there is no action, suit, proceeding or investigation pending, threatened or contemplated which questions the legality, validity or propriety of the transactions contemplated by this Agreement. 1.17 Tax Liabilities. The amounts reflected as liabilities for taxes on the December 31, 1988 balance sheets referred to in Section 1.6 hereof are sufficient for the payment of all unpaid federal, state, county, local and foreign taxes of IIC, Westchester Re and the Company accrued for or applicable to the year ended on such balance sheet date and all years prior thereto. All federal, state, county, local and foreign income, use, excise, property, sales, business activity and other tax returns which are required to be filed by or in respect of IIC, Westchester Re or the Company up to and including the date hereof have been filed and all taxes, including any interest and penalties thereon, which have become due pursuant to such returns or pursuant to any assessment have been paid and no extension of the time for filing of any such return is presently in effect. All such returns which have been filed or will be filed by or in -7- 04.01.012 respect of IIC, Westchester Re or the Company for any period ending on or before the Closing Date are or will be true and correct. 1.18 Contracts. Except as set forth in Schedule 1.18 hereto or any other schedule referred to herein, neither IIC, Westchester Re nor the Company is a party to (i) any contract for the purchase or sale of real property to or from any third party; (ii) any contract for the lease or sublease of personal property from or to any third party which provides for annual rentals in excess of $50,000, or any group of contracts for the lease or sublease of similar kinds of personal property from or to third parties which provides in the aggregate for annual rentals in excess of $50,000; (iii) any contract for the purchase or sale of equipment, computer software, lists of clients, insurance carriers or agents, or similar information, commodities, merchandise, supplies, other materials or personal property or for the furnishing or receipt of services which calls for performance over a period of more than 60 days and involves more than the sum of $50,000; (iv) any license agreement involving the use of copyrights, franchises, licenses, trademarks, or information owned by IIC, Westchester Re or the Company or others; (v) any broker's representative, sales, agency or advertising contract which is not terminable by IIC, Westchester Re or the Company on notice of 30 days or less; (vi) any contract involving the borrowing or lending of money or the guarantee of the obligations of officers, directors, employees or others; (vii) any agency, agent's, general agents, brokerage or expense allowance agreements or any other agreements pursuant to which IIC, Westchester Re or the Company has binding authority in the placement of insurance coverage or is currently obligated to make payments in connection with the sale of insurance; (viii) any contract with the Stockholder or any person or entity related to or affiliated with the Stockholder or (ix) any other contract, whether or not made in the ordinary course of business, which is material to the respective business or assets of IIC, Westchester Re or 'the Company. Copies of all contracts and agreements identified in Schedule 1.18 have been made available to GEMCO No outstanding purchase commitment by IIC, Westchester Re or the Company is in excess of its respective ordinary business requirements or at a price in excess of the market price thereof at the date thereof. Except as set forth in Schedule 1.18 or any other schedule referred to herein, none of such contracts and agreements will expire or be terminated or be subject to any modification of terms or conditions by reason of the consummation of the transactions contemplated by this Agreement. Neither IIC, Westchester Re nor the Company is in default in any material respect under the terms of any such contract nor is either in default in the payment of any insurance premiums due to insurance carriers nor any principal of or interest on any indebtedness for borrowed money nor has any event occurred which with the passage of time or giving of notice would constitute such a default by -8- 04.01.013 IIC Westchester Re or the Company and, to the best knowledge of the Stockholder, no other party to any such contract is in default in any material respect thereunder nor has any such event occurred with respect to such party. Without the written consent of GEMCO, the Stockholder will not cause or permit IIC, Westchester Re or the Company to make any changes or modifications in any of the foregoing, nor incur any further obligations or commitments, nor make any further additions to its properties, except in each case in the ordinary course of business and as contemplated by this Agreement. 1.19 Employee Agreements. Listed on Schedule 1.19 hereto are all plans, contracts and arrangements, oral or written, including but not limited to union contracts and employee benefit plans, whereunder either IIC, Westchester Re or the Company has any obligations, other than obligations to make current wage or salary payments terminable by IIC, Westchester Re or the Company on notice of 30 days or less, to or on behalf of its officers, employees, agents or consultants or their beneficiaries or whereunder any of such persons owes money to IIC, Westchester Re or the Company. 1.20. Employee Relations. Neither IIC, Westchester Re nor the Company has engaged in any unfair labor practice, unlawful employment practice or unlawful discriminatory practice in the conduct of its respective business. IIC, Westchester Re and the Company have complied in all respects with all applicable laws, rules and regulations relating to wages, hours and collective bargaining and has withheld all amounts required by agreement to be withheld from the wages or salaries of employees. The relations of each of IIC, Westchester Re and the Company with its respective employees and agents are satisfactory and neither IIC, Westchester Re nor the Company is a party to or affected by or threatened with or, to the best knowledge of the Stockholder, in danger of being a party to or affected by, any labor dispute which materially interferes or would materially interfere with the conduct of its respective business. There is set forth in Schedule 1.20 hereto the name and total annual compensation, including bonuses, payable to each of the officers, directors, employees and agents of IIC, Westchester Re and the Company whose total annual compensation, including bonuses, during the year ended December 31, 1988 exceeded the sum of $60,000. Since December 31, 1988, there has been no material increase in the compensation payable to any of such officers, directors, employees and agents, except as set forth in Schedule 1.20. 1.21 Employee Retirement Income Security Act. Schedule 1.19 contains a list of any "employee benefit plan" within the meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended, (ERISA) established or maintained by IIC, Westchester Re or the Company or to which IIC, Westchester Re or the Company has made any contributions. -9- 04.01.014 Neither IIC, Westchester Re nor the Company is required, and was not required within the immediately preceding five years, to make any contribution to any "multiemployer plan" within the meaning of Section 3(37) of ERISA. Neither IIC, Westchester Re nor the Company has any liability in respect of any employee benefit plans established or maintained or to which contributions are or were made by it to the Pension Benefit Guaranty Corporation ("PBGC") or to any beneficiary of such plans. Except as set forth in Schedule 1.19, (a) no employee pension benefit plan, as defined in Section 3(2) of ERISA, maintained or contributed to by IIC, Westchester Re or the Company or in respect of which IIC, Westchester Re or the Company is considered an "employer" under Section 414 of the Internal Revenue Code of 1986, as amended (the "Code"), (i) has incurred any "accumulated funding deficiency", as defined in Section 412 of the Code (whether or not waived), or (ii) has incurred any liability to PBGC, and (b) neither IIC, Westchester Re nor the Company has breached any of the responsibilities, obligations or duties imposed on it by ERISA with respect to any employee pension benefit plan maintained by it, which breach has given rise to, or will in the future give rise to, an obligation to pay money. Except as set forth in Schedule 1.19, neither IIC, Westchester Re, the Company nor any of its affiliates or, to the best knowledge of the Stockholder, any "party in interest", as defined in Section 3(14) of ERISA, in respect of any such plan has engaged in any non-exempted prohibited transaction described in Section 406 and 408 of ERISA or Section 4975 of the Code. Except as set forth in Schedule 1.19, no reportable event, as defined in Section 4043 of ERISA, has occurred with respect to any employee pension benefit plan maintained or contributed to by IIC, Westchester Re or the Company or in respect of which IIC, Westchester Re or the Company is an employer under Section 414 of the Code; and none of such plans has been terminated by the plan administrator thereof or by the PBGC. None of IIC, Westchester Re, the Company or its affiliates has incurred any liability under ERISA. The original or a complete and correct copy of each plan listed in Schedule 1.19 has been delivered to GEMCO 1.22 Conflicts; Sensitive Payments. There are (i) no material situations involving the interests of the Stockholder (except as listed in Schedule 1.18 or described in Schedule 1.22) or, to the knowledge of the Stockholder, any officer or director of IIC, Westchester Re or the Company which may be generally characterized as a "conflict of interest", including, but not limited to, the leasing of property to or from IIC, Westchester Re or the Company or direct or indirect interests in the business of competitors, suppliers or customers of IIC, Westchester Re or the Company and (ii) no situations involving illegal payments or payments of doubtful legality from corporate funds of IIC, Westchester Re or the Company since June 15, 1982 to governmental -10- 04.01.015 officials or others which may be generally characterized as a "sensitive payment". 1.23 Corporate Name. The Company owns and possesses, to the exclusion of the Stockholder and its affiliates, all rights to the use of the name Investors Insurance Corporation and any name confusingly similar thereto in the operation of the Company's present business or any other business similar to or competitive with that being conducted by the Company, including, but not limited to, the right to use such name in advertising, 1.24 Trademarks and Proprietary Rights, All trademarks, trade names, copyrights and applications therefor which are owned or used or registered in the name of or licensed to the Company are listed and briefly described in Schedule 1.24. Other than as specified in Schedule 1.24, no proceedings have been instituted or are pending or threatened or, to the best knowledge of the Stockholder, contemplated which challenge the validity of the ownership by the Company of any of such trademarks, trade names, copyrights or applications. The Company has not licensed anyone to use any of the foregoing or any other technical know-how or other proprietary rights of the Company and the Stockholder has no knowledge of the infringing use of any such trademarks and trade names or the infringement of any such copyrights by any person except as set forth in Schedule 1.24. The Company owns all trademarks, trade names, copyrights, processes and other technical know-how and other proprietary rights now used in the conduct of its business and has not received any notice of conflict with the asserted rights of others except as specified in Schedule 1.24. 1.25 No Omissions. None of the representations or warranties of the Stockholder contained herein, none of the information contained in the schedules referred to in this Article I, and none of the other information or documents furnished to GEMCO or its representatives by the Stockholder in connection with this Agreement is false or misleading in any material respect or omits to state a fact herein or therein necessary to make the statements herein or therein not misleading in any material respect. To the best knowledge of the Stockholder, there is no fact which adversely affects, or in the future is likely to adversely affect, the business or assets of IIC, Westchester Re or the Company in any material respect which has not been disclosed in writing to GEMCO 1.26 Finders. Neither IIC, Westchester Re, the Company nor the Stockholder has paid or become obligated to pay any fee or commission to any broker, finder or intermediary. Neither IIC, Westchester Re, the Company nor the Stockholder has any agreement or obligation whatsoever with entities other than GEMCO regarding any proposed acquisition of IIC, Westchester Re and the Company -11- 04.01.016 by any such entity and neither of them is engaged in any negotiations with any such entity for any such acquisition, 1.27 Representations and Warranties to Be True on the Closing Date. All of the representations and warranties set forth in this Article 1 will be true and correct on the Closing Date. ARTICLE II REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF GEMCO As an inducement to the Stockholder to enter into this Agreement and to consummate the transactions contemplated herein, GEMCO represents and warrants to the Stockholder and agrees as follows : 2.1 Organization. GEMCO is a corporation duly organized, validly existing and in good standing under the laws of the State of New York. GEMCO is qualified to transact business as a foreign corporation in each jurisdiction where the failure to be so qualified would have a material adverse effect on its financial condition. GEMCO has the corporate power and authority and other authorizations necessary or required in order for it to own or lease and operate its properties and to carry on its business as now conducted. 2.2 Subsidiaries. GEMCO has the following subsidiaries: Unicap, Inc., Gemco Realty Colorado and Ampat Group Inc. 2.3 Authority. This Agreement and the transactions contemplated herein have been duly approved by all necessary action on the part of GEMCO This Agreement, when executed and delivered by GEMCO and assuming the due execution hereof by the Stockholder, will constitute the valid, legal and binding agreement of GEMCO enforceable in accordance with its terms. Neither the execution nor the delivery of this Agreement nor the consummation of the transactions contemplated herein, nor compliance with nor fulfillment of the terms and provisions hereof, will (i) conflict with or result in a breach of the terms, conditions or provisions of or constitute a default under the Certificate of Incorporation or By-laws of GEMCO, any instrument, agreement, mortgage, judgment, order, award, decree or other restriction to which GEMCO is a party or by which it is bound or any statute or regulatory provisions affecting it; (ii) give any party to or with rights under any such instrument, agreement, mortgage, judgment, order, award, decree or other restriction the right to terminate, modify or otherwise change the rights or obligations of GEMCO under such instrument, agreement, judgment, order, award, decree, mortgage or other restriction or (iii) require the approval, consent or -12- 04.01.017 authorization of or any filing with or notification to any federal, state or local court, governmental authority or regulatory body. GEMCO has full power and authority to issue the Debentures to the Stockholder pursuant to this Agreement and to do and perform all acts and things required to be done by GEMCO under this Agreement. True and complete copies of the Certificate of Incorporation and By-laws of GEMCO have been delivered to the Stockholder, 2.4 Capital Structure. The authorized capital stock of GEMCO consists of 30,000,000 shares of common stock, par value $.50 per share, of which 2,781,556 shares have been issued and are outstanding and of which 150,000 shares are reserved for issuance upon the exercise or conversion of outstanding options, warrants or convertible securities. All of the outstanding shares of GEMCO are validly issued, fully paid and nonassessable with no liability attaching to the ownership thereof. 2.5 Financial Statements, Attached hereto as Schedule 2.5 are the balance sheets of GEMCO as of December 31, 1987 and 1988 and the related statements of operations and of changes in financial position for the periods then ended, together with appropriate notes to such financial statements. The balance sheets as of December 31, 1987 and 1988 and the related statements of operations and changes in financial position for the years then ended are accompanied by the report thereon by Peat, Marwick, Main & Co., independent certified public accountants. All of such financial statements are correct and complete in all material respects and fairly present the financial position of GEMCO as at the respective dates thereof and the results of its operations, and its changes in financial position, for the respective periods covered thereby, and have been prepared in conformity with generally accepted accounting principles consistently' applied throughout all periods. 2.6 Material Changes Since December 31, 1986. Since December 31, 1986, the business of GEMCO has been operated only in the ordinary course and, whether or not in the ordinary course of business, other than as disclosed in this Agreement or the schedules referred to herein there has not been, occurred or arisen (i) any material adverse change in the financial condition of GEMCO from that shown on the balance sheet of GEMCO as of December 31, 1988 referred to in Section 2.5 hereof; (ii) any damage or destruction in the nature of a casualty loss, whether covered by insurance or not, to any property or business of GEMCO which is material or (iii) any other event, condition or state of facts of any character which materially and adversely affects the results of operations or business, financial condition or property of GEMCO 2.7 No Omissions. None of the representations or warranties of GEMCO contained herein, none of the information -13- 04.01.018 contained in the schedules referred to in this Article II, and none of the other information or documents furnished to the Stockholder or its representatives by GEMCO in connection with this Agreement is false or misleading in any material respect or omits to state a fact herein or therein necessary to make the statements herein or therein not misleading in any material respect. To the best knowledge of GEMCO, there is no fact which adversely affects, or in the future is likely to adversely affect, the respective business or assets of GEMCO in any material respect which has not been disclosed in writing to the Stockholder. 2.8 Finders. GEMCO has not paid or become obligated to pay any fee or commission to any broker, finder or intermediary. GEMCO has no agreement or obligation whatsoever with entities other than the Stockholder regarding any proposed acquisition IIC or the Company by any such entity and neither of them is engaged in any negotiations with any such entity for any such acquisition. 2.9 Representations and Warranties to Be True on the Closing Date. All of the representations and warranties set forth in this Article II will be true and correct on the Closing Date. ARTICLE III ACTION PRIOR TO THE CLOSING DATE The parties covenant to take the following action between the date hereof and the Closing Date: 3.1 Investigation. (a) The Stockholder shall cause IIC, Westchester Re and the Company to afford to the officers, employees and authorized representatives including, without limitation, independent public accountants and attorneys of GEMCO such access during normal working hours to the offices, properties, business and financial and other records of IIC, Westchester Re and the Company as GEMCO shall deem necessary or desirable, and shall furnish to GEMCO or its authorized representatives such additional financial and operating and other data as shall be reasonably requested, including all such information and data as shall be necessary in order to enable GEMCO or its representatives to verify to their satisfaction the accuracy of the respective financial statements of IIC, Westchester Re and the Company and the representations and warranties contained in Article 1 of this Agreement. No investigation made by GEMCO or its representatives, except to the extent of actual knowledge by GEMCO of any inaccuracy or breach contained herein, shall affect -14- 04.01.019 the representations and warranties of the Stockholder hereunder or the liability of the Stockholder with respect thereto. (b) GEMCO shall afford to the Stockholder and its authorized representatives, including, without limitation, its independent public accountants and attorneys such access during normal working hours to the offices, properties, business and financial and other records of GEMCO as the Stockholder shall deem necessary or desirable, and shall furnish to the Stockholder or its authorized representatives such additional financial and operating and other data as shall be reasonably requested, including all such information and data as shall be necessary to enable the Stockholder or its representatives to verify to their satisfaction the accuracy of the consolidated financial statements of GEMCO and the representations and warranties contained in Article II of this Agreement. No investigation made by the Stockholder or its representatives, except to the extent of actual knowledge by the Stockholder of any inaccuracy or breach of the representations and warranties of GEMCO contained herein, shall affect the representations and warranties of GEMCO hereunder or the liability of GEMCO with respect thereto. 3.2 Confidential Nature of Information. GEMCO and the Stockholder agree that, in the event that the transactions contemplated herein shall not be consummated, each will treat in confidence all documents, materials and other information which either shall have obtained during the course of the negotiations leading to this Agreement, the investigation of the other party hereto and the preparation of this Agreement and other documents relating to this Agreement, and shall return to the other party all copies of non-public documents and materials which have been furnished in connection therewith. 3.3 Preserve Accuracy of Representations and Warranties. (a) The Stockholder shall refrain from taking any action and shall cause IIC, Westchester Re and the Company to refrain from taking any action which would render any representation and/or warranty contained in Article 1 of this Agreement inaccurate as of the Closing Date hereunder. The Stockholder will promptly notify GEMCO of any lawsuits, claims, proceedings or investigations that, to the knowledge of the Stockholder, may be threatened, brought, asserted or commenced against IIC, Westchester Re or the Company, their respective officers or directors, or the Stockholder (i) involving in any way the transactions contemplated by this Agreement or (ii) which would, if determined adversely, have a material adverse impact on the business, properties or assets of IIC, Westchester Re or the Company. (b) GEMCO shall refrain from taking any action which would render any representation and/or warranty contained in -15- 04.01.020 Article II of this Agreement inaccurate as of the Closing Date. GEMCO will promptly notify the Stockholder of any lawsuits , claims, proceedings or investigations that, to the knowledge of GEMCO, may be threatened, brought, asserted or commenced against GEMCO or their respective officers and directors (i) involving in any way the transactions contemplated by this Agreement or (ii) which would, if determined adversely, have a material adverse impact on the business, properties or assets of GEMCO 3.4 Maintain IIC and the Company As a Going Concern. (a) The Stockholder shall cause IIC, Westchester Re and the Company to conduct their respective businesses in accordance with past practices and to use their best efforts to maintain the respective business organization of IIC, Westchester Re and the Company intact and preserve the good will of their respective employees, clients and others having business relations with them. The Stockholder shall cause IIC, Westchester Re and the Company to provide GEMCO promptly with interim monthly financial information and any other management reports, as and when they shall become available. (b) GEMCO shall conduct its business in accordance with past practices and to use its best efforts to maintain the business organization of GEMCO intact and preserve the good will of its employees, clients and others having business relations with it. GEMCO shall provide the Stockholder promptly with interim monthly financial information and any other management reports, as and when they shall become available. 3.5 Make No Material Change in IIC and the Company. (a) Prior to the Closing Date, the Stockholder shall not, without the prior written approval of GEMCO, cause or permit IIC, Westchester Re or the Company to (i) make any material change in the respective business or operations of IIC, Westchester Re or the Company; (ii) make any material change in the accounting policies applied in the preparation of the financial statements referred to in Section 1.6 hereof; (iii) declare any dividends on their respective issued and outstanding shares of capital stock or make any other distribution of any kind in respect thereof; (iv) issue, sell or otherwise distribute more than 500,000 authorized but unissued shares of their respective capital stock or effect any stock split or reclassification of any such shares or grant or commit to grant any option, warrant or other rights to subscribe for or purchase or otherwise acquire any shares of capital stock of IIC, Westchester Re or the Company or any security convertible or exchangeable for any such shares; (v) purchase or redeem any of the capital stock of IIC, Westchester Re or the Company; (vi) incur or be liable for indebtedness to the Stockholder or any of its subsidiaries or affiliates; (vii) make any material -16- 04.01.021 change in the compensation of officers or key employees of IIC, Westchester Re or the Company; (viii) enter into any contract, license, franchise or commitment either than in the ordinary course of business or waive any rights of substantial value; (ix) make any donation to any charitable, civic, educational or other eleemosynary institution in excess of donations made in comparable past periods; (x) sell, transfer, lease or otherwise dispose of any assets of IIC, Westchester Re or the Company that are material to the respective business or operations of IIC, Westchester Re or the Company, other than in the ordinary course of business or (xi) enter into any other transaction affecting in any material respect the respective business of IIC, Westchester Re or the Company other than in the ordinary course of business and in conformity with past practices or as contemplated by this Agreement. (b) Prior to the Closing Date, GEMCO shall not, without the prior written approval of the Stockholder (i) make any material change in the business or operations of GEMCO; (ii) make any material change in the accounting policies applied in the preparation of the financial statements referred to in Section 2.5 hereof; (iii) declare any dividends on the issued and outstanding shares of capital stock of GEMCO or make any other distribution in respect thereof; (iv) issue, sell or otherwise distribute more than 500,000 authorized but unissued shares of the capital stock of GEMCO or effect any stock split or reclassification of any such shares or grant or commit to grant any option, warrant or other rights to subscribe for or purchase or otherwise acquire any shares of capital stock of GEMCO or any security convertible into or exchangeable for any such shares; (v) purchase or redeem any of the capital stock of GEMCO; (vi) incur or be liable for any indebtedness of GEMCO or any subsidiary or affiliate of GEMCO; (vii) make any material change in the compensation of officers or key employees of GEMCO; (viii) enter into any contract, license, franchise or commitment other than in the ordinary course of business or waive any rights of substantial value; (ix) make any donation to any charitable, civic, educational or other eleemosynary institution in excess of donations made in comparable past periods; (x) sell, transfer, lease or otherwise dispose of any assets of GEMCO that are material to the business or operations of GEMCO, other than in the ordinary course of business or (xi) enter into any other transactions affecting in any material respect the business of GEMCO other than in the ordinary course of business and in conformity with past practices or as contemplated by this Agreement. 3.6 No Public Announcement. Neither the Stockholder nor GEMCO shall, without the approval of the other, make any press release or other public announcement or filing concerning the transactions contemplated by this Agreement, except as and to the extent that any such party shall be so obligated by law, in which -17- 04.01.022 case the other party shall be advised thereof and given an opportunity to comment thereon. ARTICLE IV PURCHASE PRICE AND CLOSING 4.1 Closing Date. Subject to the fulfillment of the conditions precedent specified in Articles V and VI hereof and as soon as practicable following such fulfillment, the transactions contemplated by this Agreement shall be consummated (the "Closing") at the offices of Duane, Norris, & Heckscher, One Franklin Plaza, Philadelphia, Pennsylvania 19102 or such other place as agreed to by the parties. The date on which the Closing is to take place is herein sometimes referred to as the "Closing Date". 4.2 Transfer of Shares. On the Closing Date, GEMCO shall receive from the Stockholder, and the Stockholder shall transfer to GEMCO, the Shares in exchange for the Debentures and the Warrants as specified in Section 4.3 hereof. 4.3 Issuance of Debentures and Warrants. In exchange for the Shares, GEMCO shall (i) issue its Debentures in form of Exhibit A hereto to the Company in the principal amount of $8,000,000, (ii) issue the Warrants in the form of Exhibit a hereto to purchase 1,000,000 shares of GEMCO Common Stock, (iii) execute the pledge agreement (the "Pledge Agreement") in the form of Exhibit C hereto and (iv) execute the cash collateral letter (the "Letter") in the form of Exhibit D hereto. 4.4 Delivery by the Stockholder. In addition to the deliveries called for by Article V hereof, the Stockholder shall deliver to GEMCO certificates representing all of the Shares, together with fully executed and witnessed stock powers in blank attached thereto with signatures guaranteed by a bank or trust company or a member firm of the New York Stock Exchange, Inc. 4.5 Delivery by GEMCO In addition to the deliveries called for by Article VI hereof, GEMCO shall deliver to the Stockholder a certificate or certificates representing the Debentures, a certificate or certificates representing the Warrants, the Pledge Agreement and the Letter. -18- 04.01.023 ARTICLE V CONDITIONS PRECEDENT TO OBLIGATIONS OF GEMCO The obligations of GEMCO under this Agreement to acquire the Shares in exchange for the Debentures shall, at the option of GEMCO, be subject to the satisfaction, on or prior to the Closing Date, of the following conditions: 5.1 No Misrepresentation or Breach of Covenants and Warranties. There shall have been no breach by the Stockholder in the performance of any of its covenants and agreements herein, each of the representations and warranties of the Stockholder contained or referred to in this Agreement shall be true and correct In all material respects on the Closing Date as though made on the Closing Date and there shall have been delivered to GEMCO a certificate or certificates to that effect, dated the Closing Date and signed by the Stockholder. 5.2 No Changes in or Destruction of Property. Since December 31, 1988, there shall have been (i) no material adverse change in the condition, financial or otherwise, of IIC, Westchester Re or the Company; (ii) no adverse federal, state or local legislative or regulatory change affecting in any material respect the respective services or business of IIC, Westchester Re or the Company and (iii) the respective properties and assets of IIC, Westchester Re or the Company shall not have been materially damaged by fire, flood, casualty, act of God or the public enemy or other cause, regardless of insurance coverage for such damage, so as to impair in any material respect the ability of IIC, Westchester Re or the Company to render services or continue operations. There shall have been delivered to GEMCO a certificate, dated the Closing Date, and signed by the Stockholder (a) to the effect that since December 31, 1988 there has been no such material adverse change as stated in clause (i) hereof, and no such material damage as stated in clause (iii) hereof and (b) further stating that nothing has come to the Stockholder's attention which causes him to believe that since December 31, 1988 there has occurred any adverse federal, state or local legislative or regulatory change affecting in any material respect the services or business of IIC, Westchester Re or the Company. 5.3 Legal Matters. No action, suit, investigation or proceeding shall have been instituted or threatened by any person, corporation or governmental agency against GEMCO to restrain, prohibit, collect damages arising out of or otherwise challenge the legality or validity of the transactions contemplated herein. -19- 04.01.024 5.4 Opinion of Counsel for the Stockholder. GEMCO shall have received from Duane, Morris & Heckscher, counsel for the Stockholder, an opinion dated the Closing Date, in form and substance satisfactory to GEMCO and its counsel, to the effect that : (a) Each of IIC and the Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and IIC and the Company each has full corporate power and authority to own or lease and operate its respective properties and to carry on its respective business as now conducted. The Company has no subsidiaries, except for Westchester Re which is a corporation duly organized, validly existing and in good standing under the laws of Bermuda. (b) The authorized capital stock of the Company consists of 2,000,000 shares of common stock, par value $1.00 per share, of which 1,500,000 shares have been issued and are outstanding and are owned beneficially and of record by IIC. The authorized capital stock of IIC consists of 100 shares of common stock, par value $.0l per share, of which l00 shares have been issued and are outstanding and are owned beneficially and of record by the Stockholder. The authorized capital stock of Westchester Re consists of 250,000 shares of Common Stock, par value $1.00 per share, of which 250,000 shares have been issued and are outstanding and are owned beneficially and of record by the Company. Except for this Agreement, to the knowledge of such counsel there are no agreements, arrangements, options, warrants or other rights or commitments of any character relating to the issuance, sale, purchase or redemption of any shares of capital stock of the Company, Westchester Re or IIC and all of the issued and outstanding shares of Common Stock of the Company, Westchester Re and IIC on the Closing Date are validly issued, fully paid and nonassessable with no liability attaching to the ownership thereof. (c) This Agreement and the transactions contemplated herein have been duly approved by all necessary action of the Stockholder. This Agreement has been duly and validly executed and delivered by the Stockholder and such Agreement, assuming the due execution thereof by GEMCO, is the valid and binding agreement of the Stockholder enforceable against the Stockholder in accordance with its terms except as enforcement of such Agreement may be limited by bankruptcy, insolvency or other similar laws affecting creditors' rights generally and that the remedy of specific performance is subject to the discretion of the court before which proceedings therefor are brought. (d) The Stockholder and IIC have full power and authority to execute and deliver this Agreement and to perform their respective obligations hereunder. Neither the execution and delivery of this Agreement, nor the consummation of the -20- 04.01.025 transactions contemplated herein, nor compliance with and fulfillment of the terms and provisions hereof (i) conflicts with or results in the breach of the terms, conditions or provisions of, or constitutes a default under, the Certificate of Incorporation or the By-laws of the Stockholder, IIC, Westchester Re or the Company or any agreement or instrument known to such counsel to which IIC, Westchester Re, the Company or the Stockholder is a party or by which any of them is bound; (ii) gives any party to or with rights under any such agreement or instrument the right to terminate, modify or otherwise change the rights or obligations of the Stockholder, IIC, Westchester Re or the Company under any such agreement or instrument or (iii) requires the consent, approval or authorization of or any filing with or notification to any federal, state or local court, governmental authority or regulatory body not already obtained or made, as the case may be. (e) Such counsel do not know of any action, suit, proceeding or investigation pending or threatened against the Stockholder, IIC, Westchester Re or the Company, other than actions, suits, proceedings or investigations described in Schedules 1.14 or 1.16 hereto, which might result in a material adverse change in the properties, business or assets or in the condition, financial or otherwise, of IIC, Westchester Re or the Company, or that any action, suit, proceeding or investigation is pending or to their knowledge threatened which questions the legality, validity or propriety of this Agreement or of any action taken or to be taken by the Stockholder or IIC pursuant to or in connection with this Agreement. (f) To the best knowledge of such counsel's knowledge after due investigation, the Stockholder, the Company and IIC are the lawful owners of the Shares, free and clear of all adverse claims, with unrestricted right and power to transfer and deliver the Shares to GEMCO. The Stockholder, the Company and IIC have executed and delivered to GEMCO such instruments as are sufficient to vest good and marketable title to the Shares in GEMCO. (g) To such further effect with respect to legal matters relating to this Agreement as GEMCO or its counsel may reasonably request. In giving such opinion, counsel for the Stockholder may rely, as to matters of fact, upon certificates of officers of the Stockholder, and as to matters relating to the law of any state other than the State of Delaware, upon opinions of other counsel satisfactory to them, provided that such counsel shall state that they believe that they are justified in relying upon such certificates and opinions and deliver copies thereof to GEMCO prior to the Closing Date. -21- 04.01.026 5.5 Net Capital and Surplus of the Company. (a) At the Closing Date, the Company shall have a net capital and surplus of not less than $4,500,000 calculated in conformity with accounting principles and practices prescribed or permitted by the Delaware Insurance Department and applied in the compilation of the financial statements described in Section 1.6 herein and after deduction of all expenses of the Company in effecting the transactions contemplated hereby. (b) At the Closing, McDade & Abbott Co. shall deliver to GEMCO a letter dated the Closing Date stating that as of a specified date not more than five days prior to the date of such letter, on the basis of a limited review but not an examination in accordance with generally accepted auditing standards that includes a reading of the latest available unaudited interim financial statements of the Company, inquiries of certain officers and other employees of the Company responsible for financial and accounting matters and other specified procedures and inquiries, nothing has come to their attention that would cause them to believe that the capital and surplus of the Company as of the specified date, calculated in conformity with accounting principles and practices Prescribed or Permitted by the Delaware Insurance Department was less than $4,500,000. 5.6 Approval by Counsel. All matters, proceedings, Instruments and documents required to carry out this Agreement or incidental thereto and all other relevant legal matters shall have been approved at or before the Closing Date by Ernest D. Palmarella, which approval shall not be unreasonably withheld. 5.7 Investment Representation, The Stockholder acknowledges that the Debentures have not been registered under the Securities Act of 1933, as amended (the "Act"), and agrees that it is acquiring the Debentures, the Warrants and the Common Stock underlying the Warrants for investment purposes only and not with a view to any sale or other distribution thereof in a manner that would violate the Act. The Stockholder consents to the placement of the following legend on the certificate or certificates representing the Debentures and the Warrants to be issued to it: "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR AN EXEMPTION FROM SUCH REQUIREMENTS." -22- 04.01.027 ARTICLE VI CONDITIONS PRECEDENT TO OBLIGATIONS OF THE STOCKHOLDER AND IIC The obligations of the Stockholder and IIC under this Agreement to transfer the Shares in exchange for the Debentures shall, at the option of the Stockholder and IIC, be subject to the satisfaction, on or prior to the Closing Date, of the following conditions; 6.1 No Misrepresentation or Breach of Covenants and Warranties. There shall have been no breach by GEMCO in the performance of any of its covenants herein, each of the representations and warranties of GEMCO contained or referred to in this Agreement shall be true and correct in all material respects on the Closing Date as though made on the Closing Date, and there shall have been delivered to the Stockholder a certificate or certificates to that effect, dated the Closing Date and signed on behalf of GEMCO by the President of GEMCO. 6.2 No Changes in or Destruction of Property. Since December 31, 1988 there shall have been (i) no material adverse change in the condition, financial or otherwise, of GEMCO; (ii) no adverse federal, state or local legislative or regulatory change affecting in any material respect the services or business of GEMCO and (iii) the properties and assets of GEMCO shall not have been materially damaged by fire, flood, casualty, act of God or the public enemy or other cause, regardless of insurance coverage for such damage, so as to impair in any material respect the ability of GEMCO to render services or continue operations. There shall have been delivered to the Stockholder a certificate, dated the Closing Date, and signed on behalf of GEMCO by its President (a) to the effect that since December 31, 1988 there has been no such material adverse change as stated in clause (i) hereof, and no such material as stated in clause (iii) hereof and (b) further stating that nothing has come to the Signer's attention, in the course of his activities on behalf of GEMCO, which causes him to believe that since December 31, 1988 there has occurred any adverse federal, state or local legislative or regulatory change affecting in any material respect the services or business of GEMCO. 6.3 Legal Matters. No action, suit, investigation or proceeding by any person, corporation or governmental agency shall have been instituted or threatened against IIC, Westchester Re, the Company or the Stockholder to restrain, prohibit, collect damages arising out of or otherwise challenge the legality or validity of the transactions contemplated herein. 6.4 Opinion of Counsel for GEMCO The Stockholder shall have received from Ernest D. Palmarella, counsel for GEMCO, an -23- 04.01.028 opinion dated the Closing Date, in form and substance satisfactory to the Stockholder and its counsel, to the effect that: (a) GEMCO is a duly organized and validly existing corporation in good standing under the laws of the State of New York; and GEMCO has the corporate power and authority to consummate the transactions as provided for herein. (b) This Agreement, the Pledge Agreement and the Letter (collectively the "Agreements"), the Debentures and the Warrants and the transactions contemplated herein and therein have been duly approved by all necessary corporate action on the part of GEMCO and the Agreements, the Debentures and the Warrants have been duly and validly executed and delivered by GEMCO; the Agreements, the Debentures and the Warrants are the valid and binding agreements of GEMCO enforceable against GEMCO in accordance with their respective terms except as enforcement thereof may be limited by bankruptcy, insolvency or other similar laws affecting the enforcement of creditors' rights generally and that the remedy of specific performance is subject to the discretion of the court before which proceedings therefor are brought. (c) GEMCO has full power and authority to execute and deliver the Agreements, the Debentures and the Warrants and to perform its obligations thereunder. Neither the execution and delivery of the Agreements, the Debentures or the Warrants nor the consummation of the transactions contemplated herein and therein, nor compliance with and fulfillment of the terms and provisions hereof (i) conflicts with or results in the breach of the terms, conditions or provisions of the governing instruments of GEMCO or any agreement or instrument known to such counsel to which GEMCO is a party or by which it is bound; (ii) gives any party to or with rights under any such agreement or instrument the right to terminate, modify or otherwise change the rights or obligations of GEMCO under any such agreement or instrument or (iii) requires the consent, approval or authorization of or any filing with or notification to any federal, state or local court, governmental authority or regulatory body not already obtained or made, as the case may be. (d) Such counsel do not know of any action, suit, proceeding or investigation pending or threatened against GEMCO other than actions, suits, proceedings or investigations disclosed in a schedule hereto, which might result in a material adverse change in the business, properties or assets or conditions, financial or otherwise, of GEMCO or is pending, or their knowledge, threatened, which questions the legality, validity or propriety of the Agreements, the Warrants or the Debentures or of any action taken or to be taken by the parties -24- 04.01.029 hereto pursuant to or in connection with the Agreements, the Debentures or the Warrants. (e) To such further effect with respect to legal matters relating to the Agreements as the Stockholder or its counsel may reasonably request. In giving such opinion, Ernest D. Palmarella may rely, as to matters of fact, upon certificates of officers of GEMCO and, as to matters relating to the law of any jurisdiction other than the Commonwealth of Pennsylvania upon the opinions of other counsel satisfactory to them, provided that such counsel shall state that they believe that they are justified in relying upon such certificates and opinions and deliver copies thereof to the Stockholder prior to the Closing Date. 6.5 Approval by Counsel. All matters, proceedings, instruments and documents required to carry out this Agreement or incidental thereto and all other relevant legal matters shall have been approved at or before the Closing Date by counsel for the Stockholder which approval shall not be unreasonably withheld . 6.6 Investment Representation. GEMCO acknowledges that the Shares have not been registered under the Act, and agrees that it is acquiring the Shares for investment purposes only and not with a view to any sole or other distribution thereof in a manner that would violate the Act. GEMCO consents to the placement of the legend set forth in Section 5.7 hereof on the certificates representing the Shares to be issued to it. ARTICLE VII TERMINATION 7.1 Termination. This Agreement shall be terminated, and there shall thereafter be no liability of any party to any other party hereunder, at any time prior to the Closing Date: (a) By the mutual consent of GEMCO and the Stockholder. (b) By GEMCO or the Stockholder, if the transactions contemplated herein are not closed on or before September 30, 1989. -25- 04.01.030 ARTICLE VIII SURVIVAL OF OBLIGATIONS; INDEMNIFICATION 8.1 Survival of Obligations. All certifications, representations and warranties respectively made herein by the Stockholder and GEMCO and their respective obligations to be performed pursuant to the terms hereof, shall survive the Closing Date hereunder, notwithstanding any notice of any inaccuracy, breach or failure to perform not waived in writing and notwithstanding the consummation of the transactions contemplated herein with knowledge of such inaccuracy, breach or failure. All representations and warranties contained herein shall terminate two years after the Closing Date; provided, that (i) the representations and warranties contained in Section 1.17 hereof shall expire four years after the Closing Date, or with respect to any dispute with the Internal Revenue Service, upon the earlier to occur of the following (x) such dispute's final resolution and the payment of all taxes, interests and penalties arising therefrom and (y) the expiration of the applicable statute of limitations and (ii) the representations in Section 1.4 hereof shall not terminate. 8.2 Indemnification. (a) The Stockholder agrees to indemnify and hold harmless GEMCO and its subsidiaries, affiliates, successors and assigns from and against any and all (x) liabilities, losses, costs, deficiencies or damages ("Loss") and (y) reasonable attorneys' and accountants' fees and expenses, court costs and all other reasonable out-of-pocket expenses ("Expense") incurred by GEMCO, in each case net of any insurance proceeds received and retained by GEMCO in connection with or arising from (i) any claim that the Stockholder did not convey to GEMCO good and marketable title to all of the issued and outstanding capital stock of the Company and IIC pursuant to this Agreement, (ii) any breach by the Stockholder of any of its covenants in, or failure of the Stockholder to perform any of its obligations under, this Agreement or (iii) any breach of any warranty or the inaccuracy of any representation of the Stockholder contained or referred to in this Agreement or in any certificate delivered by or on behalf of the Stockholder pursuant hereto. (b) GEMCO agrees to indemnify and hold harmless the Stockholder and its subsidiaries, affiliates, successors and assigns from and against any and all Loss and Expense incurred by the Stockholder in each case net of any insurance received and retained by the Stockholder in connection with or arising from (i) any breach by GEMCO of any of its covenants in, or any failure of GEMCO to perform any of its obligations under, this Agreement or (ii) any breach of any warranty or the inaccuracy of -26- 04.01.031 any representation of GEMCO contained or referred to in this Agreement or in any certificate delivered by or on behalf of GEMCO pursuant hereto. (c) No claim shall be made for indemnity pursuant to this Section 8.2 until the aggregate amount of Loss and Expense exceeds $50,000, but if the aggregate amount of such Loss and Expense exceeds such amount, the person responsible therefor (an "Indemnifying Person") shall be liable for all loss' and expense, including such initial $50,000 amount, to the person incurring such loss or expense (an "Indemnified Person") (d) If any Indemnified Person has suffered or incurred any Loss or incurred any Expense, the Indemnified Person shall so notify the Indemnifying Person promptly in writing describing such Loss or Expense, the amount thereof, if known, and the method of computation of such Loss or Expense, all with reasonable particularity and containing a reference to the provisions of this Agreement or any certificate delivered pursuant hereto in respect of which such Loss or Expense shall have occurred. If any action at law or suit in equity is instituted by or against a third party with respect to which any Indemnified Person intends to claim any liability or expense as Loss or Expense under this Section 8.2, such Indemnified Person shall promptly notify the Indemnifying Person of such action or suit. (e) An Indemnified Person shall have the right to conduct and control, through counsel of its choosing, any third party claim, action or suit and may compromise or settle the same, provided that any of the Indemnified Persons shall give the Indemnifying Person advance notice of any proposed compromise or settlement. The Indemnified Persons shall permit the Indemnifying Person to participate in the defense of any such action or suit through counsel chosen by it, provided that the fees and expenses of such counsel shall be borne by the Indemnifying Person. Any compromise or settlement with respect to a claim for money damages effected after the Indemnifying Person, by notice to the Indemnified Persons shall have disapproved such compromise or settlement, shall discharge the Indemnifying Person from liability with respect to the subject matter thereof, and no amount in respect thereof shall be claimed as Loss or Expense under this Section 8.2. -27- 04.01.032 ARTICLE IX MISCELLANEOUS 9.1 Notices. All notices or other communications required or permitted hereunder shall be in writing and shall be given by confirmed telex or telecopy or registered mail addressed, if to the Stockholder to: Corporate Life Insurance Company, 893 S. Matlack Street, West Chester, Pennsylvania 19381, with a copy to Frederick W. Dreher, Esq., Duane, Norris & Heckscher, One Franklin Plaza, Philadelphia, Pennsylvania 19102 and if to GEMCO, to Ernest D. Palmarella, Esq., Gemco National, Inc., 615 Willowbrook Lane, West Chester, Pennsylvania 19382. 9.2 Expenses. Each party hereto shall pay its own expenses including, without limitation, legal and accounting fees and expenses, incident to its negotiation and preparation of this Agreement and to its performance and compliance with the provisions contained herein. 9.3 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania, without regard to its rules on conflicts of law. 9.4 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns; provided that the rights of the Stockholder herein may not be assigned and the rights of GEMCO may only be assigned to such other business organization which shall succeed to substantially all the assets, liabilities and business of GEMCO 9.5 Partial Invalidity. In case any one or more of the provisions contained herein shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement, but this Agreement shall be construed as if such invalid, illegal or unenforceable provision or provisions had never been contained herein unless the deletion of such provision or provisions would result in such a material change as to cause completion of the transactions contemplated herein to be unreasonable. 9.6 Waivers. The Stockholder and GEMCO may, by written instrument, extend the time for the performance of any of the obligations or other acts of the other party and with respect to this Agreement, (a) waive any inaccuracies in the representations and warranties of the other party in this Agreement or in any document delivered pursuant to this Agreement, (b) waive compliance with any of the covenants of the other party contained -28- 04.01.033 in this Agreement and (C) waive the other party's performance of any of its obligations set out in this Agreement. 9.7 Execution in Counterparts. This Agreement may be executed in two or more counterparts, all of which shall be considered one and the same agreement, and shall become a binding agreement when one or more counterparts have been signed by each of the parties and delivered to each of the other parties. 9.8 Titles and Headings. Titles and headings to Articles and Sections herein are inserted for convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement. 9.9 Schedules. The schedules to this Agreement shall be construed with and as an integral part of this Agreement to the same extent as if the same had been set forth verbatim herein. 9.10 Entire Agreement; Amendments and Waivers. This Agreement, including the schedules hereto, contains the entire understanding of the parties hereto with regard to the subject matter contained herein. The parties hereto, by mutual agreement in writing, may amend, modify and supplement this Agreement. The failure of any party hereto to enforce at any time any provision of this Agreement shall not be construed to be a waiver of such provision, nor in any way to affect the validity of this Agreement or any part hereof or the right of such party thereafter to enforce each and every such provision. No waiver of any breach of this Agreement shall be held to constitute a waiver of any other or subsequent breach. -29- 04.01.034 IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement the date first above written. (SEAL) GEMCO NATIONAL, INC. Attest : /s/D. Ann Harper By:/s/ Secretary President CORPORATE LIFE INSURANCE COMPANY /s/ Secretary By:/s/ Aloysius J. Abel, President (SEAL) IIC, INC. Attest : /s/ Secretary By:/s/Aloysius J. Abel, President -30- EX-4 7 04.02 STOCK PURCHASE WARRANT 04.02.001 THE SECURITIES THAT ARE: REPRESENTED BY THIS WARRANT AND THAT MAY BE ACQUIRED UPON THE EXERCISE OF THIS WARRANT (THE "SECURITIES") HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES LAWS OF ANY OTHER JURISDICTION. THESE SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER THE SECURITIES ACT OF 1933 AND THE SECURITIES LAWS OF OTHER APPLICABLE JURISDICTIONS. GEMCO NATIONAL, INC. COMMON STOCK PURCHASE WARRANT No. C-L March 31, 1989 THIS CERTIFIES that, for value received, Corporate Life Insurance Company, or registered assigns, is entitled to subscribe for and purchase from Gemco National, Inc. (the "Corporation") all or any part of 1,000,000 shares of Common Stock of the Corporation (the "Warrant Shares"), subject to adjustment from time to time in accordance with Section 3 hereof, at $2.00 per share (the "Warrant Price"), subject to adjustment from time to time in accordance with Section 4 hereof and, as such price may from time to time be so adjusted,(hereinafter called the "Warrant Price per Share"), at any time or from time to time on and after the date hereof up to and including March 31, 1997 (such period being hereinafter called the "Exercise Period") . SECTION l. Exercise of Warrant. The rights represented by this Warrant may be exercised by the holder hereof, in whole at any time or in part from time to time during the Exercise Period, but not as to a fractional share of common stock, by the surrender of this Warrant (properly endorsed) at the office of the Corporation, at 615 Willowbrook Lane, West Chester, Pennsylvania 19382 (or at such other office of the Corporation in the United States of America as it may designate by notice in writing to the holder hereof at the address of such holder appearing on the books of the Corporation), and by payment to the Corporation of the Warrant Price per Share for each share being purchased in cash or by certified check. In the event of any exercise of the rights represented by this Section 1, a certificate for the shares of common stock so purchased, registered in the name of the holder, shall be delivered to the holder hereof within a reasonable time, not exceeding ten 04.02.002 business days, after the rights represented by this Warrant shall have been so exercised; and, unless this Warrant has expired, a new Warrant representing the number of shares (except a remaining fractional share), if any, with respect to which this Warrant shall not then have been exercised shall also be issued to the holder hereof within such time. The certificate for shares of common stock issued upon exercise of this Warrant may bear a restrictive legend similar to the legend set forth on the face of this Warrant if counsel for the Corporation deems such legend to be necessary under applicable securities laws. The person in whose name any certificate for shares of common stock is issued upon exercise of this Warrant shall for all purposes be deemed to have become the holder of record of such shares on the date on which this Warrant was surrendered and payment of the Warrant Price per Share and any applicable taxes was made, irrespective of the date of delivery of such certificate, except that, if the date of such surrender and payment is a date when the stock transfer books of the Corporation are closed, such person shall be deemed to have become the holder of such shares at the close of business on the next succeeding date on which the stock transfer books are open. SECTION 2. Covenants as to Common Stock. The Corporation covenants and agrees that all shares of common stock that may be issued upon the exercise of the rights represented by this Warrant will, upon issuance, be validly issued, fully paid and non-assessable, with no personal liability attaching to the ownership thereof, and free from all taxes, liens and charges with respect to the issue thereof. Without limiting the generality of the foregoing, the Corporation covenants that it will take all such other action as may be requisite to assure that the stated or par value per share of the common stock is at all times equal to or less than the then effective Warrant Price per Share of the common stock issuable upon exercise of this Warrant. The Corporation covenants and agrees that it will at all times have authorized and reserved, free from preemptive rights, a sufficient number of shares of its common stock to provide for the exercise of the rights represented by this Warrant. SECTION 3. Adjustment of Number of Shares. Upon each adjustment of the Warrant Price per Share as provided in Section 4, the holder of this Warrant shall thereafter be entitled to purchase, at the Warrant Price per Share resulting from such adjustment, the number of shares obtained by multiplying the Warrant Price per Share in effect immediately prior to such adjustment by the number of shares purchasable pursuant hereto immediately prior to such adjustment and dividing the product thereof by the Warrant Price per Share resulting from such adjustment . 04.02.003 SECTION 4. Adjustment of Warrant Price per Share. The Warrant Price per Share shall be subject to adjustment from time to time as follows: (i) If at any time during the Exercise Period any person shall be issued or granted the right to purchase or receive any shares of the Corporation's common stock without consideration or for a consideration per share less than the Warrant Price per Share then in effect immediately prior to the issuance or grant of the right to purchase or receive such shares of common stock, then, and thereafter successively upon each such new issuance or grant, the Warrant Price per Share in effect immediately prior to each such new issuance or sale shall forthwith be reduced to a price determined by Dividing (A) an amount equal to the sum of (I) the total number of shares of common stock outstanding and issuable upon the exercise of then outstanding rights immediately prior to such issuance or grant multiplied by the Warrant Price per Share in effect immediately prior to such issuance or grant, plus (II) the consideration, if any, received or receivable by the Corporation upon such new issuance or grant By (B) the total number of shares of common stock outstanding immediately after such issuance. (ii) If, at any time during the Exercise Period, the number of shares of common stock outstanding is increased by a stock dividend payable in shares of common stock or by a subdivision or split-up of shares of common stock, then, immediately following the record date fixed for the determination of holders of common stock entitled to receive such stock dividend, subdivision or split-up, the Warrant Price per Share in effect thereafter shall be determined by multiplying the Warrant Price per Share times a fraction, the numerator of which is the number of shares of common stock outstanding immediately prior to such stock dividend, stock division or split-up on a fully diluted basis and the denominator of which is the number of shares of common stock outstanding immediately after such stock dividend, stock division or split-up on a fully diluted basis. (iii) If, at any time during the Exercise Period, the number of shares of common stock outstanding is decreased by a combination of the outstanding shares of common stock, then, immediately following the record date for such combination, the Warrant Price per Share in effect thereafter shall be determined by multiplying the Warrant Price per Share times a fraction, the numerator of which is the number of shares of common stock 04.02.004 outstanding immediately prior to such combination on a fully diluted basis and the denominator of which is the number of shares of common stock outstanding immediately after such combination on a fully diluted basis. (iv) In case, at any time during the Exercise Period, of any capital reorganization, or any reclassification of the stock of the Corporation (other than a change in par value or from par value to no par value or from no par value to par value or as a result of a stock dividend or subdivision, split-up or combination of shares), or the consolidation or merger of the Corporation with or into another corporation (other than a consolidation or merger in which the Corporation is the continuing corporation and which does not result in any change in the common stock) or of the sale of all or substantially all the properties and assets of the Corporation as an entirety to any other corporation or person, this Warrant shall, after such reorganization, reclassification, consolidation, merger or sale, be exercisable for the kind and number of shares of stock or other securities or property of the Corporation or of the corporation resulting from such consolidation or surviving such merger or to which such properties and assets shall have been sold to which such holder would have been entitled if he had held the common stock issuable upon the exercise hereof immediately prior to such reorganization, reclassification, consolidation, merger or sale, The provisions of this clause (vi) shall similarly apply to successive reorganizations, reclassifications, consolidations, mergers and sales, (v) Whenever the Warrant Price per Share shall be adjusted as provided in this Section 4, the Corporation shall forthwith prepare a statement showing the facts requiring such adjustment and the Warrant Price per Share that shall be in effect after such adjustment, The Corporation shall cause a copy of such statement to be sent by first class mail, postage prepaid, to each holder of this Warrant at his address appearing on the Corporation's records. (vi) The sale or other disposition of any common stock theretofore held in the treasury of the Corporation shall be deemed to be an issuance thereof. (vii) The Corporation shall pay all documentary, stamp or other taxes attributable to the issuance or delivery of shares of capital stock of the Corporation upon exercise of all or any part of this Warrant; provided, however, that the Corporation shall not be required to pay any taxes which may be payable in respect of any transfer involved in the issuance or delivery of any certificate for such shares in a name other than that of the holder of this Warrant, 04.02.005 SECTION 5. Transfer of Warrant. This Warrant and all rights hereunder are transferable, in whole or in part at the office of the Corporation at 615 Willowbrook Road, West Chester, Pennsylvania 19382 (or at such other office of the Corporation in the United States of America as it may designate by notice in writing to the holder hereof at the address of the holder appearing on the books of the Corporation) by the holder hereof in person or by duly authorized attorney, upon surrender of this Warrant properly endorsed. Each taker and holder of this Warrant, by taking or holding the same, consents and agrees that this Warrant, when so endorsed in blank, shall be deemed negotiable, and, when so endorsed the holder hereof may be treated by the Corporation and all other persons dealing with this Warrant as the absolute owner hereof for any purposes and as the person entitled to exercise tie rights represented by this Warrant, or to the transfer hereof on the books of the Corporation any notice to the contrary notwithstanding; but until each such transfer on such books, the Corporation may treat the registered holder hereof as the owner hereof for all purposes. SECTION 6. Exchange of Warrant. This Warrant is exchangeable, upon the surrender hereof by the holder hereof at the office of the Corporation designated hereunder for new Warrants of like tenor representing in the aggregate the rights to subscribe for and purchase the number of shares which may be subscribed for and purchased hereunder, each of such new Warrants to represent the right to subscribe for and purchase such number of shares as shall be designated by said holder hereof at the time of such surrender. SECTION 7. Fractional Shares. Fractional shares shall not be issued upon the exercise of this Warrant, but in any case where the holder hereof would, except for the provisions of this Section 7, be entitled under the terms hereof to receive a fraction of a share upon the exercise of this Warrant, the Corporation shall, upon the exercise of this Warrant, pay a sum in cash equal to the product obtained by multiplying such fraction by the fair market value of a share of the Corporation's common stock as determined in good faith by the Corporation's Board of Directors. SECTION 8. Lost, Stolen, Mutilated or Destroyed Warrant. If this Warrant is lost, stolen, mutilated or destroyed, the Corporation may, on such terms as to indemnity or otherwise as it may in its discretion impose (which shall, in the case of a mutilated Warrant, include the surrender thereof), issue a new Warrant of like denomination and tenor as the Warrant so lost, stolen, mutilated or destroyed. SECTION 9. Registration Under Securities Act of 1933. (a) The Corporation agrees that if, at any time during the Exercise Period the holder of this Warrant or the Warrant Shares 04.02.006 who or which shall hold not less than 50% of the Warrants and/or the Warrant Shares outstanding at such time and not previously sold pursuant to this Section 5 request that the Corporation file a registration statement under the Act Covering not less than 50% of the Warrant Shares outstanding at such time and not so previously sold, the Corporation will (i) promptly notify each of the holders of the Warrants and/or the Warrant Shares that such registration statement will be filed and that the Warrant Shares which are then held, and/or may be acquired upon the exercise of the Warrants, by such holders will be included in such registration statement at such holders' request, (ii) cause such registration statement to cover all Warrant Shares which it has been so requested to include, (iii) use its best efforts to cause such registration statement to become effective as soon as practicable and (iv) take all other action necessary under any federal or state law or regulation of any governmental authority to permit all Warrant Shares which it has been so requested to include in such registration statement to be sold or otherwise disposed of, and will maintain such compliance with each such federal and state law and regulation of any governmental authority for the period necessary for such holders to effect the proposed sale or other disposition. The Corporation shall be required to effect a registration or qualification pursuant to this Subsection 9(a) on one occasion only. (b) The Corporation agrees that if, at any time and, from time to time during the Exercise Period, the Board of Directors of the Company shall authorize the filing of a registration statement ( any such registration statement being hereinafter called a "Subsequent Registration Statement") under the Act (otherwise than pursuant to Subsection 9(a) hereof, or other than a registration statement on Form S-B or other form which does not include substantially the same information as would be required in a form for the general registration of securities) in connection with the proposed offer of any of its securities by it or any of its shareholders, the Corporation will, (i) promptly notify each of the holders of the Warrants and/or the Warrant Shares that such Subsequent Registration Statement will be filed and that the Warrant Shares which are then held, and/or which may be acquired upon the exercise of the Warrants, by such holders, will, at such holders' request, be included in such Subsequent Registration Statement, (ii) include in the securities covered by such Subsequent Registration Statement all Warrant Shares which it has been so requested to include, (iii) use its best efforts to cause such Subsequent Registration Statement to become effective as soon as practicable and (iv) take all other action necessary under any federal or state law or regulation of any governmental authority to permit all Warrant Shares which it has been so requested to include in such Subsequent Registration Statement to be sold or otherwise disposed of, and will maintain such compliance with each such federal and state law and regulation of any governmental 04.02.007 authority for the period necessary for the Holder and such holders to effect the proposed sale or other disposition. (c) Whenever the Corporation is required pursuant to the provisions of this Section 9 to include Warrant Shares in a registration statement the Corporation shall (i) furnish each holder of any such Warrant Shares and each underwriter of such Warrant Shares with such copies of the prospectus, including the preliminary prospectus, conforming to the Act (and such other documents as each such holder or each such underwriter may reasonably request) in order to facilitate the sale or distribution of the Warrant Shares, (ii) use its best efforts to register or qualify such Warrant Shares under the blue sky laws (to the extent applicable) of such jurisdiction or jurisdictions as the holders of any such Warrant Shares and each underwriter of Warrant Shares being sold by such holders shall reasonably request and (iii) take such other actions as may be reasonably necessary or advisable to enable such holders and such underwriters to consummate the sale or distribution in such jurisdiction or jurisdictions in which such holders shall have reasonably requested that the Warrant shares be sold. (d) The Corporation shall pay all expenses incurred in connection with any registration or other action pursuant to the provisions of this Section other than underwriting discounts and applicable transfer taxes relating to the Warrant Shares. (e) The Corporation will indemnify the holders of Warrant Shares which are included in each Subsequent Registration Statement substantially to the same extent as they would indemnify an underwriter of a public offering of common stock pursuant to a customary underwriting agreement and such holders will indemnify the Corporation with respect to information furnished by them in writing to the Corporation for inclusion therein substantially to the same extent as an underwriter would indemnify a company. IN WITNESS WHEREOF, the Corporation has caused this Warrant to be executed by its duly authorized officers under its corporate seal. (SEAL) GEMCO NATIONAL, INC. Attest : /s/ D. Ann Harper /s/ 04.02.008 FORM OF SUBSCRIPTION [To be signed only upon exercise of Warrant] To Gemco National, Inc.: The undersigned, the holder of the within Warrant, hereby irrevocably elects to exercise the purchase right represented by such Warrant for, and to purchase thereunder, __________ shares of common stock of Gemco National, Inc, and herewith tenders payment of $_____ in full payment of the purchase price for such shares, and requests that the certificates for such shares be issued in the name of, and delivered to _________________________________ whose address is _________________________________________________. Dated : (Signature) (Address) 04.02.009 FORM OF ASSIGNMENT [To be signed only upon transfer of this Warrant] For value received, the undersigned hereby sells, assigns and transfers unto _____________________________ all of the rights represented by the within Warrant to purchase ___________ shares of common stock of Gemco National, Inc. to which the within Warrant relates, and appoints _______________ Attorney to transfer such right on the books of Gemco National, Inc. with full power of substitution in the premises. Dated : (Signature) (Address) Signed in the presence of: _______________________________ EX-4 8 04.03 ASSIGNMENT OF WARRANT 04.03.001 FORM OF ASSIGNMENT [To be signed only upon transfer of this Warrant] For value received, the undersigned hereby sells, assigns and transfers unto CHESTER COUNTY FUND INC. all of the rights represented by the within Warrant to purchase 1,000,000 shares of common stock of Gemco National, Inc. to which the within Warrant relates, and appoints _______________ Attorney to transfer such right on the books of Gemco National, Inc. with full power of substitution in the premises. Dated: March 5, 1991 Corporate Life Insurance Company /s/ Charles S. Lunden (Signature) Charles S. Lunden Executive Vice President 893 South Matlock St. West Chester, PA (Address) Signed in the presence of: /s/ Thomas W. Alesi EX-4 9 04.04 SERIES A PREFERRED STOCK PURCHASE AGREEMENT 04.04.001 SERIES A PREFERRED STOCK PURCHASE AGREEMENT by and among INVESTORS INSURANCE GROUP, INC. and AAM CAPITAL PARTNERS, L.P. 04.04.002 SERIES A PREFERRED STOCK PURCHASE AGREEMENT GLOSSARY OF DEFINED TERMS Term Section Referenced "Affiliate Transactions" Section 3.29 "Affiliate" Article I "Affiliated Group" Article I "Agreement" Introduction "Board" Article I "Certificate of Designation" Article I "Claim" Section 9.2 "Closing" Article I "Closing Date" Section 7.1 "Code" Article I "Commission" Article I "Corporation" Introduction "Defense Notice" Section 9.2 "Employee Benefit Plans" Section 3.24 "Environmental and Safety Requirements" Article I "ERISA" Article I "Exchange Act" Section 4.6 "Financial Statements" Section 3.5 "GAAP" Article I "IIC" Recitals -i- 04.04.003 "Included Assets" Section 3.16 "Indebtedness" Article I "Indemnities" Section 9.2 "Investments" Section 3.9 "Latest Balance Sheet Date" Article I "Leased Real Property" Section 3.12 "Lien" Article I "Material Adverse Effect" Article I "Material Contracts" Section 3.12 "Permits" Section 3.22 "Permitted Liens" Article I "Person" Article I "Plan Affiliate" Section 3.28 "Production Sources" Section 3.30 "Proprietary Rights" Article I "Purchaser Indemnities" Section 9.2 "Purchasers" Introduction "Real Property" Section 3.12 "Registration Agreement" Article I "Reinsurance Treaties" Section 3.13 "Related Agreements" Article I "Rules" Article I "SAP" Article I "Securities Act" Article I "Series A Preferred Shares" Article I -ii- 04.04.004 "Shareholders Agreement" Article I "Subsidiary" Article I "Tax" Article I "Tax Returns" Article I "Third Party Claim" Section 9.2 "Voting Stock" Article I -iii- 04.04.005 INVESTORS INSURANCE GROUP, INC. Series A Preferred Stock Purchase Agreement This Series A Preferred Stock Purchase Agreement (this "Agreement") is made as of April 26, 1996, by and between INVESTORS INSURANCE GROUP, INC., a Florida corporation (the "Corporation") and each of the parties listed on the Schedule of Purchasers attached hereto and who execute a signature page to this Agreement from time to time in accordance with Section 10.1 below (collectively, the "Purchasers"). RECITALS A. The Corporation is an insurance holding company owning all of the issued and outstanding capital stock of Investors Insurance Corporation, a Delaware life insurance corporation ("IIC"), and Investors Marketing Group, Inc., a Florida corporation. B. The Purchasers desires to purchase from the Corporation, and the Corporation desires to issue and sell to the Purchasers, up to 70,000 shares (but not less than 62,000 shares) of the Corporation's Series A Preferred Stock, no par value, at a purchase price of $100.00 per share, for an aggregate purchase price of up to $7,000,000.00. AGREEMENTS In consideration of the premises and the mutual covenants herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: ARTICLE I Definitions As used in this Agreement: "Affiliate" as applied to any Person means any other Person directly or indirectly controlling, controlled by, or under common control with, that Person. The term "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as applied to any Person, means the possession, directly or indirectly, of the power to vote 10% or more of the Voting Stock (or in the case of a Person which is not a corporation, 10% or more of the ownership interest, beneficial or otherwise) of such Person or otherwise to direct or cause the direction of the management and policies of that Person, whether through the ownership of Voting Stock or other ownership interest, by contract or otherwise. All of the Corporation's executive officers, 10% shareholders, directors, Subsidiaries, joint ventures and partners shall be deemed to be Affiliates of the Corporation for purposes of this Agreement. -1- 04.04.006 "Affiliated Group" means an affiliated group as defined in Section 1504 of the Code (or analogous combined, consolidated or unitary group defined under state, local or foreign income Tax law). "Board" means the Board of Directors of the Corporation. "Certificate of Designation" means the Certificate of Designation in the form attached as Exhibit A hereto. "Closing" means the closing of the sale and purchase of the Series A Preferred Shares pursuant to this Agreement. "Code" means the Internal Revenue Code of 1986, as amended. "Commission" means the Securities and Exchange Commission. "Environmental and Safety Requirements" means all applicable federal, state and local laws, rules, regulations, ordinances and requirements relating to public health and safety, worker health and safety and pollution and protection of the environment, all as amended or hereafter amended. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board (or any successor authority) that are applicable as the date of determination, consistently applied. "Indebtedness" means at a particular time, without duplication, (a) indebtedness for borrowed money or for the deferred purchase price of property or services in respect of which any Person is liable, contingently or otherwise, as obligor or otherwise (other than trade payables and other current liabilities incurred in the ordinary course of business) or any commitment by which any Person assures a creditor against loss, including contingent reimbursement obligations with respect to letters of credit, (b) indebtedness guaranteed in any manner by any Person, including guarantees in the form of an agreement to repurchase or reimburse, (c) obligations under capitalized leases in respect of which obligations any Person is liable, contingently or otherwise, as obligor, guarantor or otherwise, or in respect of which obligations any Person assures a creditor against loss and (d) any unsatisfied obligation of any Person for "withdrawal liability" to a "multiemployer plan" as such terms are defined under ERISA. "Latest Balance Sheet Date" shall be December 31, 1995. "Lien" means any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (including, without limitation, any conditional sale or other title retention agreement or lease in the nature thereof), any sale of receivables with recourse against the Corporation or any Affiliate, any filing or agreement to file a financing statement as debtor under the Uniform Commercial Code or any similar statute other than to -2- 04.04.007 reflect ownership by a third party of property leased to the Corporation or any Subsidiaries under a lease which is not in the nature of a conditional sale or title retention agreement, or any subordination arrangement in favor of another Person (other than any subordination arising in the ordinary course of business). "Material Adverse Effect" means a material adverse effect on the business, operations, assets or financial condition of a Person taken as a whole. "Permitted Liens" means: (a) Tax liens with respect to Taxes not yet due or which are being contested in good faith by appropriate proceedings and for which appropriate reserves have been established in accordance with GAAP; (b) Deposits or pledges made in connection with, or to secure payment of, utilities or similar services, workers' compensation, unemployment insurance, old age pensions or other social security obligations; (c) Purchase money security interests in any property acquired by the Corporation or a Subsidiary; (d) Mechanics', materialmen's or contractors' liens or encumbrances or any similar lien or restriction; and (e) Easements, rights-of-way, restrictions and other similar charges and encumbrances not interfering with the ordinary conduct of the business of the Corporation and its Subsidiaries or detracting from the value of the Corporation's consolidated assets. "Person" means an individual, a partnership, a corporation, an association, a joint stock company, a trust, a joint venture, an unincorporated organization or a governmental entity or any department, agency or political subdivision thereof. "Proprietary Rights" means all patents, patent applications, patent disclosures and inventions (whether or not patentable and whether or not reduced to practice); all trademarks, service marks, trade names and corporate names; all registered and unregistered statutory and common law copyrights; all registrations, applications and renewals for any of the foregoing; all trade secrets, confidential information, ideas, formulae, compositions, know-how, manufacturing and production processes and techniques, research and development information, drawings, specifications, designs, plans, improvements, proposals, technical and computer data, documentation and software, financial, business and marketing plans, and franchisee, customer and supplier lists and related information and all other proprietary rights. "Registration Agreement" means the Registration Rights Agreement by and between the Corporation and the Purchasers in the form of Exhibit B attached hereto. -3- 04.04.008 "Related Agreements" means the Registration Agreement and the Shareholders Agreement. "Rules" means any applicable law, statute, rule, regulation, order, permit, judgment, ruling, injunction, decree or other decision of any court or other tribunal or any governmental entity or agency. "SAP" means the accounting practices prescribed or permitted for life insurance companies by the Delaware Commissioner of Insurance and by the insurance laws and regulations of the State of Delaware, as such laws and regulations may be amended from time to time. "Securities Act" means the Securities Act of 1933, as amended. "Series A Preferred Shares" means shares of the Corporation's Series A Preferred Stock, no par value, to be sold to the Purchasers pursuant to this Agreement. "Shareholders Agreement" means the Shareholders Agreement by and between the Corporation, the Purchasers and certain shareholders of the Corporation in the form of Exhibit C attached hereto. "Subsidiary" means any corporation of which the shares of stock having a majority of the general voting power in electing the board of directors are, at the time as of which any determination is being made, owned by the Corporation either directly or indirectly through Subsidiaries. "Tax" means any federal, state, local or foreign income, gross receipts, premium, franchise, estimated, alternative minimum, add-on minimum, sales, use, transfer, registration, value added, excise, natural resources, severance, stamp, occupation, premium, windfall profit, environmental, customs, duties, real property, personal property, capital stock, social security, unemployment, disability, payroll, license, employee or other withholding, or other tax, of any kind whatsoever, including any interest, penalties or additions to tax or additional amounts in respect of the foregoing; the foregoing shall include any transferee or secondary liability for a Tax and any liability assumed by agreement or arising as a result of being (or ceasing to be) a member of any Affiliated Group (or being included (or required to be included) in any Tax Return relating thereto). "Tax Returns" means returns, declarations, reports, claims for refund, information returns or other documents (including any related or supporting schedules, statements or information) filed or required to be filed in connection with the determination, assessment or collection of any Taxes of any party or the administration of any laws, regulations or administrative requirements relating to any Taxes. "Voting Stock" of any Person means securities of any class or classes of such Person the holders of which are ordinarily, in the absence of contingencies, entitled to elect a majority of the directors of such Person. -4- 04.04.009 ARTICLE II Authorization and Sale of Series A Preferred Shares 2.1 Authorization. The Corporation will, prior to the Closing, (a) cause the Board to adopt, pursuant to authority obtained at the annual meeting of the Corporation's shareholders on November 17, 1995, the Certificate of Designation, and (b) authorize the issuance to the Purchasers of the Series A Preferred Shares. 2.2 Sale of Series A Preferred Shares to the Purchasers. Subject to the satisfaction of the terms and conditions herein set forth and in reliance upon the respective representations and warranties of the parties set forth herein or in any document delivered pursuant hereto, the Corporation agrees to sell to the Purchasers, free and clear of any Liens, and the Purchasers agrees to purchase from the Corporation, at the Closing, up to 70,000 (but not less than 62,000) Series A Preferred Shares for the aggregate purchase price of up to $7,000,000.00, in the amounts set forth on the Schedule of Purchasers attached hereto. 2.3 Use of Proceeds. The proceeds from the sale of the Series A Preferred Shares hereunder shall be used to (i) pay expenses incurred or to be reimbursed by the Corporation in connection with the transactions contemplated hereby, (ii) make a capital contribution by the Corporation to the capital and/or surplus of IIC of at least $5,500,000 and (iii) increase the capital of the Corporation. ARTICLE III Representations and Warranties of the Corporation As a material inducement to the Purchasers to enter into this Agreement and to purchase the Series A Preferred Shares hereunder, the Corporation hereby represents and warrants to the Purchasers as follows: 3.1 Organization and Standing. The Corporation is a corporation duly organized, validly existing and in good standing under the laws of the State of Florida. The Corporation has the requisite legal and corporate power and authority to own all the properties owned by it, and to conduct its business as presently being conducted and as proposed to be conducted by it. The Corporation is duly qualified to do business in those jurisdictions listed in Schedule 3.1. The Corporation does not own or lease property or engage in any activity in any jurisdiction which might require its qualification to do business as a foreign corporation in any jurisdiction not listed on Schedule 3.1. Except as set forth on Schedule 3.1, the Corporation does not have any ownership interest in any other Person. 3.2 Corporate Power. The Corporation has all requisite legal and corporate power and authority to enter into this Agreement and the Related Agreements, to issue and sell the Series A Preferred Shares and to carry out and perform its obligations under the terms of this Agreement and -5- 04.04.010 the Related Agreements. Except as set forth in Section 3.3 below, no permits, approvals or consents of or notifications to (a) any governmental entities or (b) any other Persons are necessary in connection with the execution, delivery and performance by the Corporation of this Agreement and the Related Agreements and the consummation by the Corporation of the transactions contemplated hereby and thereby. 3.3 Transaction Not a Breach. Neither the execution and delivery of this Agreement or any of the Related Agreements by the Corporation nor the performance by it of the transactions contemplated hereby or thereby will: (a) violate or conflict with or result in a breach of any provision of any Rule binding on the Corporation, any Subsidiary or any of their respective properties, or conflict with or result in the breach of any of the terms, conditions or provisions thereof; (b) constitute a default under the organizational documents of the Corporation or any Subsidiary, or of any of the Material Contracts listed or required to be listed on Schedule 3.12 or the Reinsurance Treaties listed or required to be listed or Schedule 3.13-A; (c) constitute an event which would permit any party to terminate, or accelerate the maturity of any Indebtedness or other obligation under, any Material Contract listed or required to be listed on Schedule 3.12 or the Reinsurance Treaties listed or required to be listed on Schedule 3.13-A; (d) result in the creation or imposition of any Lien upon the Corporation's or any Subsidiary's capital stock or assets; or (e) require any authorization, consent, approval, exemption or other action by or notice to any court or administrative or governmental body pursuant to the organizational documents of the Corporation or any Subsidiary or any Rules, except for any filings or approvals required pursuant to the Delaware Insurance Holding Company System Registration Chapter, the California Insurance Holding Company System Regulatory Act and such filings, authorization orders and approvals as may be required of state and local governmental authorities which are specified in Schedule 3.3 hereto. 3.4 Capitalization. Schedule 3.4 sets forth the entire authorized capital stock and the total number of issued and outstanding shares of capital stock of the Corporation and each Subsidiary. All of the outstanding shares of capital stock of the Corporation and each Subsidiary are validly issued, fully paid and non-assessable and are owned, beneficially and of record, by those Persons and in the amounts set forth on Schedule 3.4. Except as set forth on Schedule 3.4, neither the Corporation nor any Subsidiary: (i) has outstanding any stock or other securities convertible into or exchangeable for shares of its capital stock or containing profit participation features, (ii) has outstanding any options, warrants or rights to subscribe for or to purchase its capital -6- 04.04.011 stock or any stock or securities convertible into or exchangeable for its capital stock, (iii) is subject to any obligation (contingent or otherwise) to repurchase or otherwise acquire or retire any shares of its capital stock or any warrants, options or other rights to acquire its capital stock, (iv) has any voting agreements, voting trusts or other agreements (including, without limitation, contractual or statutory preemptive rights or cumulative voting rights), commitments or understandings with respect to the voting or transfer of its capital stock or (v) owns or holds any rights to acquire any shares of stock or other security or interest in any other Person. The Series A Preferred Shares, when issued, sold and delivered in accordance with the terms of this Agreement, will be duly and validly issued, fully paid, non-assessable and free and clear of all Liens. 3.5 Financial Statements. Schedule 3.5 contains the following financial statements of the Corporation and the Subsidiaries (the "Financial Statements"): (a) the audited consolidated financial statements of the Corporation and its Subsidiaries for the twelve month period ended December 31, 1995; (b) the unaudited consolidated financial statements of the Corporation and its Subsidiaries for the three month period ended March 31, 1996; (c) the audited statutory financial statements of IIC for the twelve month period ended December 31, 1995; and (d) the unaudited statutory financial statements of IIC for the three month period ended March 31, 1996. Each of the Financial Statements is complete and correct in all material respects, is consistent with the books and records of the Corporation and the Subsidiaries (which, in turn, are accurate and complete in all material respects) and fairly presents the Corporation's and the Subsidiaries' financial condition, assets and liabilities, as applicable, as of their respective dates and the results of operations and cash flows for the periods related thereto in accordance with GAAP (or, with respect to IIC, SAP) consistently applied throughout the periods covered thereby; except that the unaudited financial statements as listed above lack footnote disclosure otherwise required by GAAP (or SAP), none of which, if provided, would reflect a material adverse change in the operations or financial condition of the Corporation or any Subsidiary. 3.6 Conduct in Ordinary Course. Except as set forth on Schedule 3.6 or otherwise as specifically provided in this Agreement, since the Latest Balance Sheet Date, the Corporation and each Subsidiary has conducted its business only in the ordinary course of business consistent with past custom and practice, and has incurred no liabilities other than in the ordinary course of business consistent with past custom and practice and there has been no material adverse change in the assets, condition (financial or otherwise), operating results, employee, policyholder or producer relations or business of the Corporation or any Subsidiary. Without limitation of the foregoing and except as set forth on Schedule 3.6, since the Latest Balance Sheet Date, neither the Corporation nor any Subsidiary has: -7- 04.04.012 (a) sold, assigned or transferred any of the assets of its business, except for sales of investments in the ordinary course of business, or mortgaged, pledged or subjected them to any Lien, charge or other restriction, except for Permitted Liens; (b) sold, assigned, transferred, abandoned or permitted to lapse any licenses or permits thereof, or any of the Proprietary Rights or other intangible assets, or disclosed any material proprietary confidential information to any person, granted any license or sublicense of any rights under or with respect to any Proprietary Rights or waived any other rights of material value except for such sales, assignments, transfers, abandonments, lapses, licenses, sublicenses, disclosures or waivers which, individually or in the aggregate, would not be likely to have a Material Adverse Effect; (c) made or granted any material increase in, or amended or terminated, any existing Employee Benefit Plan or adopted any new Employee Benefit Plan, or entered into any new collective bargaining agreement; (d) conducted its cash management customs and practices (including the timing of collection of receivables and payment of payables and other current liabilities) and maintained its books and records other than in the usual and ordinary course of business consistent with past custom and practice; (e) made any loans or advances to, or guarantees for the benefit of, or entered into any transaction with any agent, broker or production source, employee, officer or director other than in the ordinary course of business; (f) suffered any extraordinary loss, damage, destruction or casualty loss to its business, whether or not covered by insurance and whether or not in the ordinary course of business; -8- 04.04.013 (g) received notification that any material production source, reinsurer or policyholder will stop or decrease in any material respect the rate of business done with the Corporation which has had or is likely to have a Material Adverse Effect; (h) received notification that any reinsurer will increase rates, decrease limits, reduce ceding commissions or change coinsurance percentages with respect to the terms and rating structure of any reinsurance or coinsurance agreements with the Corporation or any Subsidiary, which has had or is likely to have a Material Adverse Effect; (i) declared, set aside or paid any dividend or distribution of cash or other property to any shareholder (in its capacity as such) or purchased, redeemed or otherwise acquired any shares of its capital stock, or made any other payments to any shareholder (in its capacity as such); (j) amended or authorized the amendment of its organizational documents; (k) entered into any other material transaction, other than in the ordinary course of business consistent with past custom and practice; (l) issued any notes, bonds or other debt securities, or any equity securities, or any securities (debt or equity) convertible into, exchangeable for or exercisable for any equity securities; (m) made any substantial change in the nature of its investment portfolio; or (n) committed to do any of the foregoing. 3.7 Litigation and Regulatory Investigations. Except as set forth in Schedule 3.7, there is no suit, action, proceeding, investigation, claim, consent decree, agreement with regulatory authorities, unresolved regulatory inquiry or order pending or, to the knowledge of the Corporation, threatened against or by the Corporation, any Subsidiary, any Employee Benefit Plan or the assets thereof (or, to the knowledge of the Corporation, pending or threatened against any of the officers, directors or key employees of the Corporation or any Subsidiary with respect to its business or proposed business activities or against a fiduciary, plan administrator or other person responsible for an Employee Benefit Plan or the assets thereof), to which the Corporation, any Subsidiary or any Employee Benefit Plan is a party (as a defendant, a third party defendant, a plaintiff or a third party plaintiff), which is likely to have, individually or in the aggregate, a Material Adverse Effect, before any court, or before any governmental department, commission, board, agency, or instrumentality; nor, to the knowledge of the Corporation, is any such action, proceeding or investigation more likely than not to occur. Except as set forth on Schedule 3.7, neither the Corporation, any Subsidiary nor any Employee Benefit Plan is subject to any judgment, order or decree of any court or governmental agency; none of the Corporation, any Subsidiary nor any Employee Benefit Plan has received any written opinion or memorandum from legal counsel retained by the Corporation, any Subsidiary or an Employee -9- 04.04.014 Benefit Plan to the effect that any of them is exposed, from a legal standpoint, to any material liability which is likely to have a Material Adverse Effect; and none of the Corporation, any Subsidiary nor any Employee Benefit Plan is engaged in any legal action to recover monies due it or for damages sustained by it. 3.8 Absence of Undisclosed Liabilities. Neither the Corporation nor any Subsidiary has any material debts, liabilities or obligations of any nature (whether accrued, absolute, contingent, direct, indirect, perfected, inchoate, unliquidated or otherwise and whether due or to become due) arising out of transactions entered into at or prior to the Closing, or any transaction, series of transactions, action or inaction at or prior to the Closing, or any state of facts or condition existing at or prior to the Closing (regardless of when such liability or obligation is asserted), including but not limited to liabilities or obligations on account of Taxes or governmental charges or penalties, interest or fines thereon or in respect thereof, except (a) to the extent specifically reflected and accrued for or reserved against in the Financial Statements, (b) for liabilities specifically delineated on Schedule 3.8, or (c) as of the Closing, for liabilities and obligations which have arisen after the Latest Balance Sheet Date in the ordinary course of business consistent with past custom and practice (none of which is a liability resulting from breach of contract, breach of warranty, tort, infringement, claim or lawsuit). 3.9 Investments. IIC's 1995 Annual Statement, previously provided to Purchasers, hereto contains a complete list of all stocks, bonds or other securities, or any other equity or proprietary interest in any corporation, partnership, joint venture, business enterprise or other entity of any nature whatsoever, owned, directly or indirectly, by IIC (collectively, the "Investments") as of December 31, 1995. Schedule 3.9 sets forth a complete list of any changes in the IIC Investments since December 31, 1995. Except as disclosed in Schedule 3.9, all of the Investments constitute admitted assets on IIC's Financial Statements. 3.10 Reserves. Without limiting the generality of Section 3.5, all information made available by the Corporation to the Purchasers with respect to the determination of the policy and contract reserves and other liabilities of IIC is true, correct and complete in all material respects. The policy and contract reserve and liability amounts presented in IIC's Financial Statements (i) are computed in accordance with commonly accepted actuarial standards consistently applied and are fairly stated in accordance with sound actuarial principles; (ii) are based on actuarial assumptions which are in accordance with or more conservative than those typically applied by the actuarial profession for similar lines of business; and (iii) meet the adequacy and other requirements of the insurance laws of the State of Delaware in all material respects. 3.11 Taxes. Except as reserved for on the Financial Statements, all Taxes due and payable by the Corporation and each Subsidiary have been paid in full. The liability for Taxes of the Corporation and each Subsidiary reflected in the Financial Statements is sufficient in all material respects to provide for all interest, penalties, assessments or deficiencies which, as of the date hereof, were due and unpaid and the appropriate accrual for other unpaid Taxes not yet due. The Corporation and each Subsidiary has timely filed all federal, state, county, local and foreign tax returns which it is required to have filed, and such returns are complete and correct in all material respects. Any deficiencies proposed as a result of any governmental -10- 04.04.015 audits have been paid or settled, and there are no present disputes as to Taxes payable by the Corporation or any Subsidiary. There are no unexpired waivers by the Corporation or any Subsidiary of any statute of limitations with respect to any Taxes, and neither the Corporation nor any Subsidiary is a party to any action or proceedings by any governmental authority for the collection or assessment of Taxes. 3.12 Material Contracts. Schedule 3.12 is a correct and complete list of every material contract, agreement, covenant not-to-compete, relationship or commitment, written or oral, to which the Corporation or any Subsidiary is a party or by which it is bound which requires aggregate future payments in excess of $100,000, including leases for the Leased Real Property and for the leased personal property described in Section 3.14 below, but excluding (i) direct insurance policies or contracts issued by IIC in the ordinary course of business to parties unrelated to the Corporation or its Affiliates, and (ii) reinsurance treaties and agreements whereby IIC is a cedant (addressed in Section 3.13 hereof) (the "Material Contracts"). Schedule 3.12 further includes an indication as to which of the Material Contracts involve (as a party or otherwise) a member of IIC's "Insurance Holding Company System" (as such term is defined in Section 5001 of the Delaware Insurance Holding Company System Registration Chapter). Correct and complete copies of the Material Contracts previously have been furnished to the Purchasers. Neither the Corporation nor any Subsidiary is in default, nor has any event occurred which with the giving of notice or the passage of time or both would constitute a default, under any Material Contract or any other obligation owed by the Corporation or any Subsidiary, which default would, either individually or together with such other defaults, have a Material Adverse Effect, and, to the knowledge of the Corporation, no event has occurred which with the giving of notice or the passage of time or both would constitute a default by any other party to any such Material Contract or obligation. 3.13 Reinsurance Treaties and Agreements. Schedule 3.13 hereto contains a list of all reinsurance treaties or agreements (including facultative agreements) whereby IIC has ceded any liability or potential liability relating to any insurance policy and under which IIC may recover with respect to currently pending or future claims submitted to it ("Reinsurance Treaties"). True and complete copies of all Reinsurance Treaties, as amended to date, have been provided to the Purchasers. All Reinsurance Treaties are in full force and effect and are enforceable in accordance with their terms. Neither IIC nor any other party to the Reinsurance Treaties is in default or alleged to be in default under the terms of thereof, and there exists no condition which, after notice or lapse of time or both, would constitute a default thereunder. IIC has given all notice required under the Reinsurance Treaties with respect to claims submitted to IIC. Except as provided for in the Financial Statements, or as disclosed in Schedule 3.13 hereto, all reinsurance represented by the Reinsurance Treaties is fully and absolutely collectible and represents an admitted asset or a contra-liability of IIC. Except as disclosed in Schedule 3.13, neither the Corporation nor IIC believes or has notice that any party to any of the Reinsurance Treaties will be unable or unwilling to meet its contractual obligations to the Corporation. Except as specifically indicated in Schedule 3.13, no consent from any assuming reinsurer under any of the Reinsurance Treaties is required in order for the Corporation to validly and effectively sell the Series A Preferred Shares to the Purchasers as provided hereunder. The consummation of the transactions which are to take place at the Closing will not affect IIC's rights under the Reinsurance Treaties or result in the cancellation or termination of any of the Reinsurance Treaties. -11- 04.04.016 3.14 Real Property. Neither the Corporation nor any Subsidiary owns any real property. All leases of real property leased or used by the Corporation and the Subsidiaries and utilized in their respective businesses, including all such leases with related parties or Affiliates, are listed on Schedule 3.14, correct and complete copies of which previously have been furnished to the Purchaser. Except as set forth on Schedules 3.12 and 3.14, neither the lessee, nor to the knowledge of the Corporation, the lessor, is in default under any of the leases to which the Corporation or any Subsidiary is a party and no event has occurred which with the giving of notice or the passage of time or both could constitute a default by lessee under any of such leases. To the knowledge of the Corporation, neither the lessor nor the lessee is in default under any of the leases for real property used by the Corporation or any Subsidiary and no event has occurred which with the giving of notice or the passage of time or both could constitute a default by lessee under any of such leases. 3.15 Personal Property. Schedule 3.15 is a correct and complete list of (a) all fixed assets owned or leased by, in the possession of, or used by the Corporation or the Subsidiaries in connection with their respective businesses and (b) all other tangible and intangible personal property, rights and assets owned or leased by, in the possession of, or used by the Corporation or the Subsidiaries in connection with their respective businesses, in each case which have a current fair market value in excess of $25,000 individually or, with respect to similar or related properties $50,000 in the aggregate, and are material to the operation of the Corporation's or any Subsidiary's business (except property sold or otherwise disposed of in the ordinary course of business consistent with past custom and practices and except inventory and Proprietary Rights), which list indicates the location of such items. Either the Corporation or a Subsidiary has good and marketable title to, or a valid leasehold interest in, each item listed on Schedule 3.15, in each case, free and clear of any Liens, except for Liens for current property taxes not yet due and payable and Liens disclosed on Schedule 3.15. The property listed on Schedule 3.15 constitutes all tangible or intangible property, rights and assets necessary for the conduct by the Corporation and the Subsidiaries of their respective businesses as now conducted or currently proposed to be conducted. Such personal property is in good condition and repair and none of such personal property requires any repair or replacement except for maintenance in the ordinary course of business. Except as set forth in Schedule 3.15, none of the personal property listed on Schedule 3.15 is held under any lease, security agreement, conditional sales contract or other title retention or security arrangement or is located other than on the premises of the Corporation or a Subsidiary. 3.16 Title to Assets. The assets of IIC ("Included Assets") consist of all of the assets reflected in the Financial Statement of IIC dated as of December 31, 1995, other than assets liquidated or disposed of in the ordinary course of IIC's business after December 31, 1995, and assets acquired in the ordinary course of IIC's business since December 31, 1995. All assets which are not reflected on the balance sheet contained in IIC's December 31, 1995 Financial Statement are described in Schedule 3.16 hereto. At the date of the Closing, IIC will have good and absolute title to all of the Included Assets, free and clear of all liens, claims and encumbrances, and free and clear of all restrictions on sale or transfer, including any conditional sale or other title retention agreement, or rights of first refusal, except for (i) liens with respect to current taxes not delinquent, (ii) such limitations, restrictions and encumbrances as arise by law or regulation with respect to assets on deposit with regulatory authorities and -12- 04.04.017 (iii) as disclosed in Schedule 3.16. 3.17 Compliance with Applicable Laws and Regulations. Except as disclosed in Schedule 3.17 neither the Corporation nor any Subsidiary is in violation of any law, rule, regulation, licensing, requirement, consent decree or order applicable to it or the conduct, ownership, use, occupancy or operation of its business or the Real Property, which violation would have a material adverse effect on the financial condition or results of operation of the Corporation or any of its Subsidiaries, nor has the Corporation or any Subsidiary received notice (written or oral) of any such violation thereof. True and complete copies of all agreements with insurance producers, agents, brokers, third party administrators, managing general agents, reinsurance intermediaries, underwriting agents or adjusters, as amended to date, have been provided to the Purchasers. The terms and conditions of all such agreements are in material compliance with applicable law and regulation, and, where required by law or regulation, have been filed with and approved by appropriate regulatory authorities. Each insurance policy form, certificate of insurance and application form, and all written advertising materials, illustrations and rates in use by IIC, the use or issuance of which requires filing or approval, have been appropriately filed (whether by IIC or by an appropriate rating bureau to which IIC belongs) with, and if necessary approved by, the Delaware Department of Insurance, the department of insurance in other jurisdictions in which IIC operates and/or any and all other applicable regulatory agencies. All such rates, policy forms, certificates, applications and advertising materials are in material compliance with all applicable insurance laws, rules and regulations. 3.18 Intellectual Property. Schedule 3.18 contains a complete and correct list of all registered Proprietary Rights owned by the Corporation or any Subsidiary and all pending applications for the registration of other Proprietary Rights owned or filed by the Corporation or any Subsidiary. Schedule 3.18 also contains a complete and correct list of all trade or corporate names used by the Corporation or any Subsidiary and a complete and correct list of all licenses and other rights granted by the Corporation or any Subsidiary to any third party with respect to Proprietary Rights and licenses and other rights granted by any third party to the Corporation or any Subsidiary. Except as set forth on Schedule 3.18, to the best of the Corporation's knowledge, (a) each of the Corporation and the Subsidiaries owns and possesses all right, title and interest in and to, or has a valid license to use, all of the Proprietary Rights necessary for the operation of its business as presently conducted; (b) no claim by any third party contesting the validity, enforceability, use or ownership of any such Proprietary Rights has been made, is currently outstanding or, to the knowledge of the Corporation, threatened, and, to the knowledge of the Corporation, there is no reasonable basis for any such claim; (c) neither the Corporation, any Subsidiary nor any registered agent of the Corporation or any Subsidiary has received any notices of, nor is aware of any reasonable basis for an allegation of, any infringement or misappropriation by, or conflict with, any third party with respect to such Proprietary Rights, nor has the Corporation, any Subsidiary or any registered agent of the Corporation or any Subsidiary received any claims of infringement or misappropriation of or other conflict with any Proprietary Rights of any third party; and (d) neither the Corporation nor any Subsidiary has infringed, misappropriated or otherwise violated any Proprietary Rights of any third parties, and is not aware of any infringement, misappropriation or conflict which will occur as a result of the continued operation of the Corporation's or any Subsidiary's business as presently conducted or as currently proposed by the Corporation or any Subsidiary to be conducted. - 13- 04.04.018 3.19 No Illegal Payments. Since March 31, 1989, and to the Corporation's knowledge at any time preceding March 31, 1989, neither the Corporation nor any Subsidiary has made or committed to make any payments for illegal political contributions or made any bribes, kickback payments or other illegal payments. 3.20 Insurance Policies. Schedule 3.20 is a correct and complete list and description, including policy numbers, of all self-insurance programs and insurance policies owned by the Corporation and the Subsidiaries, correct and complete copies of which policies have previously been delivered to the Purchaser. Such policies are in full force and effect, and neither the Corporation nor any Subsidiary is in default under any of them. Neither the Corporation nor any Subsidiary has received any notice of cancellation or intent to cancel or increase or intent to increase premiums with respect to such insurance policies nor, to the knowledge of the Corporation, is there any basis for any such action. Schedule 3.20 also contains a list of all pending claims with any insurance company and any instances within the previous three years of a denial of coverage of the Corporation or any Subsidiary by any insurance company. 3.21 Bank Accounts. Schedule 3.21 is a complete and correct list of each bank in which the Corporation or any Subsidiary has an account or safe deposit box, the number of each such account or box and the names of all persons authorized to draw thereon or to have access thereto. 3.22 Licenses and Permits. The Corporation and each Subsidiary holds, all the permits, licenses, franchises and approvals of governmental authorities and agencies necessary or desirable for the current conduct, ownership, use, occupancy or operation of its business or the Real Property, all of which are identified on Schedule 3.22 (the "Permits"). The Corporation and each Subsidiary is in compliance in all material respects with such Permits, all of which are in full force and effect, and neither the Corporation nor any Subsidiary has received any notices (written or oral) to the contrary. 3.23 Regulatory Authority of IIC. IIC has all regulatory authority necessary to carry on its business as currently conducted. The Purchasers previously have been provided with an accurate copy of the Company's current Certificate of Authority from the State of Delaware. Such Certificate of Authority is valid and effective, and IIC currently has all of the authority specified therein. Schedule 3.23 hereto contains a list of all jurisdictions in which IIC is authorized or eligible to conduct its insurance business and/or maintains a valid and effective Certificate of Authority from the applicable insurance regulatory departments, indicating the extent of such authority, and any date upon which such authority is subject to expiration without regulatory action. Schedule 3.23 contains a list of all jurisdictions in which applications for new or amended licenses, Certificates of Authority or other eligibility for IIC are pending, and a description of the current status of each. Except as disclosed in Schedule 3.23, IIC (i) has not had any license, Certificate of Authority, eligibility or other governmental or regulatory authorization, approval or listing, or application therefor, denied, revoked, suspended or limited, and (ii) has not received any notice from any governmental or regulatory authority of any specific fact or condition which remains uncured and which, if left uncured, could result in the denial, revocation, suspension, limitation or non-renewal of any license, Certificate of Authority, eligibility, approval or listing. The information presented in Schedule 3.23 is a true, complete and accurate summary of all -14- 04.04.019 insurance regulatory authority currently possessed by IIC. 3.24 Employee Benefit Plans. Except as set forth in Schedule 3.24, neither the Corporation nor any Plan Affiliate has maintained, sponsored, adopted, made contributions to or obligated itself to make contributions to or to pay any benefits or grant rights under or with respect to any "Employee Pension Benefit Plan" (as defined in Section 3(2) of ERISA), "Employee Welfare Benefit Plan" (as defined in Section 3(1) of ERISA), "multi-employer plan" (as defined in Section 3(37) of ERISA), plan of deferred compensation, medical plan, life insurance plan, long-term disability plan, dental plan or other plan providing for the welfare of any of the Corporation's or any Subsidiary's employees or former employees or beneficiaries thereof, personnel policy (including but not limited to vacation time, holiday pay, bonus programs, moving expense reimbursement programs and sick leave), excess benefit plan, bonus or incentive plan (including but not limited to stock options, restricted stock, stock bonus and deferred bonus plans), salary reduction agreement, change-of-control agreement, employment agreement, consulting agreement or any other benefit, program or contract (collectively, "Employee Benefit Plans"), whether or not written or pursuant to a collective bargaining agreement, which could give rise to or result in the Corporation or such Plan Affiliate having any debt, liability, claim or obligation of any kind or nature, whether accrued, absolute, contingent, direct, indirect, known or unknown, perfected or inchoate or otherwise and whether or not due or to become due. Correct and complete copies of all Employee Benefit Plans previously have been furnished to the Purchasers. The Employee Benefit Plans are in substantial compliance with governing documents and agreements and with applicable laws. 3.25 Health, Safety and Environment. To the best of the Corporation's knowledge, no facts, events or conditions with respect to the past or present operations or facilities of the Corporation, any Subsidiary or their respective businesses exist which could reasonably be expected to interfere with or prevent continued compliance with, or could give rise to any common law or statutory liability or otherwise form the basis of any claim, action, suit, proceeding, hearing or investigation against or involving the Corporation, any Subsidiary or their respective businesses under any Environmental and Safety Requirement based on any such fact, event or circumstance, including, without limitation, liability for cleanup costs, personal injury or property damage. 3.26 Salaries. Schedule 3.26 is a true, complete and correct list setting forth as of the Latest Balance Sheet Date (i) the names and current compensation rate and compensation of all individuals employed by the Corporation or any Subsidiary on a salaried basis whose base salary and bonus was, or will be, in the aggregate in excess of $50,000 per annum, (ii) the names and current compensation rate of all individuals employed by the Corporation or any Subsidiary on an hourly or piecework basis and (iii) the names and total annual compensation paid by the Corporation or any Subsidiary for all production sources or other independent contractors who render services on a regular basis to the Corporation or any Subsidiary whose current annual compensation paid by the Corporation or any Subsidiary is in excess of $50,000. Except as set forth in Schedule 3.26, no person listed thereon will have received any bonus or increase in compensation since the Latest Balance Sheet Date, and there has been no "general increase" in the compensation or rate of compensation payable to any employees of the Corporation or any Subsidiary since such date, nor since that date has there been any promise to the employees listed on Schedule 3.26 orally or in writing of any bonus or -15- 04.04.020 increase in compensation, whether or not legally binding, except for increases in the ordinary course of business consistent with past compensation practices and obligations incurred under existing bonus, insurance, pension or other employee benefit plans described on Schedule 3.24. Since the Latest Balance Sheet Date there has not been any other material change in the information disclosed in Schedule 3.26. 3.27 Personnel Agreements, Plans and Arrangements. Except as listed in Schedule 3.26 and 3.27, neither the Corporation nor any Subsidiary is a party to or obligated in connection with its business with respect to any (a) outstanding contracts with current or former employees, agents, brokers, reinsurers, intermediaries, consultants, advisers, sales representatives, independent contractors, or dealers, or (b) collective bargaining agreements or contracts with any labor union or other representative of employees or any employee benefits provided for by any such agreement, correct and complete copies of which previously have been furnished to the Purchasers. Except as set forth in Schedule 3.27, no strike, union organizational activity, allegation, charge or complaint of employment discrimination or other similar occurrence has occurred or is pending or, to the knowledge of the Corporation, threatened against the Corporation or any Subsidiary, nor does the Corporation know any basis for any such allegation, charge, or complaint. To the knowledge of the Corporation, the Corporation and each Subsidiary has complied in all material respects with all applicable laws relating to the employment of labor, including provisions thereof relating to wages, hours, equal opportunity, collective bargaining and the payment of social security and other taxes. Except as set forth in Schedule 3.27, there are no administrative charges or court complaints pending or, to the knowledge of the Corporation, threatened against the Corporation or any Subsidiary before the U.S. Equal Employment Opportunity Commission or any state or federal court or agency concerning alleged employment discrimination or any other matters relating to the employment of labor. 3.28 Workers Compensation. To the knowledge of the Corporation, Schedule 3.28 sets forth all expenses, obligations, duties and liabilities relating to any claims by employees and former employees (including dependents and spouses) of the Corporation or any Subsidiary or any Person with whom the Corporation or a Subsidiary constitutes all or part of a controlled group (as defined) in Section 5.15 of the Code ("Plan Affiliate") (or predecessors) made since January 1, 1995, and the extent of any specific accrual on or reserve therefor set forth on the Financial Statements, for (a) costs, expenses and other liabilities under any workers compensation laws, regulations, requirements or programs and (b) any other medical costs and expenses. Except as set forth on Schedule 3.28, to the knowledge of the Corporation, no claims, injuries, fact, event or condition exists which would give rise to a material claim by employees and former employees (including dependents and spouses) of the Corporation or Plan Affiliates under any workers compensation laws, regulations, requirements or programs or for any other medical costs and expenses. 3.29 Affiliate Transaction. Schedule 3.29 sets forth the parties to and the date, nature and amount of each transaction involving the transfer of any cash, property or rights to or from the Corporation or any Subsidiary from, to or for the benefit of any Affiliate or former Affiliate of the Corporation or any Subsidiary ("Affiliate Transactions") during the period commencing January 1, 1992 through the date hereof and any existing commitments of the Corporation or any Subsidiary to engage in the future in any Affiliate Transactions. Each Affiliate Transaction was effected on terms -16- 04.04.021 no less favorable to the Corporation or any Subsidiary than those which would have been established in an arms-length negotiation, except as disclosed on Schedule 3.29. 3.30 Production Sources. Except as set forth on Schedule 3.30, neither the Corporation nor any Subsidiary has ever treated any of its independent producers, agents or brokers ("Production Sources") as an employee for any period and has never been required to file any federal tax returns for any of the Production Sources. Furthermore, the Corporation represents and warrants that the information provided to the Purchasers relating to the relationship between the Corporation, the Subsidiaries and the Production Sources set forth on Schedule 3.30 is complete and accurate in all respects. 3.31 Interest in Production Sources, etc. Except as set forth in Schedule 3.31, neither the Corporation nor any of its Affiliates has any direct or indirect interest in any of the Corporation's or any Subsidiary's competitors, production sources, reinsurers or policyholders or in any Person from whom or to whom the Corporation leases any real or personal property in any other Person with whom the Corporation has any business relationship. 3.32 No Misrepresentation. None of the representations and warranties of the Corporation set forth in this Agreement, in any of the certificates, schedules, lists, documents, exhibits, or other instruments delivered, or to be delivered, to the Purchasers as contemplated by any provision hereof (including, without limitation, the Related Agreements), contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained herein or therein not misleading. To the knowledge of the Corporation, there is no material fact which has not been disclosed to the Purchasers which materially adversely affects or could reasonably be anticipated to materially adversely affect its business or the Corporation's ability to consummate the transactions contemplated hereby. ARTICLE IV Representations and Warranties of the Purchasers As a material inducement to the Corporation to enter into this Agreement and to sell the Series A Preferred Shares hereunder, each Purchaser hereby represents and warrants to the Corporation, solely with respect to itself, as follows: 4.1 Organization and Standing. Such Purchaser is a limited partnership or a corporation, as applicable, duly organized, validly existing and in good standing under the laws of its state of incorporation. 4.2 Authorization; Power. Such Purchaser has all requisite legal power to enter into this Agreement and the Related Agreements, and to carry out and perform its obligations under the terms of this Agreement and the Related Agreements. All action on the part of such Purchaser, its general partner and the directors and shareholders of its general partner or its directors and shareholders, as applicable, necessary for the authorization, execution, delivery and performance by such Purchaser of this Agreement and the Related Agreements, and the consummation of the transactions contemplated hereby and thereby, and for the authorization, issuance and delivery of the Series A Preferred Shares, has been taken. This Agreement and the Related -17- 04.04.022 Agreements are legal, valid and binding obligations of such Purchaser, enforceable against such Purchaser in accordance with their terms. 4.3 No Violation. Neither the execution and delivery of this Agreement and the Related Agreements, the consummation of the transactions provided for herein and therein or contemplated hereby and thereby, nor the fulfillment by such Purchaser of the terms hereof or thereof, will (with or without notice or passage of time or both) (a) conflict with or result in a breach of any provision of the limited partnership agreement or the certificate of limited partnership or the charter documents, as applicable, of such Purchaser, (b) result in a default, give rise to any right of termination, cancellation or acceleration, or require any consent or approval under any of the terms, conditions or provisions of any note, bond, mortgage, indenture, loan, license, agreement, lease or other instrument or obligation to which such Purchaser is a party or by which it or any of its assets may be bound or (c) violate any Rules. 4.4 Purchase for Investment. Such Purchaser will acquire the Series A Preferred Shares, for investment and not with a view to distribute all or any part thereof in any transaction which would constitute a "distribution" within the meaning of the Securities Act. Such Purchaser acknowledges that the Series A Preferred Shares have not been registered under the Securities Act and, except as provided in the Registration Agreement, the Corporation is under no obligation to file a registration statement with the Commission with respect to the Series A Preferred Shares. 4.5 Purchaser Qualifications. Such Purchaser is an "accredited investor" as such term is defined under Rule 501 adopted by the Commission under the Securities Act. 4.6 Future Disposition. Such Purchaser will not, directly or indirectly, offer, transfer, sell, assign, pledge, hypothecate or otherwise dispose of any of the Series A Preferred Shares (or solicit any offers to buy, purchase, or otherwise acquire or take a pledge of any of the Series A Preferred Shares), except in compliance with the Securities Act, the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and regulations under the Securities Act and the Exchange Act. ARTICLE V Pre-Closing Covenants During the period from the date of this Agreement and continuing until the Closing, each of the parties hereto respectively agrees that (except as expressly contemplated or permitted by this Agreement or the Related Agreements or to the extent that the Purchasers or the Corporation, as the case may be, shall otherwise consent in writing): 5.1 No Transfer or Inconsistent Action. The Corporation shall not sell, transfer or otherwise dispose of or in any way encumber any shares of its capital stock or take any action inconsistent with the approval and consummation of this Agreement or the Related Agreements or the transactions contemplated hereby and thereby. -18- 04.04.023 5.2 Conduct of Business in Ordinary Course. The Corporation and the Subsidiaries shall carry on their respective businesses in the usual, regular and ordinary course in substantially the same manner as heretofore conducted and use all reasonable efforts to preserve intact its present business organization, keep available the services of their present officers and employees and preserve their relationships with policyholders, producers, reinsurers and others having business dealings with them, to the end that their goodwill and ongoing businesses shall not be impaired in any material respect at the Closing. Specifically, except in the ordinary course of business, as required by any Rules, as required by contractual obligations existing on the date hereof, or as specifically required by this Agreement: (a) neither the Corporation nor any Subsidiary will (i) increase in any manner the base compensation of, or enter into any new bonus or incentive agreement or arrangement with, any of employees, (ii) pay or agree to pay any additional pension, retirement allowance or other employee benefit to any such employee, whether past or present, (iii) enter into any new employment, severance, consulting, or other compensation agreement with any existing employee, or (iv) otherwise amend or enter into a new Employee Benefit Plan or amend or enter into a new collective bargaining agreement; (b) the Corporation and the Subsidiaries will (i) maintain all the Real Property owned, used or leased by any of them in good repair, order and condition (without making any material alterations thereto), (ii) maintain and keep in full force existing insurance, (iii) maintain all licenses, qualifications and authorizations to do business in each jurisdiction in which they are so licensed, qualified or authorized, (iv) maintain their records in the usual, regular and ordinary manner on a basis consistent with past practices, (v) maintain current underwriting, investment, actuarial, financial reporting and accounting practices and policies, and the assumptions underlying such practices and policies, and the current methods of calculating any bad debt, contingency or other reserve for financial reporting purposes or for other accounting purposes (including, without limitation, any practice, policy, assumption or method relating to or affecting the determination of investment income, reserves or other similar amounts or operating ratios with respect to expenses, losses or lapses), and (vi) perform and comply with their respective obligations under all the Material Contracts; (c) IIC will (i) maintain its investment portfolio in a manner consistent with current practices, (ii) cause all reserves and other similar amounts with respect to the insurance and annuity policies and contracts established or reflected on IIC's Financial Statements to be (A) established and reflected on an basis consistent with those reserves and other similar amounts and reserving methods followed by IIC at December 31, 1995 (B) good, sufficient and adequate (under GAAP) to cover the total amount of all reasonably anticipated matured and unmatured benefits, dividends, losses, claims, expenses and other liabilities of IIC under all insurance and annuity policies and contracts pursuant to which IIC has or will have any liability (including, without limitation, any -19- 04.04.024 liability arising under or as a result of any reinsurance, coinsurance or other similar contract); and (iii) continue to own assets that qualify as legal reserve assets under all applicable insurance Rules in an amount at least equal to the required reserves of IIC and other similar amounts; (d) IIC will not: (i) appoint any general agents or otherwise delegate any substantial business functions or operations (except as a function or operation already may be delegated), or (ii) revise or alter any existing reinsurance or coinsurance agreement; (e) neither the Corporation nor any Subsidiary will (i) sell, lease, transfer or otherwise dispose of any of its assets, (ii) create or permit to exist any new Lien on its assets, (iii) enter into any joint venture, partnership or other similar arrangement or form any other new arrangement for the operation of its assets, (iv) make any new commitments for capital expenditures, (v) issue any notes, bonds or other debt securities, or any equity securities, or any securities (debt or equity) convertible into, exchangeable for or exercisable for any equity securities; and (f) the Corporation and the Subsidiaries will comply with all Rules (other than Rules being contested in good faith by appropriate proceedings) except in those instances in which the failure to comply with such Rule is not reasonably likely, individually or in the aggregate, to have a Material Adverse Effect. -20- 04.04.025 5.3 No Breach of Representations, Warranties or Covenants. No party hereto shall undertake any action or fail to take any action that will result in a breach of the representations, warranties and covenants hereto made by such party, and such representations, warranties and covenants shall be made again as of the Closing (except for representations or warranties that are made by their terms as of a specified date, which shall be true and correct in all material respects as of the specified date). 5.4 Public Announcements. No party will issue or cause the publication of any press release or other public announcement with respect to this Agreement or the transactions contemplated hereby; provided, however, that nothing herein will prohibit any party from issuing or causing publication of any such press release or public announcement to the extent that such party determines such action to be required by law, in which case the party making such determination will, if practicable in the circumstances, use reasonable efforts to allow the other parties reasonable time to comment on such release or announcement in advance of its issuance. To the extent feasible, all press releases or other announcements or notices regarding the transactions contemplated by this Agreement shall be made jointly by the parties. 5.5 No Solicitations. No party hereto shall, nor shall any of them authorize or permit any of its officers, directors or employees or any investment banker, financial advisor, attorney, accountant or other representative retained by any of them to, solicit, initiate or encourage (including by way of furnishing information), or take any other action to facilitate, any inquiries or the making of any proposal which constitutes, or may reasonably be expected to lead to, any tender or exchange offer, proposal for a merger, consolidation or other business combination involving the Corporation or any Subsidiary, or any proposal or offer to acquire in any manner a material equity interest in, or a material portion of the assets of, the Corporation or any Subsidiary, other than the transactions contemplated by this Agreement or agree to or endorse any such proposal, or engage in any negotiations or discussions with any person relating to any such proposal. Each party shall promptly advise the other parties orally and in writing of any inquiries regarding, or offers of, any such proposal. 5.6 Advise of Changes; Filings. The parties hereto shall promptly advise one another orally and in writing of any change or event having, or which, insofar as can reasonably be foreseen, could have, a Material Adverse Effect on the Corporation or any Subsidiary. The parties shall promptly make available copies of all filings made with any state, federal or local governmental entity in connection with this Agreement and the transactions contemplated hereby and thereby, including, but not limited to, any materials submitted in connection with the Delaware Insurance Holding Company System Registration Chapter and the California Insurance Holding Company System Regulatory Act. 5.7 Regulatory Filings. As soon as possible following the execution and delivery of this Agreement, each party shall make such filings and registrations, and provide such notices as may be required to consummate the transactions contemplated in this Agreement, including, but not limited to, filings or registrations for consent or approval of the Delaware and California Departments of Insurance and the departments of insurance of any other states which the parties hereto may determine. Thereafter, each party shall file or cause to be filed as promptly as practicable all related requested supplemental information. The parties hereto will make such -21- 04.04.026 filings and use all reasonable efforts to obtain the governmental approvals referred to in Section 3.3. The Corporation and its Subsidiaries shall provide the Purchasers with any information the Purchasers reasonably may request in connection with the filings, registrations and notices described above. 5.8 Best Efforts. The parties will use their best efforts, to secure fulfillment of all of the conditions precedent to the parties obligations hereunder. 5.9 Financing; Due Diligence Upon the Corporation's request, Purchasers agree to provide the corporation with a written report of the status of its financing efforts (as set forth in Section 6.12 below) and of the status and results of its due diligence (as set forth in Section 6.7 below). ARTICLE VI Conditions Precedent to the Closing The obligation of the Purchasers to purchase the Series A Preferred Shares at the Closing is subject to the fulfillment to its satisfaction of each of the following conditions: 6.1 Representations and Warranties Correct. The representations and warranties of the Corporation set forth in this Agreement shall be true and correct in all material respects as of the date of this Agreement, and as of the Closing as though made on and as of the Closing Date, (in each case, except to the extent such representations are by their express provisions made as of a specified date, in which case they shall be true and correct in all material respects as of the specified date), and the Purchasers shall have received a certificate signed on behalf of the Corporation by the chief executive officer of the Corporation to such effect and such certificate shall be deemed to be a representation and warranty of the Corporation only as of the time immediately preceding the Closing. 6.2 Performance. The Corporation shall have performed all obligations required to be performed by it under this Agreement at or prior to the Closing, and the Purchasers shall have received a certificate signed on behalf of the Corporation by the chief executive officer of the Corporation to such effect. 6.3 Regulatory Approvals. As of the Closing, the Purchasers shall have obtained the approval of the Delaware and California Departments of Insurance with respect to the purchase of Series A Preferred Shares by the Purchasers hereunder. All other regulatory consents or approvals which may be required in the context of the transactions contemplated in this Agreement shall have been obtained. 6.4 No Material Adverse Change. There shall have been no material adverse change in the assets, condition (financial or otherwise), operating results, employee, customer or supplier relations, or business activities of the Corporation. 6.5 Proceedings and Documents. As of the Closing, all corporate and other proceedings in connection with the transactions contemplated hereby and by the Related Agreements, and all documents and instruments incident to such -22- 04.04.027 transactions, shall be satisfactory in form and substance to the Purchasers, and the Purchasers shall have received at or prior to the Closing all such documents as it shall have reasonably requested. 6.6 Qualifications. As of the Closing, all authorizations, approvals or permits of, or filings with, any governmental authority, including state securities or "Blue Sky" offices, that are required by law in connection with the lawful sale and issuance of the Series A Preferred Shares shall have been duly obtained by the Corporation, and shall be effective as of the Closing. 6.7 Due Diligence. The Purchasers and its advisers, including legal counsel, shall have completed its due diligence review of the Corporation and its business with results reasonably satisfactory to the Purchasers. 6.8 Expenses. At Closing, the Corporation shall have reimbursed the Purchasers for its expenses and out-of-pocket costs incurred in connection with their negotiation of this Agreement and the Related Agreements, documentation of the transactions contemplated hereunder and thereunder and closing costs, including without limitation, reasonable attorneys' fees and expenses, in an amount not to exceed $150,000 in the aggregate.. 6.9 Election of Directors. Upon the Closing, the Board shall consist of seven (7) directors, three (3) of whom shall have been nominated by the Purchasers as the holders of the Series A Preferred Shares. 6.10 No Restricted Actions. As of the Closing, neither the Corporation nor any of the Subsidiaries shall have taken any action that would require the consent of the holders of a majority of the Series A Preferred Shares pursuant to Paragraph 4B(3) of the Certificate of Designation, other than actions taken prior to the date of this Agreement, without having obtained the prior consent of the Purchasers. 6.11 Schedules. The Corporation shall have delivered the Schedules to this Agreement to the Purchasers no later than May 15, 1996, which Schedules shall be reasonably satisfactory to the Purchasers. 6.12 Financing. AAM Capital Partners, L.P. shall have transferred its rights hereunder to purchase at least 50,000 of the Series A Preferred Shares as set forth herein to Persons that become Purchasers under this Agreement. 6.13 Chester County Warrants. The warrants issued to Chester County Fund, Inc. by the Corporation, exercisable for 1,000,000 shares of Common Stock, shall have been cancelled, for shares of common stock of the Corporation not to exceed 250,000 shares. ARTICLE VII Closing; Delivery 7.1 Closing. The closing of the transactions contemplated hereby will take place at 10:00 a.m. on June 30, 1996 (the "Closing Date"), at the offices of Katten Muchin & Zavis, unless another date or place is agreed to in writing by the Purchasers and the Corporation; provided, however, that either the Purchasers or the Corporation may extend the Closing Date until -23- 04.04.028 not later than July 30, 1996, upon providing written notice thereof to the other party. 7.2 Delivery. At the Closing, the Corporation will deliver to the Purchasers certificates for the Series A Preferred Shares duly executed and registered in the name of the Purchasers as set forth on the Schedule of Purchasers attached hereto, against payment by the Purchasers of the purchase price therefore by check drawn on a United States domiciled bank payable to the order of the Corporation or by wire transfer of funds to an account designated by the Corporation. 7.3 Compliance Certificate. At the Closing, the Corporation shall have delivered to the Purchasers those certificates of the Corporation required by Sections 6.1 and 6.2 above. 7.4 Secretary's Certificate. At the Closing, the Corporation shall have delivered to the Purchasers copies of each of the following, in each case certified by the applicable Person to be in full force and effect on the date of the Closing: (a) the articles of incorporation or other applicable incorporation documents of the Corporation and each Subsidiary as of the Closing (together with the Certificate of Designation) which documents shall be certified by the Secretary of State of the applicable state of incorporation as of a date not more than twenty days prior to the Closing; (b) a long-form good standing certificate with respect to the Corporation and each Subsidiary certified by the Secretary of State of the applicable state of incorporation as of a date not more than twenty days prior to the Closing; (c) good standing certificates with respect to the Corporation and each Subsidiary certified by the Secretaries of State of the states (other than their respective states of incorporation) in which the conduct of their respective businesses require each of them to be in good standing, in each case as of a date not more than twenty days prior to the Closing; (d) the by-laws of the Corporation and each Subsidiary, acceptable in form and substance to the Purchasers; and (e) resolutions of the Board, and, as necessary, the Corporation's shareholders, the form and substance of which are satisfactory to the Purchasers, authorizing the adoption and execution of the Certificate of Designation, and authorizing the execution, delivery and performance of this Agreement and the Related Agreements, and the transactions contemplated hereby and thereby, including the issuance and sale of the Series A Preferred Shares to the Purchasers. 7.5 Registration Agreement. At or prior to the Closing, the Corporation and the Purchasers shall have executed and delivered the Registration Agreement. 7.6 Shareholders Agreement. At or prior to the Closing, the Corporation, the Purchasers and all of the Corporation's shareholders that are -24- 04.04.029 also officers or directors of the Corporation shall have executed and delivered the Shareholders Agreement. 7.7 Legal Opinion. At the Closing, the Corporation shall have delivered to the Purchasers the opinion of Palmarella & Sweeney, P.C. counsel to the Corporation, dated the date of Closing, addressed to the Purchasers and in the form and substance reasonably acceptable to the Purchasers. 7.8 Consents. At the Closing, the Corporation shall have delivered to the Purchasers evidence that all consents, approvals, authorizations of or notifications to any third parties (including governmental agencies), including, but not limited to, any relating to the Delaware and California Departments of Insurance for which the Corporation is responsible, required to consummate the transactions contemplated hereby have been obtained by the Corporation. 7.9 Financing Fee. At the Closing, the Corporation shall pay to AAM Capital Partners, L.P., in immediately available funds, a financing fee equal to four percent (4%) of the aggregate purchase price for the Series A Preferred Shares sold hereunder. 7.10 Other Documents. At the Closing, the Corporation shall have delivered to the Purchasers such other documents and instruments as the Purchasers or their counsel reasonably shall deem necessary to consummate the transactions contemplated hereby. All documents delivered by Corporation shall be in form and substance reasonably satisfactory to Katten Muchin & Zavis, counsel for the Purchasers. ARTICLE VIII Termination 8.1 Termination. This Agreement may be terminated at any time prior to the Closing, whether before or after approval of the matters presented in connection herewith, by the Corporation or the Purchasers: (a) by mutual consent; (b) by the Purchasers (i) if there has been a material breach of any representation, warranty, covenant or agreement on the part of the Corporation set forth in this Agreement, which breach has not been cured, in the case of a representation or warranty, prior to the Closing or, in the case of a covenant or agreement, within 30 days following receipt by the breaching party of notice of such breach, or (ii) if any permanent injunction or other order of a court or other competent authority preventing the consummation of the sale of the Series A Preferred Shares shall have become final and non-appealable; (c) by the Corporation (i) if there has been a material breach of any representation, warranty, covenant or agreement on the part of the Purchasers set forth in this Agreement, which breach has not been cured, in the case of a representation or warranty, prior to the Closing or, in the case of a covenant or agreement, within 30 days following receipt by the breaching party of notice of such breach, or -25- 04.04.030 (ii) if any permanent injunction or other order of a court or other competent authority preventing the consummation of the sale of the Series A Preferred Shares shall have become final or nonappealable; or (d) by either of the Purchasers or the Corporation if the Closing shall not have been consummated on or before July 30, 1996, or if the Purchasers shall not have successfully obtained approvals or consents of the Delaware and California Departments of Insurance pursuant to the Delaware Insurance Holding Company System Registration Chapter and the California Insurance Holding Company System Regulatory Act, respectively; provided, further, that the right to terminate this Agreement under this Section 8.1(d) shall not be available to any party whose willful failure to fulfill any material obligation under this Agreement has been the cause of, or resulted in, the failure of the Closing to occur on or before such date. 8.2 Effect of Termination. The parties hereto agree that if this Agreement is terminated by the Corporation (other than pursuant to Section 8.1(c)(i) or Section 8.1(d) above) or by the Purchasers pursuant to Section 8.1(b)(i) the Purchasers believe that it is impossible to accurately determine the amount of damages it would incur by virtue of such termination, and consequently the Corporation shall, within three business days following notification of such a termination, pay to the Purchasers $250,000 as liquidated damages, and the obligations of the parties pursuant to this Agreement shall then cease. ARTICLE IX Indemnification 9.1. Expenses. The Corporation agrees to pay on demand: (a) all costs and expenses of compliance with all agreements and conditions contained in this Agreement and in the Related Agreements; (b) the reasonable fees, expenses and disbursements of counsel to the Purchasers in connection with the administration of this Agreement and the Related Agreements and any amendments hereto or thereto, waivers hereof and thereof and consents hereunder and thereunder; (c) all other reasonable out-of-pocket expenses incurred by the Purchasers in connection with the performance of this Agreement and the Related Agreements by the Purchasers after the Closing; and (d) all costs and expenses (including reasonable attorney's fees and costs) incurred by the Purchasers or any holder of Series A Preferred Shares arising out of or in connection with the enforcement or preservation of any rights under this Agreement and the Related Agreements. 9.2. General Indemnity. (a) The Corporation agrees to indemnify, pay and hold the Purchasers and its Affiliates and any subsequent holder of any Series A Preferred Shares, and the partners, officers, directors, employees and agents of the Purchasers and their respective Affiliates and such holders (collectively called the "Purchaser Indemnitees"), harmless from and against, any and all other liabilities, obligations, losses, damages, penalties, actions, judgments, suits, claims, costs, expenses and disbursements of any kind or nature whatsoever including, without limitation, the fees and disbursements of counsel for such -26- 04.04.031 Purchaser Indemnities in connection with any investigative, administrative or judicial proceeding, whether or not such Indemnities shall be designated a party thereto), which may be imposed on, incurred by, or asserted against such Indemnitee, in any manner relating to or arising out of the transactions contemplated by this Agreement and the ownership of any Series A Preferred Shares (a "Claim"), except that the Corporation shall have no obligation hereunder to a Purchaser Indemnitee with respect to any such indemnified liabilities arising from the negligence, gross negligence or wilful misconduct of such Purchaser Indemnitee, its directors, officers, employees, affiliates and/or agents. If any indemnity provided for in the preceding sentence is not available solely because it is found to be contrary to public policy or otherwise unlawful, then the Corporation and the Purchaser Indemnities shall contribute to the amount payable in such proportion as is appropriate to reflect the relative faults and benefits and any other relevant equitable considerations. Each Purchaser Indemnitee shall reimburse the Corporation for any amounts paid to such Purchaser Indemnitee by the Corporation pursuant to this Section 9.2 with respect to claims by the Corporation against such Purchaser Indemnitee which are finally determined by a court of competent jurisdiction in favor of the Corporation against such Purchaser Indemnitee. (b) In the event that subsequent to the Closing any Purchaser Indemnitee asserts a claim for indemnification or receives notice of the assertion of any claim or of the commencement of any action or proceeding by any entity who is not a party to this Agreement or an Affiliate of a party to this Agreement (including, but not limited to any domestic or foreign court or governmental authority, federal, state or local) (a "Third Party Claim") against such Purchaser Indemnitee, against which the Corporation is required to provide indemnification under this Agreement, the Purchaser Indemnitee shall promptly give written notice together with a statement of any available information regarding such claim to the Corporation within fifteen (15) days after learning of such claim (or within such shorter time as may be necessary to give the Corporation a reasonable opportunity to respond to such claim). The Corporation shall have the right, upon written notice to the Purchaser Indemnitee (the "Defense Notice") within thirty days (30) after receipt of notice of such Third Party Claim, which notice by the Corporation shall specify the counsel it will appoint to defend such claim, to conduct at its expense the defense against such claim in its own name, or if necessary in the name of the Purchaser Indemnitee; provided, however, that the Purchase Indemnitee shall have the right to approve the such defense Counsel, which approval shall not be unreasonably withheld. In addition, if the Corporation shall have elected not to conduct the defense of the subject Third Party Claim, the Purchaser Indemnitee shall have the right to conduct such defense in good faith and to compromise and settle the claim without prior consent of the Corporation and the Corporation will be liable for all costs, expenses, settlement amounts or other losses paid or incurred in connection therewith. (c) If the Corporation elects to conduct the defense of the subject Third Party Claim, the Purchaser Indemnitee will cooperate with and make available to the Corporation such assistance and materials as it may reasonably request, all at the expense of the -27- 04.04.032 Corporation, and the Purchaser Indemnitee shall have the right at its expense to participate in the defense assisted by counsel of its own choosing. If the defense of the Third Party Claim by the Corporation is nonetheless having a materially disruptive effect on the business or operations of the Purchaser Indemnitee or the existence of the Third Party Claim is otherwise having a material adverse effect on the business, operations or financial condition of the Purchaser Indemnitee, then the Corporation shall exercise good faith efforts to settle such Third Party Claim. Without the prior written consent of the Purchaser Indemnitee, the Corporation will not enter into any settlement of any Third Party Claim or cease to defend against such claim, if pursuant to or as a result of such settlement or cessation, (i) injunctive or other equitable relief would be imposed against the Purchaser Indemnitee, or (ii) such settlement or cessation would lead to liability or create any financial or other obligation on the part of the Purchaser Indemnitee for which the Purchaser Indemnitee is not entitled to indemnification hereunder. ARTICLE X Miscellaneous 10.1 Successors and Assigns. Except as otherwise expressly provided herein, all covenants and agreements contained in this Agreement by or on behalf of any of the parties hereto will bind and inure to the benefit of the respective successors and assigns of the parties hereto, whether so expressed or not. In addition, and whether or not any express assignment has been made, the provisions of this Agreement which are for the benefit of the Purchasers or holders of Series A Preferred Shares are also for the benefit of, and enforceable by, any subsequent holders of such Series A Preferred Shares. Notwithstanding anything to the contrary contained herein, the Purchasers may not transfer or assign any of their rights hereunder without the consent of the Corporation, except that AAM Capital Partners, L.P. may transfer such rights with respect to up to 50,000 of the Series A Preferred Shares prior to the Closing to any Person that becomes a Purchaser hereunder. 10.2 Severability. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision will be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Agreement. 10.3 Descriptive Headings. The descriptive headings of this Agreement are inserted for convenience of reference only and do not constitute a part of and shall not be utilized in interpreting this Agreement. 10.4 Notices. Any notices required or permitted to be sent hereunder shall be delivered personally or mailed, certified mail, return receipt requested, or delivered by overnight courier service to the following addresses, or such other address as any party hereto designates by written notice to the other party, and shall be deemed to have been given upon delivery, if delivered personally, three days after mailing, if mailed, or one business day after delivery to the courier, if delivered by overnight courier service: -28- 04.04.033 If to the Corporation, to: Investors Insurance Group, Inc. 7200 West Camino Real Suite 203 Boca Raton, Florida 33433 Attention: Chief Executive Officer with a copy to: Palmarella & Sweeney, P.C. 310 Building 2 100 Matsonford Road Radnor, Pennsylvania 19087 Attention: Ernest D. Palmarella If to the Purchasers, to: AAM Capital Partners, L.P. 30 N. LaSalle Street, 36th Floor Chicago, Illinois 60602 Attention: Richard A. Veed Francis S. Wilson, III with a copy to: Katten Muchin & Zavis 525 West Monroe Street Suite 1600 Chicago, Illinois 60661 Attention: Michael P. Goldman, Esq. 10.5 Governing Law. All questions concerning the construction, validity and interpretation of this Agreement, and the performance of the obligations imposed by this Agreement, shall be governed by the laws of the State of Delaware applicable to contracts made and wholly to be performed in that state. 10.6 Final Agreement. This Agreement, together with the Related Agreements and all other agreements entered into by the parties hereto, constitutes the complete and final agreement of the parties concerning the matters referred to herein, and supersedes all prior agreements and understandings. 10.7 Execution in Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original, and such counterparts together shall constitute one instrument. -29- 04.04.034 10.8 No Strict Construction. The language used in this Agreement will be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction will be used against any party. 10.9 Consent to Amendments; Waivers. Except as otherwise expressly provided herein, the provisions of this Agreement may be amended or waived at any time only by the written agreement of the Corporation and holders of a majority of the Series A Preferred Shares. Any waiver, permit, consent or approval of any kind or character on the part of any such holder of any provisions or conditions of this Agreement must be made in writing and shall be effective only to the extent specifically set forth in such writing. 10.10 Representations and Warranties. All representations and warranties contained herein or made in writing by any party in connection herewith will survive the execution and delivery of this Agreement for two years (except for the representation and warranties made pursuant to Sections 3.1, 3.2,3.3 and 3.4, which shall survive indefinitely and the representation and warranties made pursuant to Sections 3.7 and 3.11, which shall survive until the expiration of the applicable statue of limitations) and any investigation made at any time by or on behalf of the Purchasers or holders of Series A Preferred Shares. 10.11 Exhibits and Schedules. All exhibits and schedules hereto are an integral part of this Agreement. 10.12 Finders' Fees. Each party warrants to the other that it has not employed or used the services of or incurred any liability to any broker or finder in connection with the transaction contemplated by this Agreement. -30- 04.04.035 The parties hereto have executed this Agreement on the date first set forth above. THE CORPORATION: INVESTORS INSURANCE GROUP, INC. By:_________________________ Melvin C. Parker, Its: President and Chief Executive Officer PURCHASERS: AAM CAPITAL PARTNERS, L.P. By: AAM PARTNERS, L.P., its General Partner By: AAM Investment Banking Group, Ltd. its General Partner By: VEED CORP. its General Partner By: _________________________ Richard A. Veed, President -31- 04.04.036 EXHIBITS AND SCHEDULES Schedules Schedule of Purchasers 3.1 Organization 3.3 Required Consents 3.4 Capitalization 3.5 Financial Statements 3.6 Ordinary Course Exceptions 3.7 Litigation 3.8 Undisclosed Liabilities 3.9 Investments 3.12 Material Contracts 3.13 Reinsurance Treaties 3.14 Real Property 3.15 Personal Property 3.16 Title to Assets 3.17 Compliance with Laws 3.18 Proprietary Rights 3.20 Insurance Policies 3.21 Bank Accounts 3.22 Licenses and Permits 3.23 Regulatory Authority 3.24 Employee Benefit Plans 3.26 Salaries 3.27 Personnel Agreements 3.28 Workers Compensation 3.29 Affiliate Transactions 3.30 Production Sources 3.31 Interest in Production Sources Exhibits A Form of Certificate of Designation B Form of Registration Agreement C Form of Shareholders Agreement -32- 04.04.037 SCHEDULE OF PURCHASERS Number of Name and Address Series A Preferred Shares Purchase Price AAM CAPITAL PARTNERS, L.P. 30 N. LaSalle Street, 36th Floor Chicago, Illinois 60602 -33- 04.04.038 EXHIBIT A CERTIFICATE OF THE DESIGNATIONS, PREFERENCES AND RELATIVE RIGHTS OF THE SERIES A PREFERRED STOCK, NO PAR VALUE, OF INVESTORS INSURANCE GROUP, INC. Pursuant to Section 607.0602 of the Florida Corporation Law We, the undersigned, [______________] and [______________], being the President and Secretary, respectively, of INVESTORS INSURANCE GROUP, INC., a corporation organized under the laws of the State of Florida (hereinafter called the "Corporation"), in accordance with Section 607.0602 of the Florida Corporation Law, DO HEREBY CERTIFY that the Board of Directors of the Corporation (the "Board") duly adopted the following resolution on [_____________], 1996: NOW, THEREFORE, BE IT RESOLVED, that the Corporation issue and sell up to 70,000 shares of preferred stock designated as Series A Preferred Stock (the "Series A Preferred Stock"), at a price equal to $100.00 per share, the Series A Preferred Stock to have the powers, preferences and rights and the qualifications, limitations and restrictions as follows: Part 1. Dividends. A. General Obligation. When and as declared by the Corporation's board of directors out of funds legally available therefore and to the extent permitted under the Florida Corporation Law, the Corporation will pay preferential cumulative dividends to the holders of the Series A Preferred Stock as provided in this Part 1. Except as otherwise provided herein, dividends on each share of Series A Preferred Stock will accrue on a daily basis at the rate of 8% per annum of the Liquidation Value thereof plus accumulated and unpaid dividends thereon from and including the date of issuance of such share of Series A Preferred Stock to and including the earlier of (i) the date of any liquidation, dissolution or winding up of the Corporation, (ii) the date on which such share of Series A Preferred Stock is converted into Common Stock (at which point such dividends shall have been forfeited pursuant to Part 5A(7) below) or (iii) the date on which such share of Series A Preferred Stock is redeemed in accordance with Part 3 hereof. Such dividends will accrue whether or not they have been declared and whether or not there are profits, surplus or other funds of the Corporation legally available for the payment of dividends. The date on which the Corporation initially issues any share of Series A Preferred Stock will be deemed to be its "date of issuance" regardless of the number of times transfer of such share of Series A Preferred Stock is made on the stock records maintained by or for the Corporation and regardless of the number of certificates which may be issued to evidence such share of Series A Preferred Stock. B. Dividend Reference Dates. To the extent not paid on December 31 of each year, beginning December 31, 1996 (the "Dividend Reference Dates"), all dividends which have accrued on each share of Series A Preferred Stock outstanding during the three-month period (or other period in the case of the initial Dividend Reference Date) shall compound and be accumulated and 04.04.039 shall remain accumulated dividends with respect to each such share of Series A Preferred Stock until paid. C. Distribution of Partial Dividend Payments. If at any time the Corporation pays less than the total amount of dividends then accrued with respect to the Series A Preferred Stock, such payment will be distributed ratably among the holders of the Series A Preferred Stock on the basis of the number of shares of Series A Preferred Stock owned by each such holder. D. Preference. The Corporation shall not, without the prior written consent of the holders of a majority of the shares of Series A Preferred Stock then outstanding, pay or declare any dividend or distribution on any Junior Securities (other than Common Stock) at any time when accumulated dividends on the Series A Preferred Stock have not been paid in full. E. Participation in Common Stock Dividends. In the event that the Corporation declares a dividend or distribution on the Common Stock, the holders of the Series A Preferred Stock and the holders of the Common Stock shall share pro rata (based, in the case of holders of Series A Preferred Stock, on the number of shares of Common Stock which each holder of Series A Preferred Stock would be entitled to receive upon conversion of its Series A Preferred Stock into Common Stock) in such dividend or distribution. Part 2. Liquidation. A. Preference. Upon any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, the holders of shares of Series A Preferred Stock will be entitled to be paid, before any distribution or payment is made upon any Common Stock, an amount in cash equal to the aggregate Liquidation Value of all shares of Series A Preferred Stock outstanding plus all accrued and unpaid dividends thereon. The Corporation will mail written notice of any liquidation, dissolution or winding up to each record holder of Series A Preferred Stock not less than thirty (30) days prior to the effective date thereof, and each holder of Series A Preferred Stock shall have the opportunity to convert its Series A Preferred Stock into Common Stock under Part 5 hereof if it so desires. At the option of a holder of Series A Preferred Stock, with respect to its shares of Series A Preferred Stock, the consolidation or merger of the Corporation into or with any other corporation or corporations, or the sale, lease or transfer by the Corporation of all or substantially all of its assets, will be deemed to be a liquidation, dissolution or winding up of the Corporation for purposes of this Part 2 and Part 1A above. B. Insufficient Funds. If upon any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the assets available for distribution to the shareholders of the Corporation (the "Distributable Funds") shall be insufficient to permit the payment to the holders of Series A Preferred of the full preferential amount set forth in Paragraph 2A above, then the Distributable Funds shall be distributed to the holders of Series A Preferred, ratably in proportion to the number of Series A Preferred Shares held by each such holder on the date of liquidation, dissolution or winding up of the Corporation. 04.04.040 Part 3. Redemptions. A. Optional Redemption. Each holder of Series A Preferred Stock may require the Corporation to redeem all or part of its Series A Preferred Stock at any time on or after December 31, 2001 in accordance with this Part 3 and at a price per share of Series A Preferred Stock equal to the Redemption Price (the "Redemption Right"). Any holder of Series A Preferred Stock may exercise the Redemption Right by delivering to the Corporation and each other holder of Series A Preferred Stock a written notice (a "Redemption Notice") stating such holder's intention to exercise the Redemption Right and the number of such holder's shares of Series A Preferred Stock to be redeemed. The Corporation shall be obligated to redeem the total number of shares of Series A Preferred Stock specified in any Redemption Notice in a series of two annual redemptions, the first of such redemptions to occur at least thirty (30) days following the Corporation's receipt of the Redemption Notice and the second of such redemptions to occur on the first anniversary of the first of such redemptions (each a "Redemption Date"). Each holder of Series A Preferred Stock receiving a Redemption Notice shall have the right, exercisable by written notice delivered to the Corporation within ten (10) days after receipt of such Redemption Notice, to request that any or all of such other holder's shares of Series A Preferred Stock be redeemed on the Redemption Dates together with the shares of Series A Preferred Stock of the holder who delivered the Redemption Notice. B. Redemption Price. For each share of Series A Preferred Stock which is to be redeemed on any Redemption Date, the Corporation will be obligated to pay to the holder thereof (upon surrender by such holder at the Corporation's principal office of the certificate representing such share of Series A Preferred Stock) an amount in immediately available funds (the "Redemption Price") equal to the Liquidation Value thereof plus all accrued but unpaid dividends thereon. If the funds of the Corporation legally available for redemption of Series A Preferred Stock on any Redemption Date are insufficient to redeem the total number of shares of Series A Preferred Stock to be redeemed on such date, those funds which are legally available will be used to redeem the maximum possible number of shares of Series A Preferred Stock ratably among the holders of such shares to be redeemed based upon each shareholder's aggregate investment in the Series A Preferred Stock plus all accrued but unpaid dividends thereon. Thereafter, when additional funds of the Corporation are legally available for the redemption of Series A Preferred Stock, such funds will be used to redeem the balance of the shares of Series A Preferred Stock which the Corporation became obligated to redeem on such Redemption Date but which it has not redeemed (such redemptions to be made on a monthly basis). C. Reissuance of Certificates. In the event that fewer than the total number of shares of Series A Preferred Stock represented by any certificate are redeemed in any installment, a new certificate representing the number of unredeemed shares of such of Series A Preferred Stock will be issued to the holder thereof without cost to such holder promptly after surrender of the certificate representing the redeemed shares of Series A Preferred Stock. 04.04.041 D. No Rights After Redemption. No share of Series A Preferred Stock is entitled to any dividends declared after the date on which the Redemption Price of such share of Series A Preferred Stock is paid to the holder thereof. On such date all rights of the holder of such share of Series A Preferred Stock shall cease, and such share of Series A Preferred Stock shall no longer be deemed to be outstanding. E. Redeemed or Otherwise Acquired Shares. Any share of Series A Preferred Stock that is redeemed or otherwise acquired by the Corporation shall be considered an authorized but unissued share of Series A Preferred Stock. F. Events of Noncompliance. (1) An Event of Noncompliance shall be deemed to have occurred: (a) If the Corporation fails to pay dividends that had been declared by the Board (with the consent of at least one Series A Director and for which funds were legally available at the time of such declaration) on the Series A Preferred Stock (and such failure continues for a period of fifteen (15) days); (b) If the Corporation fails to make any redemption payment with respect to the Series A Preferred Stock that it is obligated to make hereunder (and such failure continues for a period of fifteen (15) days); (c) If the Corporation breaches or otherwise fails to perform or observe any other covenant or agreement contained herein or in the Stock Purchase Agreement or the Related Agreements (as such term is defined in the Stock Purchase Agreement) and such failure to perform or observe a covenant or agreement is not cured within thirty (30) days after the Corporation receives notice of the occurrence thereof; (d) If any representation, warranty or information contained in the Stock Purchase Agreement or required to be furnished to any holder of the Series A Preferred Stock pursuant to the Stock Purchase Agreement, or any writing furnished by the Corporation to any holder of the Series A Preferred Stock, is false or misleading in any material respect on the date made or furnished; (e) If the Corporation or any Subsidiary (as such term is defined in the Stock Purchase Agreement) makes an assignment for the benefit of creditors or admits in writing its inability to pay its debts generally as they become due; or an order, judgment or decree is entered adjudicating the Corporation or any Subsidiary bankrupt or insolvent; or any order for 04.04.042 relief with respect to the Corporation or any Subsidiary is entered under the United States Bankruptcy Code or under the Delaware Insurance Code; or the Corporation or any Subsidiary petitions or applies to any tribunal for the appointment of a custodian, trustee, receiver, conservator, rehabilitator or liquidator of the Corporation or any Subsidiary, or of any substantial part of the assets of the Corporation or any Subsidiary, or commences any proceeding (other than a proceeding for the voluntary liquidation and dissolution of any Subsidiary) relating to the Corporation or any Subsidiary under any bankruptcy reorganization, arrangement, insolvency, readjustment of debt, conservation, rehabilitation, dissolution or liquidation law of any jurisdiction; or any such petition or application is filed, or any such proceeding is commenced, against the Corporation or any Subsidiary and either (x) the Corporation or any such Subsidiary by any act indicates its approval thereof, consent thereto or acquiescence therein or (y) such petition, application or proceeding is not dismissed within ninety (90) days; (f) If any money judgment, writ or warrant of attachment, or similar process involving an amount in any individual case in excess of $250,000 or an amount in the aggregate in excess of $500,000 is entered or filed against the Corporation or any of its Subsidiaries or any of their respective assets and remains undischarged, unvacated, unbonded or unstayed for a period of ninety (90) days; or (g) If the Corporation or any Subsidiary defaults in the performance of any obligation or obligations (other than with the consent of at least two Series A Directors), if the effect of such default is to cause an amount having an individual principal amount in excess of $250,000 or having an aggregate principal amount in excess of 500,000 to become due prior to its stated maturity or to permit the holder or holders of such obligation or obligations to cause an amount having an individual principal amount in excess of $250,000 or having an aggregate principal amount in excess of $500,000 to become due prior to its stated maturity. (2) If an Event of Noncompliance of the type described in Paragraph 3F(1)(e) above shall have occurred, the Corporation shall become obligated to immediately redeem all of the Series A Preferred Stock outstanding at a price per share equal to the Liquidation Value thereof plus all accrued and unpaid dividends thereon, without any demand or other action on the part of the holders thereof. (3) If an Event of Noncompliance of the type described in Paragraph 3F(1)(b) above shall have occurred, then the holders of Series A Preferred Stock, voting as a separate class, will have the special right (in addition to any other voting rights such holders may have) to elect that 04.04.043 number of directors to the Board that would constitute a majority of the Board at such time. Whenever such special right has vested, it may be exercised at any special meeting of the Corporation's shareholders as provided below or by written consent of the holders of a majority of the shares of Series A Preferred Stock then outstanding in accordance with the Florida Corporation Law. If exercised by written consent, then the office of such persons designated in the written consent who were theretofore directors shall terminate and the entire Board shall consist of a majority of members elected by the holders of Series A Preferred Stock, voting as a separate class, pursuant to the written consent and the remainder of the members previously elected by the holders of the Common Stock. If such an Event of Noncompliance exists, then upon the written request of the holders of a majority of the shares of Series A Preferred Stock, a proper officer of the Corporation will call as promptly as possible a special meeting of the Corporation's shareholders for the purpose of electing directors. If such meeting has not been called by a proper officer of the Corporation within thirty (30) days after personal service of said written request upon the secretary of the Corporation or within thirty-five (35) days after mailing the same by registered mail addressed to the secretary of the Corporation at its principal office, then the holders of record of a majority of the shares of Series A Preferred Stock at the time outstanding may designate in writing one of their number to call such meeting at the expense of the Corporation, and such meeting may be called by such person so designated upon the notice required for annual meetings of shareholders and will be held at the Corporation's principal office, or at such other place designated by such holders. Any holder of Series A Preferred Stock so designated will be given access to the stock record books of the Corporation for the purpose of causing meetings of shareholders to be called pursuant to these provisions. Upon the convening of such meeting, the office of all persons who were theretofore directors of the Corporation shall terminate and the entire Board shall consist of those members elected at the meeting, the majority of which shall be elected by the holders of a majority of the shares of Series A Preferred Stock, voting as a separate class, and the remainder of which shall be elected by the holders of a majority of the shares of Common Stock, voting as a separate class. The special right of the holders of the Series A Preferred Stock provided for in this Paragraph 3C shall continue for one year from the date the Event of Noncompliance giving rise to such right ceases to exist, but may be invoked again if, and only if, an additional Event of Noncompliance of the type described in Paragraph 3F(1)(b) above occurs. Any director elected pursuant to these special rights may be removed, and any vacancy in the board existing at such time when this special voting power is vested can be filled, by written consent or at another special meeting in accordance with these provision. (4) If any Event of Noncompliance (other than of the type described in Paragraph 3F(1)(b) or Paragraph 3F(1)(e) above) shall have occurred, the holders of a majority of the shares of Series A Preferred Stock then outstanding may demand by written notice delivered to the Corporation immediate redemption of all or any portion of the Series A Preferred Stock owned by such holder or holders at the Redemption Price. The Corporation shall give prompt written notice of any such election to the other holders of Series A Preferred Stock (but in any event within five days after the receipt of the initial demand for redemption), and each such other holder may demand immediate redemption of all or any portion of such holder's shares of Series A Preferred Stock by giving written notice thereof to the Corporation 04.04.044 within seven (7) days after receipt of the Corporation's notice. If any holder or holders of the Series A Preferred Stock demands immediate redemption of all or any portion of such holder's shares of Series A Preferred Stock pursuant to the terms of this Paragraph 3F, the Corporation shall pay to such holder or holders the aggregate Redemption Price of the shares of Series A Preferred Stock requested to be redeemed by such holder or holders within ten (10) days after receipt of the initial demand for redemption; provided that if at any time after the requisite number of holders of shares of Series A Preferred Stock shall have demanded immediate redemption pursuant to this Paragraph 3F, the Corporation shall pay all accrued and unpaid dividends on the Series A Preferred Stock and make all redemption payments (if any) with respect to the Series A Preferred Stock which it shall have been obligated to make otherwise than pursuant to this Paragraph 3F, and all other Events of Noncompliance shall be remedied or waived by such holders, then, and in every such case, such holders may, by written notice to the Corporation, rescind and annul such demand for immediate redemption and its consequences. Part 4. Voting Rights. A. Voting Rights. Except as otherwise required by law and as provided by Paragraph 4B below, the holders of the Series A Preferred Stock will be entitled to vote with the holders of the Common Stock on each matter submitted to a vote of the Corporation's shareholders, with each share of Series A Preferred Stock having a number of votes equal to the number of votes possessed by the number of shares of Common Stock into which such share of Series A Preferred Stock is convertible as of the record date for the determination of shareholders entitled to vote on such matter. B. Class Voting Rights. (1) Subject to the special voting rights of the Series A Preferred Stock set forth in Paragraph 3F(3) above, the Corporation's board of directors shall be elected as follows: (a) For as long as any shares of Series A Preferred Stock are outstanding, the Board shall consist of seven members and the holders of the Series A Preferred Stock will have the special right, voting separately as a single class (with each share of such series of Series A Preferred Stock being entitled to the number of votes possessed by the number of shares of Common Stock into which such share of such series of Series A Preferred Stock is convertible) and to the exclusion of all other classes of the Corporation's stock, to elect three (3) of the members of the board of directors of the Corporation (the "Series A Directors") and the holders of Common Stock will have the special right, voting separately as a single class and to the exclusion of all other classes of the Corporation's stock, to elect three (3) members of the board of directors of the Corporation (the "Common Stock Directors"). The holders of Common Stock shall also have the special right, voting separately as a single class 04.04.045 and to the exclusion of all other classes of the Corporation's stock, to remove any Common Stock Director. The holders of Series A Preferred Stock shall also have the special right, voting separately as a single class and to the exclusion of all other classes of the Corporation's stock, to remove any Series A Director. (b) The holders of the Series A Preferred Stock and the Common Stock, voting together as a single class (with each share of Series A Preferred Stock having a number of votes equal to the number of votes possessed by the number of shares of Common Stock into which such share of Series A Preferred Stock is convertible as of the record date for the determination of shareholders entitled to vote on such matter), shall have the right to elect the seventh member of the board of directors of the Corporation. The holders of the Series A Preferred Stock and the Common Stock shall also have the right, voting together as a single class (with each share of Series A Preferred Stock having the number of votes set forth in the immediately preceding sentence), to remove any individuals elected to such directorship. (c) Any and all committees of the Board shall have as its members the same number of Common Stock Directors and Series A Directors and the director elected pursuant to Paragraph 4B(1)(b) above. (2) The special right of the holders of Series A Preferred Stock to elect and remove directors contained in Paragraph 4B(1)(a) may be exercised either at a special meeting of the holders of Series A Preferred Stock called as provided below, at any annual or special meeting of the shareholders of the Corporation, or by written consent of the holders of Series A Preferred Stock in lieu of a meeting. The directors to be elected by the holders of the Series A Preferred Stock pursuant to Paragraph 4B(1)(a) shall serve for terms extending from the date of their election and qualification until the time of the next succeeding annual meeting of shareholders (unless sooner removed) and until their successors have been elected and qualified. At any time when the holders of Series A Preferred Stock have the special voting rights set forth in Paragraph 4B(1)(a), the secretary of the Corporation shall, upon the written request of the holders of record of shares of Series A Preferred Stock having at least 10% of the votes possessed by the then outstanding Series A Preferred Stock, call a special meeting of the holders of Series A Preferred Stock for the purpose of electing or removing directors. Such meeting shall be held at the earliest practicable date at the Corporation's principal office or at such other place designated by the holders of Series A Preferred Stock having at least 10% of the votes possessed by the then outstanding Series A Preferred Stock. If such meeting shall not be called by a proper officer of the Corporation within ten (10) days after personal service of said written request upon the secretary of the Corporation or within twenty (20) days after mailing the same to the secretary 04.04.046 of the Corporation at the Corporation's principal office, then the holders of record of Series A Preferred Stock having at least 10% of the votes possessed by the then outstanding Series A Preferred Stock may designate in writing one of their number to call such meeting at the expense of the Corporation, and such meeting may be called by such persons so designated upon the shortest legally permissible notice. Any holders of Series A Preferred Stock so designated shall have access to the stock books of the Corporation for the purpose of calling a meeting of the shareholders pursuant to these provisions. At any shareholders meeting at which the holders of Series A Preferred Stock shall have the special right, voting separately as a single class, to elect or remove directors as provided in Paragraph 4B(1)(a), the presence, in person or by proxy, of the holders of record of shares of Series A Preferred Stock having a majority of the votes possessed by the then outstanding Series A Preferred Stock shall be required to constitute a quorum of the Series A Preferred Stock for such election or removal. At any such meeting or adjournment thereof, the absence of a separate quorum of the Series A Preferred Stock shall not prevent the election of those directors to be elected at such meeting, other than the directors to be elected by holders of the Series A Preferred Stock pursuant to Paragraph 4B(1)(a). In the absence of a separate quorum of the Series A Preferred Stock, the holders of record of shares representing a majority of the voting power present in person or by proxy of the Series A Preferred Stock shall have power to adjourn the meeting for the election of directors which the holders of Series A Preferred Stock are entitled to elect from time to time without notice other than announcement at the meeting. A vacancy in the directorships to be elected by the holders of the Series A Preferred Stock pursuant to Paragraphs 4B(1)(a) may be filled only by vote or written consent in lieu of a meeting of the holders of the Series A Preferred Stock having a majority of the votes possessed by the then outstanding shares of Series A Preferred Stock acting separately as a single class and to the exclusion of all other classes of the Corporation's stock. (3) In addition, for as long as at least 14,000 shares of Series A Preferred Stock remain outstanding, the board of directors of the Corporation shall not take any of the following actions without the affirmative vote of at least one Series A Director, and, to the extent any of the following actions require shareholder consent, such consent shall not be deemed given without the affirmative vote of the holders of a majority of the shares of Series A Preferred Stock then outstanding, voting as a separate class: (a) Dividends. Directly or indirectly declare or pay, or permit any Subsidiary which is not a wholly owned Subsidiary to declare or pay, any dividends, or make or permit any Subsidiary which is not a wholly owned Subsidiary to make, any distributions upon any of its equity securities, other than dividends declared pro rata on shares of the Corporation's Common Stock and Series A Preferred Stock (as provided in Part 1D above); (b) Redemptions. Directly or indirectly 04.04.047 redeem, purchase or otherwise acquire, or permit any Subsidiary to directly or indirectly redeem, purchase or otherwise acquire, any of the Corporation's or any Subsidiary's equity securities, except as required by the terms of the Series A Preferred Stock and other than pursuant to an Approved Stock Plan; (c) Security Issuances. Authorize, issue, or enter into any agreement providing for the issuance (contingent or otherwise) by the Corporation or any of its Subsidiaries of, (x) any notes or debt securities containing equity features (including, without limitation, any notes or debt securities convertible into or exchangeable for equity securities, issued in connection with the issuance of equity securities or containing profit participation features) or (y) any equity securities (or any securities convertible into or exchangeable for any equity securities), other than pursuant to any Approved Stock Plan; (d) Mergers. Merge or consolidate with any Person or permit any Subsidiary to merge or consolidate with any Person (other than, in the case of a wholly owned Subsidiary, with or into the Corporation or any other wholly owned Subsidiary); (e) Sale of Assets. Sell, lease or otherwise dispose of, or permit any Subsidiary to sell, lease or otherwise dispose of, 10% or more of the consolidated assets of the Corporation and its wholly owned Subsidiaries (computed on the basis of book value, determined in accordance with GAAP) in any transaction or series of related transactions; (f) Cessions. Permit IIC to enter into any reinsurance agreements, loss portfolio transfers or cessions constituting 20% or more of the outstanding policy and contract reserves and liabilities of IIC, other than the renewal of existing reinsurance contracts; (g) Liquidations. Liquidate, dissolve or effect a recapitalization or reorganization in any form of transaction; (h) Charter Amendments. Make or authorize any amendment to the Corporation's articles of incorporation or by-laws, or any Subsidiary's organizational documents, or file any resolution of the Board, or of the Board of Directors of any Subsidiary, with the Secretary of State or any other incorporation agency in the state in which it is organized; (i) Affiliate Transactions. Enter into, or permit any Subsidiary to enter into, any transaction with any of its or any Subsidiary's Affiliates, except for 04.04.048 normal employment arrangements and benefit programs on reasonable terms; (j) Loans, Guarantees and Investments. Make or permit any Subsidiary to make any loans or advances to, guarantees for the benefit of, or investments in, any Person, except for (w) reasonable advances to employees in the ordinary course of business, (x) investments having a stated maturity not greater than one year from the date of such investment in (A) obligations of the United States government or any agency thereof or obligations guaranteed by the United States government, (B) certificates of deposit of any commercial bank having combined capital and surplus of at least $550 million or (C) commercial paper with a rating of at least "Prime 1" by Moody's Investors Service, Inc., (y) deposits of amounts not to exceed $100,000 in an account or accounts maintained in federally insured banks or other financial institutions, and (z) with respect to IIC, investments in compliance with the Delaware Insurance Code, other than those provisions authorizing investments in subsidiaries or affiliates (as such terms are defined in the Delaware Insurance Code); (k) Fiscal Year. Change the fiscal year of the Corporation or any Subsidiary; (l) Other Business. Enter into (directly or indirectly through a new Subsidiary), or permit any Subsidiary to enter into, the ownership, active management or operation of any business other than the underwriting and marketing of life insurance and annuity business and activities ancillary thereto; (m) Subsidiaries. Establish or acquire any Subsidiaries or sell any shares of equity securities or rights to acquire equity securities of any Subsidiary; (n) Indebtedness. Create, incur, assume or suffer to exist, or permit the Corporation and its Subsidiaries, taken as a whole, to create, incur, assume or suffer to exist, Indebtedness in an aggregate amount exceeding $1,000,000 at any time outstanding, except (x) trade debt incurred in the normal course of business, (y) Indebtedness secured by Liens permitted under Paragraph 4B(3)(p) below and (z) Indebtedness, if any, provided for in the Corporation's annual budget approved by the Board; (o) Capital Expenditures. Make, or permit the Corporation and its Subsidiaries, taken as a whole, to make, any capital expenditure or series of related capital expenditures (including, without limitation, payments with respect to capitalized leases) or any other acquisition of assets, in excess of $500,000 during any 04.04.049 one fiscal year, unless such capital expenditure shall have been specifically provided for in the annual budget approved by the Board; (p) Related Agreements. Amend, modify or waive any provision of any of the Related Agreements, fail to enforce the provisions of any of the Related Agreements or avail itself of all rights and remedies thereunder; (q) Liens. Create, assume or permit, or permit any Subsidiary to create, assume or permit, any Lien upon any of its properties or assets, whether now owned or hereafter acquired, except (w) Liens existing as of the date hereof as disclosed in the Stock Purchase Agreement, (x) any Lien existing on any asset prior to the acquisition thereof by the Corporation and not created in contemplation of such event, (y) any Lien created on any real property or equipment in connection with the leasing of such real property or equipment, and (z) Permitted Liens; (r) Leases. Enter into, or permit any Subsidiary to enter into, any leases or other rental agreements (excluding capitalized leases) under which the amount of the aggregate lease payments for all such agreements exceeds $250,000 on a consolidated basis for any twelve-month period; (s) Restrictive Agreements. Become subject to, or permit any of its Subsidiaries to become subject to, any agreement or instrument, which by its terms would (under any circumstances) restrict the Corporation's right to perform any of its obligations pursuant to the terms of the Stock Purchase Agreement, the Related Agreements, this Certificate of Designation or the Corporation's by-laws (including, without limitation, all obligations relating to payment of dividends on and making redemptions of the Series A Preferred Stock); (t) Employee Arrangements. Enter into, modify or amend (or permit any Subsidiary to enter into, modify or amend) any employment agreements, make any guarantee with respect to any obligation of an employee of the Corporation or any of its Subsidiaries, or hire, fire, materially change the responsibilities or duties, or alter the compensation (including salary, bonus, automobile allowances or other benefits) of any employee of the Corporation or any of its Subsidiaries whose annual compensation is greater than $100,000, or fix or alter any compensation of any director of the Corporation or any Subsidiary. (u) Budgets. Approve, ratify or substantially change the annual operating budget of the Corporation and its Subsidiaries, including without limitation, the 04.04.050 capital expenditures, additions or improvements, proposed plant expansions or expenditures related to new product development to be made by the Corporation or Subsidiaries for the year; (v) Contracts or Commitments. Enter into or ratify any contract or commitment that requires aggregate expenditures or receipts by the Corporation or any Subsidiaries in excess of $250,000; (w) Public Offering. Consummate any Public Offering of the Corporation's or any Subsidiary's equity or debt securities, or securities into which such securities have been exchanged or converted; (x) Bankruptcy, Etc. Make an assignment for the benefit of creditors or admit in writing the Corporation's or any Subsidiary's inability to pay its debts generally as they become due; or petition or apply to any tribunal for the appointment of a custodian, trustee, receiver or liquidator of the Corporation or a Subsidiary, or of any substantial part of the assets of the Corporation or a Subsidiary, or commence any proceeding (other than a proceeding for the voluntary liquidation and dissolution of a Subsidiary) relating to the Corporation or a Subsidiary under any bankruptcy, reorganization, arrangement, insolvency, readjustment of debt, dissolution or liquidation law of any jurisdiction; (y) Auditors; Legal Counsel. Engage or terminate any individual or firm that provides accounting, financial or legal advice to the Corporation or any Subsidiaries; (z) Board Committees. Designate any committee of the Board; or (aa) Acquisitions; Joint Ventures. Acquire, or permit any Subsidiary to acquire, any interest in any Person or enter into, or permit any Subsidiary to enter into, any joint venture. 04.04.051 Part 5. Conversion. A. Conversion Procedure. (1) At any time and from time to time, any holder of shares of Series A Preferred Stock may convert all or any portion of such shares (including any fraction of a share) held by such holder into the number of shares of the Corporation's Common Stock computed by multiplying the number of shares of Series A Preferred Stock to be converted times $100 per share and dividing the result by the Series A Conversion Price (as defined in Paragraph 5B below). (2) Each conversion of Series A Preferred Stock will be deemed to have been effected as of the close of business on the date on which the certificate or certificates representing the Series A Preferred Stock to be converted have been surrendered at the principal office of the Corporation. At such time as such conversion has been effected, the rights of the holder of such Series A Preferred Stock as such holder will cease and the Person or Persons in whose name or names any certificate or certificates for shares of Common Stock are to be issued upon such conversion will be deemed to have become the holder or holders of record of the shares of Common Stock represented thereby. (3) As soon as possible after a conversion has been effected, the Corporation will deliver to the converting holder: (a) a certificate or certificates representing the number of shares of Common Stock issuable by reason of such conversion in such name or names and such denomination or denominations as the converting holder has specified; (b) the amount payable under Paragraph 5A(6) below with respect to such conversion; and (c) a certificate representing any shares of Series A Preferred Stock which were represented by the certificate or certificates delivered to the Corporation in connection with such conversion but which were not converted. (4) The issuance of certificates for shares of Common Stock upon conversion of Series A Preferred Stock will be made without charge to the holders of such Series A Preferred Stock in respect thereof or other cost incurred by the Corporation in connection with such conversion and the related issuance of shares of Common Stock. Upon conversion of any share of Series A Preferred Stock, the Corporation will take all such actions as are necessary in order to insure that the Common Stock issued as a result of such conversion is validly issued, fully paid and nonassessable. 04.04.052 (5) The Corporation will not close its books against the transfer of Series A Preferred Stock or of Common Stock issued or issuable upon conversion of Series A Preferred Stock in any manner which interferes with the timely conversion of Series A Preferred Stock. (6) If any fractional interest in a share of Common Stock would, except for the provisions of this Paragraph 5A(6), be deliverable upon any conversion of the Series A Preferred Stock, the Corporation, in lieu of delivering the fractional share therefor, shall pay an amount to the holder thereof equal to the Market Price of such fractional interest as of the date of conversion. (7) Upon conversion of shares of Series A Preferred Stock into Common Stock pursuant to this Paragraph 5A, the holder of such shares of Series A Preferred Stock shall forfeit its right to receive any accrued but unpaid dividends on such shares. (8) Notwithstanding any other provision hereof, if a conversion of Series A Preferred Stock is to be made in connection with a Public Offering, the conversion of any shares of Series A Preferred Stock may, at the election of the holder of such shares, be conditioned upon the consummation of the Public Offering in which case such conversion shall not be deemed to be effective until the consummation of the Public Offering. (9) The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of issuance upon the conversion of the Series A Preferred Stock, such number of shares of Common Stock issuable upon the conversion of all outstanding Series A Preferred Stock. All shares of Common Stock which are so issuable shall, when issued, be duly and validly issued, fully paid and nonassessable and free from all taxes, liens and charges. The Corporation shall take all such actions as may be necessary to assure that all such shares of Common Stock may be so issued without violation of any applicable law or governmental regulation or any requirements of any domestic securities exchange upon which shares of Common Stock may be listed (except for official notice of issuance which shall be immediately delivered by the Corporation upon each such issuance). 04.04.053 B. Conversion Price. (1) Initial Conversion Price. The initial "Conversion Price" will be $1.00. In order to prevent dilution of the conversion rights granted under this subdivision, the Conversion Price will be subject to adjustment pursuant to this Paragraph 5B. (2) Adjustment for Dilutive Events. If and whenever on or after the original date of issuance of the Series A Preferred Stock the Corporation issues or sells, or in accordance with Paragraph 5C below is deemed to have issued or sold, any shares of Common Stock for consideration per share less than the Conversion Price in effect immediately prior to the time of such issue or sale (a "Dilutive Event"), then forthwith upon the occurrence of any such Dilutive Event the Conversion Price will be reduced so that the Conversion Price in effect immediately following the Dilutive Event will equal the quotient derived by dividing (i) the sum of (x) the product derived by multiplying the Conversion Price in effect immediately prior to such Dilutive Event times the number of shares of Common Stock Deemed Outstanding immediately prior to such Dilutive Event, plus (y) the consideration, if any, received by the Corporation pursuant to such Dilutive Event, by (ii) the number of shares of Common Stock Deemed Outstanding immediately after such Dilutive Event; provided, however, that there shall be no adjustment in the Conversion Price as a result of any issuance or sale (or deemed issuance or sale) pursuant to (i) an Approved Stock Plan or (ii) the issuance of Common Stock, the proceeds of which are being used to redeem or retire all shares of Series A Preferred Stock then outstanding. C. Effect on Conversion Prices of Certain Events. (1) For purposes of determining the adjusted Conversion Price pursuant to Paragraph 5B above the following events shall be deemed to be an issuance and sale of Common Stock by the Corporation and the "Common Stock Deemed Outstanding" shall be the number of shares of Common Stock actually issued and outstanding plus the number of shares of Common Stock deemed outstanding as a result of the following events as set forth below: (a) Issuance of Rights or Options. If (i) the Corporation in any manner grants any rights or options to subscribe for or to purchase shares of Common Stock or any securities convertible into or exchangeable for shares of Common Stock (such rights or options referred to herein as "Options" and such convertible or exchangeable stock or securities referred to herein as "Convertible Securities") and (ii) the Price Per Share of shares of Common Stock issuable upon the exercise of such Options or upon conversion or exchange of such Convertible Securities is less than the Conversion Price in effect immediately prior to the time of the granting of such Options, then (x) the total maximum amount of such Common Stock issuable upon the exercise of such Options or upon conversion or exchange of the total maximum number of Convertible Securities issuable upon the exercise of such Options will be deemed to be Common Stock issued and sold by the Corporation, (y) the consideration received pursuant to the Dilutive Event 04.04.054 will equal the Price Per Share times the number of shares of Common Stock so deemed issued and sold by the Corporation and (z) the number of shares of Common Stock so deemed issued and sold by the Corporation shall be included in the Common Stock Deemed Outstanding. For purposes of this Paragraph 5C(1)(a), the "Price Per Share" will be determined by dividing (i) the total amount, if any, received or receivable by the Corporation as consideration for the granting of such Options, plus the minimum aggregate amount of additional consideration payable to the Corporation upon exercise of all such Options, plus in the case of such Options which relate to Convertible Securities, the minimum aggregate amount of additional consideration, if any, payable to the Corporation upon the issuance or sale of such Convertible Securities and the conversion or exchange thereof, by (ii) the total maximum number of shares of Common Stock issuable upon the exercise of such Options or upon the conversion or exchange of all such Convertible Securities issuable upon the exercise of such Options. No further adjustment of the Conversion Price will be made when Convertible Securities are actually issued upon the exercise of such Options or when Common Stock is actually issued upon the exercise of such Options or the conversion or exchange of such Convertible Securities. (b) Issuance of Convertible Securities. If (i) the Corporation in any manner issues or sells any Convertible Securities and (ii) the Price Per Share of shares of Common Stock issuable upon such conversion or exchange is less than the Conversion Price in effect immediately prior to the time of such issue or sale, then (x) the maximum number of shares of Common Stock issuable upon conversion or exchange of such Convertible Securities will be deemed to be Common Stock issued and sold by the Corporation, (y) the consideration received pursuant to the Dilutive Event will equal the Price Per Share times the number of shares of Common Stock so deemed issued and sold by the Corporation and (z) the number of shares of Common Stock so deemed issued and sold by the Corporation shall be included in the Common Stock Deemed Outstanding. For the purposes of this Paragraph 5C(1)(b), the "Price Per Share" will be determined by dividing (i) the total amount received or receivable by the Corporation as consideration for the issue or sale of such Convertible Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the Corporation upon the conversion or exchange thereof, by (ii) the total maximum number of shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities. No further adjustment of the Conversion Price will be made when Common Stock is actually issued upon the conversion or exchange of such Convertible Securities, and if any such issue or sale of such Convertible Securities is made upon exercise of any Options for which adjustments to the Conversion Price had been or are to be made pursuant to Paragraph 5C(1)(a) above, no further adjustment of the 04.04.055 Conversion Price will be made by reason of such issue or sale. (c) Change in Option Price or Conversion Rate. If at any time there is a change in (i) the purchase price provided for in any Options, (ii) the additional consideration, if any, payable upon the conversion or exchange of any Convertible Securities, or (iii) the rate at which any Convertible Securities are convertible into or exchangeable for Common Stock, then the Conversion Price in effect at the time of such change will be readjusted to the Conversion Price which would have been in effect had those Options or Convertible Securities still been outstanding at the time of such change provided for such changed purchase price, additional consideration or changed conversion rate, as the case may be, at the time such Options or Convertible Securities were initially granted, issued or sold; provided that if such adjustment would result in an increase of the Conversion Price then in effect, such adjustment will not be effective until thirty (30) days after written notice thereof has been given by the Corporation to all holders of the Series A Preferred Stock. (2) For purposes of determining the adjusted Series A Conversion Price under Paragraph 5B, the following will be applicable: (a) Treatment of Expired Options and Unexercised Convertible Securities. Upon the expiration of any Option or the termination of any right to convert or exchange any Convertible Security without the exercise of any such Option or right, the Series A Conversion Price then in effect hereunder will be adjusted to the Series A Conversion Price which would have been in effect at the time of such expiration or termination had such Option or Convertible Security, to the extent outstanding immediately prior to such expiration or termination, never been issued. (b) Calculation of Consideration Received. If any shares of Common Stock, Option or Convertible Security is issued or sold or deemed to have been issued or sold for cash, the consideration received therefor or the Price Per Share, as the case may be, will be deemed to be the net amount received or to be received, respectively, by the Corporation therefor. In case any shares of Common Stock, Options or Convertible Securities are issued or sold for a consideration other than cash, the amount of the consideration other than cash received by the Corporation or the non-cash portion of the Price Per Share, as the case may be, will be the fair value of such consideration received or to be received, respectively, by the Corporation therefor; except where such consideration consists of securities, in which case the amount of consideration received or to be received, respectively, by the Corporation will be the Market Price thereof as of the date of receipt. If any shares of Common Stock, Options or Convertible Securities are 04.04.056 issued in connection with any merger in which the Corporation is the surviving corporation, the amount of consideration therefor will be deemed to be the fair value of such portion of the net assets and business of the non-surviving corporation as is attributable to such shares of Common Stock, Options or Convertible Securities, as the case may be. The fair value of any consideration other than cash and securities will be determined jointly by the Corporation and the holders of a majority of the outstanding shares of Series A Preferred Stock. If such parties are unable to reach agreement within a reasonable period of time, the fair value of such consideration will be determined by an independent appraiser jointly selected by the Corporation and the holders of a majority of the outstanding shares of Series A Preferred Stock. (c) Integrated Transactions. In case any Option is issued in connection with the issuance or sale of other securities of the Corporation, together comprising one integrated transaction in which no specific consideration is allocated to such Option by the parties thereto, the Option will be deemed to have been issued for a consideration of $.01. (d) Treasury Shares. The number of shares of Common Stock outstanding at any given time does not include shares owned or held by or for the account of the Corporation or any Subsidiary, and the disposition of any shares so owned or held will be considered an issue or sale of Common Stock. (e) Record Date. If the Corporation takes a record of the holders of Common Stock for the purpose of entitling them (I) to receive a dividend or other distribution payable in Common Stock, Options or Convertible Securities or (II) to subscribe for or purchase Common Stock, Options or Convertible Securities, then such record date will be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or upon the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be. D. Subdivision or Combination of Common Stock. If the Corporation at any time subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its outstanding shares of Common Stock into a greater number of shares, the Series A Conversion Price in effect immediately prior to such subdivision will be proportionately reduced, and if the Corporation at any time combines (by combination, reverse stock split or otherwise) one or more classes of its outstanding shares of Common Stock into a smaller number of shares, the Series A Conversion Price in effect immediately prior to such combination will be proportionately increased. E. Reorganization, Reclassification, Consolidation, Merger or Sale. 04.04.057 (1) Corporation Survives. Upon the consummation of an Organic Change (other than a transaction in which the Corporation is not the surviving entity) the terms of the Series A Preferred Stock shall be deemed modified, without payment of any additional consideration therefor, so as to provide that upon the conversion of shares of Series A Preferred Stock following the consummation of such Organic Change, the holder of such shares of Series A Preferred Stock shall have the right to acquire and receive (in lieu of or in addition to the shares of Common Stock acquirable and receivable prior to the Organic Change) such shares of stock, securities or assets as such holder would have received if such holder had converted its shares of Series A Preferred Stock into Common Stock immediately prior to such Organic Change, in each case giving effect to any adjustment of the Conversion Price made after the date of consummation of the Organic Change. All other terms of the Series A Preferred Stock shall remain in full force and effect following such an Organic Change. The provisions of this Paragraph 5E(1) shall similarly apply to successive Organic Changes. (2) Corporation Does Not Survive. The Corporation shall not enter into an Organic Change that is a transaction in which the Corporation is not the surviving entity unless the surviving entity shall issue new securities, without payment of any additional consideration therefor, with terms that provide that upon the conversion of such securities following the consummation of such Organic Change, the holder of such securities shall have the right to acquire and receive (in lieu of or in addition to the shares of Common Stock acquirable and receivable prior to the Organic Change) such shares of stock, securities or assets as such holder would have received if such holder had converted its shares of Series A Preferred Stock into Common Stock immediately prior to such Organic Change, in each case giving effect to any adjustment of the Conversion Price of such new securities made after the date of consummation of the Organic Change on an equivalent basis to the adjustments provided for the Conversion Price herein. All other terms of the new securities shall be equivalent to the terms of the Series A Preferred Stock provided for herein. The provisions of this Paragraph 5E(2) shall similarly apply to successive Organic Changes. F. Certain Events. If any event occurs of the type contemplated by the provisions of this Part 5 but not expressly provided for by such provisions, then the Board will make an appropriate adjustment in the Series A Conversion Price so as to protect the rights of the holders of the Series A Preferred Stock; provided, however, that, no such adjustment will increase any Conversion Price as otherwise determined pursuant to this Part 5 or decrease the number of shares of Common Stock issuable upon conversion of each share of Series A Preferred Stock. G. Notices. (1) Immediately upon any adjustment of the Series A Conversion Price, the Corporation will give written notice thereof to all holders of Series A Preferred Stock. (2) The Corporation will give written notice to all holders of Series A Preferred Stock at least twenty (20) days prior to the date on which the Corporation closes its books or takes a record (a) with respect to any dividend or distribution upon Common Stock, (b) with respect to any pro rata subscription offer to holders of Common Stock or (c) for determining rights to vote with respect to any Organic Change, dissolution or liquidation. 04.04.058 (3) The Corporation will also give written notice to the holders of Series A Preferred Stock at least twenty (20) days prior to the date on which any Organic Change will take place. H. Mandatory Conversion. The Corporation may require the conversion of all of the outstanding Series A Preferred Stock upon the closing of a firm commitment underwritten Public Offering of shares of the Corporation's Common Stock in which (i) the net proceeds received by the Corporation will be at least $10,000,000 and (ii) the price per share paid by the public for such shares will be at least $4.00 (based on the Common Stock as constituted on the date of issuance of the Series A Preferred Stock and appropriately adjusted for any stock dividend or stock split or in connection with any combination of shares, recapitalization, merger, consolidation or other reorganization). Any such mandatory conversion shall only be effected at the time of and subject to the closing of the sale of such shares pursuant to such Public Offering and upon written notice of such mandatory conversion delivered to all holders of Series A Preferred Stock at least twenty (20) but not more than forty (40) days prior to such closing. Part 6. Purchase Rights. If at any time the Corporation distributes, grants or sells any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property to all record holders of any class of Common Stock (the "Purchase Rights"), then each holder of Series A Preferred Stock will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such holder could have acquired if such holder had held the number of shares of Common Stock acquirable upon conversion of such holder's Series A Preferred Stock immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the distribution, issue or sale of such Purchase Rights. Part 7. Pre-Emptive Rights. If the Corporation authorizes the issuance and sale of any Additional Securities, the Corporation will offer to sell to the holders of Series A Preferred Stock, and each holder of Series A Preferred Stock may elect to purchase, up to that number of Additional Securities such that following such purchase, the holder is able to maintain the same percentage ownership (on a fully-diluted basis) of the outstanding shares of Common Stock of the Corporation which such holder possessed by virtue of its ownership of shares of Series A Preferred Stock (or Common Stock issued upon the conversion thereof) immediately prior to the issuance and sale of the Additional Securities. Holders of Series A Preferred Stock will be entitled to purchase the Additional Securities at the same price and upon the same terms as such securities are being offered to any other Persons; provided that, if such Persons are to pay for such Additional Securities in whole or in part with consideration other than cash, then the Board shall make a good faith determination of the fair market value of such non-cash consideration and the holders of the Series A Preferred Stock will be entitled to pay cash equal to the fair market value of the non-cash consideration such holders would 04.04.059 otherwise pay hereunder in the purchase of such Additional Securities. Notwithstanding the foregoing, a holder of Series A Preferred Stock will not be permitted to exercise its rights under this Part 7 unless such holder agrees to purchase all securities offered as a package or unit in the issuance of the Additional Securities. The Corporation must give written notice of the issuance of Additional Securities, which notice shall set forth the price and other terms of such issuance, to the holders of Series A Preferred Stock no later than thirty (30) days following the issuance date of the Additional Securities (the "Issuance Date"). Upon receipt of such notice, the holders may exercise the right granted by this Part 7 by giving written notice to the Corporation within thirty (30) days following receipt of the aforesaid notice, which written notice from a holder shall specify the number of Additional Securities being purchased by such holder, and be accompanied by a cashier's or certified check in the full amount of the price for the Additional Securities being purchased. The Corporation shall promptly make delivery to such holders of certificates for the Additional Securities or other securities upon execution of such documents and instruments as shall govern the issuance of such Additional Securities or other securities. Notwithstanding the foregoing, if a holder of Series A Preferred Stock shall exercise its rights under this Part 7, such holder shall not be required to pay for the Additional Securities purchased by it unless and until all other parties have paid for their Additional Securities. In addition, if a holder of Series A Preferred Stock shall exercise its rights under this Part 7 following the Issuance Date, then such holder shall be deemed to have owned the Additional Securities purchased by it as of the Issuance Date for the purpose of any benefits of ownership relating to such Additional Securities, including the right to receive cash or stock dividends declared or other distributions, to participate in a merger or reorganization or to reflect any reclassification of Additional Securities between the Issuance Date and the date upon which such holder purchases the Additional Securities. Part 8. Financial Statements and Other Information. For as long as any Series A Preferred Stock remain outstanding, the Corporation will deliver to each holder of Series A Preferred Stock: A. Audited Financial Statements. As soon as practicable after the end of each fiscal year of the Corporation, and in any event within one hundred and twenty (120) days thereafter, consolidated and consolidating balance sheets of the Corporation and its Subsidiaries, as at the end of such year, and consolidated and consolidating statements of operations and sources and uses of funds of the Corporation and its Subsidiaries, for such fiscal year, prepared in accordance with GAAP (as defined in the Stock Purchase Agreement) and setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail and, in the case of the consolidated statements, certified, without qualification by BDO Seidman or another nationally recognized independent public accountants selected by the Corporation and acceptable to the holders of Series A Preferred Stock; B. Interim Financial Statements. As soon as practicable after the end of each quarter and in any event within thirty (30) days thereafter, consolidated and consolidating balance sheets of the Corporation and its Subsidiaries as of the end of such period, and consolidated and 04.04.060 consolidating statements of operations of the Corporation and its Subsidiaries for such period and for the current fiscal year to date, prepared in accordance with GAAP and setting forth in comparative form the figures for the corresponding periods of the previous fiscal year, together with a comparison of such statements to the Corporation's budget, subject to changes resulting from normal year-end audit adjustments, all in reasonable detail and certified by the principal financial officer of the Corporation; C. IIC Financial Information. As soon as practicable (i) after the end of each calendar year and quarter, as applicable, and in any event by the date on which filing is required with the Delaware Department of Insurance, the Annual Statement and Quarterly Statement of IIC (as defined in the Stock Purchase Agreement) with respect to such period, and any related actuarial opinion and report, management's discussion and analysis, risk-based capital report, statutory audit report and IRIS ratio results, and (ii) after the end of each month, and in any event within thirty (30) days thereafter, the internal statutory financial statements of IIC. D. Budget. Not less than thirty (30) days prior to the commencement of each fiscal year, an annual business plan, including a budget and detailed financial projections for the Corporation and its Subsidiaries, for each month during such period, all in reasonable detail, together with underlying assumptions and approved by a majority of the entire board of directors of the Corporation and the holders of a majority of the Series A Preferred Stock then outstanding; E. Auditors' Reports. Promptly upon receipt thereof, copies of all other reports, if any, submitted to the Corporation by independent public accountants in connection with any annual or interim audit of the books of the Corporation and its Subsidiaries made by such accountants; F. Lender Information. A copy of each financial statement, report, notice or communication that the Corporation or any Subsidiary delivers to any of their lenders or creditors; G. Insurance Holding Company System Filings. Promptly upon filing or notice thereof, a copy of each registration, notice or other filing made by IIC or a member of its Insurance Holding Company System pursuant to the Delaware Insurance Holding Company System Registration Chapter or the California Insurance Holding Company System Regulatory Act; H. Litigation. Promptly upon the Corporation's learning thereof, notice of any litigation, suit or administrative proceeding that could reasonably be expected to have a Material Adverse Effect (as defined in the Stock Purchase Agreement) on the Corporation or any Subsidiary, whether or not the claim is considered by the Corporation to be covered by insurance; I. Regulatory Correspondence. Promptly upon receipt thereof, a copy of any and all correspondence from regulatory authorities 04.04.061 alleging violations by or relating to IIC. J. Default. Promptly upon the occurrence thereof notice of any failure of the Corporation or any Subsidiary to duly observe or perform any covenant, condition or agreement required to be performed by the Corporation or a Subsidiary under this Agreement, the Related Agreements or this Certificate of Designation, including an Event of Noncompliance under this Certificate of Designation; K. Material Adverse Developments. Promptly upon the occurrence thereof, notice of any event which has had, or could reasonably be expected to have, a Material Adverse Effect on the Corporation or any Subsidiary, including, without limitation, the institution or threat of any material litigation or investigation with respect to the Corporation or any Subsidiary or any material disputes with customers; and L. Other Information. With reasonable promptness, all press releases issued by the Corporation or any Subsidiary, any filings made with the Commission by the Corporation or any Subsidiary and such other data and information as from time to time may be reasonably requested by the holders of Series A Preferred Stock or such other data as the Corporation may from time to time furnish to any of the holders of its securities or its directors in their capacities as such. M. Accounting. The Corporation will maintain and will cause each of its Subsidiaries to maintain a system of accounting established and administered in accordance with GAAP and all financial statements or information delivered under this Part 8 will be prepared in accordance with GAAP, with the exception of financial statements of IIC which are prepared in accordance with SAP (as defined in the Stock Purchase Agreement). N. Insurance. The Corporation agrees to maintain or cause to be maintained, with financially sound and reputable insurers rated A or above by A.M. Best, insurance with respect to its assets and business and the assets and business of its Subsidiaries against loss or damage of the kinds customarily insured against by similarly situated corporations of established reputation engaged in the same or similar businesses, in adequate amounts, and at the request of any holder of Series A Preferred Stock shall furnish such holder with evidence of the same. The Corporation further agrees to cause to be maintained, with financially sound and reputable insurers rated A or above by A.M. Best, term life insurance payable to the Corporation on the life of Melvin C. Parker in the amount of at least $2,000,000. O. Payment of Taxes and Other Obligations. The Corporation agrees to pay or cause to be paid all taxes, assessments and other governmental charges levied upon any of its assets or those of its Subsidiaries or in respect of its or their respective franchises, businesses, premium, income or profits, and all claims for work, labor or materials, which if unpaid might become a Lien upon any asset of the Corporation or any Subsidiary, before the same become delinquent, except that (unless and until foreclosure, sale or other similar proceedings shall have been commenced) no 04.04.062 such charge need be paid if being contested in good faith and by appropriate measures promptly initiated and diligently conducted if (a) such reserve or other appropriate provision, if any, as shall be required by sound accounting practice shall have been made therefor, and (b) such contest does not have a Material Adverse Effect on the Corporation or any Subsidiary or the ability of the Corporation or any Subsidiary to pay any Indebtedness and no assets are in imminent danger of forfeiture. P. Compliance With Laws. The Corporation agrees to use its best efforts to comply, and shall use its best efforts to cause each Subsidiary to comply, with all laws, rules, regulations, judgments, orders and decrees of any governmental or regulatory authority applicable to it and its respective assets, including, but not limited to, those of Delaware and California relating to the insurance business of IIC, and with all contracts, and agreements to which it is a party or shall become a party, and to perform all obligations which it has or shall incur the violation of which could have a Material Adverse Effect on the Corporation or any Subsidiary. Q. Preservation of Corporate Existence and Property; Operations. The Corporation agrees to preserve, protect, and maintain, and cause each Subsidiary to preserve, protect, and maintain, (a) its corporate existence, and (b) all rights, franchises, accreditations, privileges, and properties the failure of which to preserve, protect, and maintain could have a Material Adverse Effect on the Corporation or any Subsidiary. The Corporation and its Subsidiaries will comply with all material agreements and contracts, including, without limitation, all leases and loan agreements and all covenants and conditions in this Certificate of Designation, including, but not limited to, the consent requirements set forth in Paragraph 4B(3) of this Certificate of Designation. Part 9. Registration of Transfer. The Corporation will keep at its principal office a register for the registration of the Series A Preferred Stock. Upon the surrender of any certificate representing Series A Preferred Stock at such place, the Corporation will, at the request of the record holder of such certificate, execute and deliver (at the Corporation's expense) a new certificate or certificates in exchange therefor representing in the aggregate the number of shares of Series A Preferred Stock represented by the surrendered certificate. Each such new certificate will be registered in such name and will represent such number of shares of Series A Preferred Stock as is requested by the holder of the surrendered certificate and will be substantially identical in form to the surrendered certificate; provided, however, that any transfer shall be subject to any applicable restrictions on the transfer of such shares and the payment of any applicable transfer taxes, if any, by the holder thereof. Part 10. Replacement. Upon receipt of evidence reasonably satisfactory to the Corporation (an affidavit of the registered holder will be satisfactory) of the ownership and the loss, theft, destruction or mutilation of any certificate evidencing shares of Series A Preferred Stock, and in the case of 04.04.063 any such loss, theft or destruction, upon receipt of indemnity reasonably satisfactory to the Corporation (provided that if the holder is an institutional investor its own agreement will be satisfactory), or, in the case of any such mutilation, upon surrender of such certificate, the Corporation will (at its expense) execute and deliver in lieu of such certificate a new certificate of like kind representing the number of shares of Series A Preferred Stock represented by such lost, stolen, destroyed or mutilated certificate and dated the date of such lost, stolen, destroyed or mutilated certificate. Part 11. Definitions. "Additional Securities" means (i) any capital stock of the Corporation, whether now authorized or not, (ii) any rights, options or warrants to purchase any such capital stock, or to purchase any securities that are or may become convertible into any such capital stock, and (iii) any securities convertible into any such capital stock; provided, however, that Additional Securities shall not include (a) Common Stock issued upon the conversion of the Series A Preferred Stock, (b) securities offered pursuant to a Public Offering, (c) securities issued pursuant to an Approved Stock Plan, (d) securities issued as a dividend on, subdivision of or other distribution in respect of all outstanding shares of Common Stock and Series A Preferred Stock (pro rata as if the Series A Preferred Stock had been converted intro shares of Common Stock), (e) securities issued upon the conversion, exercise or exchange of any option, warrant or convertible security issued as or in connection with a previous issuance of Additional Securities or (f) securities issued pursuant to the acquisition of another corporation by the Corporation by merger, purchase of substantially all of the assets of such other corporation, or by other reorganization whereby the Corporation ends up owning, directly or indirectly, greater than fifty percent (50%) of the voting power of the outstanding stock of such other corporation. "Affiliate" as applied to any Person means any other Person directly or indirectly controlling, controlled by, or under common control with, that Person. The term "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as applied to any Person, means the possession, directly or indirectly, of the power to vote 10% or more of the Voting Stock (or in the case of a Person which is not a corporation, 10% or more of the ownership interest, beneficial or otherwise) of such Person or otherwise to direct or cause the direction of the management and policies of that Person, whether through the ownership of Voting Stock or other ownership interest, by contract or otherwise. All of the Corporation's executive officers, 10% shareholders, directors, Subsidiaries, joint ventures and partners shall be deemed to be Affiliates of the Corporation for purposes of this Agreement. "Approved Stock Plan" shall mean collectively, all contracts, plans or agreements which have been approved by the board of directors of the Corporation, pursuant to which the Corporation's securities representing up to an aggregate of [______] [10%] shares of Common Stock (on a fully diluted basis) may be issued to employees, officers, directors, consultants or other service providers of the Corporation. 04.04.064 "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board (or any successor authority) that are applicable as the date of determination, consistently applied. "Indebtedness" shall mean at a particular time, without duplication, (a) indebtedness for borrowed money or for the deferred purchase price of property or services in respect of which any Person is liable, contingently or otherwise, as obligor or otherwise (other than trade payables and other current liabilities incurred in the ordinary course of business) or any commitment by which any Person assures a creditor against loss, including contingent reimbursement obligations with respect to letters of credit, (b) indebtedness guaranteed in any manner by any Person, including guarantees in the form of an agreement to repurchase or reimburse, (c) obligations under capitalized leases in respect of which obligations any Person is liable, contingently or otherwise, as obligor, guarantor or otherwise, or in respect of which obligations any Person assures a creditor against loss and (d) any unsatisfied obligation of any Person for "withdrawal liability" to a "multiemployer plan" as such terms are defined under ERISA. "Junior Securities" means any of the Corporation's equity securities other than the Series A Preferred Stock. "Liens" means any mortgage, pledge, security interest, encumbrance, lien or charge of any kind (including, without limitation, any conditional sale or other title retention agreement or lease in the nature thereof), any sale of receivables with recourse against the Corporation or any Affiliate, any filing or agreement to file a financing statement as debtor under the Uniform Commercial Code or any similar statute other than to reflect ownership by a third party of property leased to the Corporation or any Subsidiaries under a lease which is not in the nature of a conditional sale or title retention agreement, or any subordination arrangement in favor of another Person (other than any subordination arising in the ordinary course of business). "Liquidation Value" of any share of Series A Preferred Stock as of any particular date will be equal to $100.00 (adjusted for any divisions, whether by stock split, stock dividend or otherwise, or combinations, whether by reverse stock split or otherwise, of the shares of Series A Preferred Stock). "Market Price" of any security means the average of the closing prices of such security's sales on all securities exchanges on which such security may at the time be listed, or, if there has been no sales on any such exchange on any day, the average of the highest bid and lowest asked prices on all such exchanges at the end of such day, or, if on any day such security is not so listed, the average of the representative bid and asked prices quoted in the NASDAQ System as of 4:00 P.M., New York time, or, if on any day such security is not quoted in the NASDAQ System, the average of the 04.04.065 highest bid and lowest asked prices on such day in the domestic over-the- counter market as reported by the National Quotation Bureau, Incorporated, or any similar successor organization, in each such case averaged over a period of twenty-one (21) days consisting of the day as of which "Market Price" is being determined and the twenty (20) consecutive business days prior to such day. If at any time such security is not listed on any securities exchange or quoted in the NASDAQ System or the over-the-counter market, the "Market Price" will be the fair value thereof determined jointly by the Corporation and the holders of a majority of the Series A Preferred Stock. If such parties are unable to reach agreement within a reasonable period of time, such fair value will be determined by an independent appraiser jointly selected by the Corporation and the holders of a majority of the Series A Preferred Stock. "Organic Change" means any capital reorganization, reclassification, consolidation, merger, lease, or sale of all or substantially all of the Corporation's assets to another Person which is effected in such a way that holders of Common Stock are entitled to receive (either directly or upon subsequent liquidation) stock, securities or assets with respect to or in exchange for shares of Common Stock. "Person" means an individual, a partnership, a corporation, an association, a joint stock company, a trust, a joint venture, an unincorporated organization or a governmental entity or any department, agency or political subdivision thereof. "Permitted Liens" means: (a) Tax liens with respect to taxes not yet due or which are being contested in good faith by appropriate proceedings and for which appropriate reserves have been established in accordance with GAAP; (b) Deposits or pledges made in connection with, or to secure payment of, utilities or similar services, workers' compensation, unemployment insurance, old age pensions or other social security obligations; (c) Purchase money security interests in any property acquired by the Corporation or a Subsidiary; (d) Mechanics', materialmen's or contractors' liens or encumbrances or any similar lien or restriction; and (e) Easements, rights-of-way, restrictions and other similar charges and encumbrances not interfering with the ordinary conduct of the business of the Corporation and its Subsidiaries or detracting from the value of the Corporation's consolidated assets. "Public Offering" means any offering by the Corporation of its equity securities to the public pursuant to an effective registration statement under the Securities Act of 1933, as then in effect, or any 04.04.066 comparable statement under any similar federal statute then in force; provided that a Public Offering will not include an offering made in connection with a business acquisition. "Stock Purchase Agreement" means that certain Series A Preferred Stock Purchase Agreement by and among the Corporation and certain investors named therein providing for the initial issuance of the Series A Preferred Stock. "Subsidiary" means any corporation of which the shares of stock having a majority of the general voting power in electing the board of directors are, at the time as of which any determination is being made, owned by the Corporation either directly or indirectly through Subsidiaries. "Voting Stock" of any Person means securities of any class or classes of such Person the holders of which are ordinarily, in the absence of contingencies, entitled to elect a majority of the directors of such Person. Part 12. Amendment and Waiver. No amendment, modification or waiver will be binding or effective with respect to any provision of this Certificate of Designation without the prior written consent of the holders of a majority of the shares of Series A Preferred Stock outstanding at the time such action is taken. No change in the terms hereof may be accomplished by merger or consolidation of the Corporation with another corporation unless the Corporation has obtained the prior affirmative vote or written consent of the holders of a majority of the shares of Series A Preferred Stock then outstanding. Part 13. Notices. Except as otherwise expressly provided, all notices referred to herein shall be in writing and shall be delivered by registered or certified mail, return receipt requested, postage prepaid and shall be deemed to have been delivered when so mailed (i) to the Corporation, at its principal executive offices and (ii) to any shareholder, at such holder's address as it appears in the stock records of the Corporation (unless otherwise indicated in writing by any such holder). 04.04.067 IN WITNESS WHEREOF, the Corporation has caused this Certificate of Designation to be executed by its President and attested by its Secretary this ____ day of ___________, 1996. INVESTORS INSURANCE GROUP, INC. ______________________________ President ATTEST: ____________________________ , Secretary 04.04.068 EXHIBIT B REGISTRATION RIGHTS AGREEMENT by and among INVESTORS INSURANCE GROUP, INC. and [PURCHASERS] 04.04.069 REGISTRATION RIGHTS AGREEMENT GLOSSARY OF DEFINED TERMS Term Section Referenced "Agreement" ............................................... Introduction "Commission" .............................................. Sectional "Common Stock" ............................................ Sectional "Corporation" ............................................. Introduction "Demand Registrations" .................................... Section 2.1 "Exchange Act" ............................................ Section 1 "Maximum Contribution Amount" ............................. Section 7.1 "Piggy back Registration" ................................. Section 3.1 "Purchasers" .............................................. Introduction "Registrable Shares" ...................................... Section 1.1 "Registration Expenses" ................................... Section 6.1 "Securities Act" .......................................... Section 1.1 "Shares" .................................................. Recitals "Stock Purchase Agreement" ................................ Recitals i 04.04.070 INVESTORS INSURANCE GROUP, INC. Registration Rights Agreement This Registration Rights Agreement (this "Agreement") is made as of [__________], 1996 by and among INVESTORS INSURANCE GROUP, INC., a Florida corporation (the "Corporation") and each of the purchasers listed on the Schedule of Purchasers attached hereto and who executes a signature page to this Agreement (collectively, the "Purchasers"). RECITALS A. The Purchasers have agreed to purchase certain shares of the Corporation's Series A Preferred Stock (the "Shares") pursuant to that Series A Preferred Stock Purchase Agreement dated as of April ___, 1996 (the "Stock Purchase Agreement") and the execution and delivery of this Agreement is a condition precedent to the consummation of the transactions contemplated by the Stock Purchase Agreement. B. The Corporation deems it desirable to enter into this Agreement in order to induce the Purchasers to purchase the Shares pursuant to the Stock Purchase Agreement. AGREEMENTS In consideration of the premises and the mutual covenants herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. Definitions. As used in this Agreement. "Commission" means the Securities and Exchange Commission. "Common Stock" means the Corporation's common stock, par value $.50 per share. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Registrable Shares" means at any time (i) any shares of Common Stock then outstanding which were issued upon conversion of the Shares; (ii) any shares of Common Stock then issuable upon conversion of the then outstanding Shares; (iii) any shares of Common Stock then outstanding which were issued as, or were issued directly or indirectly upon the conversion or exercise of other securities issued as, a dividend or other distribution with respect or in replacement of any shares referred to in (i) or (ii); and (iv) any shares of Common Stock then issuable directly or indirectly upon the conversion or exercise of other securities which were issued as a dividend or other distribution with respect to or in replacement of any shares referred to in (i) or (ii); provided, however, that Registrable Shares shall not include any shares which have been registered pursuant to the Securities Act or which have been sold to the public pursuant to Rule 144 of the Commission under the Securities Act. For purposes of this Agreement, a person will be deemed to be 04.04.071 a holder of Registrable Shares whenever such person has the then-existing right to acquire such Registrable Shares (by conversion or otherwise), whether or not such acquisition actually has been effected. "Securities Act" means the Securities Act of 1933, as amended. 2. Demand Registration. 2.1 Requests for Registration. Subject to the terms of this Agreement (including Section 2.2 below), at any time after January 1, 1997 the holders of at least fifty one percent (51%) of the then outstanding Registrable Shares may request registration under the Securities Act of all or part of their Registrable Shares on Form S-1 or any similar long-form registration or, if available, on Form S-2 or S-3 or any similar short-form registration. Within ten (10) days after receipt of any request pursuant to this Section 2.1, the Corporation will give written notice of such request to all other holders of Registrable Shares and will include in such registration all Registrable Shares with respect to which the Corporation has received written requests for inclusion within fifteen (15) days after delivery of the Corporation's notice. All registrations requested pursuant to this Section 2.1 are referred to herein as "Demand Registrations." All Demand Registrations shall be underwritten public offerings for all cash consideration. 2.2 Demand Registrations. The holders of the Registrable Shares will be entitled to request two (2) Demand Registrations in which the Corporation will pay all Registration Expenses; provided that the anticipated proceeds of each such Demand Registrations (net of underwriters' discounts and commissions) shall equal or exceed $2,000,000. A registration will not count as a Demand Registration (i) until it has become effective (unless such Demand Registration has not become effective due solely to the fault of the holders of Registrable Shares to be included in such registration), and (ii) unless the holders of the Registrable Shares are able to register and sell at least ninety percent (90%) of the Registrable Shares requested to be included in such registration (unless such Registrable Shares are not registered and not sold due solely to the fault of the holders of such Registrable Shares); provided, however, that in any event the Corporation will pay all Registration Expenses in connection with any registration initiated as a Demand Registration. 2.3 Preemption. The Corporation will have the right to preempt any Demand Registration with a primary registration by delivering written notice of such intention to the holders of Registrable Shares who have requested such Demand Registration within fifteen (15) days after the Corporation has received a request for such registration. In the ensuing primary registration, the holders of Registrable Shares will have such piggyback registration rights as are set forth in Section 3 hereof. Upon the Corporation's preemption of a requested Demand Registration, such requested registration will not count as one of the permitted Demand Registrations. 2.4 Priority. If other securities are to be included in a Demand Registration which is an underwritten offering and the managing underwriters advise the Corporation in writing that in their opinion the total number of Registrable Shares and other securities requested to be included in such offering would have an adverse affect on the ability of the underwriters to effect the underwriting or the pricing thereof, the Corporation will include in such registration, (i) first, the Registrable 2 04.04.072 Shares requested to be included in such Demand Registration, pro rata among the holders of such securities on the basis of the number of Registrable Shares which are owned by such holders, and (ii) second, other securities to be included in such Demand Registration. 2.5 Restrictions. The Corporation will not be obligated to effect any Demand Registration within nine months after the effective date of a previous Demand Registration. The Corporation may postpone for up to three (3) months the filing or the effectiveness of a registration statement for a Demand Registration if the Corporation reasonably believes that such Demand Registration would have an adverse effect on any proposal or plan by the Corporation or any of its subsidiaries to engage in any acquisition of assets (other than in the ordinary course of business) or any merger, consolidation, tender offer or other significant transaction. 3. Piggyback Registration. 3.1 Right to Piggyback. Whenever the Corporation proposes to register any of its securities under the Securities Act (other than pursuant to a Demand Registration hereunder and except on Form S-4, S-8 or any successor form) and the registration form to be used may be used for the registration of any Registrable Shares (a "Piggyback Registration"), the Corporation will give prompt written notice to all holders of the Registrable Shares of its intention to effect such a registration and will include in such registration all Registrable Shares (in accordance with the priorities set forth in Sections 3.2 and 3.3 below) with respect to which the Corporation has received written requests for inclusion within fifteen (15) days after the delivery of the Corporation's notice. 3.2 Priority on Primary Registrations. If a Piggyback Registration is an underwritten primary registration on behalf of the Corporation and the managing underwriters advise the Corporation in writing that in their opinion the total number of Registrable Shares and other securities requested to be included in such offering would have an adverse affect on the ability of the underwriters to effect the underwriting or the pricing thereof, the Corporation will include in such registration, (i) first, the securities that the Corporation proposes to sell, (ii) second, the Registrable Shares requested to be included in such registration, pro rata among the holders of such Registrable Shares on the basis of the number of shares which are owned by such holders, and (iii) third, other securities requested to be included in such registration. 3.3 Priority on Secondary Registrations. If a Piggyback Registration is an underwritten secondary registration on behalf of holders of the Corporation's securities and the managing underwriters advise the Corporation in writing that in their opinion the total number of Registrable Shares and other securities requested to be included in such offering would have an adverse affect on the ability of the underwriters to effect the underwriting or the pricing thereof, the Corporation will include in such registration, (i) first, the securities requested to be included therein by the holders requesting such registration and the Registrable Shares requested to be included in such registration, pro rata among the holders of such securities on the basis of the number of shares of Common Stock or Registrable Shares which are owned by such holders, and (ii) second, other securities requested to be included in such registration. 3 04.04.073 3.4 Other Registrations. If the Corporation has previously filed a registration statement with respect to Registrable Shares pursuant to Section 2 or pursuant to this Section 3, and if such previous registration has not been withdrawn or abandoned, the Corporation will not file or cause to be effected any other registration of any of its equity securities or securities convertible or exchangeable into or exercisable for its equity securities under the Securities Act (except on Form S-8 or any successor form), whether on its own behalf or at the request of any holder or holders of such securities, until a period of at least 180 days has elapsed from the effective date of such previous registration. 4. Holdback Agreements. 4.1 Holders' Agreements. Each holder of Registrable Shares agrees not to effect any public sale or distribution of equity securities of the Corporation, or any securities convertible into or exchangeable or exercisable for such securities, during the seven (7) days prior to, and during the ninety (90) days following, the effective date of any underwritten Demand Registration or any underwritten Piggyback Registration in which Registrable Shares are included (except as part of such underwritten registration), unless the underwriters managing the registered public offering otherwise agree. 4.2 Corporation's Agreements. The Corporation agrees (i) not to effect any public sale or distribution of its equity securities, or any securities convertible into or exchangeable or exercisable for such securities, during the seven (7) days prior to, and during the ninety (90) days following, the effective date of any underwritten Demand Registration or any underwritten Piggyback Registration (except as part of such underwritten registration or pursuant to registrations on Form S-8 or any successor form), unless the underwriters managing the registered public offering otherwise agree, and (ii) to cause each holder of at least one percent (1%) (on a fully diluted basis) of its equity securities, or any securities convertible into or exchangeable or exercisable for such securities to agree not to effect any public sale or distribution of any such securities during such period (except as part of such underwritten registration, if otherwise permitted), unless the underwriters managing the registered public offering otherwise agree. 5. Registration Procedures. Whenever the holders of Registrable Shares have requested that any Registrable Shares be registered pursuant to this Agreement, the Corporation will use its best efforts to effect the registration and sale of such Registrable Shares in accordance with the intended method of disposition thereof and, pursuant thereto, the Corporation will as expeditiously as possible: (a) prepare and file with the Commission a registration statement with respect to such Registrable Shares and use its best efforts to cause such registration statement to become effective (provided that before filing a registration statement or prospectus, or any amendments or supplements thereto, the Corporation will furnish copies of all such documents proposed to be filed to the counsel or counsels for the sellers of the Registrable Shares covered by such registration statement); (b) prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus(es) used in connection therewith as may be necessary to keep such 4 04.04.074 registration statement effective for a period of not less than nine months and comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement during such period in accordance with the intended methods of disposition by the sellers thereof set forth in such registration statement; (c) furnish to each seller of Registrable Shares such number of copies of such registration statement, each amendment and supplement thereto, the prospectus(es) included in such registration statement (including each preliminary prospectus) and such other documents as such seller may reasonably request in order to facilitate the disposition of the Registrable Shares owned by such seller; (d) use its best efforts to register or qualify such Registrable Shares under such other securities or blue sky laws of such jurisdictions as any seller reasonably requests and do any and all other acts and things which may be reasonably necessary or advisable to enable such seller to consummate the disposition in such jurisdictions of the Registrable Shares owned by such seller (provided that the Corporation will not be required to (i) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this subparagraph, (ii) subject itself to taxation in any such jurisdiction or (iii) consent to general service of process in any such jurisdiction); (e) notify each seller of such Registrable Shares, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event as a result of which the prospectus included in such registration statement contains an untrue statement of a material fact or omits any fact necessary to make the statements therein not misleading, and, at the request of any such seller, the Corporation will prepare a supplement or amendment to such prospectus so that, as thereafter delivered to the purchasers of such Registrable Shares, such prospectus will not contain any untrue statement of a material fact or omit to state any fact necessary to make the statements therein not misleading; (f) cause all such Registrable Shares to be listed on each securities exchange on which similar securities issued by the Corporation are then listed; (g) provide a transfer agent and registrar for all such Registrable Shares not later than the effective date of such registration statement; (h) enter into such customary agreements (including underwriting agreements in customary form) and take all such other actions as the holders of a majority of the Registrable Shares being sold or the underwriters, if any, reasonably request in order to expedite or facilitate the disposition of such Registrable Shares (including, without limitation, effecting a stock split or a combination of shares), subject to any required shareholder approval; (i) make available for inspection by any seller of Registrable Shares, any underwriter participating in any disposition pursuant to such registration statement, and any attorney, accountant or other agent retained by any such seller or underwriter, all financial and other records, pertinent corporate documents and properties of the Corporation, and cause the Corporation's officers, directors, employees and independent 5 04.04.075 accountants to supply all information reasonably requested by any such seller, underwriter, attorney, accountant or agent in connection with such registration statement; (j) advise each seller of such Registrable Shares, promptly after it shall receive notice or obtain knowledge thereof, of the issuance of any stop order by the Commission suspending the effectiveness of such registration statement or the initiation or threatening of any proceeding for such purpose and promptly use all reasonable efforts to prevent the issuance of any stop order or to obtain its withdrawal if such stop order should be issued; (k) at least forty eight (48) hours prior to the filing of any registration statement or prospectus, or any amendment or supplement to such registration statement or prospectus, furnish a copy thereof to each seller of such Registrable Shares and refrain from filing any such registration statement, prospectus, amendment or supplement to which counsel selected by the holders of a majority of the Registrable Shares being registered shall have reasonably objected on the grounds that such document does not comply in all material respects with the requirements of the Securities Act or the rules and regulations thereunder, unless, in the case of an amendment or supplement, in the opinion of counsel for the Corporation the filing of such amendment or supplement is reasonably necessary to protect the Corporation from any liabilities under any applicable federal or state law and such filing will not violate applicable laws; and (l) at the request of any seller of such Registrable Shares in connection with an underwritten offering, furnish on the date or dates provided for in the underwriting agreement: (i) an opinion of counsel, addressed to the underwriters and the sellers of Registrable Shares, covering such matters as such underwriters and sellers may reasonably request, including such matters as are customarily furnished in connection with an underwritten offering; and (ii) a letter or letters from the independent certified public accountants of the Corporation addressed to the underwriters and the sellers of Registrable Shares, covering such matters as such underwriters and sellers may reasonably request, in which letter(s) such accountants shall state, without limiting the generality of the foregoing, that they are independent certified public accountants within the meaning of the Securities Act and that in their opinion the financial statements and other financial data of the Corporation included in the registration statement, the prospectus(es), or any amendment or supplement thereto, comply in all material respects with the applicable accounting requirements of the Securities Act. 6. Registration Expenses. 6.1 Corporation's Expenses. All expenses incident to the Corporation's performance of or compliance with this Agreement, including without limitation all registration and filing fees, fees and expenses of compliance with securities or blue sky laws, printing expenses, messenger and delivery expenses, and fees and disbursements of counsel for the Corporation and all independent certified public accountants, underwriters (excluding discounts and commissions) and other persons retained by the Corporation (all such expenses being herein called "Registration Expenses"), will be borne by the Corporation. 6.2 Holder's Expenses. Notwithstanding anything 6 04.04.076 to the contrary contained herein, each holder of Registrable Shares will pay all attorney fees and disbursements for counsel they retain in connection with the registration of Registrable Shares, except that the Corporation will reimburse the holders of Registrable Shares for the reasonable fees and disbursements of one counsel chosen by the holders of at least fifty one percent (51%) of such Registrable Shares in connection with a Demand Registration. 7. Indemnification. 7.1 By the Corporation. The Corporation agrees to indemnify, to the extent permitted by law, each holder of Registrable Shares, its officers and directors and each person who controls such holder (within the meaning of the Securities Act) against all losses, claims, damages, liabilities and expenses (including without limitation, reasonable attorney's fees) caused by any untrue or alleged untrue statement of material fact contained in any registration statement, prospectus or preliminary prospectus, or any amendment thereof or supplement thereto, or any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as the same are caused by or contained in any information furnished in writing to the Corporation by such holder or by a Series A Director (as defined in the Certificate of Designation for the Shares), in each case expressly for use therein, or by such holder's failure to deliver a copy of the registration statement or prospectus or any amendments or supplements thereto after the Corporation has furnished such holder with a sufficient number of copies of the same. The payments required by this Section 7.1 will be made periodically during the course of the investigation or defense, as and when bills are received or expenses incurred. 7.2 By Each Holder. In connection with any registration statement in which a holder of Registrable Shares is participating, each such holder will furnish to the Corporation in writing such information and affidavits as the Corporation reasonably requests for use in connection with any such registration statement or prospectus and, to the extent permitted by law, will indemnify the Corporation, its directors and officers and each person who controls the Corporation (within the meaning of the Securities Act) against any losses, claims, damages, liabilities and expenses resulting from any untrue or alleged untrue statement of material fact contained in the registration statement, prospectus or preliminary prospectus, or any amendment thereof or supplement thereto, or any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein not misleading, but only to the extent that such untrue statement or omission is contained in any information or affidavit so furnished in writing by such holder; provided that the obligation to indemnify will be several, not joint and several, among such holders of Registrable Shares and the liability of each such holder of Registrable Shares will be in proportion to and limited to the net amount received by such holder from the sale of Registrable Shares pursuant to such registration statement. 7.3 Procedure. Any person entitled to indemnification hereunder will (i) give prompt written notice to the indemnifying party of any claim with respect to which it seeks indemnification and (ii) unless in such indemnified party's reasonable judgment a conflict of interest between such indemnified and indemnifying parties may exist with respect to such claim, permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party. 7 04.04.077 If such defense is assumed, the indemnifying party will not be subject to any liability for any settlement made by the indemnified party without its consent (but such consent will not be unreasonably withheld). An indemnifying party who is not entitled to, or elects not to, assume the defense of a claim will not be obligated to pay the fees and expenses of more than one counsel for all parties indemnified by such indemnifying party with respect to such claim, unless in the reasonable judgment of any indemnified party a conflict of interest may exist between such indemnified party and any other of such indemnified parties with respect to such claim. 7.4 Survival. The indemnification provided for under this Agreement will remain in full force and effect regardless of any investigation made by or on behalf of the indemnified party or any officer, director or controlling person of such indemnified party and will survive the transfer of securities. The Corporation also agrees to make such provisions as are reasonably requested by any indemnified party for contribution to such party in the event the Corporation's indemnification is unavailable for any reason. 7.5 Contribution. If for any reason the indemnification provided for in Sections 7.1 or 7.2 hereof is unavailable to an indemnified party as contemplated thereby, the indemnifying party shall contribute to the amount paid or payable by the indemnified party as a result of such loss, claim, damage or liability in such proportion as is appropriate to reflect not only the relative benefits received by the indemnified party and the indemnifying party, but also the relative fault of the indemnified party and the indemnifying party, as well as any other relevant equitable considerations. The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 7.5 were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to in the immediately preceding sentence. Notwithstanding the provisions of this Section 7.5, an indemnifying party that is a selling holder of Registrable Securities shall not be required to contribute, in the aggregate, any amount in excess of such holder's Maximum Contribution Amount. A selling holder's "Maximum Contribution Amount" shall equal the excess of (i) the aggregate proceeds received by such holder pursuant to the sale of such Registrable Shares (net of payment of all expenses) over (ii) the aggregate amount of damages that such holder has otherwise been required to pay by reason of untrue or alleged untrue statement or omission or alleged omission contained in a Registration Statement filed by the Corporation. No party guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any party who was not guilty of fraudulent misrepresentation. 8. Compliance with Rule 144. In the event that the Corporation (a) registers a class of securities under Section 12 of the Exchange Act, (b) issues an offering circular meeting the requirements of Regulation A under the Securities Act or (c) commences to file reports under Section 13 or 15(d) of the Exchange Act, then at the request of any holder who proposes to sell securities in compliance with Rule 144 of the Commission, the Corporation will (i) forthwith furnish to such holder a written statement of compliance with the filing requirements of the Commission as set forth in Rule 144, as such rule may be amended from time to time and (ii) make available to the public and such holders such information as will enable the holders to make sales pursuant to Rule 144. 9. Participation in Underwritten Registrations. No 8 04.04.078 person may participate in any registration hereunder which is underwritten unless such person (i) agrees to sell its securities on the basis provided in any underwriting arrangements approved by such person or persons entitled hereunder to approve such arrangements and (ii) completes and executes all questionnaires, powers of attorney, custody agreements, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements. 10. Miscellaneous. 10.1 No Inconsistent Agreements. The Corporation will not hereafter enter into any agreement with respect to its securities which is inconsistent with the rights granted to the holders of Registrable Shares in this Agreement. 10.2 Adjustments Affecting Registrable Shares. The Corporation will not take any action, or permit any change to occur, with respect to its securities which would adversely affect the ability of the holders of Registrable Shares to include such Registrable Shares in a registration undertaken pursuant to this Agreement or which would adversely affect the marketability of such Registrable Shares in any such registration, including, without limitation, effecting a stock split or combination of shares. 10.3 Other Registration Rights. Except as provided in this Agreement, the Corporation will not hereafter grant to any person or persons the right to request the Corporation to register any equity securities of the Corporation, or any securities convertible or exchangeable into or exercisable for such securities, without the prior written consent of the holders of at least fifty one percent (51%) of the Registrable Shares. 10.4 Successors and Assigns. Except as otherwise expressly provided herein, all covenants and agreements contained in this Agreement by or on behalf of any of the parties hereto will bind and inure to the benefit of the respective successors and assigns of the parties hereto, whether so expressed or not. In addition, and whether or not any express assignment has been made, the provisions of this Agreement which are for the benefit of the Purchasers or holders of Shares are also for the benefit of, and enforceable by, any subsequent holders of such Shares. 10.5 Severability. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision will be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Agreement. 10.6 Descriptive Headings. The descriptive headings of this Agreement are inserted for convenience of reference only and do not constitute a part of and shall not be utilized in interpreting this Agreement. 10.7 Notices. Any notices required or permitted to be sent hereunder shall be delivered personally or mailed, certified mail, return receipt requested, or delivered by overnight courier service to the following addresses, or such other address as any party hereto designates by written notice to the Corporation, and shall be deemed to have been given upon delivery, if delivered personally, three days after mailing, if mailed, or one 9 04.04.079 business day after delivery to the courier, if delivered by overnight courier service: If to the Corporation, to: Investors Insurance Group, Inc. 7200 West Camino Real Suite 203 Boca Raton, Florida 33433 Attention: Chief Executive Officer with a copy to: Palmarella & Sweeney, P.C. 310 Building 2 100 Matsonford Road Radnor, Pennsylvania 19087 Attention: Ernest D. Palmarella If to the Purchasers, to: AAM Capital Partners, L.P. 30 N. LaSalle Street, 36th Floor Chicago, Illinois 60602 Attention: Richard A. Veed Francis S. Wilson, III with a copy to: Katten Muchin & Zavis 525 West Monroe Street Suite 1600 Chicago, Illinois 60661 Attention: Michael P. Goldman, Esq. 10.8 Governing Law. All questions concerning the construction, validity and interpretation of this Agreement, and the performance of the obligations imposed by this Agreement, shall be governed by the laws of the State of Delaware applicable to contracts made and wholly to be performed in that state. 10.9 Final Agreement. This Agreement, together with the Stock Purchase Agreement and all other agreements entered into by the parties hereto pursuant to the Stock Purchase Agreement, constitutes the complete and final agreement of the parties concerning the matters referred to herein, and supersedes all prior agreements and understandings. 10.10 Execution in Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed and 10 04.04.080 delivered shall be deemed an original, and such counterparts together shall constitute one instrument. 10.11 No Strict Construction. The language used in this Agreement will be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction will be used against any party. 10.12 Consent to Amendments; Waivers. Except as otherwise expressly provided herein, the provisions of this Agreement may be amended or waived at any time only by the written agreement of the Corporation and holders of a majority of the Registrable Shares. Any waiver, permit, consent or approval of any kind or character on the part of any such holder of any provisions or conditions of this Agreement must be made in writing and shall be effective only to the extent specifically set forth in such writing. The parties hereto have executed this Agreement on the date first set forth above. THE CORPORATION: INVESTORS INSURANCE GROUP, INC. By: ______________________________ Its:_____________________________ PURCHASERS: AAM CAPITAL PARTNERS, L.P. By: AAM PARTNERS, L.P., its General Partner By: AAM Investment Banking Group, Ltd. its General Partner By:_____________________________ Its:_____________________________ [OTHER SIGNATURE BLOCKS TO COME] 11 04.04.081 SCHEDULE OF PURCHASERS Name and Address Number of Registrable Shares AAM CAPITAL PARTNERS, L.P. 30 N. LaSalle Street, 36th Floor Chicago, Illinois 60602 [OTHERS TO COME] 12 04.04.082 EXHIBIT C SHAREHOLDERS AGREEMENT by and among INVESTORS INSURANCE GROUP, INC. and [PREFERRED SHARE HOLDERS] and [COMMON SHARE HOLDERS] 04.04.083 SHAREHOLDERS AGREEMENT GLOSSARY OF DEFINED TERMS Term Section Referenced "Agreement" ................................................... Introduction "Authorization Date" .......................................... Section 2.3 "Available Shares" ............................................ Section 2.3 "Buyer" ....................................................... Section 3 "Common Share Holder" ......................................... Section 1 "Common Shares" ............................................... Section 1 "Common Stock" ................................................ Section 1 "Corporation" ................................................. Introduction "Disposing Holder" ............................................ Section 2.3 "Exempt Transfer" ............................................. Section 2.2 "Offered Shares" .............................................. Section 2.3 "Preferred Share Holder" ...................................... Section 1 "Preferred Shares" ............................................ Recitals "Public Offering" ............................................. Section 1 "Public Transfer" ............................................. Section 2.2 "Sale Notice" ................................................. Section 2.3 "Stock Purchase Agreement" .................................... Recitals "Transfer" .................................................... Section 1 -i- 04.04.084 INVESTORS INSURANCE GROUP, INC. Shareholders Agreement This Shareholders Agreement (this "Agreement"), is made as of , 1996 by and among INVESTORS INSURANCE GROUP, INC., a Florida corporation (the "Corporation"), each of the parties listed on the Schedule of Preferred Share Holders attached hereto and who executes a signature page to this Agreement, and each of the parties listed on the Schedule of Common Share Holders attached hereto and who executes a signature page to this Agreement. RECITALS A. The Preferred Share Holders have agreed to purchase certain shares of the Corporation's Series A Preferred Stock (the "Preferred Shares") pursuant to that Series A Preferred Stock Purchase Agreement dated as of April ___, 1996 (the "Stock Purchase Agreement") and the execution and delivery of this Agreement is a condition precedent to the consummation of the transactions contemplated by the Stock Purchase Agreement. B. The Corporation and the Common Share Holders deem it desirable to enter into this Agreement in order to induce the Preferred Share Holders to purchase the Preferred Shares. AGREEMENTS In consideration of the premises and the mutual covenants herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. Definitions. As used in this Agreement: "Common Share Holder" means any holder (or deemed holder) of Common Shares who is a party to this Agreement or is a successor and assign or subsequent holder of such Common Shares. "Common Shares" means shares of Common Stock held by Common Share Holders that have not been sold pursuant to a registration statement effective with the Securities and Exchange Commission. For the purposes of this Agreement, any Common Share Holder will be deemed to own, in addition to any Common Shares such Common Share Holder actually owns, any Common Shares which would then be directly or indirectly issuable upon the conversion or exercise of any other securities owned by such Common Share Holder and such other securities shall be deemed to represent such Common Shares. "Common Stock" means the Corporation's common stock, par value $.50 per share 04.04.085 "Preferred Share Holder" means any holder (or deemed holder) of Preferred Shares who is a party to this Agreement or is a successor and assign or subsequent holder of Preferred Shares as contemplated by Section 8 below. "Public Offering" means any offering of Common Shares to the public pursuant to an effective registration statement under, or the sale to the public of Common shares pursuant to Rule 144 promulgated under, the Securities Act of 1933, as amended, or any comparable statement under any similar federal statute then in force. "Transfer" means any direct or indirect sale, disposition, assignment, pledge, hypothecation, encumbrance or other transfer. 2. Restrictions on Transfer. 2.1 Restrictive Legend. Any certificate representing Common Shares will bear the following legend: "THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER AND CERTAIN OTHER AGREEMENTS SET FORTH IN A SHAREHOLDERS AGREEMENT BETWEEN THE CORPORATION AND THE ORIGINAL HOLDER DATED AS OF __________, 1996. A COPY OF SUCH AGREEMENT MAY BE OBTAINED BY THE HOLDER HEREOF AT THE CORPORATION'S PRINCIPAL PLACE OF BUSINESS WITHOUT CHARGE." 2.2 Exempt Transfers. No Common Share Holder will Transfer any Common Shares, except (a) in compliance with Sections 2.3 and 3 of this Agreement, (b) for Transfers from Chester County Fund, Inc. to its stockholders, or (c) with respect to Common Share Holders that are individuals, Transfers of Common Shares pursuant to applicable laws of descent and distribution or the Transfer to a trust whose sole trustee during his or her lifetime is such Common Share Holder and whose beneficiaries are (i) a Common Share Holder during his or her lifetime, (ii) his or her spouse or one or (iii) more of his or her descendants and, (each of the foregoing, an Exempt Transfer"); provided that in each case the restrictions contained in this Section 2.2 will continue to be applicable to Common Shares following such Exempt Transfer (other than Transfers by Chester County Fund, Inc. to its stockholders other than Donald Goebert) and, in each case, the transferee of such Common Shares (other than stockholders of Chester County Fund other than Donald Goebert) will have agreed in writing to be bound by the terms and conditions of this Agreement applicable to the Common Share Holder. Notwithstanding anything to the contrary contained herein, a Common Share Holder may Transfer Common Shares pursuant to a Public Offering and pursuant to the sale of such Common Shares to the public pursuant to Rule 144 promulgated under the Securities Act of 1933, as amended (each a "Public Transfer"). 2.3. Right of First Refusal. Prior to making any Transfer other than an Exempt Transfer or a Public Transfer, a Common Share Holder (the "Disposing Holder") will deliver a written notice (the "Sale Notice") to the Corporation and the Preferred Share Holders, disclosing in reasonable detail the identity of the prospective transferee(s), the Common Shares proposed to 2 04.04.086 be Transferred (the "Offered Shares") and the terms and conditions of the proposed Transfer. The Disposing Holder agrees not to consummate any such Transfer until the parties to the Transfer have been finally determined pursuant to this Section 2.3 (the "Authorization Date"). The Preferred Share Holders may elect to purchase all or a portion of the Offered Shares upon the same terms and conditions as those set forth in the Sale Notice by delivering a written notice of such election to the Corporation and the Disposing Holder within thirty (30) days after the receipt of the Sale Notice by the Preferred Share Holders. If more than one Preferred Share Holder elects to purchase the Offered Shares, they may do so pro rata based on the number of Preferred Shares held by each of them or in such other proportions as they may agree. If the Preferred Share Holders elect to purchase less than all of the Offered Shares (the "Available Shares"), the Corporation may elect to purchase all or a portion of the Available Shares upon the same terms and conditions as those set forth in the Sale Notice by delivering a written notice of such election to the Disposing Holder within thirty-five (35) days after the receipt of the Sale Notice by the Corporation. The Preferred Share Holders and/or the Corporation will be given up to twenty (20) days from the date of such election to consummate such purchase and sale. If the Preferred Share Holders and/or the Corporation have not elected to purchase all of the Offered Shares within thirty-five (35) days of the delivery of the Sale Notice, or have so elected to purchase such shares but have not consummated the purchase of such shares within fifty-five (55) days of the delivery of the Sale Notice, the Disposing Holder may, subject to the provisions of Section 2.2 above and Section 3 below, Transfer the Offered Shares not purchased by the Preferred Share Holders and/or the Corporation, at a price and on terms no more favorable to the transferee(s) thereof than those specified in the Sale Notice, during the 60-day period immediately following the Authorization Date. Any Common Shares not transferred within such 60-day period will be subject to the provisions of this Section 2.3 upon subsequent Transfer. 3. Co-Sale Right. If any Common Share Holder shall Transfer any Common Shares pursuant to a bona fide offer to a third party (the "Buyer"), other than pursuant to a Public Transfer, then such Common Share Holder shall notify the Preferred Share Holders, in writing, of such offer and its terms and conditions. Upon receipt of such notice, each of the Preferred Share Holders shall have the right to sell to the Buyer, in lieu of the sale to the Buyer by the Common Share Holder, that number of shares of Common Stock equal to the product attained by multiplying (a) the number of shares of Common Stock held by such Preferred Share Holder (or issuable upon conversion of the Preferred Shares held by such Preferred Share Holder) times, (b) the quotient derived by dividing (i) the number of Common Shares which otherwise would have been sold by such Common Share Holder to the Buyer by (ii) the aggregate of total number of Common Shares held by such Common Share Holder and the total number of shares of Common Stock held by all of the Preferred Share Holders (or issuable upon conversion of the Preferred Shares). The Preferred Share Holders' right to sell pursuant to this Section 3 can be exercised by delivery of a written notice to the selling Common Share Holder within twenty (20) days following the delivery of the notice to the Preferred Share Holders of the sale to Buyer by such Common Share Holder. 4. Election of Directors; Meetings. Subject to and as may be limited from time to time by the special voting rights of the Preferred Shares upon the occurrence of certain Events of Noncompliance under the Certificate of Designation (as defined in the Stock Purchase Agreement), each Common Share Holder and each Preferred Share Holder agrees to take all action necessary 3 04.04.087 including, without limitation, the voting of their shares of stock of the Corporation, the execution of written consents, the calling of special meetings, the removal of directors, the filling of vacancies on the Corporation's Board of Directors, the waiving of notice and the attending of meetings, so as to cause the Board of Directors of the Corporation to be comprised of seven directors, (i) three nominees selected by the holders of a majority of the Common Stock, and (ii) four nominees selected by the holders of a majority of the shares of Common Stock issued or issuable upon conversion of the Preferred Shares (one of which shall initially be Melvin C. Parker). 5. Representations and Warranties. 5.1 Of the Common Share Holders. Each Common Share Holder represents and warrants to the Preferred Share Holders the following with respect to himself, herself or itself, as the case may be: (a) Authorization. All corporate action on the part of the Common Share Holder, its directors and shareholders necessary for the authorization, execution, delivery and performance by such Common Share Holder of this Agreement has been taken. This Agreement is a legal, valid and binding obligation of such Common Share Holder, enforceable against such Common Share Holder in accordance with its terms. (b) No Violation. The execution and delivery of this Agreement will not (with or without notice or passage of time or both) (i) conflict with or result in a breach of any provision of the charter documents of such Common Share Holder, (ii) result in a default, give rise to any right of termination, cancellation or acceleration, or require any consent or approval, under any of the terms, conditions or provisions of any note, bond, mortgage, indenture, loan, factoring arrangement, license, agreement, lease or other instrument or obligation to which such Common Share Holder is a party or by which it or any of its assets may be bound or (iii) violate any law, judgment, order, writ, injunction, decree, statute, rule or regulation of any court, administrative agency, bureau, board, commission, office, authority, department or other governmental entity applicable to such Common Share Holder or any of its assets. (c) Registration. All of the Common Shares held by such Common Share Holder have been registered pursuant to an effective registration statement under the Securities Act of 1933, as amended. 5.2 Of the Preferred Share Holders. Each Preferred Share Holder represents and warrants to the Common Share Holders the following with respect to himself, herself or itself, as the case may be: (a) Authorization. All corporate or partnership action on the part of the Preferred Share Holder, its general partners, directors and shareholders, as applicable, necessary for the authorization, execution, delivery and performance by such Preferred Share Holder of this Agreement has been taken. This Agreement is a legal, valid and binding obligation of such Preferred Share Holder, enforceable against such Preferred Share Holder in accordance with its terms. (b) No Violation. The execution and delivery of 4 04.04.088 this Agreement will not (with or without notice or passage of time or both) (i) conflict with or result in a breach of any provision of the partnership or charter documents, as applicable, of such Preferred Share Holder, (ii) result in a default, give rise to any right of termination, cancellation or acceleration, or require any consent or approval, under any of the terms, conditions or provisions of any note, bond, mortgage, indenture, loan, factoring arrangement, license, agreement, lease or other instrument or obligation to which such Preferred Share Holder is a party or by which it or any of its assets may be bound or (iii) violate any law, judgment, order, writ, injunction, decree, statute, rule or regulation of any court, administrative agency, bureau, board, commission, office, authority, department or other governmental entity applicable to such Preferred Share Holder or any of its assets. 6. Term. This Agreement will terminate on the date on which eighty percent (80%) of the Preferred Shares have been redeemed in full in accordance with the terms of the Certificate of Designation. 7. Consent to Amendments; Waivers. Except as otherwise expressly provided herein, the provisions of this Agreement may be amended or waived at any time only by the written agreement of the Corporation, Common Share Holders holding not less than fifty one percent (51%) of the Common Shares then held by such Common Share Holders and Preferred Share Holders holding not less than fifty one percent (51%) of the Common Stock issued or issuable upon conversion of the Preferred Shares then held by such Preferred Share Holders. Any waiver, permit, consent or approval of any kind or character on the part of any such holder of any provisions or conditions of this Agreement must be made in writing and shall be effective only to the extent specifically set forth in such writing. 8. Successors and Assigns. Except as otherwise expressly provided herein, all covenants and agreements contained in this Agreement by or on behalf of any of the parties hereto will bind and inure to the benefit of the respective successors and assigns of the parties hereto, whether so expressed or not. In addition, and whether or not any express assignment has been made, the provisions of this Agreement which are for the benefit of the Preferred Share Holders are also for the benefit of, and enforceable by, any subsequent holders of Preferred Shares. 9. Severability. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision will be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Agreement. 10. Descriptive Headings. The descriptive headings of this Agreement are inserted for convenience of reference only and do not constitute a part of and shall not be utilized in interpreting this Agreement. 11. Notices. Any notices required or permitted to be sent hereunder shall be delivered personally or mailed, certified mail, return receipt requested, or delivered by overnight courier service to the following addresses, or such other address as any party hereto designates by written notice to the Corporation, and shall be deemed to have been given upon 5 04.04.089 delivery, if delivered personally, three days after mailing, if mailed, or one business day after delivery to the courier, if delivered by overnight courier service: If to the Corporation, to: Investors Insurance Group, Inc. 7200 West Camino Real Suite 203 Boca Raton, Florida 33433 Attention: Chief Executive Officer with a copy to: Palmarella & Sweeney, P.C. 310 Building 2 100 Matsonford Road Radnor, Pennsylvania 19087 Attention: Ernest D. Palmarella If to the Preferred Share Holders, to: AAM Capital Partners, L.P. 30 N. LaSalle Street, 36th Floor Chicago, Illinois 60602 Attention: Richard A. Veed Francis S. Wilson, III with a copy to: Katten Muchin & Zavis 525 West Monroe Street Suite 1600 Chicago, Illinois 60661 Attention: Michael P. Goldman, Esq. If to the Common Share Holders, to those addresses set forth on the Schedule of Common Share Holders hereto. 12. Governing Law. All questions concerning the construction, validity and interpretation of this Agreement, and the performance of the obligations imposed by this Agreement, shall be governed by the laws of the State of Delaware applicable to contracts made and wholly to be performed in that state. 6 04.04.091 13. Schedules. All schedules hereto are an integral part of this Agreement. 14. Final Agreement. This Agreement, together with the Stock Purchase Agreement and all other agreements entered into by the parties hereto pursuant to the Stock Purchase Agreement, constitutes the complete and final agreement of the parties concerning the matters referred to herein, and supersedes all prior agreements and understandings. 15. Execution in Counterparts. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original, and such counterparts together shall constitute one instrument. 16. No Strict Construction. The language used in this Agreement will be deemed to be the language chosen by the parties hereto to express their mutual intent, and no rule of strict construction will be used against any party. The parties hereto have executed this Agreement on the date first set forth above. THE CORPORATION: INVESTORS INSURANCE GROUP, INC. By: Its: PREFERRED SHARE HOLDERS: AAM CAPITAL PARTNERS, L.P. By: AAM PARTNERS, L.P., its General Partner By: AAM Investment Banking Group, Ltd. its General Partner By: Its: [OTHER SIGNATURE BLOCKS TO COME] COMMON SHARE HOLDERS: [SIGNATURE BLOCKS TO COME] 7 04.04.091 SCHEDULE OF PREFERRED SHARE HOLDERS Name and Address Number of Preferred Shares AAM CAPITAL PARTNERS, L.P. 30 N. LaSalle Street, 36th Floor Chicago, Illinois 60602 [OTHERS TO COME] 8 04.04.092 SCHEDULE OF COMMON SHARE HOLDERS Name and Address Number of Common Shares [TO COME] 9 EX-10 10 10.01 INCENTIVE STOCK OPTION PLAN-1982 10.01.001 GEMCO NATIONAL, INC. INCENTIVE STOCK OPTION PLAN l. Purposes of the Plan. The purposes of this Incentive Stock Option Plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to all Employees of the Company or any Parent or Subsidiary of the Company which now exists or hereafter is organized or acquired by or acquires the Company, and to promote the success of the business of the Company. Options granted hereunder are intended to constitute incentive stock options within the meaning of Section 422A of the Code. 2. Definitions. As used herein, the following definitions shall apply: (a) "Board" or "Board of Directors" shall mean the board of directors of the Company. (b) "Code" shall mean the Internal Revenue Code of 1954,as amended. (c) "Common Stock" shall mean the $.50 par value common stock of the Company. (d) "Company" shall mean Gemco National, Inc. (e) "Committee" shall mean the committee appointed by the Board in accordance with Paragraph (a) of Section 4 of this Plan, or the Board if either no such 10.01.002 committee shall have been appointed, or if appointed shall no longer be in existence. (f) "Employee" shall mean any person, including an officer who is a director, employed (whether full-time or part-time) by the Company or any Parent or Subsidiary of the Company which now exists or hereafter is organized or acquired by or acquires the Company. (g) "Executive Committee" shall mean the Executive Committee of the Company appointed by the Board. (h) "Option" shall mean a stock option granted pursuant to this Plan. (i) "Optionee" shall mean an Employee who receives an Option. (j) "Parent" shall mean a "parent corporation," as defined in Sections 425(e) and (g) of the Code. (k) "Plan" shall mean this Incentive Stock Option Plan of the Company. (l) "Subsidiary" shall mean a "subsidiary corporation," as defined in Sections 425(f) and (g) of the Code. 3. Stock Subject to the Plan. There shall be reserved for issue upon the exercise of Options to be granted from time to time under this Plan an aggregate of 200,000 shares of the Common Stock of the Company, which shares may be granted in whole or in part as the Board of Directors or the Executive -2- 10.01.003 Committee shall from time to time determine from authorized but unissued shares of the Common Stock or issued shares of the Common Stock which shall have been reacquired by the Company. If an Option shall expire or terminate for any reason without having been exercised in full, the unpurchased shares covered thereby shall (unless this Plan shall have terminated or have been terminated) be added to the shares otherwise available for Options which may be granted in accordance with the terms of this Plan. 4. Administration of the Plan. (a) Procedural Rules. (1) This Plan shall be administered by the Board; provided, however, that the Board may appoint a Committee consisting of not less than three members of the Board to administer this Plan on behalf of the Board, subject to such terms and conditions as the Board may prescribe. Once appointed, the Committee shall continue to serve until otherwise directed by the Board. From time to time, the Board may increase the size of the Committee and appoint additional members thereof, remove members (with or without cause), appoint new members in substitution therefor, fill vacancies however caused, and remove all members of the Committee and thereafter directly administer this Plan. A majority of the entire Committee shall constitute a quorum, and the action of a majority of the members present shall be deemed the action -3- 10.01.004 of the Committee. In addition, any decision or determination reduced to writing and signed by all of the members of the Committee shall be as fully effective as if it had been made by a majority vote at a meeting duly called and held. The Committee may appoint a secretary to keep minutes of its meetings and may make such rules and regulations for the conduct of its business as it shall deem advisable. (2) No officer who is a Director shall be eligible to receive an Option unless either (a) the granting of such Option shall be approved by the Board, a majority of whom shall be disinterested Directors, and a majority of the disinterested Directors acting on the matter shall approve the grant; or (b) the granting of such Option shall be approved by the Committee, all of the members of which shall be disinterested Directors. For the purpose of this Section 4(a)(2), a "disinterested Director" shall be any Director who shall not on the date of approval or at any time within the year prior thereto have been eligible to receive an Option under the Plan. (b) Powers of the Committee. Subject to the provisions of this Plan, the Committee shall have authority: to interpret this Plan; to prescribe, amend, and rescind rules and regulations relating to this Plan; and to make all other determinations deemed necessary or advisable for the administration of this Plan. -4- 10.01.005 (c) Effect of Committee's Decision. All decisions, determinations and interpretations of the Committee shall be final and binding on all Optionees and any other holders of any Options granted under this Plan. 5. Persons to whom Options May be Granted. Options may be to any Employee who does not own more than 10% of the total combined voting power of all classes of stock of the Company or of any Parent or Subsidiary of the Company. 6. Number of Shares to be Covered by Options Granted to Employees. The number of shares of Common Stock covered by any Option shall be determined by the Board or Committee, as the case may be, provided that no Employee may receive in any calendar year Options under the Plan or any other plan within the meaning of Section 422A(b) of the Code of the Company or any Parent or Subsidiary of the Company covering shares of Common Stock which have an aggregate Fair Market Value (determined as of the date of the Options are granted) in excess of $100,000. The Fair Market Value of any share of Common Stock at any date shall be: (a) if the Common Stock shall then be listed on an exchange or exchanges, the last reported sales price per share on the day prior to such date on the principal exchange on which it is traded, or if no sale was made on such day on such principal exchange, at the closing reported bid once on such day on such exchange; or (b) if the Common Stock shall not then be listed on an -5- 10.01.006 exchange, the average of the closing bid and asked prices per share for the Common Stock in the over-the-counter market as quoted on NASDAQ on the day prior to such date; or (c) if the Common Stock shall not be listed on an exchange or quoted on NASDAQ, an amount determined in good faith by the Board or Committee, as the case may be. 7. Factors to be Considered in Granting Options. In making any proposal as to Employees to whom Options shall be granted and as to the number of shares to be covered by such Options, the Board of Directors or Committee, as the case may be, shall take into account the duties of the respective persons, their present and potential contributions to the success of the Company, or any Parent or Subsidiary of the Company, the extent and value of their services to the Company or any Parent or Subsidiary of the Company, and such other factors as they shall deem relevant in connection with accomplishing the purpose of the Plan. 8. Term of Plan. This Plan shall become effective upon its adoption by the Board or its approval by vote of the holders of a majority of the outstanding shares of the Company entitled to vote on the adoption of the Plan, whichever is earlier. It shall continue in effect for a term of ten years unless sooner terminated under Section 17 of this Plan. 9. Term of Option. No Option shall be exercisable after the expiration of the earliest of: (i) ten years after -6- 10.01.007 the date the Option is granted; (ii) three months after the date the Optionee's employment with the Company terminates, if such termination is for any reason other than permanent disability or death; or (iii) one year after the date the Optionee's employment with the Company terminates if such termination is a result of death or permanent disability; provided, however, that the option agreement for any Option may provide for shorter periods in each of the foregoing instances. For the purpose of this Section 9, "permanent disability" shall mean a disability of the type defined in Section 105(d)(4) of the Code. 10. Option Prices. The purchase price of the shares of the Common Stock which shall be covered by each Option shall be determined by the Board or Executive Committee or Committee, as the case may be, but in no event shall the purchase price be less than the Fair Market Value of the shares on the date the Option is granted. The purchase price shall be paid in full in United States dollars upon exercise of an Option in cash, by check or, at the discretion of the Board and upon such terms and conditions as the Board shall approve, by transferring to the Company for redemption shares of the Common Stock of the Company at their Fair Market Value. Shares of Common Stock transferred to the Company upon exercise of options shall not increase the number of shares available for issuance under the Plan. -7- 10.01.008 11. Exercise of Option. No Option shall be exercisable during the lifetime of the Optionee by any person other than the Optionee. Any Option shall be exercisable at such times and under such conditions as shall be permissible under the terms of this Plan and the agreement evidencing the Option. An Option may not be exercised for fractional shares of the Common Stock of the Company. An Option shall be deemed to be exercised when written notice of such exercise has been given to the Company in accordance with the terms of the Option by the person entitled to exercise the Option and full payment for the shares with respect to which the Option is exercised has been received by the Company. Until stock certificates have been issued (as evidenced by an appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company), each applicable Optionee shall have no right to vote or receive dividends or any other rights of a stockholder notwithstanding the exercise of the Option. No adjustment will be made for a dividend or other rights for which the record date is prior to the date the stock certificates are issued except as provided in Section 14 of this Plan. 12. Transferability of Options. No Option shall be transferable by the Optionee otherwise than by will or the laws of descent and distribution. 13. Prior Outstanding Option. No Option granted under this Plan shall be exercisable to any extent at any time while -8- 10.01.009 there is "outstanding" any incentive stock option which was granted before the granting of such Option to the Optionee by the Company or any Subsidiary or Parent of the Company or any predecessor corporation of the Company or Parent or Subsidiary. For the purpose of this Section 13, an Option shall be "outstanding" until such time as the Option is exercised in full or expires by reason of lapse of time. 14. Adjustments Upon Changes in Capitalization. (a) If all or any portion of an Option is exercised subsequent to any stock dividend, split-up, recapitalization, combination, or exchange of shares, merger, consolidation, acquisition of property or stock, separation, reorganization or other similar change or transaction of or by the Company, as a result of which shares of any class shall be issued in respect of outstanding shares of the Common Stock covered by Options hereunder or shares of the Common Stock covered by Options hereunder shall be changed into the same or a different number of shares of the same or another class or classes, the person or persons so exercising such an Option shall receive, for the aggregate option price payable upon such exercise of the Option, the aggregate number and class of shares equal to the number and class of shares he would have had on the date of exercise had the shares been purchased for the same aggregate price at the date the Option was granted and had not been disposed of, taking into consideration any -9- 10.01.010 such stock dividend, split-up, recapitalization, combination, or exchange of shares, merger, consolidation, acquisition of property or stock, separation, reorganization, or other similar change or transaction; provided, however, that no fractional share shall be issued upon any such exercise, and the aggregate price paid shall be appropriately reduced on account of any fractional share not issued. (b) In the event of any such change in the shares, the aggregate number and class of shares remaining available under the Plan shall be equal to the number and class of shares which a person, to whom an Option for all remaining available shares had been granted on the date preceding such change, would be entitled to receive as provided in this Section 14. (c) For purposes of this Section 14, an adjustment is appropriate only where such adjustment merely reflects a change in capitalization within the meaning of Treasury Regulation Section l.422-2(b)(3) or a corporate transaction within the meaning of Treasury Regulation Section 1.425-l(a)(l) (II) and which does not constitute a modification, extension, or renewal of the Option within the meaning of Section 425(h) of the Code. 15. Option Agreements. Each Option granted under this Plan shall be evidenced by an agreement in such form and containing such provisions (subject to and limited by the -10- 10.01.011 terms of this Plan) as the Board or Executive Committee or Committee shall from time to time approve. Agreements evidencing the Options need not be identical. 16. Time of Granting Options; Effective Date of Options. The date of grant of an Option under this Plan shall, for all purposes, be the date which the Board or Executive Committee or Committee shall specify when authorizing the grant, or if no such date shall be specified, the date on which the Board or Committee by resolution authorizes the grant. No Option shall be effective, however, until the date the Optionee executes and delivers to the Company the written option agreement required under Section 15 of this Plan, and the failure of the Optionee to execute and deliver the written option agreement within fifteen days of the date the Company provides the Optionee with such agreement shall terminate the Optionee's right to receive such Option, as if such Option shall not have been granted. 17. Termination and Amendment of This Plan. This Plan shall terminate ten years after its adoption by the Board of Directors, and an Option shall not be granted under this Plan after that date. This Plan may at any time or from time to time be terminated, modified, or amended by the stockholders of the Company by the affirmative vote of a majority in interest of the Common Stock. The Board of Directors may at any time and from time to time modify or amend this Plan to -11- 10.01.012 conform to any change in the law, or in any other respect; provided, however, that no such modification or amendment of the Board shall change: (a) the provisions hereof relating to the determination of persons to whom Options may be granted, (b) the provisions hereof relating to adjustments to be made upon changes in capitalization. The termination or any modification or amendment of this Plan shall not, without the prior consent of any Optionee, affect his rights under an Option theretofore granted to him. 18. Investment Representation. Any person who is issued Options or shares underlying any Option pursuant to this Plan will be required to represent and acknowledge that the securities being purchased thereby will be purchased for investment and with no present intention of making any disposition or sale thereof unless a current registration statement is effective for the underlying shares under the Securities Act of 1933, as amended ("Registration Statement"). He will be further required to acknowledge that he has been advised that the underlying shares, which are to be issued upon exercise of the Option, have not been registered for sale pursuant to the Securities Act of 1933, as amended, and that the securities constitute "restricted securities" as that term is used in Rules 144 and 237 adopted under the Securities Act of 1933. Any person issued stock - 12 - 10.01.013 under this Plan will be further required to sign an investment representation to that effect, and any stock issued pursuant to this Plan shall contain an investment legend to that effect unless such shares are covered by a current Registration Statement. 19. Reservation of Shares. The Company, during the term of this Plan, will at all times reserve and keep available such number of shares as shall be sufficient to satisfy the requirements of this Plan. The inability of the Company to obtain from any regulatory body having jurisdiction authority deemed by the Company's counsel to be necessary to the lawful issuance and sale of any shares hereunder shall relieve the Company of any liability in respect of the nonissuance or sale of such shares as to which such requisite authority shall not have been obtained. - 13 - EX-10 11 10.02 INCENTIVE STOCK OPTION PLAN-1992 10.02.001 GEMCO NATIONAL, INC. INCENTIVE STOCK OPTION PLAN Effective June 18, 1992 10.02.002 l. Definitions ................................................. 2 2. Purpose ..................................................... 2 3. Administration .............................................. 2 4 Shares Subject to Plan ...................................... 3 5. Eligible Employees .......................................... 3 6. Restrictions on Eligibility ................................. 3 7. Allotment of Shares ......................................... 3 8. Grant of Option ............................................. 3 9. Option Price ................................................ 3 10. Option Period ............................................... 4 11. Termination of Option ....................................... 4 12. Rights in Event of Termination Death ....................................................... 5 13. Payment and Notice of Exercise .............................. 5 14. Exercise of Option .......................................... 6 15. Changes in Capital Structures, Inc .......................... 6 16. Nontransferability .......................................... 6 17. Re-Issuance of Shares ....................................... 6 18. Interpretation .............................................. 6 19 Term of Plan, Amendment, Discontinuance ..................... 6 20. Effect of the Plan, etc. .................................... 6 10.02.003 GEMCO NATIONAL. INC. INCENTIVE STOCK OPTION PLAN 1. Definitions. As used herein, the following terms shall have the following meanings: (a) "Board" shall mean the Board of Directors of Gemco National, Inc.. (b) "Code" shall mean the Internal Revenue Code of 1986, as amended. Reference herein to specific sections of the Code shall include references to any successor provisions to such sections. (c) "Committee" shall mean the committee appointed by the Board pursuant to Section 3. of this Plan to administer this Plan. (d) "Company" shall mean Gemco National, Inc.. (e) "Effective Date" shall mean the date this Plan is approved by the stockholders of Gemco National, Inc., as provided in Section 19. hereof. (f) "Option Period" shall mean the period during which an option granted under this Plan shall be exercisable, as set forth in Section 10. hereof. (g) "Subsidiary", for purposes of this Plan, shall mean any corporation (or similar organization) of which the Company owns, directly or indirectly, more than 50% of the total voting power of all classes of stock entitled to vote therein. 2. Purpose. The purpose of this plan is to increase the interest in the welfare of the Company of those employees of the Company and/or its subsidiaries who have made valuable contributions to the business of the Company, to furnish such employees with an incentive to continue their services to the Company , and to attract able personnel to the employ of the Company through the grant to such employees of options to purchase shares of the Company's Common Stock. The Company intends that options granted pursuant to the provisions of this Plan will qualify as "incentive stock options" within the meaning of Section 422 of the Code. 10.02.004 3. Administration. This Plan shall be administered by the Board or a committee (the "Committee") of not less than two (2) members of the Board. Members of the Committee shall be appointed, and vacancies shall be filled, by the Board. No member of the Board or Committee shall participate in any action by the Board or Committee which allots or grants options to him personally. 4. Shares Subject to Plan. Options may be granted from time to time under this Plan providing for the purchase of not more than five hundred thousand (500,000) shares of the common stock, par value fifty cents ($.50) per share, of the Company ("Common Stock"), as constituted on the Effective Date (subject to adjustment pursuant to Section 15.), plus such number of such shares as may become available for reissuance pursuant to Section 17. Shares of authorized and unissued Common Stock reacquired by the Company and held in its Treasury, as from time to time determined by the Board, may be issued upon exercise of options granted under this Plan. 5. Eligible Employees. Except as provided in Section 6. hereof, employees of the Company who are designated by the Board or the Committee shall be eligible to be granted options under this Plan. Said designated employee shall hereinafter be referred to as "Participant". 6. Restrictions on Eligibility No option shall be granted under this Plan to any employee who, immediately before the option is granted, owns stock possessing more than ten (10%) percent of the total combined voting power of all classes of stock of (i) the Company or (ii) any of the Company's subsidiaries (within the meaning of Section 422(b)(6) of the Code and the Treasury Regulations thereunder), unless (a) at the time of such grant the option price is at least one hundred ten (110%) percent of the fair market value of the shares represented by such option on that date, and (b) such option is not exercisable after the expiration of five (5) years from the date of grant. 7. Allotment of Shares. The grant of an option to an eligible employee under this Plan shall not be deemed either to entitle such employee to, or to disqualify such employee from, participation in any other grant of options under this Plan. 8. Grant of Option. Except as otherwise provided in Section 6., options may be granted under this Plan from time to time prior to the expiration of 10 years from the Effective Date. The aggregate fair market value (determined as of the date such options are granted) of the stock with respect to which incentive stock options are exercisable for the first time by such Participant in any calendar year under all stock option plans of the Company and its subsidiaries shall not exceed one hundred thousand ($100,000) dollars, or such other amount as may be specified from time to time in Section 422(d)(l) of the Code. Grants under this Plan shall be made only by resolution adopted by the Board or the Committee. The grant of an option under this Plan shall commence to have legal force and effect at the time of adoption by the Board or the Committee of the resolutions making the grant, and the employee to whom such option is granted shall become a Participant in this Plan at such time. 3 10.02.005 9. Option Price. Except as otherwise provided in Section 6., the price at which the Common Stock may be purchased upon the exercise of an option granted under this Plan shall be fixed by the Board or the Committee but shall be not less than the fair market value of such shares on the date on which the option is granted. The fair market value of such shares shall be determined in accordance with the provisions of the Code and Treasury Regulations promulgated thereunder. 10. Option Period. Subject to the provisions of Section 14. below, an option granted under this Plan may be exercised during the period (the "Option Period") which begins on the date the option is granted (or such other time as may be determined by the Committee as set forth in the resolutions evidencing the grant of the option) and which ends (a) on the earlier of (i) the expiration of 10 years (5 years in the case of an employee described in Section 6.) after the date the option is granted; or (ii) the termination of the Participant's employment with the Company (within the meaning of Section 422(a)(2) of the Code) for any reason unless otherwise provided in Section 12. of this Plan; or (b) such shorter period of time as may be determined by the Board or the Committee, as set forth in the resolution evidencing the grant of the option. 11. Termination of Option. All rights to exercise an option granted under this Plan shall terminate at the end of the Option Period, as described in Section 10. above. 12. Rights in Event of Termination of Service. Retirement. Disability or Death. If a Participant terminates from service with Company, retires from the Company on or after attainment of age 65, has his employment by the Company terminated due to disability (within the meaning of Section 22(e)(3) of the Code, as determined by the Board or the Committee) or dies without having fully exercised an option granted under this Plan, the Participant, his representative or custodian (in the event of his incompetency), or the executors, administrators, legatees or distributees of his estate (in the event of his death) shall have the right, for a period of three (3) months after the date of his termination of service, retirement or death or for a period of one (1) year after the date of his termination of employment due to disability, to exercise the unexercised and unexpired portion, if any, of such option, in whole or in part, to the same extent that the Participant could have exercised such option before the expiration of such three-month or one-year period had the Participant continued to be an employee of the Company. 13. Payment and Notice of Exercise. Full payment of the purchase price for shares purchased upon the exercise, in whole or in part, of an option granted under this Plan shall be made at the time of such exercise. The purchase price may be paid for with cash, stock in the 4 10.02.006 Company, or a combination thereof. No such shares shall be issued or transferred to a Participant until full payment therefor has been made and the Participant has delivered his written Notice of Exercise of the respective options to the Company at its principal office, and a Participant who is not already a shareholder at the time of the issue shall have none of the rights of a shareholder until shares are issued or transferred to him. 14. Exercise of Option. Unless the Board or Committee otherwise directs, the Participant shall have the right as of the original date of grant to purchase one hundred (100%) percent of the shares of Common Stock which are the subject of his option. Options granted under this Plan shall otherwise be exercisable during the Option Period at such times, in such amounts, in accordance with such terms and conditions, and subject to such restrictions as may be determined by the Board or Committee, and as are set forth in the resolutions and the Notice of Grant evidencing a Participant's exercise of such options. In no event shall an option be exercised or shares be issued pursuant to an option if any applicable laws shall not have been conformed with or if requisite approval or consent of any governmental authority having jurisdiction over the exercise of the options or the issue and sale of the Common Stock shall not have been secured, unless in the opinion of counsel for the Company, the exercise or issuance is exempt from the obligation to obtain such approval or consent. Each Participant shall agree not to offer, sell, pledge, hypothecate or otherwise transfer any shares of Common Stock purchased pursuant to the exercise of an option granted under this Plan unless the shares have been registered under applicable federal and state securities laws or unless the proposed transaction is exempt from such registration in the opinion of counsel for the Company. Each Participant shall, at the time of purchase of shares of Common Stock upon the exercise of an option, if requested by the Company upon advice of its counsel that the same is necessary or desirable, deliver to the Company his written representation that he is purchasing the shares for his own account for investment and not with a view to public distribution or with any present intention of reselling any of such shares, and deliver such other written representations as may be reasonably requested by the Company to assure compliance with applicable laws. If a Participant so requests, shares purchased upon the exercise of any option may be issued in or transferred into the name of the Participant and another person jointly with right of survivorship. 15. Changes in Capital Structures. Inc. In the event of the payment of any dividend payable in, or the making of any distribution of, Common Stock of the Company to holders of record of Common Stock of the Company, which increases the outstanding Common Stock of the Company by more than twenty-five (25%) percent during the period any option granted under this Plan is outstanding or in the event of any stock split, combination of shares, recapitalization or other similar change in the authorized capital stock of the Company during such period or in the event of the merger or consolidation of the Company into or with any other corporation or the reorganization, dissolution, liquidation or winding up of the Company during such period, Participants shall be entitled, upon the exercise of any unexercised option held by them, to receive such new, additional or other shares of stock of any class, or other property (including cash), as they would have been entitled to receive as a matter of law in connection with such payment, distribution, stock split, combination, recapitalization, as the case may be, had they held the shares of the Common Stock being purchased upon exercise of such option on 5 10.02.007 the record date set for such payment or distribution or on the date of such stock split, combination, recapitalization, change, merger, consolidation, reorganization, dissolution or liquidation, and the option price under any such option shall be appropriately adjusted. In case any such event shall occur during the term of this Plan, the number of shares that may be optioned and sold under this Plan as provided in Section 4. shall be appropriately adjusted. The decision of the Board or the Committee, with respect to all such adjustments shall be conclusive. 16. Nontransferbility. Options granted under this Plan shall not be transferable other than by will or by the laws of descent and distribution, and shall be exercisable only by the Participant or by Participant's heirs or personal representatives in accordance with Section 12. of this Plan. 17. Re-Issuance of Shares. Any shares of Common Stock which, by reason of the expiration of an option or otherwise, are no longer subject to purchase pursuant to an option this Plan shall be available for re-issuance under this Plan. 18. Interpretation. The Board or the Committee shall interpret this Plan and prescribe, amend or rescind rules and regulations relating to it and make any and all other determinations necessary or advisable for its administration. 19. Term of Plan. Amendment. Discontinuance. This Plan shall be or has been submitted for approval by the holders of at least a majority of the shares called for that purpose within twelve months before or after adoption of the Plan by the Board. Upon stockholder approval, the Plan shall be deemed effective and adopted as of such date. This Plan, unless sooner terminated or discontinued by the Board pursuant to this Section 19., shall expire on the tenth anniversary of the Effective Date (except to the extent necessary for administration of options exercisable but unexercised on that date), and no options shall be granted under this Plan after that date. The Board may terminate or discontinue this Plan at any time and may suspend this Plan or amend or modify this Plan in any respect at any time or from time to time, without the approval of the stockholders, except that the number of shares of Common Stock that may be optioned and sold under this Plan, as provided in Section 4., above, may not be changed (except pursuant to Section 15., above) and the class of eligible employees to whom options may be granted, as provided in Sections 5. and 6. above, may not be modified without the approval of the Board or the Committee. No action of the Board, the Committee or stockholders may alter or impair the rights of a Participant under any option theretofore granted to him without his consent to such action. 20. Effect of the Plan. etc. Neither the adoption of this Plan nor any action of the Board or Committee, shall be deemed to give any employee any right to be granted an option to purchase Common Stock of the Company or any other fights hereunder unless and until the Board or Committee shall have adopted a resolution granting such employee an option, and then 6 10.02.008 only to the extent and on such terms and conditions as may be set forth in such resolution; the terms and conditions of options granted under this Plan may differ from one another as the Board or Committee shall at its discretion determine, as long as all options granted under the Plan satisfy the requirements in this Plan. Date Adopted by Board: March 25, 1992 Date Approved by Shareholders: June 18, 1992 Effective Date: June 18, 1992 7 EX-10 12 10.03 AGENT STOCK OPTION PLAN 10.03.001 I hereby exercise the Stock Option (the "Option") granted to me by INVESTORS INSURANCE GROUP, INC. ("IIG") as evidenced on the reverse side. and elect to purchase _______________ shares (the "Shares"). In connection with this purchase of the Shares, I hereby represent, warrant, covenant, agree and acknowledge as follows: 1. I am purchasing the Shares solely for my own account without a view to the distribution or resale thereof, and I do not have any contract undertaking agreement or arrangement to sell or otherwise transfer or dispose of any of the Shares in any manner to any person. 2. I will not sell, transfer or otherwise dispose of any of the Shares (or any of my interests therein), in any manner, unless at the time of any such sale, transfer or disposition: (a) Registration (as hereinafter defined) under the Securities Act (as hereinafter defined) and under the Applicable Laws (as hereinafter defined) is in effect with respect to the Shares to be sold, transferred or disposed of, and I comply with all the requirements of the Securities Act and the Applicable Laws with respect to the proposed transaction; or (b) Counsel to IIG has provided an opinion that the proposed sale, transfer or disposition does not require Registration under the Securities Act or the Applicable Laws. As used herein: the term "Registration" means registration under the Securities Act and, with respect to the Applicable Laws, such registration thereunder (or, with respect to any of the Applicable Laws which do not provide for registration, such compliance therewith which is similar to Registration) which has then resulted in statutory or administrative authorization for the proposed transaction, the term "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations thereunder; and the term "Applicable Laws" means any applicable state securities laws, the Securities Exchange Act of 1934, as amended, and the rules and regulations under the foregoing. 3. The Shares are not being sold to me pursuant to Registration under the Securities Act. Any Registration under the Applicable Laws will not authorize sales, transfers or dispositions thereof by me. Neither IIG nor any other person has any obligation or intention to effect Registration of the Shares for sale, transfer or disposition by me under the Securities Act or the Applicable Laws, or to take any action or provide any information (including, without limitation, the filing of reports or the publication of information required by Rule 144 under the Securities Act) which would make available any exemption from the Registration requirements of the Securities Act or the Applicable Laws. I must therefore hold the Shares indefinitely unless a subsequent Registration or exemption therefrom is available and is obtained. No federal or state agency has reviewed the transaction set forth herein or approved or disapproved the Shares for investment or any other purpose. The Shares are being sold to me in reliance upon a specific exemption from the Registration requirement of the Securities Act, if available, which depends, in part, upon the accuracy of the representations, warranties and agreements by me set forth herein. I agree that the exercise of this Option is conditioned upon the availability of such exemption based upon the opinion of Counsel to IIG. 4. The following legend will be placed on the face of any certificates representing the Shares purchased hereunder, and stop-transfer instructions will be issued to any transfer agent of such Shares to insure compliance with the provisions of the Plan and of the Securities Act and the Applicable Laws: 10.03.002 These Shares have not been registered under the Securities Act of 1933, as amended, or under applicable state securities laws, and they may not be offered, sold, pledged, hypothecated or otherwise transferred in the absence of (1) effective registration under all such laws or (2) an opinion of counsel to the Corporation that such registration is not required. 5. I can bear the economic risk of the purchase of the Shares sold hereby, have no need for liquidity in this investment, and have such knowledge and experience in financial and business matters that I am capable of evaluating the merits and risks of the purchase and of the investment in the Shares. 6. Prior to the execution of this Notice: (a) I have been provided with full and free access and opportunity to inspect, review, examine and inquire about books, records and information (financial and otherwise) of IIG. including financial statements and material agreements, contracts, corporate records and other documents respecting IIG, its business and affairs, and I have made such inspection, review, examination and inquiry as I have deemed appropriate; and (b) I have been offered the reasonable opportunity to ask such questions and obtain such additional information concerning IIG and its business and affairs as I have requested so as to verify the accuracy of the information obtained as result of my investigation. 7. Neither IIG nor any other person has made any representation or warranty of any kind respecting IIG, its business and affairs, except as expressly set forth herein. My decision to purchase the Shares has been made solely on the basis of the inspection, review, examination and inquiry referred to in Section 6 hereof. (Signature of Agent) DATE: EX-10 13 10.04 RVL REINSURANCE AGREEMENT 10.04.001 Agreement: INVE0001 an Automatic Annuity Reinsurance Agreement Between: Investors Insurance Corporation of Delaware with administrative offices in Jacksonville, Florida And: Republic-Vanguard Life Insurance Company of Dallas, Texas 10.04.002 TABLE OF CONTENTS A. REINSURANCE COVERAGE 2 B. PLACING AND MAINTAINING REINSURANCE IN EFFECT 4 C. PAYMENTS BY REINSURED 4 D. PAYMENTS BY REINSURER 4 E. TERMS OF REINSURANCE 5 F. UNUSUAL EXPENSES AND ADJUSTMENTS 5 G. POLICY CHANGES 6 H. ERRORS 6 I. AUDIT OF RECORDS AND PROCEDURES 7 J. ARBITRATION 7 K. SPECIAL PROVISIONS 7 L. INSOLVENCY 8 M. PARTIES TO AGREEMENT 8 N. EFFECTIVE DATE 9 o. AGREEMENT 9 P. PAYMENTS UPON TERMINATION OF REINSURANCE 9 Q. DURATION OF AGREEMENT 9 R. SEVERALTY OF PROVISIONS 9 S. EXECUTION 10 T. SCHEDULES 11 I. SCHEDULE I 11 II. SCHEDULE II 12 III. SCHEDULE III 13 IV. SCHEDULE IV 15 10.04.003 REINSURANCE AGREEMENT Between INVESTORS INSURANCE CORPORATION of Delaware hereinafter referred to as "INVESTORS", and REPUBLIC-VANGUARD LIFE INSURANCE COMPANY of Dallas, Texas hereinafter referred to as "RVL" A. REINSURANCE COVERAGE l. The Annuity policies issued or accepted as reinsurance by INVESTORS as described in Schedule I shall be reinsured with RVL on a coinsurance basis in the percentage described in Schedule II. 2. The reinsurance provided under this Agreement shall cover the portion of the risk under the policies as specified in Schedule II. 3. The liability or RVL shall begin simultaneously with that of INVESTORS but not prior to the effective date of this Agreement. Reinsurance with respect to any policy shall not be in force unless issuance and delivery of the policy constituted the doing of business in a jurisdiction in which INVESTORS was properly licensed. 4. Reinsurance hereunder shall follow the forms of the original company. 5. A condition precedent for this Agreement to take effect is that INVESTORS and RVL must each not be in receivership, suspension or liquidation by any insurance department. INVESTORS represents and warrants to RVL that INVESTORS is a corporation organized and existing under the corporation and insurance laws of the state of domicile, as specified in the heading paragraph of this Agreement and is in good standing under these laws. RVL represents and warrants to INVESTORS that RVL is a corporation organized and existing under the corporation and insurance laws of the State of Texas and is in good standing under these laws. RVL further represents and warrants that it is duly licensed, admitted or authorized as an insurer and/or reinsurer under the laws of the state of domicile or INVESTORS. 6. The reinsurance under this Agreement with respect to any policy shall be maintained in force without reduction so long as and to the extent that the liability of INVESTORS under such policy reinsured hereunder remains in force without reduction, unless reinsurance is terminated or reduced as provided herein. 7. INVESTORS shall notify RVL immediately, in writing, of any and all investigations of INVESTORS or its principal officers or shareholders conducted by a federal, state or local governmental or regulatory agency, other than routine examinations by one or more state insurance departments. -2- 10.04.004 B. PLACING AND MAINTAINING REINSURANCE IN EFFECT l. To effect reinsurance with respect to policies in force on the effective date of this Agreement, INVESTORS shall pay to RVL on the date of the execution of this Agreement all initial net reinsurance premium as described in Section C, paragraph 1. 2. To effect reinsurance on new policies and maintain reinsurance in effect, INVESTORS shall pay to RVL when received a net reinsurance premium equal to the excess of the gross reinsurance premiums described in Section C, paragraph 2, over the policy expense allowances referenced in Section D, paragraph 2. 3. Setoff Any debits or credits, matured or unmatured, liquidated or unliquidated, regardless of when they arose or were incurred, in favor of or against either INVESTORS or RVL with respect to this Agreement (to the extent that netting of balances under a single treaty may be construed by third parties to constitute setoff) are deemed mutual debts or credits, as the case may be, and shall be set off dollar for dollar, and only the balance shall be allowed or paid, regardless of the solvency of either party. C. PAYMENTS BY REINSURED l. The initial net reinsurance premium payable pursuant to Section B shall be the Premiums less the sum of all Coinsurance Allowances and Benefits Paid on the inforce business to be reinsured adjusted for interest to the date of payment at a mutually agreeable rate of interest. 2. INVESTORS shall pay RVL its share of first-year and renewal gross premiums under this agreement. D. PAYMENTS BY REINSURER 1. Benefits RVL shall pay to INVESTORS RVL's share of the gross amounts of all benefits paid by INVESTORS with respect to the portions of the policies reinsured hereunder (including but not limited to death benefits, annuity benefit payments, lump sum cash surrenders, nursing home benefits, any Accidental Death Benefits and any Waiver of Premium Benefits), and RVL shall participate in all surrender and annuity option benefits. 2. Policy Expense Allowances RVL shall pay INVESTORS the full amount of the Policy Expense Allowances (including an implicit Premium Tax Reimbursement) as defined in Schedule IV. 3. State Premium Taxes State premium taxes shall not be separately reimbursed under this Agreement. 10.04.005 4. Experience Refund RVL shall not pay INVESTORS an experience refund under this Agreement. 5. Policy Loans RVL shall participate in any policy loans made to policyholders with respect to the portion of the policies reinsured hereunder. E. TERMS OF REINSURANCE 1. Expenses RVL shall bear no part of the expenses incurred in connection with the policies reinsured hereunder, except as otherwise provided herein. 2. Amounts Due REINSURER or REINSURED (a) Except as otherwise specifically provided herein, all amounts due to be paid to either RVL or INVESTORS shall be determined on a net basis. If such amounts cannot be determined at such date on an exact basis, such payments may be paid on an estimated basis and any final adjustments are to be made with interest within 10 days after the end of the month. (b) Subject to any limitations imposed by applicable statutes or regulation, any payment which either INVESTORS or RVL shall be obligated to pay the other may be paid net of any amount which is then due and unpaid under this Agreement. 3. Accounting Period The accounting period for this Agreement shall be a calendar month. INVESTORS and RVL shall each reconcile the reinsurance transactions hereunder as prescribed in Schedule III at the end of each calendar month. 4. Reports Periodic Reports as prescribed in Schedule III shall be provided by INVESTORS to RVL within ten (10) days of the end of each calendar month. F. UNUSUAL EXPENSES AND ADJUSTMENTS l. Any unusual expenses incurred by INVESTORS in defending or investigating a claim for policy liability or rescinding a policy reinsured hereunder shall be participated in by RVL in the same proportion as its reinsurance bears to the total insurance under such policy. 2. For purposes of this Agreement (but not as a limitation on under paragraph 1), it is agreed that penalties, attorney's fees, and interest imposed automatically be statute against INVESTORS or original company and arising solely out of a judgement rendered against INVESTORS or original company in a suit for policy benefits reinsured hereunder shall be considered unusual expenses. 10.04.006 3. In no event, however, shall the following categories of expenses or liabilities be considered for purposes of this Agreement as unusual expenses: (a) routine investigative or administrative expenses; (b) expenses incurred in connection with a dispute or contest rising out of conflicting claims of entitlement to policy proceeds or benefits which INVESTORS admits are payable; (c) expenses, fees, settlements, or judgments arising out of or in connection with claims against INVESTORS or original company for punitive or exemplary damages; and (d) expenses, fees, settlements, or judgments arising out of or in connection with claims made against INVESTORS or original company and based on alleged or actual bad faith, failure to exercise good faith, or tortuous conduct. 4. Any assessments from guaranty funds paid by INVESTORS which are based on the gross premium writings of INVESTORS without reduction for premiums ceded under this reinsurance treaty shall be participated in by RVL in the proportion that reinsured premium under this treaty bears to the total gross premiums of INVESTORS. RVL may reduce its liability by its proportion of any amounts recoverable, such as reductions or rebates of taxes, licenses or fees, by INVESTORS due to guaranty fund assessments. 5. In the event that the amount of liability provided by a policy or policies reinsured hereunder is increased or reduced because of a misstatement of age or sex, the reinsurance hereunder shall increase or reduce proportionately. 6. Punitive Damages RVL does not indemnify and shall not be liable for any of the extra- contractual or punitive damages of INVESTORS or the extra-contractual or punitive liability of INVESTORS of any kind whatsoever resulting from, but not limited to: negligent, reckless or intentional wrongs; fraud; oppression; bad faith, or strict liability. The following liabilities are examples of liabilities that are excluded from this Agreement: damages for emotional distress and punitive or exemplary damages. G. POLICY CHANGES 1. If a change is made in the terms and condition of a policy issued by the original company including, but not limited to, a change in the current "cost of insurance" rates on the policy, or a change in the method used to calculate the reserves on the policy, and such change affects the risk reinsured hereunder in respect of such policy, INVESTORS shall notify RVL promptly of such change. 2. For purposes of this Agreement, any such change shall be deemed to be the issuance of a new policy form by the original company. RVL shall inform INVESTORS whether RVL will include such new policy form under this Agreement, or will terminate or modify the reinsurance hereunder in respect of such policy. H. ERRORS 10.04.007 1. If either INVESTORS or RVL shall unintentionally fail to perform any obligation under this agreement or perform an obligation incorrectly, such error shall be corrected by restoring both INVESTORS and RVL to the positions they would have occupied had no such error occurred. I. AUDIT OF RECORDS AND PROCEDURES 1. RVL and INVESTORS each shall have the right to audit, at the office of the other, all records and procedures relating to reinsurance under this Agreement. Further, INVESTORS agrees to complete, at the reasonable request of RVL and in a manner acceptable to RVL a process confirming the existence of policies reinsured under this Agreement. J. ARBITRATION 1. It is the intention of the parties that the customs and usages of the business of reinsurance shall be given full effect in the interpretation of this Agreement. The parties shall act in all things with the highest good faith. A dispute or difference between the parties with respect to the operation or interpretation of this Agreement on which an amicable understanding cannot be reached shall be decided by arbitration. The arbitrators are empowered to decide all questions or issues and shall be free to reach their decisions from the standpoint or equity and customary practices of the insurance and reinsurance Industry rather than from that of strict law. 2. To initiate arbitration, a party shall send by certified mail, return receipt requested, to the other party's home office a notice demanding arbitration. The notice shall include the issues for decision and the remedies sought. The party receiving the notice shall thereafter have thirty days within which to respond in writing. 3. There shall be three arbitrators who shall be active or retired officers of life insurance companies other than the contracting companies or their affiliates. Each of the contracting companies shall appoint one of the arbitrators and these two arbitrators shall select the third. In the event that either contracting company should fail to choose an arbitrator within thirty days after the response to the demand for arbitration, the other contracting company may choose two arbitrators, who shall in turn choose a third arbitrator before entering arbitration. If the two arbitrators are unable to agree upon the selection of a third arbitrator within thirty days following their appointment, each arbitrator shall nominate three candidates within ten days thereafter, two of whom the other shall decline and the decision shall be made by drawing lots. 4. The arbitrators shall decide by a majority of votes and from their written decision there can be no appeal. The cost of arbitration, including the fees of the arbitrators, shall be borne by the losing party unless the arbitrators decide otherwise. K. SPECIAL PROVISIONS 1. As long as the capital and surplus of INVESTORS is less than 5% of admitted assets, or $10 million if greater, INVESTORS shall obtain prior written approval from RVL before releasing assets by way of stockholder dividends or any other payments to a parent or affiliated company except for reasonable management expenses and fees. 10.04.008 2. INVESTORS shall obtain prior written approval of RVL before selling off any of the subject business or ceding out any subject or other business within its normal retention. 3. INVESTORS shall place the assets corresponding to retained Reserve on the subject business in a separately identifiable account. The separately identifiable account shall include investment grade securities consistent with the investment strategy developed in accordance with paragraph 5 b) of this Section, and must exclude mortgages, real estate and affiliated investments of INVESTORS or its principal owners. 4. INVESTORS agrees to include within its Reserves the present value of any excess of its renewal expenses on the subject business over the renewal coinsurance allowance provided to INVESTORS under Schedule IV of this Agreement. 5. A Product Management Committee shall be formed to advise INVESTORS on product and investment issues. The Committee shall consist of 2 persons, one representing INVESTORS and one representing RVL with voting interests proportional to tie respective relative interests of the two parties in the subject business. On the issues listed below, each party shall have a veto: a) selection of an investment advisor to manage the funds of both parties; and b) development of an investment strategy; and c) development of a credited rate methodology; and d) development of recommendations on credited interest rates. INVESTORS would not be bound to follow the advice of the Committee, but failure to do so would permit RVL to exercise its rights under paragraph 6 of this Article. 6. If INVESTORS should fail to follow any of the above provisions of this Article, RVL shall have the right to adjust the terms of the reinsurance L. INSOLVENCY 1. In the event of the insolvency of INVESTORS, all reinsurance shall be payable directly to the liquidator, receiver, or statutory successor of INVESTORS, without diminution or increase because of the insolvency of INVESTORS. 2. In the event of insolvency of INVESTORS, the liquidator, receiver, or statutory successor shall give RVL written notice of the pendency of a claim on a policy reinsured within a reasonable time after such claim is filed in the insolvency proceeding. During the pendency of any such claim, RVL may investigate such claim and interpose in the name of INVESTORS (its liquidator, receiver or statutory successor), but at its own expense, in the proceeding where such claim is to be adjudicated any defense or defenses which RVL may deem available to INVESTORS or its liquidator, receiver or statutory successor. 10.04.009 3. The expense thus incurred by RVL shall be chargeable, subject to court approval, against INVESTORS as part of the expense of liquidation to the extent of a proportionate share of the benefit which may accrue to INVESTORS solely as a result of the defense undertaken by RVL. Where two or more reinsurers are participating in the same claim and a majority in interest elect to interpose a defense or defenses to any such claim, the expense shall be apportioned in accordance with the terms of the reinsurance agreement as though such expenses had been incurred by INVESTORS. 4. Any debts or credits, matured or unmatured, liquidated or unliquidated, in favor of or against either INVESTORS or RVL with respect to this Agreement or with respect to any other claim of one party against the other are deemed mutual debts or credits, as the case may be, and shall be set off, and only the balance shall be allowed or paid. M. PARTIES TO AGREEMENT 1. This is an Agreement for indemnity reinsurance solely between INVESTORS and RVL. The acceptance of reinsurance hereunder shall not create any right or legal relation whatever between RVL and the original company (if other than INVESTORS), the insured or the beneficiary under any policy reinsured hereunder, and the original company shall be and remain solely liable to such insured or beneficiary under any such policy. 2. This Agreement may not be assigned by either party without the written permission of the other party. However, RVL reserves the right to retrocede the reinsurance assumed under this Agreement. N. EFFECTIVE DATE 1. The effective date of this Agreement is October 1, 1991. O. AGREEMENT 1. This Agreement represents the entire contract between INVESTORS and RVL and supersedes, with respect to its subject, any prior oral or written agreement. P. PAYMENTS UPON TERMINATION OF REINSURANCE 1. RVL will consider any request for recapture of the reinsurance hereunder by INVESTORS, and any payments upon termination may be negotiated at that time. Q. DURATION OF AGREEMENT l. This Agreement may be terminated at any time by either RVL or INVESTORS upon ninety (90) days written notice with respect to reinsurance not yet placed in force. 2. At the end of any accounting period, this Agreement shall automatically terminate if none of the policies hereunder are in force. R. SEVERALTY OF PROVISIONS 10.04.010 1. If any provisions of this Agreement be declared null and void by a regulatory authority in any jurisdiction within which either party operates, the remaining provisions shall nevertheless continue to have full force and effect. > S. EXECUTION IN WITNESS WHEREOF the said INVESTORS INSURANCE CORPORATION of Delaware and the said REPUBLIC-VANGUARD LIFE INSURANCE COMPANY of Dallas, Texas have by their respective officers executed this Agreement (INVEOOO1) in duplicate on the dates shown below. INVESTORS INSURANCE CORPORATION REPUBLIC-VANGUARD LIFE INSURANCE COMPANY /s/ Melvin c. Parker /s/Alan Ryder By Alan K. Ryder President Vice-President Title Title 12-13-91 12-13-91 Date Date Dallas, Texas Dallas, Texas Location Location /s/Susan F. Powell Witness Witness 10.04.011 T. SCHEDULE 1. SCHEDULE I A. CONTRACTS SUBJECT TO REINSURANCE 1. INVESTORS' Guaranteed Annuity flexible premium deferred annuity, policy forms and GA/IIC-0490-5 issued in Missouri on or after January 1, 1991, and 2. INVESTORS' Guaranteed Annuity flexible premium deferred annuity, policy forms and GA/IIC-0490-5 issued in other states on or after October I, 1991. B. SCHEDULE OF DOCUMENTS AND DECLARATIONS RELIED UPON BY RVL 1. Third Quarter 1991 and full year 1990 Annual Statement of INVESTORS. 2. INVESTORS declares that there was no outstanding surplus relief reinsurance as of the date of execution. 10.04.012 II. SCHEDULE II A COINSURANCE PERCENTAGES Calendar Period of Issue Jurisdiction Quota Share Reinsured 1991 and later Missouri 80% October 1, 1991 and later Other 80% 10.04.013 Ill. SCHEDULE Ill A. PART A. SUMMARY OF MONETARY TRANSACTIONS l. Initial Premium 2. Gross Incurred Premium 3. Premiums - other Reinsurance 4. Net Incurred Premium [(2) - (3)] 5. Policy Expense Allowances 5a. Unusual Expenses 6. Surrender Payments 7. Annuity Benefits 8. Annuity Benefits - other Reinsurance 9. Net Annuity Benefit [(7) - (8)] 10. Death Benefits 11. Death Benefits - other Reinsurance 12. Net Death Benefits [(10) - (11)] 13. Total Reserve, End of Period 14. Excess Interest Reserve, End of Period 15 Coinsurance Reserve, End of Period for policies with bail-out provisions 16. Coinsurance Reserve, End of Period for policies without bail-out provisions 17. Total Coinsurance Reserve, End of Period 10.04.014 B. PART B. SUMMARY OF MONETARY TRANSACTIONS l. Due REINSURER Premiums (1) + (4) Total Due REINSURER 2. Due REINSURED Policy Expense Allowances (5) Unusual Expenses (5a) Surrender Payments (6) Net Annuity Benefits (9) Net Death Benefits (12) Total Due REINSURED 3. Net Reinsurance Premium Due REINSURER 1 less 2 10.04.015 IV. SCHEDULE IV A. POLICY EXPENSE ALLOWANCES Allowance Allowance and as a % of as a % of End-of-Month Issue Year Premium Account Value 1991 14.2% 0.015% Thereafter 12.2% 0.015% EX-10 14 10.05 RVL AMENDMENT #1 10.05.001 ADDENDUM NO.1 to REINSURANCE AGREEMENT INVE0001 between INVESTORS INSURANCE CORPORATION OF DELAWARE with Administrative Offices in Jacksonville, Florida and REPUBLIC-VANGUARD LIFE INSURANCE COMPANY of Dallas, Texas Effective January 1, 1993, Article F Paragraph 6, Punitve Damages, is replaced by the following paragraph: 6. Hold Harmless and Indemnification Investors hereby undertakes and agrees to hold harmless and indemnify RVL against any and all claims, losses, costs, and expenses of any kind or character whatsoever, including but not limited to: (i) reasonable attorneys fees and expenses, (ii) punitive, exemplary, non-contractual or extra-contractual damages, (iii) judgments in excess of policy limits, and (iv) any fines, fees, and/or assessments imposed by any state or federal administrative or regulatory agency, arising out of or in any way connected with (i) the marketing, management, and administration of any policies of insurance issued hereunder, and/or (ii)) the conduct and performance of Investors hereunder. INVESTORS INSURANCE CORPORATION REPUBLIC-VANGUARD LIFE INSURANCE COMPANY /s/Melvin C. Parker /s/Courtland C. Smith By By Title: President Title: Asst. Vice President Date: April 13, 1993 Date: April 15, 1993 Location: Boca Raton, Florida Location: Dallas, Texas /s/ Milagros Ramos /s/ Gary Yee Lee Witness Witness EX-10 15 10.06 RVL AMENDMENT #2 10.06.001 ADDENDUM NO. 2 to REINSURANCE AGREEMENT INVE0001 between INVESTORS INSURANCE CORPORATION OF DELAWARE with Administrative Offices in Jacksonville, Florida and REPUBLIC-VANGUARD LIFE INSURANCE COMPANY of Dallas, Texas Effective December 1, 1993, Article T Schedule I Paragraph A, Contracts Subject To Reinsurance, is replaced by the following paragraph: I. SCHEDULE I A. CONTRACTS SUBJECT TO REINSURANCE I. INVESTORS Guaranteed Annuity flexible premium deferred annuity, policy forms GA/IIC-0490 and GA/IIC-0490-5 issued in Missouri on or after January 1, 1991, and 2. INVESTORS' Guaranteed Annuity flexible premium deferred annuity, policy forms GA/IIC-0490 and GA/IIC-049O-5 issued in other states on or after October 1, 1991. 3. INVESTORS' American Annuity flexible premium deferred annuity, policy form AA/IIC-0993 issued on or after December 1, 1993. Effective December 1, 1993, Article T Schedule IV is replaced by the following paragraph: IV. SCHEDULE IV A. POLICY EXPENSE ALLOWANCES - GUARANTEED ANNUITY Allowance Allowance and as a % of as a % of End-of-Month Issue Year Premium Account Value 1991 14.2% 0.015% Thereafter 12.2% 0.015% For issues with a 3% guaranteed rate in the states of Florida, Texas, Indiana, and Arizona on or after January 1, 1994 until the earlier of June 30, 1994 or the date on which the American Annuity is approved in the state, the Allowance as a percentage of Premium shall be 13.7%. 10.06.002 B. POLICY EXPENSE ALLOWANCES - AMERICAN ANNUITY Allowance Allowance and as a % of as a % of End-of-Month Issue Year Premium Account Value 1993 & later 13.0% 0.015% INVESTORS INSURANCE CORPORATION REPUBLIC-VANGUARD LIFE INSURANCE COMPANY /s/ Richard T. Magsam /s/ Courtland C. Smith By By Title: Senior Vice President Asst. VP Date: 3/14/94 Date: 3/17/94 Location: Jacksonville, Fl Location: Dallas, Tx /s/ Linda R. Willis /s/ Gary Lee Witness Witness EX-10 16 10.07 RVL AMENDMENT #3 10.07.001 ADDENDUM NO.3 to REINSURANCE AGREEMENT INVEOOO1 between INVESTORS INSURANCE CORPORATION OF DELAWARE with Administrative Offices in Jacksonville, Florida and REPUBLIC-VANGUARD LIFE INSURANCE COMPANY of Dallas, Texas Effective March 1, 1994, Article T Schedule IV is replaced by the following paragraph: IV. SCHEDULE IV A. POLICY EXPENSE ALLOWANCES - GUARANTEED ANNUITY Allowance Allowance and as a % of as a % of End-of-Month Issue Year Premium Account Value 1991 14.2% 0.015% Thereafter 12.2% 0.015% For issues with a 3% guaranteed rate in the states of Florida, Texas, Indiana, and Arizona on or after January 1, 1994 until the earlier of June 30, 1994 or the date on which the American Annuity is approved in the state, the Allowance as a percentage of Premium shall be 13.7%. For issues with a 3% guaranteed rate in the states where the American Annuity is approved, the Allowance as a percentage of Premium shall be 9.2%. B. POLICY EXPENSE ALLOWANCES - AMERICAN ANNUITY Allowance Allowance and as a % of as a % of End-of-Month Issue Year Premium Account Value 1993 & later 13.0% 0.015% 10.07.002 ADDENDUM NO.3 to REINSURANCE AGREEMENT INVEOOO1 between INVESTORS INSURANCE CORPORATION OF DELAWARE INVESTORS INSURANCE CORPORATION REPUBLIC-VANGUARD LIFE INSURANCE COMPANY /s/ Richard T. Magsam Courtland C. Smith By By Title: Senior Vice President Title: Asst VP Date: 3/14/94 Date: 3/17/94 Location: Jacksonville, Fl. Location: Dallas, Tx /s/ Linda R. Willis /s/ Gary Lee Witness Witness EX-10 17 10.08 RVL AMENDMENT #4 10.08.001 ADDENDUM NO. 4 to REINSURANCE AGREEMENT INVE0001 between INVESTORS INSURANCE CORPORATION OF DELAWARE with Administrative Offices in Jacksonville, Florida and REPUBLIC-VANGUARD LIFE INSURANCE COMPANY of Dallas, Texas Effective April 1, 1994, Article T Schedule IV is replaced by the following paragraph: IV. SCHEDULE IV A. POLICY EXPENSE ALLOWANCES - GUARANTEED ANNUITY Allowance Allowance and as a % of as a % of End-of-Month Issue Year Premium Account Value 1991 14.2% 0.015% Thereafter 12.2% 0.015% For issues with a 3% guaranteed rate in the states of Florida, Texas, Indiana, and Arizona on or after January 1, 1994 through March 31, 1994, the Allowance as a percentage of Premium shall be 13.7%. For all issues sold as the Guaranteed Annuity on or after April 1, 1994 the Allowance as percentage of Premium shall be 13.0%. Effective March 1, 1994 through March 31, 1994, for issues sold as the "Bonus Annuity", with a 3% guaranteed rate in the states where the American Annuity is approved, the Allowance as a percentage of Premium shall be 9.2%. Effective April 1, 1994, for issues sold as the "Bonus Annuity", with a 3% guaranteed rate in the states where the American Annuity is approved, the Allowance as a percentage of Premium shall be 10.0%. B. POLICY EXPENSE ALLOWANCES - AMERICAN ANNUITY Allowance Allowance and as a % of as a % of End-of-Month Issue Year Premium Account Value 1993 & later 13.0% 0.015% 10.08.002 ADDENDUM NO. 4 to REINSURANCE AGREEMENT INVE0001 between INVESTORS INSURANCE CORPORATION OF DELAWARE INVESTORS INSURANCE CORPORATION REPUBLIC-VANGUARD LIFE INSURANCE COMPANY /s/ Richard T. Magsam /s/ Courtland C. Smith By By Title: Senior Vice President Title: Asst. VP Date: 5/5/94 Date: 5/11/94 Location: Jacksonville, Florida Location: Dallas, Texas /s/ Linda R. Willis /s/ Gary Lee Witness Witness EX-10 18 10.09 RVL AMENDMENT #5 10.09.001 ADDENDUM NO. 5 to REINSURANCE AGREEMENT INVE0001 between INVESTORS INSURANCE CORPORATION OF DELAWARE with Administrative Offices in Jacksonville, Florida and REPUBLIC-VANGUARD LIFE INSURANCE COMPANY of Dallas, Texas Effective April 1, 1994, Article T Schedule IV is replaced by the following paragraph: IV. SCHEDULE IV A. POLICY EXPENSE ALLOWANCES - GUARANTEED ANNUITY Allowance Allowance and as a % of as a % of End-of Month Issue Year Premium Account Value 1991 14.2% 0.015% Thereafter 12.2% 0.015% For issues with a 3% guaranteed rate in the states of Florida, Texas, Indiana, and Arizona on or after January 1, 1994 through March 31, 1994, the Allowance as a percentage of Premium shall be 13.7%. For all issues sold as the Guaranteed Annuity on or after April 1, 1994 the Allowance as a percentage of Premium shall be 13.0%. Effective March 1, 1994 through March 31, 1994, for issues sold as the "Bonus Annuity", with a 3% guaranteed rate in the states where the American Annuity is approved, the Allowance as a percentage of Premium shall be 9.2%. Effective April 1, 1994, for issues sold as tile "Bonus Annuity", with a 3% guaranteed rate in the states where the American Annuity is approved, the Allowance as a percentage of Premium shall be 10.0%. B. POLICY EXPENSE ALLOWANCES - AMERICAN ANNUITY Allowance Allowance and as a % of as a % of End-of-Month Issue Year Premium Account Value 1993 & later 13.0% 0.015% Effective August 1, 1994, for issues sold as the "Bonus American Annuity", with a 3% guaranteed rate, the Allowance as a percentage of Premium shall be 10.0%. 10.09.002 ADDENDUM NO. 5 to REINSURANCE AGREEMENT INVE0001 between INVESTORS INSURANCE CORPORATION OF DELAWARE INVESTORS INSURANCE CORPORATION REPUBLIC-VANGUARD LIFE INSURANCE COMPANY /s/ Susan F. Powell /s/ John Brill By By Title: Exec. V.P. Title: V.P. Date: 12/30/94 Date: 12/29/94 Location: Jacksonville, Fl. Location: Dallas, Tx. /s/ Pete S. Maury /s/ James F. Allen Witness Witness EX-10 19 10.10 RVL AMENDMENT #6 10.10.001 ADDENDUM NO. 6 to REINSURANCE AGREEMENT INVE0001 between INVESTORS INSURANCE CORPORATION OF DELAWARE with Administrative Offices in Jacksonville, Florida and REPUBLIC-VANGUARD LIFE INSURANCE COMPANY of Dallas, Texas Effective October 1, 1994, Schedule II is amended as follows: II. SCHEDULE II A. COINSURANCE PERCENTAGES Calendar Period of Issue Jurisdiction Quota Share Reinsured 1991 and later Missouri 80% October 1, 1991 and later Other 80% October 1, 1994 All States 90% 10.10.002 ADDENDUM NO. 6 to REINSURANCE AGREEMENT INVE0001 between INVESTORS INSURANCE CORPORATION OF DELAWARE INVESTORS INSURANCE CORPORATION REPUBLIC-VANGUARD LIFE INSURANCE COMPANY /s/ Richard T. Magsam /s/ John Brill By By Title: Senior Vice President V.P. Date: 1/25/95 Date: 1/23/95 Location: Jacksonville, Fl Location: Dallas, Tx /s/ Linda R. Willis /s/ Gordan Jardin Witness Witness EX-10 20 10.11 RVL AMENDMENT #7 10.11.001 ADDENDUM NO.7 to REINSURANCE AGREEMENT INVEOOO1 between INVESTORS INSURANCE CORPORATION OF DELAWARE with Administrative Offices in Jacksonville, Florida and REPUBLIC-VANGUARD LIFE INSURANCE COMPANY of Dallas, Texas Effective March 27, 1995, Schedule II of the Agreement shall be replaced by the attached Schedule II, which is amended to include the assumption of policies issued by Investors Insurance Corporation to Kansas residents and/or policyowners. IN WITNESS WHEREOF, the parties have executed this Addendum in duplicate on the dates and places set forth below: INVESTORS INSURANCE CORPORATION REPUBLIC-VANGUARD LIFE INSURANCE COMPANY Jacksonville, Florida Dallas Texas April 13, 1995 April 10, 1995 - -------------------------- ------------------------ Date Date /s/ Susan F. Powell /s/ John Brill - -------------------------- ------------------------ By By Executive Vice President Vice President - -------------------------- ------------------------ Title Title /s/ M. Rae Walker /s/ Andrew Jarmil - -------------------------- ------------------------ Witness Witness 10.11.002 SCHEDULE II A. COINSURANCE PERCENTAGES Calendar Period of Issue Jurisdiction Quota Share Reinsured - --------------------------- ---------------- -------------------- 1991 and later Missouri 80% October 1, 1991 and later Other, except Kansas 80% October 1, 1994 and later All States, except Kansas 90% B. ASSUMPTION OF DIRECT POLICIES Assumption by Calendar Period of Issue Jurisdiction Republic-Vanguard Life - ------------------------ ---------------- ---------------------- 1990 - 1994: 13 Policies Kansas 100% Effective March 27, 1995 - - see attached listing of policies and Certificates of Assumption 10.11.003 KANSAS OWNER RESIDENTS POLICY YEAR POLICY OWNER OWNER TOT. PRE. ACT AGT STATUS ISS'D NUMBER WAKE CITY RECEIVED NO. NAME I 90 2000167 GERARDY HANOVER $15,000.00 211-0042 J. MCGOVERN I 90 2000247 MEADOWS WICHITA 7,794.05 211-0321 R. MEADOWS I 91 2002369 TROWER NEWTON 46,000.00 211-0961 T. FULTON I 91 2003076 SEJKOM SUMMERWIEL 85,199.73 211-0051 S. GOHDE I 92 2004376 IRWIN OWECO 100,000.00 411-0460 E. HARGRAVES I 92 2004481 PUCKETT PARSONS 40,000.00 411-0620 P. WYER I 92 2004622 MCHENRY COFFEYVILLE 30,000.00 411-4243 R. KOESTER I 92 2005236 MCCARTY INDRPENDENCE11,431.48 211-4243 R. KOESTER I 92 3001766 MCCARTY IUDEPENDEUCE70,115.60 211-4243 I 92 2005755 TILTON SHARON SPRGS 5,000.00 412-0026 K. NIECE I 92 3002225 MCVEIGH WICHITA CITY29,092.08 415-0028 S. RAASCH I 93 2006209 NOBLE KIOWA 25,000.00 211-0470 A. KOENEMAN I 94 6001001 GROB OVERLAND PRK12,000.00 211-0230 L. KOESTER TOTAL IN FORCE: 13 TOTAL SURRENDERS (S). 1 TOTAL DEATHS (K): 1 GRAND TOTAL 15 TOTAL PRODUCTION: $566,633.94 10.11.004 REPUBLIC-VANGUARD LIFE INSURANCE COMPANY 2727 Turtle Creek Boulevard Dallas, Texas 75219 CERTIFICATE OF ASSUMPTION To be attached to and made a part of the following policy/certificate assumed by REPUBLIC-VANGUARD LIFE INSURANCE COMPANY, 2727 Turtle Creek Boulevard, Dallas, Texas 75219. Policy/Certificate No.: 6001001 Insured: JEAN GROB Effective Date: March 27, 1995 This is to certify that the above designated policy/certificate heretofore issued by Investors Insurance Corporation, a Delaware Corporation with administrative offices in Jacksonville, Florida. is hereby assumed by Republic-Vanguard Life Insurance Company, Dallas, Texas, on the same terms and under the same conditions as if such policy/certificate had continued in force in the original issuing corporation, and REPUBLIC-VANGUARD LIFE INSURANCE COMPANY shall carry out the terms of such policy/certificate and be entitled to all rights and privileges thereof as existed prior to such assumption by REPUBLIC-VANGUARD LIFE INSURANCE COMPANY. Any policy statements or notices as may be required by law or contract will be handled by REPUBLIC-VANGUARD LIFE INSURANCE COMPANY. Please be advised that you retain all rights with respect to your policy against Investors Insurance Corporation in the event Republic-Vanguard Life Insurance Company is unable to fulfill its obligations. In such event, Investors Insurance Corporation remains liable to you notwithstanding the terms of the assumption agreement. Any claims or policyholder services arising after the effective date hereof from coverage afforded by said policy/certificate should be sent to REPUBLIC- VANGUARD LIFE INSURANCE COMPANY, c/o Policyholder Services, 3030 Hartley Road, Jacksonville, Florida 32257 or call (800) 749-6992. IN WITNESS WHEREOF, REPUBLIC-VANGUARD LIFE INSURANCE COMPANY has caused this instrument to be signed by its President and Secretary at the office of the Company in Dallas, Texas as of March 27, 1995. REPUBLIC-VANGUARD LIFE INSURANCE COMPANY By:/s/ 10.11.005 REPUBLIC-VANGUARD LIFE INSURANCE COMPANY 2727 Turtle Creek Boulevard Dallas, Texas 75219 CERTIFICATE OF ASSUMPTION To be attached to and made a part of the following policy/certificate assumed by REPUBLIC-VANGUARD LIFE INSURANCE COMPANY, 2727 Turtle Creek Boulevard, Dallas, Texas 75219. Policy/Certificate No.: 2004481 Insured: CHARLES E. AND LILLIE M. PUCKETT TRUST Effective Date: March 27, 1995 This is to certify that the above designated policy/certificate heretofore issued by Investors Insurance Corporation, a Delaware Corporation with administrative offices in Jacksonville, Florida, is hereby assumed by Republic-Vanguard Life Insurance Company, Dallas, Texas, on the same terms and under the same conditions as if such policy/certificate had continued in force in the original issuing corporation, and REPUBLIC-VANGUARD LIFE INSURANCE COMPANY shall carry out the terms of such policy/certificate and be entitled to all rights and privileges thereof as existed prior to such assumption by REPUBLIC-VANGUARD LIFE INSURANCE COMPANY. Any policy statements or notices as may be required by law or contract will be handled by REPUBLIC-VANGUARD LIFE INSURANCE COMPANY. Please be advised that you retain all rights with respect to your policy against Investors Insurance Corporation in the event Republic-Vanguard Life Insurance Company is unable to fulfill its obligations. In such event, Investors Insurance Corporation remains liable to you notwithstanding the terms of the assumption agreement. Any claims or policyholder services arising after he effective date hereof from coverage afforded by said policy/certificate should be sent to REPUBLIC- VANGUARD LIFE INSURANCE COMPANY, c/o Policyholder Services, 3030 Hartley Road, Jacksonville, Florida 32257 or call (800) 749-6992. IN WITNESS WHEREOF, REPUBLIC-VANGUARD LIFE INSURANCE COMPANY has caused this instrument to be signed by its President and Secretary at the office or the Company in Dallas, Texas as of March 27, 1995. REPUBLIC-VANGUARD LIFE INSURANCE COMPANY By:/s/ 10.11.006 REPUBLIC-VANGUARD LIFE INSURANCE COMPANY 2727 Turtle Creek Boulevard Dallas, Texas 75219 CERTIFICATE OF ASSUMPTION To be attached to and made a part of the following policy/certificate assumed by REPUBLIC-VANGUARD LIFE INSURANCE COMPANY, 2727 Turtle Creek Boulevard, Dallas, Texas 75219. Policy/Certificate No.: 2002369 Insured: PEARL TROWER Effective Date: March 27, 1995 This is to certify that the above designated policy/certificate heretofore issued by Investors Insurance Corporation a Delaware Corporation with administrative offices in Jacksonville, Florida, is hereby assumed by Republic-Vanguard Life Insurance Company, Dallas, Texas, on the same terms and under the same conditions as if such policy/certificate had continued in force in the original issuing corporation and REPUBLIC-VANGUARD LIFE INSURANCE COMPANY shall carry out the terms of such policy/certificate and be entitled to all rights and privileges thereof as existed prior to such assumption by REPUBLIC-VANGUARD LIFE INSURANCE COMPANY. Any policy statements or notices as may be required by law or contract will be handled by REPUBLIC-VANGUARD LIFE INSURANCE COMPANY. Please be advised that you retain all rights with respect to your policy against Investors Insurance Corporation in the event Republic-Vanguard Life Insurance Company is unable to fulfill its obligations. In such event, Investors Insurance Corporation remains liable to you notwithstanding the terms or the assumption agreement. Any claims of policyholder services arising after the effective date hereof from coverage afforded by said policy/certificate should be sent to REPUBLIC- VANGUARD LIFE INSURANCE COMPANY, c/o Policyholder Services, 3030 Hartley Road, Jacksonville, Florida 32257 or call (800) 749-6992. IN WITNESS WHEREOF, REPUBLIC-VANGUARD LIFE INSURANCE COMPANY has caused this instrument to be signed by its President and Secretary at the office of the Company in Dallas Texas as of March 27, 1995. REPUBLIC-VANGUARD LIFE INSURANCE COMPANY By:/s/_______________________ 10.11.007 REPUBLIC-VANGUARD LIFE INSURANCE COMPANY 2727 Turtle Creek Boulevard Dallas, Texas 75219 CERTIFICATE OF ASSUMPTION To be attached to and made a part of the following policy/certificate assumed by REPUBLIC-VANGUARD LIFE INSURANCE COMPANY, 2727 Turtle Creek Boulevard, Dallas, Texas 75219. Policy/Certificate No.: 2000167 Insured: CATHERINE M. GERARDY Effective Date: March 27, 1995 This is to certify that the above designated policy/certificate heretofore issued by Investors Insurance Corporation, a Delaware Corporation with administrative offices in Jacksonville, Florida is hereby assumed by Republic-Vanguard Life Insurance Company, Dallas, Texas, on the same terms and under the same conditions as if such policy/certificate had continued in force in the original issuing corporation, and REPUBLIC-VANGUARD LIFE INSURANCE COMPANY shall carry out the terms of such policy/certificate and be entitled to all rights and privileges thereof as existed prior to such assumption by REPUBLIC-VANGUARD LIFE INSURANCE COMPANY. Any policy statements or notices as may be required by law or contract will be handled by REPUBLIC-VANGUARD LIFE INSURANCE COMPANY. Please be advised that you retain all rights with respect to your policy against Investors Insurance Corporation in the event Republic-Vanguard Life Insurance Company is unable to fulfill its obligations. In such event Investors Insurance Corporation remains liable to you notwithstanding the terms of the assumption agreement. Any claims or policyholder services arising after the effective date hereof from coverage afforded by said policy/certificate should be sent to REPUBLIC- VANGUARD LIFE INSURANCE COMPANY,c/o Policyholder Services, 3030 Hartley Road, Jacksonville, Florida 32257 or call (800) 749-6992. IN WITNESS WHEREOF, REPUBLIC-VANGUARD LIFE INSURANCE COMPANY has caused this instrument to be signed by its President and Secretary at the office of the Company in Dallas, Texas as of March 27, 1995. REPUBLIC-VANGUARD LIFE INSURANCE COMPANY By:/s/ 10.11.008 REPUBLIC-VANGUARD LIFE INSURANCE COMPANY 2727 Turtle Creek Boulevard Dallas, Texas 75219 CERTIFICATE OF ASSUMPTION To be attached to and made a part of the following policy/certificate assumed by REPUBLIC-VANGUARD LIFE INSURANCE COMPANY, 2727 Turtle Creek Boulevard, Dallas, Texas 75219. Policy/Certificate No.: 2005755 Insured: R. VIRGINIA TILTON Effective Date: March 27, 1995 This is to Certify that the above designated policy/certificate heretofore issued by Investors Insurance Corporation a Delaware Corporation with administrative offices in Jacksonville, Florida, is hereby assumed by Republic-Vanguard Life Insurance Company, Dallas, Texas on the same terms and under the same conditions as if such policy/certificate had been continued in force in the original issuing corporation, and REPUBLIC-VANGUARD LIFE INSURANCE COMPANY shall carry out the terms of such policy/certificate and be entitled to all rights and privileges hereof as existed prior to such assumption by REPUBLIC-VANGUARD LIFE INSURANCE COMPANY. Any policy statements or notices as may be required by law or contract will be handled by REPUBLIC-VANGUARD LIFE INSURANCE COMPANY. Please be advised that you retain all rights with respect to your policy against Investors Insurance Corporation in the event Republic-Vanguard Life Insurance Company is unable to fulfill its obligations. In such event, Investors Insurance Corporation remains liable to you notwithstanding the terms of the assumption agreement. Any claims or policyholder services arising after the effective date hereof from coverage afforded by said policy/certificate should be sent to REPUBLIC- VANGUARD LIFE INSURANCE COMPANY, c/o Policyholder Services 3030 Hartley Road, Jacksonville, Florida 32257 or call (800) 749-6992. IN WITNESS WHEREOF, REPUBLIC-VANGUARD LIFE INSURANCE COMPANY has caused this instrument to be signed by its President and Secretary at the office of the Company in Dallas, Texas as of March 27, 1995. REPUBLIC-VANGUARD LIFE INSURANCE COMPANY By:/s/ 10.11.009 REPUBLIC-VANGUARD LIFE INSURANCE COMPANY 2727 Turtle Creek Boulevard Dallas, Texas 75219 CERTIFICATE OF ASSUMPTION To be attached to and made a part of the following policy/certificate assumed by REPUBLIC-VANGUARD LIFE INSURANCE COMPANY, 2727 Turtle Creek Boulevard, Dallas, Texas 75219. Policy/Certificate No.: 2005236 Insured: MARY MCCARTY Effective Date: March 27, 1995 This is to certify that the above designated policy/certificate heretofore issued by Investors Insurance Corporation, a Delaware Corporation with administrative offices in Jacksonville, Florida, is hereby assumed by Republic-Vanguard Life Insurance Company, Dallas, Texas, on the same terms and under the same conditions as if such policy/certificate had continued in force in the original issuing corporation, and REPUBLIC-VANGUARD LIFE INSURANCE COMPANY shall carry out the terms of such policy/certificate and be entitled to all rights and privileges thereof as existed prior to such assumption by REPUBLIC-VANGUARD LIFE INSURANCE COMPANY. Any policy statements or notices as may be required by law or contract will be handled by REPUBLIC-VANGUARD LIFE INSURANCE COMPANY. Please be advised that you retain all rights with respect to your policy against Investors Insurance Corporation in the event Republic-Vanguard Life Insurance Company is unable to fulfill its obligations. In such event, Investors Insurance Corporation remains liable to you notwithstanding the terms or the assumption agreement. Any claims or policyholder services arising after the effective date hereof from coverage afforded by said policy/certificate should be sent to REPUBLIC- VANGUARD LIFE INSURANCE COMPANY, c/o Policyholder Services, 3030 Hartley Road, Jacksonville, Florida 32257 or call (800) 749-6992. IN WITNESS WHEREOF, REPUBLIC-VANGUARD LIFE INSURANCE COMPANY has caused this instrument to be signed by its President and Secretary at the office of the Company in Dallas, Texas as of March 27, 1995. REPUBLIC-VANGUARD LIFE INSURANCE COMPANY By:/s/ 10.11.010 REPUBLIC-VANGUARD LIFE INSURANCE COMPANY 2727 Turtle Creek Boulevard Dallas, Texas 75219 CERTIFICATE OF ASSUMPTION To be attached to and made a part of the following policy/certificate assumed by REPUBLIC-VANGUARD LIFE INSURANCE COMPANY, 2727 Turtle Creek Boulevard, Dallas, Texas 75219. Policy/Certificate No.: 3001766 Insured: MARY McCARTY Effective Date: March 27, 1995 This is to certify that the above designated policy/certificate heretofore issued by Investors Insurance Corporation, a Delaware Corporation with administrative offices in Jacksonville, Florida, is hereby assumed by Republic-Vanguard Life Insurance Company, Dallas, Texas, on the same terms and under the same conditions as if such policy/certificate had continued in force in the original issuing corporation, and REPUBLIC-VANGUARD LIFE INSURANCE COMPANY shall carry out the terms of such policy/certificate and be entitled to all rights and privileges thereof as existed prior to such assumption by REPUBLIC-VANGUARD LIFE INSURANCE COMPANY. Any policy statements or notices as may be required by law or contract will be handled by REPUBLIC-VANGUARD LIFE INSURANCE COMPANY. Please be advised that you retain all rights with respect to your policy against Investors Insurance Corporation in the event Republic-Vanguard Life Insurance Company is unable to fulfill its obligations. In such event, Investors Insurance Corporation remains liable to you notwithstanding the terms or the assumption agreement. Any claims or policyholder services arising after the effective date hereof from coverage afforded by said policy/certificate should be sent to REPUBLIC- VANGUARD LIFE INSURANCE COMPANY, c/o Policyholder Services, 3030 Hartley Road, Jacksonville, Florida 32257 or call (800) 749-6992. IN WITNESS WHEREOF, REPUBLIC-VANGUARD LIFE INSURANCE COMPANY has caused this instrument to be signed by its President and Secretary at the office or ale Company in Dallas, Texas as of March 27, 1995. REPUBLIC-VANGUARD LIFE INSURANCE COMPANY By:/s/ 10.11.011 REPUBLIC-VANGUARD LIFE INSURANCE COMPANY 2727 Turtle Creek Boulevard Dallas, Texas 75219 CERTIFICATE OF ASSUMPTION To be attached to and made a part or the following policy/certificate assumed by REPUBLIC-VANGUARD LIFE INSURANCE COMPANY, 2727 Turtle Creek Boulevard, Dallas, Texas 75219. Policy/Certificate No.: 2004622 Insured: LNEAVIE MCHENRY Effective Date: March 27, 1995 This is to certify that the above designated policy/certificate heretofore issued by Investors Insurance Corporation a Delaware Corporation with administrative offices in Jacksonville, Florida, is hereby assumed by Republic-Vanguard Life Insurance Company, Dallas, Texas, on the same terms and under the same conditions as if such policy/certificate had continued in force in the original issuing corporation, and REPUBLIC-VANGUARD LIFE INSURANCE COMPANY shall carry out the terms of such policy/certificate and be entitled to all rights and privileges thereof as existed prior to such assumption by REPUBLIC-VANGUARD LIFE INSURANCE COMPANY. Any policy statements or notices as may be required by law or contract will be handed by REPUBLIC-VANGUARD LIFE INSURANCE COMPANY. Please be advised that you retain all rights with respect to your policy against Investors Insurance Corporation in the event Republic-Vanguard Life Insurance Company is unable to fulfill its obligations. In such event, Investors Insurance Corporation remains liable to you notwithstanding the terms of the assumption agreement. Any claims or policyholder services arising after the effective date hereof from coverage afforded by said policy/certificate should be sent to REPUBLIC- VANGUARD LIFE INSURANCE COMPANY, c/o Policyholder Services, 3030 Hartley Road Jacksonville, Florida 32257 or call (800) 749-6992. IN WITNESS WHEREOF, REPUBLIC-VANGUARD LIFE INSURANCE COMPANY has caused this instrument to be signed by its President and Secretary at the office of the Company in Dallas, Texas as of March 27, 1995. REPUBLIC VANGUARD LIFE INSURANCE COMPANY By:/s/ 10.11.012 REPUBLIC-VANGUARD LIFE INSURANCE COMPANY 2727 Turtle Creek Boulevard Dallas, Texas 75219 CERTIFICATE OF ASSUMPTION To be attached to and made a part of the following policy/certificate assumed by REPUBLIC-VANGUARD LIFE INSURANCE COMPANY, 2727 Turtle Creek Boulevard, Dallas, Texas 75219. Policy/Certificate No.: 2004376 Insured: THE L. DALE AND OPAL B. IRWIN TRUST Effective Date: March 27, 1995 This is to certify that the above designated policy/certificate heretofore issued by Investors Insurance Corporation a Delaware Corporation with administrative offices in Jacksonville, Florida, is hereby assumed by Republic-Vanguard Life Insurance Company, Dallas, Texas, on the same terms and under the same conditions as if such policy/certificate had continued in force in the original issuing corporation, and REPUBLIC-VANGUARD LIFE INSURANCE COMPANY shall carry out the terms of such policy/certificate and be entitled to all rights and privileges thereof as existed prior to such assumption by REPUBLIC-VANGUARD LIFE INSURANCE COMPANY. Any policy statements or notices as may be required by law or contract will be handled by REPUBLIC-VANGUARD LIFE INSURANCE COMPANY. Please be advised that you retain all rights with respect to your policy against Investors Insurance Corporation in the event Republic-Vanguard Life Insurance Company is unable to fulfill its obligations. In such event, Investors Insurance Corporation remains liable to you not withstanding the terms of the assumption agreement. Any claims or policyholder services arising after the effective date hereof from coverage afforded by said policy/certificate should be sent to REPUBLIC- VANGUARD LIFE INSURANCE COMPANY, c/o Policyholder Services, 3030 Hartley Road, Jacksonville, Florida 32257 or call (800) 749-6992. IN WITNESS WHEREOF, REPUBLIC-VANGUARD LIFE INSURANCE COMPANY has caused this instrument to be signed by its President and Secretary at the office of die Company in Dallas, Texas as of March 27, 1995. REPUBLIC-VANGUARD LIFE INSURANCE COMPANY By:/s/ 10.11.013 REPUBLIC-VANGUARD LIFE INSURANCE COMPANY 2727 Turtle Creek Boulevard Dallas, Texas 75219 CERTIFICATE OF ASSUMPTION To be attached to and made a part of the following policy/certificate assumed by REPUBLIC-VANGUARD LIFE INSURANCE COMPANY, 2727 Turtle Creek Boulevard, Dallas, Texas 75219. Policy/certificate No.: 2003076 Insured: LESTER SEJORKA EffectiveDate: March 27, 1995 This is to certify that the above designated policy/certificate heretofore issued by Investors Insurance Corporation, a Delaware Corporation with administrative offices in Jacksonville, Florida, is hereby assumed by Republic-Vanguard Life Insurance Company, Dallas, Texas, on the same terms and under the same conditions as if such policy/certificate had continued in force in the original issuing corporation, and REPUBLIC-VANGUARD LIFE INSURANCE COMPANY shall carry out the terms of such policy/certificate and be entitled to all rights and privileges thereof as existed prior to such assumption by REPUBLIC-VANGUARD LIFE INSURANCE COMPANY. Any policy statements or notices as may be required by law or contract will be handled by REPUBLIC-VANGUARD LIFE INSURANCE COMPANY. Please be advised that you retain all rights with respect to your policy against Investors Insurance Corporation in the event Republic-Vanguard Life Insurance Company is unable to fulfill its obligations. In such event, Investors Insurance Corporation remains liable to you notwithstanding the terms or the assumption agreement. Any claims or policyholder services arising after the effective date hereof from coverage afforded by said policy/certificate should be sent to REPUBLIC- VANGUARD LIFE INSURANCE COMPANY, c/o Policyholder Services, 3030 Hartley Road Jacksonville, Florida 32257 or call (800) 749-6992. IN WITNESS WHEREOF, REPUBLIC-VANGUARD LIFE INSURANCE COMPANY has caused this instrument to be signed by its President and Secretary at the office of the Company in Dallas, Texas as of March 27, 1995. REPUBLIC-VANGUARD LIFE INSURANCE COMPANY By:/s/ 10.11.014 REPUBLIC-VANGUARD LIFE INSURANCE COMPANY 2727 Turtle Creek Boulevard Dallas, Texas 75219 CERTIFICATE OF ASSUMPTION To be attached to and made a part of the following policy/certificate assumed by REPUBLIC-VANGUARD LIFE INSURANCE COMPANY, 2727 Turtle Creek Boulevard, Dallas, Texas 75219. Policy/Certificate No.: 2000247 Insured: DALLAS L. MEADOWS Effective Date: March 27, 1995 This is to certify that the above designated policy/certificate heretofore issued by Investors Insurance Corporation, a Delaware Corporation with administrative offices in Jacksonville, Florida, is hereby assumed by Republic-Vanguard Life Insurance Company, Dallas, Texas, on the same terms and under the same conditions as if such policy/certificate had continued in force in the original issuing corporation, and REPUBLIC-VANGUARD LIFE INSURANCE COMPANY shall carry out the terms of such policy/certificate and be entitled to all rights and privileges thereof as existed prior to such assumption by REPUBLIC-VANGUARD LIFE INSURANCE COMPANY. Any policy statements or notices as may be required by law or contract will be handled by REPUBLIC-VANGUARD LIFE INSURANCE COMPANY Please be advised that you retain all rights with respect to your policy against Investors Insurance Corporation in the event Republic-Vanguard Life Insurance Company is unable to fulfill its obligations. In such event, Investors Insurance Corporation remains liable to you notwithstanding the terms or the assumption agreement. Any claims or policyholder services arising after the effective date hereof from coverage afforded by said policy/certificate should be sent to REPUBLIC- VANGUARD LIFE INSURANCE COMPANY, c/o Policyholder Services, 3030 Hartley Road, Jacksonville, Florida 32257 or call (800) 749-6992. IN WITNESS WHEREOF, REPUBLIC-VANGUARD LIFE INSURANCE COMPANY has caused this instrument to be signed by its President and Secretary at the office of the Company in Dallas, Texas as of March 27, 1995. REPUBLIC-VANGUARD LIFE INSURANCE COMPANY By:/s/ 10.11.015 REPUBLIC-VANGUARD LIFE INSURANCE COMPANY 2727 Turtle Creek Boulevard Dallas, Texas 75219 CERTIFICATE OF ASSUMPTION To be attached to and made a part of the following policy/certificate assumed by REPUBLIC-VANGUARD LIFE INSURANCE COMPANY, 2727 Turtle Creek Boulevard, Dallas, Texas 75219. Policy/Certificate No.: 3002225 Insured: RICK MCVEIGH Effective Date: March 27, 1995 This is to certify that the above designated policy/certificate heretofore issued by Investors Insurance Corporation, a Delaware Corporation with administrative offices in Jacksonville, Florida, is hereby assumed by Republic-Vanguard Life Insurance Company, Dallas, Texas, on the same terms and under the same conditions as if such policy/certificate had continued in force in the original issuing corporation, and REPUBLIC-VANGUARD LIFE INSURANCE COMPANY shall carry out the terms of such policy/certificate and be entitled to all rights and privileges thereof as existed prior to such assumption by REPUBLIC-VANGUARD LIFE INSURANCE COMPANY. Any policy statements or notices as may be required by law or contract will be handled by REPUBLIC-VANGUARD LIFE INSURANCE COMPANY. Please be advised that you retain all rights with respect to your policy against Investors Insurance Corporation in the event Republic-Vanguard Life Insurance Company is unable to fulfill its obligations. In such event, Investors Insurance Corporation remains liable to you notwithstanding the terms or the assumption agreement. Any claims or policyholder services arising after the effective date hereof from coverage afforded by said policy/certificate should be sent to REPUBLIC- VANGUARD LIFE INSURANCE COMPANY, c/o Policyholder Services, 3030 Hartley Road, Jacksonville, Florida 32257 or call (800) 749-6992. IN WITNESS WHEREOF, REPUBLIC-VANGUARD LIFE INSURANCE COMPANY has caused this instrument to be signed by its President and Secretary at the office of the Company in Dallas, Texas as of March 27, 1995. REPUBLIC-VANGUARD LIFE INSURANCE COMPANY By:/s/ 10.11.016 REPUBLIC-VANGUARD LIFE INSURANCE COMPANY 2727 Turtle Creek Boulevard Dallas, Texas 75219 CERTIFICATE OF ASSUMPTION To be attached to and made a part of the following policy/certificate assumed by REPUBLIC-VANGUARD LIFE INSURANCE COMPANY, 2727 Turtle Creek Boulevard, Dallas, Texas 75219. Policy/Certificate No.: 2006209 Insured: GILBERT G. NOBLE Effective Date: March 27, 1995. This is to certify that the above designated policy/certificate heretofore issued by Investors Insurance Corporation, a Delaware Corporation with administrative offices in Jacksonville, Florida, is hereby assumed by Republic-Vanguard Life Insurance Company, Dallas, Texas, on the same terms and under the same conditions as if such policy/certificate had continued in force in the original issuing corporation, and REPUBLIC-VANGUARD LIFE INSURANCE COMPANY shall carry out the terms of such policy/certificate and be entitled to all rights and privileges thereof as existed prior to such assumption by REPUBLIC-VANGUARD LIFE INSURANCE COMPANY. Any policy statements or notices as may be required by law or contract will be handled by REPUBLIC-VANGUARD LIFE INSURANCE COMPANY. Please be advised that you retain all rights with respect to your policy against Investors Insurance Corporation in the event Republic-Vanguard Life Insurance Company is unable to fulfill its obligations. In such event, Investors Insurance Corporation remains liable to you notwithstanding the terms of the assumption agreement. Any claims or policyholder services arising after the effective date hereof from coverage afforded by said policy/certificate should be sent to REPUBLIC- VANGUARD LIFE INSURANCE COMPANY, c/o Policyholder Services, 3030 Hartley Road, Jacksonville, Florida 32257 or call (800) 749-6992. IN WITNESS WHEREOF, REPUBLIC-VANGUARD LIFE INSURANCE COMPANY has caused this instrument to be signed by its President and Secretary at the office of the Company in Dallas, Texas as of March 27, 1995. REPUBLIC VANGUARD LIFE INSURANCE COMPANY By:/s/ EX-10 21 10.12 RVL AMENDMENT #8 10.12.001 ADDENDUM NO. 8 to REINSURANCE AGREEMENT INVEOOO1 between INVESTORS INSURANCE CORPORATION OF DELAWARE with Administrative Offices in Jacksonville, Florida and REPUBLIC-VANGUARD LIFE INSURANCE COMPANY of Dallas, Texas Effective May 1, 1995, Schedule II of the Agreement shall be replaced by the attached Schedule II, which is amended to change Republic-Vanguard Life Insurance Company's coinsurance quota share. IN WITNESS THEREOF, the parties have executed this Addendum in duplicate on the dates and places set forth below: INVESTORS INSURANCE CORPORATION REPUBLIC-VANGUARD LIFE INSURANCE COMPANY Jacksonville, Florida Dallas, Texas 6/15/95 Date Date Susan Powell John Brill By By Exec. Vice Pres Title Title Rae Walker Witness Witness 10.12.002 SCHEDULE II A. COINSURANCE PERCENTAGES Quota Share Calendar Period of lssue Jurisdiction Reinsured January 1, 1991 - September 30, 1994 Missouri 80% October 1, 1991 - September 30, 1994 Other, except Kansas 80% October 1, 1994 - April 30, 1995 All States, except Kansas 90% May 1, 1995 and later All States, except Kansas 100% B. ASSUMPTION OF DIRECT POLICIES Assumption by Calendar Period of issue Jurisdiction Republic-Vanguard Life 1990 - 1994: 13 Policies Kansas 100% - - see attached listing of Effective March 27, 1995 policies and Certificates of Assumption INVEOOOI - ADD 8 5/1/95 EX-10 22 10.13 WINTHUR REINSURANCE AGREEMENT 10.13.001 Agreement: INVEWLOl an Automatic and Facultative Life Reinsurance Agreement Between: Investors Insurance Corporation of Delaware with administrative offices in Jacksonville, Florida And: Winterthur Life Re Insurance Company of Dallas, Texas Reinsurance Agreement 10.13.002 TABLE OF CONTENTS A. Reinsurance Coverage 3 B. Procedures to Effect Reinsurance 6 C. WLR's Liability 7 D. Conditional Receipt or Interim Liability 8 E. Extracontractual Liabilities 9 F. Amounts and Plans of Reinsurance 10 G. Reinsurance Premiums 11 H. Reinsurance Allowances 12 I. Accounting and Billing 13 J. Taxes and Assessments 14 K. Special Provisions 15 L. Claims 16 M. Changes and Adjustments 18 N. Errors and Omissions 20 O. Audit of Records and Procedures 21 P. Arbitration 22 Q. Insolvency 23 R. Parties to Agreement 24 S. Entire Agreement 25 T. Duration and Termination of Agreement 26 U. Severalty of Provisions 27 V. Effective Date and Execution 28 W. Definitions 29 X. List of Exhibits 30 10.13.003 REINSURANCE AGREEMENT Between INVESTORS INSURANCE CORPORATION of Delaware hereinafter referred to as "INVESTORS", and WINTERTHUR LIFE RE INSURANCE COMPANY of Dallas, Texas hereinafter referred to as "WLR" A. Reinsurance Coverage 1. Automatic Reinsurance 1.1 This Agreement covers Investors individual life insurance issued on the plans and policy forms specified in Exhibit 1. INVESTORS shall reinsure this business automatically with WLR, and WLR agrees to accept this business provided the business meets the following requirements: (a) The policy is issued according to Investors' then existing regular and customary new risk underwriting rules and guidelines specified in Exhibit 3. (b) The mortality rating is from Standard (100%) to Table 4 (200%), inclusive. (c) Maximum issue age is 80 years. (d) The proposed insured is a citizen or permanent resident of the United States or Canada whose surname begins with a letter in the range specified in Exhibit 1 and resides in a state where INVESTORS is duly licensed. (e) Each risk has not been submitted to WLR or any other reinsurer for facultative reinsurance. (f) INVESTORS retains the full percentage or amount specified in. Exhibit 2, either on previous insurance or insurance currently applied for. (g) The face amount of life insurance applied for in all companies, including Investors' current application, when added to the face amount then in force on the life, does not exceed the jumbo limits specified in Exhibit 2. (h) To the best of INVESTORS' knowledge, the policy applied for with INVESTORS does not constitute the second replacement policy of existing in force coverage within 10.13.004 two years of issue or the third replacement of existing in force coverage within five years. (i) The maximum amount to be issued automatically does not exceed the combined retention and binding limits specified in Exhibit 2. 1.2 Where INVESTORS has more than one Agreement with WLR, the total amount per life automatically ceded to WLR under all Agreements combined shall not exceed the automatic binding limits available to INVESTORS under the terms of the Agreement with the highest binding authority. 1.3 The items in Exhibit 3 shall form a part of this Agreement and any material change in these rules and guidelines shall be subject to the approval of WLR before being applied to the policies and supplementary benefits covered by this Agreement. 2. FACULTATIVE REINSURANCE 2.1 If the insurance applied for does not meet the automatic requirements specified in A 1, or if the INVESTORS so chooses, INVESTORS may submit an application for facultative reinsurance to WLR as provided in B 2. 3. Forms and Manuals 3.1 INVESTORS agrees to file with WLR copies of all appropriate policy forms, rider forms, rate manuals, retention schedules, application forms, conditional receipts, temporary insurance agreements, binders, underwriting questionnaires, authorization forms for release of medical information and other related material. If new materials are published, or changes are made in the material already filed, INVESTORS agrees to promptly provide WLR with copies of such materials. 3.2 INVESTORS hereby declares that its forms, practices, and procedures are in compliance with current MIB (Medical Information Bureau) regulations. 3.3 INVESTORS and WLR shall mutually agree on the underwriting manual or manuals to be used as reference materials for reinsurance covered under this Agreement. INVESTORS agrees to notify WLR in writing of any changes or intent to change underwriting reference manuals. 10.13.005 4. Exclusions 4.1 WLR will not participate in an enhancement of any policy provisions in the business reinsured under this Agreement unless agreed to in writing by WLR prior to the granting of the enhancement. 4.2 INVESTORS and WLR agree that any new business issued in any of the following situations is excluded from this Agreement, unless agreed to in writing by WLR and specifically included under the terms of this Agreement by amendment: (a) External exchange programs (b) Internal exchange programs (c) Group coverages and/or group conversions (d) Guaranteed to issue programs (e) Mortality rating give up programs (f) Underwriting performed outside of usual and customary industry home office surroundings and standards; for example, at so called underwriting fairs. 4.3 Any plans, riders, or supplementary benefits not specified in Exhibit 1 shall be excluded from this Agreement. 10.13.006 B. Procedures to Effect Reinsurance 1. Automatic Reinsurance 1.1 When the initial premium on a policy eligible for automatic reinsurance has been received by INVESTORS, INVESTORS shall within twenty (20) days following the close of each calendar month submit reinsurance information as specified in Exhibit 5 to WLR. 2. Facultative Reinsurance 2.1 When facultative reinsurance is being applied for, INVESTORS shall complete a reinsurance application form as specified in Exhibit 4 and send it along with any and all information it has on the risk, including specifically but not limited to, copies of the application, medical examiner's reports, attending physician's statements, inspection reports, and other papers bearing on the insurability of the risk, even if this information is received after final assessment of the risk. INVESTORS shall clearly indicate the amount of risk it wishes to reinsure including any benefits. 2.2 Upon completion of underwriting, WLR shall promptly notify INVESTORS of its decision and classification of the risk. 2.3 Any offer made by WLR will be valid for sixty (60) days unless WLR accepts a request to extend this period. 2.4 Upon acceptance of WLR'S offer of facultative reinsurance, INVESTORS shall complete and send to WLR a reinsurance advice form as specified in Exhibit 4. 2.5 When the initial premium on a policy that involves facultative reinsurance is received by INVESTORS, INVESTORS will complete the same procedure as for automatic risks in paragraph B 1.1 above. 2.6 If INVESTORS does not accept WLR'S offer for reinsurance, INVESTORS shall complete and send to WLR a reinsurance advice form as specified in Exhibit 4. 10.13.007 C. WLR's Liability 1. Automatic Reinsurance 1. The liability of WLR on any automatic reinsurance under this Agreement begins and ends at the same time as that of INVESTORS. 2. Facultative Reinsurance 2.1 The liability of WLR on any facultative reinsurance under this Agreement begins and ends at the same time as that of INVESTORS, provided that WLR has been advised in writing that WLR's offer has been accepted by INVESTORS, and such notice is rendered within the period as described in paragraph B 2.3. 2.2 If a claim occurs prior to Investors' receipt of WLR's underwriting decision, then WLR shall complete its normal underwriting process and communicate its underwriting assessment to INVESTORS. The WLR's liability shall be limited in such cases to the smallest of: (a) the limit specified for interim liability cover in D 2; (b) WLR'S actual assessment; or (c) the amount for which WLR would have been bound by INVESTORS in the event of a tie between/among multiple facultative reinsurer assessments; for example, first reinsurance offer received by INVESTORS; 2.3 The liability of WLR for risks submitted facultatively to other reinsurers shall be deemed to have never been in effect when INVESTORS accepts another reinsurer's offer. 10.13.008 D. Conditional Receipt or Interim Liability 1. For claims admitted by WLR that have arisen under the conditional receipt or interim receipt coverage (as evidenced by a copy of such receipt in the format shown in Exhibit 6), the liability of WLR shall not exceed the lesser of: (a) Investors' liability under the conditional or interim receipt minus Investors' full, normal retention had the life in question been underwritten as Standard, where Investors retention shall include any net amounts then retained by INVESTORS under other policies; (b) the automatic reinsurance binding limit in this Agreement as specified in Exhibit 2; or (c) the sum of four hundred thousand dollars ($400,000). 2. If a life proposed for insurance is uninsurable under INVESTORS' rules, limits and standards for the plan and amount applied for, then INVESTORS shall promptly return any payment taken with the application. In the event that INVESTORS does not promptly return such payment, the maximum liability of the WLR shall not exceed its pro rata share of such payment as that share is determined under D 1 (a). 10.13.009 E. Extracontractual Liabilities 1. WLR shall not be liable for extracontractual damages or penalties, including but not limited to punitive, compensatory, statutory, bad faith, or other damages which may arise from the acts or omissions of INVESTORS in its conduct with its own insured, policyholder, beneficiary or assignee of the policy or with other persons. (a) "Punitive Damages" are those damages which are awarded as a penalty, the amount of which is not governed, nor fixed by statute; (b) "Statutory Penalties" are those amounts which are awarded as a penalty, but fixed in amount by statute; (c) "Compensatory Damages" are those amounts which are awarded to compensate for actual damages sustained, and are not awarded as a penalty, nor fixed in amount by statute; (d) "Bad Faith Damages" are those amounts which are awarded to compensate for implied damages sustained, which are awarded as a penalty, the amount of which is not governed nor fixed by statute. 10.13.010 F. Amounts and Plans of Reinsurance 1. Plans 1.1 This Agreement covers INVESTORS' individual life insurance and supplementary benefits issued on the plans and policy forms specified in Exhibit 1. 2. Amounts 2.1 WLR shall reinsure face amounts in excess of INVESTORS' retention limit as specified in Exhibit 2 paragraph 2 on a coinsurance basis up to the limits specified in Exhibit 2 paragraphs 1 and 3. 10.13.011 G. Reinsurance Premiums 1.1 Premiums for reinsurance under this Agreement will be computed on the basis of the rates shown in Exhibit 7. 1.2 Whenever reinsurance under this Agreement is reduced or terminated, WLR will refund the unearned reinsurance premium, including the annual policy fee, if any, paid to the WLR. 1.3 If the Premium Waiver Benefit is applicable In the event of Disability of policyholder, INVESTORS will continue to pay WLR premiums as specified in Exhibit 1 for all coverages which continue during disability, notwithstanding any payments made by WLR to INVESTORS under the provisions of this Agreement. 10.13.012 H. Reinsurance Allowances 1. WLR shall grant INVESTORS commissions and allowances at the rates shown in Exhibit 7. The first year commission and allowance shall reimburse INVESTORS for the costs it incurs in issuing the policies reinsured under this Agreement. 2. If INVESTORS modifies the benefits or premium rates for a plan reinsured tinder this Agreement, WLR shall have the right to change the allowances payable under this Agreement. 10.13.013 I. Accounting and Billing 1. Reinsurance Premiums 1.1 The reinsurance premiums are due on the issue date of the policy and on each subsequent premium payment date under the policy and payable to WLR on a monthly basis as premiums are received by the INVESTORS. 2. Billing 2.1 INVESTORS will submit every month to WLR a listing of new business, changes and terminations, and a statement of amounts payable in a manner which substantially complies with specifications in Exhibit 5. 2.2 The net balance is due to WLR within thirty (30) days of the date of the statement. If a balance is due to INVESTORS, WLR will remit its payment within thirty (30) days of statement. 3. Late Payment 3.1 Any overdue balance due either party bears interest from the end of a 30 day period following receipt of the monthly billing. The interest for the period from 1 to 30 days will be the then current prime interest rate as quoted in the Wall Street Journal as of the end of the 30 day period following receipt of the monthly billing. For each additional month after 30 days that a balance remains unpaid, interest will be calculated using the above rate plus 1%. 3.2 The payment of reinsurance premiums shall be a condition precedent to the continuation of liability of WLR under this Agreement. If any premium remains unpaid for more than ninety (90) days after the due date, WLR may send to INVESTORS a formal demand for immediate payment. If INVESTORS does not comply with this demand within thirty (30) days, then WLR may cancel any unpaid reinsurance cessions for non-payment of premium; however, any unpaid premiums to the time of cancellation would be due with interest. 10.13.014 J. Taxes and Assessments 1. INVESTORS shall bear the sole responsibility for payment of all taxes incurred by INVESTORS during the normal course of its business activities. 2. Any assessments from guaranty funds paid by INVESTORS which are based on the gross premium writings of INVESTORS without reduction for premiums ceded under this Agreement shall be participated in by WLR in the proportion the reinsurance premium under this Agreement bears to the total gross premium of INVESTORS. WLR may reduce its liability by its proportion of any amounts recoverable, such as reductions or rebates of taxes, licenses or fees, by Investors due to its guaranty fund assessments. 10.13.015 K. SPECIAL PROVISIONS 1. As long as the capital and surplus of INVESTORS is less than 5% of admitted assets, or $10 million if greater, INVESTORS shall obtain prior written approval from WLR before releasing assets by way of stockholder dividends or any other payments to a parent or affiliated company except for reasonable management expenses and fees. 2. INVESTORS shall obtain prior written approval of WLR before selling off any of the subject business or ceding out any subject or other business within its normal retention. 3. INVESTORS shall place the assets corresponding to retained Reserve on the subject business in a separately identifiable account. The separately identifiable account shall include investment grade securities, and shall exclude mortgages, real estate and affiliated investments of INVESTORS or its principal owners. 4. INVESTORS agrees to include within its Reserves the present value of any excess of its renewal expenses on the subject business over the. renewal coinsurance allowance provided to INVESTORS under Schedule IV of this Agreement. 5. A Business Management Committee shall be formed to advise INVESTORS at least monthly on advertising, marketing, product, surplus and expense issues. The Committee shall consist of 2 persons, one representing INVESTORS and one representing WLR with voting interests proportional to the respective relative interests of the two parties in the subject business. On the issues listed below, each party shall have a veto: a) development of surplus enhancement goals and targets taking into account industry risk based capital and other requirements; and b) development of a business management and surplus growth strategy. Voting interests shall be proportional to the respective relative interests of the parties on all other issues; for example, on development of recommendations for the monitoring and management of expenses, affiliate transfers, stockholder dividends and other disbursements. INVESTORS would not be bound to follow the advice of the Committee, but failure to do so would permit WLR to exercise its rights under the provisions of this Agreement, including but not limited to paragraph 7 of this Article. 6. Both parties agree to provide each other, on a timely basis, with all statutory statements, annual reports and SEC filings that they make from time to time. 7. If INVESTORS should fail to follow any of the above provisions of this Article, WLR shall have the right to adjust the terms of the reinsurance for the subject business, with respect to: (a) first year and renewal commissions and expense allowances payable on future new business; and (b) renewal allowances payable on inforce business, but not to an extent that would in any way threaten the solvency of INVESTORS or its viability as a going concern. 10.13.016 L. Claims 1. Notice 1.1 INVESTORS shall promptly notify WLR of each claim for insurance benefits reinsured under this Agreement and provide WLR with copies of the proof of death and claim when requesting payment for reinsurance benefits on disability insurance. For reinsurance of risk involving more than one insured individual, INVESTORS shall notify WLR of each death as soon as possible after it has occurred and provide WLR with copies of the proof of death immediately after such proof has been received. 2. Settlement 2.1 WLR shall be liable to INVESTORS for the reinsurance benefits under this Agreement to the same extent that INVESTORS is liable to the claimant for the underlying insurance benefits, and all reinsurance under this Agreement shall be subject to the terms and conditions of the policy on which the liability of INVESTORS is based. Payment of reinsurance benefits on a death claim under this Agreement shall follow the mode of settlement under the policy. 3. Claims Within Contestable Period 3.1 Upon receipt by INVESTORS, copies of all investigation reports and other relevant papers obtained in connection with the claim shall be sent immediately to WLR. Any settlement made by INVESTORS shall be binding on WLR. 3.2 When the claim occurs within the contestable period and the amount retained represents less than twenty five (25) percent of the contestable portion of the full insurance benefit provided by all policies on the life issued by INVESTORS or if INVESTORS has retained less than its regular maximum limit of risk retention on the basic plan or supplementary benefits and riders, INVESTORS shall submit copies of all of the required claims papers as they are obtained and shall await WLR'S recommendation before admitting any liability or making any settlement with the claimant. WLR shall review the claim papers as they are received and make a recommendation within five (5) working days after receipt of all of the necessary information. 4. Other Contested Claims 4.1 For all other claims, INVESTORS shall immediately notify WLR of any intention to contest the insurance for any reinsurance under this Agreement, or to assert defenses to a claim for benefits on such insurance, and submit copies of all of the documents obtained in connection with the claim to WLR for review. 4.2 Should any claim be settled on a compromise basis, WLR shall participate in the compromise in proportion to its respective liability under the policy or policies reinsured if WLR has agreed to join in the contest. WLR shall pay its proportionate share of the usual and unusual expenses of the contest in addition to its proportionate share of the liability on the claim. 10.13.017 4.3 In the event that WLR does not deem it advisable to contest the claim, WLR shall notify INVESTORS of such decision within five (5) working days after receipt of all of the necessary information. WLR shall then discharge all of its liability by paying to INVESTORS the full current amount under the cession. Upon such discharge, WLR shall not be liable for any portion of any further expenses incurred subsequently in contesting the claim, and shall not benefit from a reduced or compromised settlement. 5. Expenses 5.1 For the purpose of Article L, the usual expenses of the contest shall be the legal and investigative expenses that are incurred in rescinding the policy or litigating the claim. Unusual expenses of the contest shall be penalties, attorney's fees and interest imposed automatically by statute against INVESTORS and arising solely out of a judgement rendered against INVESTORS in a suit for policy benefits. 5.2 WLR shall not be liable for any portion of any routine investigative or administrative expenses incidental to settlement of claims and any expense incurred in connection with a dispute or contest arising out of conflicting claims of entitlement to policy proceeds or benefits which INVESTORS admits are payable. 6. Misstatement of Age or Sex 6.1 If the amount of insurance provided by any policy or policies reinsured under this Agreement is increased or reduced because of a misstatement of age or sex which is established after the death of the insured individual, WLR shall share in the increase or reduction in the proportion that the net liability of WLR bears to the total of the net liability of INVESTORS and the net liability of all reinsurers, including WLR, immediately prior to such increase or reduction. 6.2 The reinsurance under this Agreement shall be restructured from commencement on the basis of the adjusted amounts using premiums and reserves for the correct age or sex. The adjustment for the difference in reinsurance premiums and any associated commissions or allowances, dividends, policy value or reserves shall be made without any interest. 10.13.018 M. Changes and Adjustments 1. Change Information 1.1 INVESTORS agrees to promptly furnish WLR with information on any changes or adjustments affecting policies reinsured under this Agreement as specified in Exhibit 5. 2. Reductions and Terminations 2.1 Reinsurance amounts are calculated in terms of coverages on the life of a person. If any of Investors' policies or riders on the person are reduced or terminated, the reinsurance in force will be reduced by the corresponding amount. The reduction will not be applied to force INVESTORS to resume more than its regular retention limit at the time of the reduction for the age at issue, mortality rating and form of the policy or policies for which reinsurance is being terminated. The reduction first shall be applied to reinsurance, if any, on the particular policy reduced. If the reduction exceeds the amount of reinsurance on that policy, the reduction shall then be applied to reinsurance on other policies on that life in the order in which the policies were effected, the first effected shall be the first terminated or reduced. If reinsurance has been ceded to more than one reinsurer, the reduction in WLR's reinsurance will be in proportion to the reduction in the total. After the proportion has been determined, the rules above will be used. 3. Increases in Insurance 3.1 On any non-contractual increase in insurance or reunderwriting, including changes in rating or class, on an existing policy that is reinsured with WLR on an automatic basis and will continue to be so reinsured, underwriting evidence consistent with Investors rules must be submitted to WLR for WLR's information. If the policy is reinsured with WLR on a facultative basis or will be so reinsured in the future, underwriting evidence satisfactory to WLR shall be obtained by INVESTORS and submitted to WLR for approval. 4. Reinstatements 4.1 Automatic reinsurance. If a policy that was reduced, terminated, or lapsed is reinstated by INVESTORS under its regular rules, the reinsurance will be reinstated automatically to the amount that would be in force had the policy not been reduced, terminated, or lapsed. 4.2 Facultative reinsurance. If a policy on which INVESTORS retained fifty percent (50%) or more of the risk at issue was reduced, terminated, or lapsed, then reinstatement of reinsurance shall be accomplished in the same way as automatic reinsurance under paragraph M 4.1 above. If INVESTORS has retained less than fifty percent (50%) of the risk at issue then reinstatement of the reinsurance shall require prior approval of WLR. 10.13.019 4.3 Whenever reinsurance under this Agreement is reinstated, INVESTORS will pay WLR its proportionate part of the reinsurance premium plus interest; based on the premiums with interest payable by the policyholder from the date of lapse to the reinsurance premium due date next following reinstatement. Thereafter, reinsurance premiums will be payable in accordance with Article I. 5. Nonforfeiture Benefits 5.1 WLR is liable for the same form and term of nonforfeiture benefit as provided for in the policy issued by INVESTORS for an amount corresponding to the amount reinsured. 6. Contractual Conversions and Exchanges 6.1 In the event of a contractual conversion or exchange, understood to be one which requires no evidence of insurability, WLR of the original policy shall reinsure the risk resulting from such conversion or exchange at agreed upon reinsurance conversion or exchange rates on the YRT basis defined in Exhibit 8. The reinsured Net Amount at Risk on the policy resulting from such conversion or exchange shall not exceed the current reinsured Net Amount at Risk on the policy or policies being converted or exchanged. If, however, the conversion or exchange results in an increase in the risk, the amount of increase shall be subject to evidence of insurability. 7. Non-Contractual Exchanges 7.1 If WLR is the reinsurer of the original policy, non-contractual exchanges shall be subject to evidence if insurability. Reinsurance premiums for the risk resulting from the exchange shall be agreed upon. 7.2 If a reinsurer other than WLR is the reinsurer of the original policy, non-contractual exchanges shall be subject to evidence of insurability and shall be submitted to WLR as facultative new business. 8. Increase in Retention 8.1 INVESTORS may increase its limits of retention on new business being issued at any time by giving advance written notice to WLR of the new limits of retention and the effective date of such new retention schedule. 9. Recapture 9.1 If INVESTORS increases its limits of retention, it may recapture a corresponding amount of the reinsurance in force under this Agreement on all persons where INVESTORS has maintained its maximum limit of retention as detailed in Exhibit 2. No . reinsurance, however, shall be recaptured under this provision before the end of the twentieth (20th) policy year, and no reinsurance may be recaptured where INVESTORS retained less than its maximum retention in effect at the time the policy was issued. 10.13.020 9.2 If INVESTORS elects to recapture, it will notify WLR in writing within ninety (90) days from the effective date of its increase in retention. At the next anniversary (or the twentieth (20) anniversary, if later) of Investors' policy, the reinsurance will be reduced to increase the total retained by INVESTORS to its new maximum. If reinsurance on any policy for any person is reduced under this provision, all must be reduced. If two or more reinsurers have reinsurance on the same person, WLR's share of the reduction will be in proportion to its share of the total reinsurance on the person. N. Errors and Omissions 1. If either INVESTORS or WLR shall unintentionally perform an obligation incorrectly under this Agreement or unintentionally fail to perform an obligation required by this Agreement, such error or omission shall be corrected by restoring both INVESTORS and WLR to the positions they would have occupied bad no such error or omission occurred. 2. This provision shall apply only to misunderstandings, oversights or clerical errors relating to the administration of reinsurance covered by this Agreement. 3. Any negligent or deliberate acts of commission or omission by one party to this Agreement are the responsibility of that party and its liability insurer, if any, but not that of the other party to the Agreement. 4. For business reported but not covered under the provisions of this Agreement, WLR shall be obligated only for the return of premiums paid. 10.13.021 O. Audit of Records and Procedures 1. WLR and INVESTORS each shall have the right, upon two weeks' prior notice (or any other time frame mutually agreed upon by the parties), to audit, at the office of the other, all records and procedures relating to reinsurance under this Agreement. This audit may be performed by WLR or its designated representative and INVESTORS or its designated representative. Further, INVESTORS agrees to complete, at the reasonable request of WLR and in a manner acceptable to WLR, a process confirming the existence of policies reinsured under this Agreement. 10.13.022 P. Arbitration 1. It is the intention of the parties that the customs and usages of the business of reinsurance shall be given full effect in the interpretation of this Agreement. The parties shall act in all things with the highest good faith. A dispute or difference between the parties with respect to the operation or interpretation of this Agreement on which an amicable understanding cannot be reached shall be decided by arbitration. The arbitrators are empowered to decide all questions or issues and shall be free to reach their decisions from the standpoint of equity and customary practices of the insurance and reinsurance industry rather than from that of strict law. All matters of interpretation of law shall be construed in accordance with the laws of the state in which the administrative offices of INVESTORS are located. The board of arbitration shall meet in the city in which the administrative offices of INVESTORS are located. 2. To initiate arbitration, a party shall send by certified mail, return receipt requested, to the other party's home office a notice demanding arbitration. The notice shall include the issues for decision and the remedies sought. The party receiving the notice shall thereafter have thirty days within which to respond in writing. 3. There shall be three arbitrators who shall be active or retired officers of life insurance companies other than the contracting companies or their affiliates. An arbitrator may not be a present or former employee, officer, attorney, or consultant of INVESTORS or WLR or either's affiliates. 4. Each of the contracting companies shall appoint one of the arbitrators and these two arbitrators shall select the third. In the event that either contracting company should fail to choose an arbitrator within thirty days after the response to the demand for arbitration, the other contracting company may choose two arbitrators, who shall in turn choose a third arbitrator before entering arbitration. If the two arbitrators are unable to agree upon the selection of a third arbitrator within thirty days following their appointment, each arbitrator shall nominate three candidates within ten days thereafter, two of whom the other shall decline and the decision shall be made by drawing lots. 5. If more than one reinsurer is involved in the same dispute, all such reinsurers shall constitute and act as one party for purposes of this Article, and communications shall be made by INVESTORS to each of the reinsurers constituting the one party, provided that nothing therein shall impair the rights of such reinsurers to assert several, rather than joint, defenses or claims, nor be construed as changing the liability of the reinsurers under the terms of this Agreement from several to joint. 6. The arbitrators shall decide by a majority of votes and from their written decision there can be no appeal. The cost of arbitration, including the fees of the arbitrators, shall be borne by the losing party unless the arbitrators decide otherwise. 10.13.023 Q. Insolvency 1. In the event of the insolvency of INVESTORS, all reinsurance shall be payable directly to the liquidator, receiver, or statutory successor of INVESTORS, without diminution or increase because of the insolvency of INVESTORS or because the liquidator, receiver, conservator or statutory successor of INVESTORS has failed to pay all or part of any claim. 2. In the event of insolvency of INVESTORS, the liquidator, receiver, or statutory successor shall give WLR written notice of the pendency of a claim on a policy reinsured within a reasonable time after such claim is filed in the insolvency proceeding. During the pendency of any such claim, WLR may investigate such claim and interpose in the name of INVESTORS (its liquidator, receiver or statutory successor), but at its own expense, in the proceeding where such claim is to be adjudicated any defense or defenses which WLR may deem available to INVESTORS or its liquidator, receiver or statutory successor. 3. The expense thus incurred by WLR shall be chargeable, subject to court approval, against INVESTORS as part of the expense of liquidation to the extent of a proportionate share of the benefit which may accrue to INVESTORS solely as a result of the defense undertaken by WLR. Where two or more reinsurers are participating in the same claim and a majority in interest elect to interpose a defense or defenses to any such claim, the expense shall be apportioned in accordance with the terms of the Agreement as though such expenses had been incurred by INVESTORS . 4. Any debts or credits, matured or unmatured, liquidated or unliquidated, in favor of or against either INVESTORS or WLR with respect to this Agreement or with respect to any other claim of one party against the other are deemed mutual debts or credits, as the case may be, and shall be set off, and only the balance shall be allowed or paid. 5. In the event that WLR shall execute and file articles of dissolution or the Insurance Department of WLR'S state of jurisdiction shall be directed to liquidate WLR pursuant to an order of liquidation, reinsurance hereunder shall, at the option of INVESTORS, be terminated as of a date concurrent with or subsequent to the filing of the articles of dissolution or the issuance of the order of liquidation, as selected by the INVESTORS. The terminated reinsurance may be retained by INVESTORS for its account or ceded to another reinsurer at its sole option. Termination under this paragraph shall be subject to the provisions of the Texas Insurance Code. The scope of this paragraph and the option of INVESTORS to terminate pursuant hereto shall not be limited or otherwise affected by any other provision of this Agreement. 10.13.024 R. Parties to Agreement 1. This is an Agreement for indemnity reinsurance solely between INVESTORS and WLR. The acceptance of reinsurance hereunder shall not create any right or legal relation whatever between WLR and the original company (if other than INVESTORS), the insured or the beneficiary under any policy reinsured hereunder, and the original company shall be and remain solely liable to such insured or beneficiary under any such policy. 2. This Agreement may not be assigned by either party without the written permission of the other party. However, WLR reserves the right to retrocede the reinsurance assumed under this Agreement on an indemnity reinsurance basis. 10.13.025 S. Entire Agreement This Agreement represents the entire contract between INVESTORS and WLR and supersedes, with respect to its subject, any prior oral or written agreement. 10.13.026 T. Duration and Termination of Agreement 1. This Agreement may be terminated with respect to new business by either party giving the other party 90 days written notice prior to the effective date of termination. During the ninety day period following a notice of termination, new business shall continue to be reinsured on then existing terms. 2. Coverage for underlying business ceded under this Agreement on or prior to the effective date of termination shall remain in full force and effect until expiration or cancellation of such business, whichever first occurs. However, it is understood and agreed that if coverage for the underlying business is terminated for any reason, coverage under this Agreement shall expire automatically at the same time and in the same manner for the terminated business. 3. At the end of any accounting period, this Agreement shall automatically terminate if none of the policies subject to the Agreement remains in force and neither party owes the other any payment or act. 10.13.027 U. Severalty of Provisions 1. If any provisions of this Agreement be declared null and void by a regulatory authority in any jurisdiction within which either party operates, the remaining provisions shall nevertheless continue to have full force and effect. 10.13.028 V. Effective Date and Execution of Agreement This Agreement will be effective for all eligible policies applied for on and after May 1, 1993. IN WITNESS OF THE AGREEMENT which is detailed in the Provisions and attached Exhibits, the PARTIES have had their respective officers execute this Agreement in duplicate below. INVESTORS WLR Jacksonville, Fl. Dallas, Texas Location Location 8/31/93 8/31/93 Date Date /s/ Melvin C. Parker /s/ By By President & CEO President Title Title /s/ Susan F. Powell /s/ John Brill Witness Witness 10.13.029 W. Definitions Agreement This document in its entirety including amendments and exhibits which details the terms and conditions under which business is to be conducted. Also known as the treaty. Automatic Risks that the ceding company is obligated to cede and the reinsurer is obligated to accept under the terms of the Agreement. Cedant The company that cedes risks to the reinsurer; the direct writing company. Cede To transfer to another insurer a specified portion of the insurance written by an insurer. Facultative Reinsurance of a single policy, where the assessment and review of the risk is performed by the reinsurer. The ceding company has the option to cede and the reinsurer has the option to accept. Reassurer The reinsurance company; reinsurer. Reinsurance Transaction where an insurance company agrees to indemnify another insurance company for a specified portion of risks it has issued. YRT Refers to Yearly Renewable Term method of charging premiums for reinsurance Reinsurance Agreement 10.13.030 X. List of Exhibits 1. Plans of Insurance and Supplementary Benefits Surnames of Subject Business Reliances of WLR 2. Business Ceded Investors' Retention Automatic Binding Jumbo Limits 3. New Business Underwriting Guidelines and Requirements 4. Facultative Reinsurance Application and Advice Form 5. Reinsurance Reporting Requirements 6. Investors' Application, Forms, and Conditional Receipt 7. Original Policy Premium Rates Commissions and Allowances 8 YRT Rates for Contractual Exchanges and Conversions 10.13.031 EXHIBIT 1 Plans of Insurance and Supplementary Benefits Surnames of Subject Business Reliances of WLR 1. Plans of Insurance and Supplementary Benefits 1.1 INVESTORS' Accelerated Benefit Whole Life Policy, form WL-1/93, issued on or after May 1, 1993. 2. Surnames of Subject Business 2.1 A-Z. 3. Reliances of WLR 3.1 Full year 1991 and 1992 Annual Statements of INVESTORS. 3.2 INVESTORS declares that there was no outstanding surplus relief reinsurance as of the date of execution. 10.13.032 EXHIBIT 2 Business Ceded Investors' Retention Automatic Binding Jumbo Limits 1. Business Ceded 1.1 An 80% quota share of each insured life up to INVESTORS' retention limit shown below and 100% of any excess. 2. Retention Limits of INVESTORS 2.1 Life - $100,000. A 20% quota share would be retained on each insured life up to a maximum issue amount of $500,000. 2.2 Supplementary Benefits - Not Applicable 3. Amounts at Which Automatic Binding Can Occur 3.1 Life 3.1.1 Issue ages 50 - 65 Up to and including $50,000 Issue ages 66 - 80 Up to and including $25,000 Larger cases would be submitted subject to facultative consideration by WLR. 3.1.2 The maximum rating is Table 4 (200%) or $10 of flat extra or combination assuming that each $10 of flat extra corresponds to +100% of tabular extra mortality. 3.2 Supplementary Benefits 3.2.1 Not Applicable 4. Jumbo Limit 4.1. The all-company issue and inforce participation limit shall be $100,000. Larger cases would be submitted subject to facultative consideration by WLR. 10.13.033 EXHIBIT 3 New Business Underwriting Guidelines and Requirements 10.13.034 ACCELERATED BENEFIT LIFE UNDERWRITING GUIDELINES AMOUNTS OF INSURANCE $ 5,000- $ 25,001 $50,001 + AGE $ 25,000 $ 50,000 50 - 64 NON-MEDICAL NON-MEDICAL PARAMEDICAL/ APS APS H.O.S. INTERVIEW* INTERVIEW* FULL BLOOD PROFILE ABS INTERVIEW* 65 - 75 NON-MEDICAL PARAMEDICAL/ PARAMEDICAL/ APS H.O.S. H.O.S. INTERVIEW FULL BLOOD FULL BLOOD PROFILE PROFILE EKG** EKG APS APS INTERVIEW INTERVIEW 76 - 8O PARAMEDICAL/ PARAMEDICAL/ PARAMEDICAL/ H.O.S. H.O.S. H.O.S. FULL BLOOD FULL BLOOD FULL BLOOD PROFILE PROFILE PROFILE EKG** EKG** EKG APS ABS APS INTERVIEW INTERVIEW INTERVIEW * Request phone interview if applicant is age 60-64 and is retired or unemployed. ** Not required if EKG was performed by a personal M.D. within one year of the date of the application and medical history is otherwise negative. FACULTATIVE AMOUNTS = $25,001 + UWGUIDEl . DDS 10.13.035 INVESTORS INSURANCE CORPORATION ACCELERATED BENEFIT LIFE IMPAIRMENT GUIDELINES APPLICATION SHOULD NOT BE TAKEN ON ANY PERSON WITH THE FOLLOWING MEDICAL HISTORY . Heart attack, Coronary Bypass Surgery or Angioplasty within the last six months. . Stroke or Carotid Endarterectomy within die last six months. . Cancer other than basal cell skin cancer within the last three years. . Diabetes with evidence of peripheral vascular, heart or kidney disease. More than mild Chronic Obstructive Pulmonary Disease (COPD). or Emphysema. . Alzheimer's disease. . Parkinson's disease, onset prior to age 60. . Cirrhosis of the liver. . Alcoholism less than five years in recovery. . Illegal Drug use within the last five years. . Kidney failure or dialysis. . Any history of major organ transplant (heart, kidney, liver, etc.) . Current confinement to a long-term care facility. . AIDS, AIDS related complex, HIV positive. . Any anticipated/or scheduled major surgery. UNDERWRITING GUIDELINES FACE AMOUNT LIMITS AGES NON-MEDICAL PARAMEDICAL EXAM I H.O.S. 50 - 64 $5,000 - $50,000 Not required 65 - 75 $5,000 - $25,000 $25,001 - $50,000* 76 - 80 --------- $5,000 - $25,000* *for amounts exceeding this face amount, please call Home Office Underwriting Department. NOTE: Attending Physician's Statement will he requested by Home Office Underwriting Department as needed. In many cases, a phone interview with the applicant maybe necessary prior to issuance of policy. 10.13.036 MALE NONSMOKER MALE SMOKER $5,000- $10,000- AGE LAST $5,000- $10,000- $9,999 $24,999 $25,000 BIRTHDAY $9,999 $24,999 $25,000+ 44.00 34.00 29.00 50 52.00 41.00 34.00 45.00 35.00 30.00 51 54.00 43.00 36.00 46.00 36.00 31.00 52 56.00 45.00 38.00 48.00 38.00 33.00 53 58.00 47.00 40.00 49.00 39.00 34.00 54 60.00 49.00 42.00 50.00 40.00 35.00 55 62.00 51.00 44.00 52.00 42.00 37.00 56 64.00 53.00 46.00 54.00 44.00 39.00 57 66.00 55.00 48.00 55.00 45.00 40.00 58 69.00 58.00 51.00 57.00 47.00 42.00 59 72.00 61.00 54.00 59.00 49.00 44.00 60 75.00 64.00 57.00 61.00 51.00 46.00 61 79.00 68.00 61.00 64.00 54.00 49.00 62 83.00 72.00 65.00 67.00 57.00 52.00 63 87.00 76.00 69.00 69.00 59.00 54.00 64 91.00 80.00 73.00 72.00 62.00 57.00 65 95.00 84.00 77.00 75.00 65.00 60.00 66 100.00 89.00 82.00 78.00 68.00 63.00 67 106.00 95.00 88.00 82.00 72.00 67.00 68 113.00 102.00 95.00 86.00 76.00 71.00 69 120.00 109.00 102.00 90.00 80.00 75.00 70 128.00 117.00 110.00 94.00 84.00 79.00 71 137.00 126.00 119.00 99.00 89.00 84.00 72 146.00 135.00 128.00 105.00 95.00 90.00 73 156.00 145.00 138.00 112.00 102.00 97.00 74 168.00 157.00 150.00 120.00 110.00 105.00 75 182.00 171.00 164.00 128.00 118.00 113.00 76 197.00 186.00 179.00 136.00 126.00 121.00 77 213.00 202.00 195.00 146.00 136.00 131.00 78 229.00 218.00 211.00 155.00 145.00 140.00 79 245.00 234.00 227.00 165.00 155.00 150.00 80 262.00 251.00 244.00 10.13.037 GUAR GUAR GUAR GUAR GUAR GUAR AGE LAST 5TH YEAR 10TH YEAR 20TH YEAR 5TH YEAR 10TH YEAR 20TH YEAR BIRTHDAY CASH VALUE CASH VALUE CASH VALUE CASH VALUE CASH VALUE CASH VALUE 50 48.74 144.76 361.15 150.25 368.72 661.11 51 50.91 150.84 373.06 150.88 370.45 663.44 52 53.10 157.06 384.99 151.40 372.17 665.73 53 55.34 163.39 396.80 151.88 373.84 667.88 54 57.71 169.81 408.34 152.54 375.45 669.30 55 60.21 176.30 419.52 153.36 377.01 671.42 56 62.84 182.85 430.34 154.33 378.50 672.78 57 65.53 189.49 440.31 155.28 379.98 673.88 58 68.19 196.23 451.06 156.02 381.46 674.37 59 70.74 203.09 461.17 156.41 382.98 675.80 60 73.10 210.04 471.19 156.32 384.49 676.43 61 75.74 217.39 481.34 156.78 386.60 678.01 62 80.61 226.62 492.52 161.65 391.87 680.95 63 85.65 235.73 503.27 166.50 396.77 683.61 64 90.97 244.55 513.39 171.55 401.13 685.84 65 96.60 253.00 522.78 176.83 404.91 687.58 66 102.45 261.04 531.46 182.19 408.10 688.85 67 108.34 268.69 539.55 187.34 410.76 689.75 68 113.99 276.06 547.28 191.86 413.04 690.48 69 119.09 283.28 554.97 195.34 415.12 691.29 70 123.51 290.42 563.16 197.67 417.11 692.68 71 127.29 297.50 572.59 199.00 419.05 695.30 72 130.62 304.44 584.28 199.68 420.91 700.06 73 133.90 311.06 599.64 200.34 422.52 708.21 74 137.57 317.21 620.29 201.60 426.76 721.13 75 141.86 322.52 647.58 203.74 424.58 739.87 76 146.75 327.91 682.17 206.71 425.02 764.81 77 151.93 332.61 723.16 210.06 425.20 794.97 78 156.82 337.12 766.89 213.01 425.33 827.22 79 160.79 341.82 803.67 214.80 425.79 853.90 80 163.53 347.43 1,000.00 215.08 427.33 1,000.00 10.13.038 FEMALE NONSMOKER FEMALE SMOKER $5,000- $10,000 AGE LAST $5,000- $9,999 $24,999 $25,000+ BIRTHDAY $9,999 $24,000 $25,000+ 29.00 19.00 14.00 50 44.00 33.00 26.00 32.00 22.00 17.00 51 45.00 34.00 27.00 35.00 25.00 20.00 52 46.00 35.00 28.00 38.00 28.00 23.00 53 48.00 37.00 30.00 41.00 31.00 26.00 54 50.00 39.00 32.00 44.00 34.00 29.00 55 52.00 41.00 34.00 45.00 35.00 30.00 56 54.00 43.00 36.00 46.00 36.00 31.00 57 56.00 45.00 38.00 48.00 38.00 33.00 58 58.00 47.00 40.00 49.00 39.00 34.00 59 60.00 49.00 42.00 50.00 40.00 35.00 60 62.00 51.00 44.00 52.00 42.00 37.00 61 64.00 53.00 46.00 54.00 44.00 39.00 62 66.00 55.00 48.00 55.00 45.00 40.00 63 69.00 58.00 51.00 57.00 47.00 42.00 64 72.00 61.00 54.00 59.00 49.00 44.00 65 75.00 64.00 57.00 61.00 51.00 46.00 66 79.00 68.00 61.00 64.00 54.00 49.00 67 83.00 72.00 65.00 67.00 57.00 52.00 68 87.00 76.00 69.00 69.00 59.00 54.00 69 91.00 80.00 73.00 72.00 62.00 57.00 70 95.00 84.00 77.00 75.00 65.00 60.00 71 100.00 89.00 82.00 78.00 68.00 63.00 72 106.00 95.00 88.00 82.00 72.00 67.00 73 113.00 102.00 95.00 86.00 76.00 71.00 74 120.00 109.00 102.00 90.00 80.00 75.00 75 128.00 117.00 110.00 94.00 84.00 79.00 76 137.00 126.00 119.00 99.00 89.00 84.00 77 146.00 135.00 128.00 105.00 95.00 90.00 78 156.00 145.00 138.00 112.00 102.00 97.00 79 168.00 157.00 150.00 120.00 110.00 105.00 80 182.00 171.00 164.00 10.13.039 GUAR GUAR GUAR GUAR GUAR GUAR AGE LAST 5TH YEAR 10TH YEAR 20TH YEAR 5TH YEAR 10TH YEAR 20TH YEAR BIRTHDAY CASH VALUE CASH VALUE CASH VALUE CASH VALUE CASH VALUE CASH VALUE 50 34.48 111.67 309.87 132.74 350.14 638.06 51 36.49 117.97 324.25 134.83 354.99 663.81 52 38.66 124.68 339.16 137.12 360.14 669.75 53 41.10 131.72 354.42 139.92 365.39 675.72 54 43.88 139.04 369.87 143.37 370.65 681.58 55 47.01 146.57 385.37 147.40 375.74 687.25 56 50.44 154.33 400.84 151.78 380.71 692.65 57 54.08 162.35 416.27 156.21 385.60 697.81 58 57.76 170.69 431.67 160.23 390.47 702.74 59 61.31 179.44 447.08 163.44 395.44 707.48 60 64.68 188.60 462.50 165.81 400.52 712.09 61 67.91 198.17 477.83 167.53 405.69 716.52 62 71.12 208.08 492.96 168.92 410.90 720.74 63 74.58 218.23 507.72 170.61 416.06 724.71 64 78.51 223.49 521.97 173.02 421.05 723.37 65 83.02 238.74 535.62 176.31 425.76 731.67 66 88.14 248.99 548.72 180.44 430.26 734.72 67 96.30 261.32 562.55 190.17 438.06 739.16 68 105.54 273.58 575.93 199.31 445.38 743.31 69 112.52 285.75 589.03 207.35 452.19 747.29 70 120.01 297.81 602.20 214.02 458.53 751.40 71 126.98 309.70 615.86 219.42 464.40 756.08 72 133.56 321.32 631.04 223.89 469.79 761.95 73 140.09 332.52 648.47 228.06 474.63 769.87 74 146.90 343.22 669.47 232.46 478.94 780.82 75 154.17 353.39 695.19 237.37 428.74 795.69 76 161.36 363.05 726.23 242.71 486.11 814.90 77 169.70 372.27 761.93 248.11 489.14 837.85 78 177.20 381.19 799.40 252.93 491.97 826.35 79 183.93 390.09 830.59 256.66 494.90 882.50 80 189.66 399.50 1,000.00 259.08 498.48 1,000.00 PREMIUM MODE FACTORS FOR OTHER THAN ANNUAL PREMIUMS: Semi Annual .6% Quarterly .3% Monthly PAC .09% ** CASH AND REDUCED PAID-UP VALUES ARE BASED ON THE COMMISSIONERS 1980 STANDARD ORDINARY MALE OR FEMALE MORTALITY TABLE WITH INTEREST AT 6.25% SAMPLE PREMIUM CALCULATION FOR: NON-SMOKING MALE, AGE 60, $10,000 FACE AMOUNT, MONTHLY PAC 10 (UNITS) X $49.00 (COST PER $1,000) = $490.00 X .09 = $44.10 10.13.040 EXHIBIT 4 Facultative Reinsurance Application and Advice Form 10.13.041 WINTERHUR Winterthur Life Reinsurance P.O. BOX 650327 Telephone 214-559-1800 Dallas, Texas 75265-0337 Telefax 274-522-8477 Telex 570-100-7488 Reinsurance Application - Cession Form [] Facultative [] YRT [] Conversion [] Automatic [] Coinsurance [] Guaranteed Insurability Option Insured Name (last/first/middle) Sex Date of Birth 1. []male []female 2. []male []female Res. state Age Age Basis 1. [] NB [] LB []Jt. 2. [] NB [] LB []Jt. Smoker Type []Non-smoker []Smoker []Pref-Nonsm []Pref-Smoker []Aggregate______ Currency Aviation Risk [] US-$ [] Can-$ [] No [] Yes Status Base Policy Rider Disability Waiver Accidental Death Previous In Force Previous Retention Current Application/Cession Current Retention Reinsurance Required 1. Valid M.I.B. Authorization is assumed to be in your possession. If not, please explain under remarks. 2. If application is submitted elsewhere, please list companies under remarks. 3. If this is an exchange, conversion, or GIO, please list original policy number and date, and additional details under remarks. Remarks Outstanding Requirements Ceding Company Underwriting Assessment By Date Telephone Do not write in this space Page 1 Mail this copy with the underwriting papers. (Facultative only) [] Winterhur Life Reinsurance Corporation of North America [] Republic-Vanguard Life Insurance Company 10.13.042 Reinsurance Application -Cession Form [] Facultative []YRT [] Conversion [] Automatic []Coinsurance [] Guaranteed Insurability Option Insured Name (Last/First/Middle) Sex Date of Birth 1. []Male []Female 2. []Male []Female Res. State Age Age Basis 1. [] NB [] LB []Jt. 2. [] NB [] LB []Jt. Smoker Type [] Nonsmoker [] Smoker [] Pref-nonsm [] Pref-Smoker [] Aggregate Currency Aviation [] US-$ [] Can-$ [] No [] Yes Status Base Policy Rider Disability Waiver Accidental Death Previous In Force Previous Retention Current Application/Cession Current Retention Reinsurance Required 1. Valid M.I.B. Authorization is assumed to be in your possession. If not, please explain under remarks. 2. If application is submitted elsewhere, please list companies under remarks. 3. If this is an exchange, conversion, or GIO, please list original policy number and date, and additional details under remarks. Remarks Outstanding Requirements Ceding Company Underwriting Assessment By Date Telephone Reinsurance not required []Filed as incompleted []Amount placed within our retention []Policy not placed []Reinsurance placed elsewhere Plan Name Policy Number Policy Date Table Rating Flat Extra Base- $ Yrs. Rider- $ Yrs. Reinsurance Risk Year/age Risk Amount Year/Age Risk Amount Amounts- optional (to report manual values) (Do not fill out) Treaty# Plan-Base Rider Cession# Page 2-Mail this copy when policy is placed (Facultative/Automatic) [] Winterhur Life Reinsurance Corporation of North America [] Republic-Vanguard Life Insurance Company 10.13.043 Reinsurance Application-Cession Form []Facultative []YRT []Conversion []Automatic []Coinsurance []Guaranteed Insurability Option Insured Name (Last/First/Middle) Sex Date of Birth 1. []Male[]Female 2. []Male[]Female Res. State Age Age Basis 1. [] NB [] LB [] Jt. 2. [] NB [] LB [] Jt. Smoker Type []Nonsmoker []Smoker []Pref-Nonsm []Pref-Smoker []Aggregate Currency Aviation Risk [] US-$ [] Can-$ [] No [] Yes Status Base Policy Rider Disability Waiver Accidental Death Previous In Force Previous Retention Current Application/Cession Current Retention Reinsurance Required 1. Valid M.I.B. Authorization is assumed to be in your possession. If not, please explain under remarks. 2. If application is submitted elsewhere, please list companies under remarks. 3. If this is an exchange, conversion, or GIO, please list original policy number and date, and additional details under remarks. Remarks Outstanding Requirements Ceding Company Underwriting Assessment By Date Telephone Reinsurance not required []Filed as incomplete []Amount placed within our retention []Policy not placed []Reinsurance placed elsewhere Plan Name Policy Number Policy Date Table Rating Flat Extra Base - $ Yrs. Rider- $ Yrs. Reinsurance Risk Amounts- Year/Age Risk Amount Year/Age Risk Amount optional (Do not fill out) Treaty# Plan-Base Rider Cession# Page 3 Retain this copy for your records. [] Winterhur Life Reinsurance Corporation of North America [] Republic-Vanguard Life Insurance Company 10.13.044 EXHIBIT 5 Reinsurance Reporting Requirements Please see attachments. 10.13.045 Winterthur Life Re Reporting Requirements - Individual Policy Business Self-Administered by Ceding Company New Business Report (monthly) - Last Name - First Name (or at least first initial) - Middle Initial (optional) - Sex - Date of Birth - State of Birth (optional) - State of Residence - Social Security Number (optional) - Plan (if code, need listing of codes and plan names; specify if rider) - Policy Issue Date Reinsurance Effective Date) - Original Policy Number - Issue Age - Female Setback Age (optional) - Age Basis - Smoker Classification - Underwriting Type (automatic/facultative) - Original Policy Amount (optional) - Reinsurance Amount (total pool and/or our share) - Table Extra Rating - Flat Extra Premium (rate and duration) - Disability Waiver of Premium Benefit Amount (if reinsured) - Accidental Death Benefit Amount (if reinsured) Transactional Report - Adjustments and Terminations (monthly) - Original Policy Number (if more than one record per policy #, supply plan code/insured's name) - Type of Transaction - Effective Date of Transaction - Details on adjustments (new risk amount, etc.) Account Summary (monthly) - Premiums (single, first year, renewal) - Commissions and Allowances (single first year, renewal) - Claims Settlements - Claims Expenses - Other Benefit Payments - Premium Taxes - Other Expenses - Other Treaty Specific Items 10.13.046 Winterthur Life Re Reporting Requirements - Individual Policy Business Self-Administered by Ceding Company (cont'd.) Policy Exhibit (monthly) - Beginning Inforce Balance (Policy Count and Risk Amount) - New Business - Reinstatements - Increases in Risk Amount - Cancellations (Not Takens) - Deaths - Lapses - Surrenders - Conversions - Decreases in Risk Amount - Recaptures - Ending Inforce Balance Reserve Report (monthly or quarterly) - Information required for Statutory and GAAP Reserves. Inforce Report (semi-annual/annual) - Detail listing of all inforce reinsurance cessions, - Required monthly or quarterly if no transactional monthly policy data is available. 10.13.047 EXHIBIT 6 Investors' Application, Forms, and Conditional Receipt 10.13.048 EXHIBIT 7 Original Policy Premium Rates Commissions and Allowances 7.1. Original Policy Premium Rates Please see the attached pages. 7.2. Commissions and Expenses 7.2.1. Life Insurance - Standard premiums (Nonsmoker and Smoker) Policy Commission Year as a Percent of Premium 1 145%* 2-10 17% 11 on 15% * In the event that a lapse occurs when the earned allowances are in excess of earned premium the first 13 policy months, the amount of such excess shall be returned to WLR. B. Substandard Extra Premiums [Subject to review by WLR] For substandard table extras and for (permanent) flat extras payable for more than five years, allowances will be the same as those shown for standard ratings. For flat extras for aviation hazards and for (temporary) flat extras payable for five years or less, the allowances will be 10% in all years. 10.13.049 EXHIBIT 8 YRT Rates for Contractual Exchanges or Conversions EX-10 23 10.14 LINCOLN REINSUANCE AGREEMENT 10.14.001 LINCOLN NATIONAL HEALTH & CASUALTY INSURANCE COMPANY SPECIFIC EXCESS LIABILITY REINSURANCE AGREEMENT NO. G-650001 effective December 1, 1992, between LINCOLN NATIONAL HEALTH & CASUALTY INSURANCE COMPANY Fort Wayne, Indiana (hereinafter referred to as "Lincoln") and INVESTORS INSURANCE CORPORATION Wilmington, Delaware (hereinafter referred to as the "Reinsured") Form 14800-INVESTORS CORP. 10.14.002 TABLE OF CONTENTS TITLE ARTICLE Definitions 1 Schedule of Reinsurance 2 Limitations of Reinsurance Coverage 3 Premium Rates and Payment 4 Settlement of Claims 5 Reports and Records 6 Arbitration 7 Insolvency and Cessation of Operations 8 Offset 9 General Provisions 10 Effective Date, Duration, and Termination 11 Execution of Agreement 12 ENDORSEMENTS None Form 14800 (TC) 10.14.003 ARTICLE 1 DEFINITIONS 1.1. "Acute Care Services" means those services which are necessary to treatment of an unstable medical condition caused by the onset of a or injury which places the patient's health in severe jeopardy and requires immediate medical attention. Acute Care Services do not include healthcare or other services which are for custodial care, or services which assist in or are intended to improve the usual activities of daily living. Acute Care Services do not include skilled nursing or rehabilitative services (including but not limited to treatments for motor function or mobility, physical therapy or psychotherapies) unless such services are provided concurrent with and incidental to Acute Care Services. 1.2. "Agreement" means this Reinsurance Agreement. 1.3. "Agreement Year" means that twelve (12) month period of time beginning on the Effective Date, or any anniversary of the Effective Date, and ending at 12:01 a.m. on that same numbered day in the next calendar year, but in no event shall an Agreement Year continue past the termination of this Agreement. 1.4. "Approved Fixed Procedural Fee" means a predetermined fee for a described healthcare procedure.* 1.5. "Approved Fixed Procedural Fee Hospital" means an acute care hospital which has contractually agreed with the Reinsured to provide services on an Approved Fixed Procedural Fee basis, which fee or fees Lincoln has approved before services are provided to an Insured.* 1.6. "Covered Payments" means payments made by the Reinsured for benefits allowable under a policy or policies and reinsured under this Agreement. To be reinsured under this Agreement, Covered Payments must be Incurred while this Agreement is in force. 1.7. "Deductible" means the amount of Covered Payments which the Reinsured must incur per Insured per Agreement Year before benefits become payable under this Agreement. The amount of the Deductible is stated in the Schedule of Reinsurance 1.8. "Effective Date" means the effective date of this Agreement, as set forth in Section 11.1. 1.9. "Eligible Hospital Services" means Acute Care Services that are Eligible for Medicare and that: a. are prescribed, directed, or authorized by a physician; and b. are rendered to an Insured who is registered as a bed patient in any facility, including a home health care environment, if Lincoln is notified and gives its written consent. Eligible Hospital Services shall not include charges of physicians or surgeons. Form 14801(1).INVESTORS CORP. 10.14.004 1.10. "Incur" or "Incurred" means the date services are rendered to an Insured or supplies are provided. 1.11. "Insured" means a person insured under a policy or policies issued by the Reinsured 1.12. "Lincoln" means Lincoln National Health & Casualty Insurance Company, Fort Wayne, Indiana. 1.13. "Per-Diem" means a fixed, per-day charge for healthcare services.* 1.14. "Per-Diem Hospital" means an acute care hospital which has contractual]y agreed with the Reinsured to provide services on the Per-Diem basis.* 1.15. "Reinsured" means the entity or part thereof named as such on the first page of this Agreement. 1.16. "Reasonable and Customary" means those charges which Lincoln determines do not exceed the amount usually charged by providers within the same geographical area for services, treatment, or materials, taking into account the nature of the illness involved. 1.17. "Schedule of Reinsurance" means Article 2 of this Agreement, including any amendments thereto. By the payment of the premium indicated on a Schedule of Reinsurance, the Reinsured shall be deemed to have accepted the terms thereof. * Only Refers to Organ Transplant Claims /s/ SFP Form 14801(2)-INVESTORS CORP. 10.14.005 ARTICLE 2 SCHEDULE OF REINSURANCE 2.1. REINSURANCE COVERAGE a. The Reinsured agrees to cede, and Lincoln agrees to reinsure, Hospital Services provided under the Reinsured's policy or policies, subject to the following terms and the limitations of Article 3. b. The following policy forms issued by the Reinsured are subject reinsurance as set forth in this Agreement. Description Form Number Fully Insured Medicare Supplement MSA-AA MSC-AA also, any state MSF-AA variations/ same benefit. /s/ SFP 2.2. DEDUCTIBLE (per Insured per Agreement Year) Medicare Supplement: $150,000 2.3. PREMIUM RATE (per Insured per Month) Medicare Supplement: $.15, with a minimum first year premium of $25,000; minimum second year premium of $50,000 At the end of the first Agreement Year, Lincoln will determine the total premium paid for that Agreement Year. If this figure is less than the minimum premium indicated, then the Reinsured agrees to remit to Lincoln the difference between the total premium paid and the minimum first year premium. If, at the end of the second Agreement Year, the total premium paid for the first and second Agreement Years as determined by Lincoln is less than the minimum second year premium, then the Reinsured agrees to remit to Lincoln the difference between the total premium paid for the first and second Agreement Years and the minimum second year premium. 2.4. COINSURANCE a. Lincoln shall indemnify the Reinsured for Covered Payments in excess of the Deductible at the percentage rate indicated. (1.) Human Organ, Human Tissue, or Bore Marrow Transplants (excluding all expenses Incurred in the acquisition of any replacement organ) Per-Diem or Approved Fixed Procedural Fee: 80% All Other: 50% (2) All Other Covered Procedures 100% Form 14802(1)-INVESTORS CORP. 10.14.006 When Covered Payments for an Insured are Incurred on more than one of the above bases, Lincoln shall apply the indicated coinsurance rates to the applicable charges. b. When an Insured undergoes a continuous confinement in two (2) or more hospitals for which the coinsurance percentages in Section 2.4.a. are different, the Deducible shall be apportioned between the Covered Payments Incurred in each hospital in the proportion that those payments bear to the total of the Covered Payments for the continuous confinement. 2.5. DEDUCTIBLE CARRYOVER Any Covered Payments made by the Reinsured during the last thirty-one (31) days of an Agreement Year for which no benefits were payable under this Agreement because the Deductible had not been satisfied for that Agreement Year may be applied to the Deductible for the succeeding Agreement Year. 2.6. PER-DIEM AND/OR APPROVED FIXED PROCEDURAL FEE HOSPITALS Except as otherwise indicated in this article, expenses Incurred at hospital having Per-Diem and/or Approved Fixed Procedural Fee arrangements with the Reinsured shall be reimbursed on the basis of the hospital's Fee-for-Service Charges, but in an amount which does not exceed the Per-Diem rate or the Approved Fixed Procedural Fee (whichever is applicable) in effect as of the effective date of this Schedule of Reinsurance, unless Lincoln has agreed in writing to a change in such rate. 2.7. ENDORSEMENTS Endorsements in force as of the effective date of this Schedule of Reinsurance are: None Form 14802(1)-INVESTORS CORP. 10.14.007 ARTICLE 3 LIMITATIONS OF REINSURANCE COVERAGE 3.1. The maximum lifetime reinsurance indemnity payable under this Agreement for any one Insured shall not exceed Two Million Dollars ($2,000,000). 3.2. Nothing in this Agreement shall create any right or legal relationship between Lincoln and any Insured. The Reinsured is responsible for providing all services to its Insureds, compensation of all liability to its Insureds, and payment of all expenses to its Insureds. Lincoln shall have no responsibility or obligation to provide any direct services or make any direct payment for services or expenses to any Insureds. 3.3. All claims for reinsurance benefits are subject to the Deductible conditions in force for the Agreement Year in which they are Incurred. 3.4. No payment will be made by Lincoln to the Reinsured under this Agreement, except for charges which are Reasonable and Customary. 3.5. No payment will be made by Lincoln to the Reinsured under this Agreement for expenses Incurred in the acquisition of any replacement organ for use in an organ transplant. 3.6. In the event that a Covered Payment could be indemnified under more than one provision of this Agreement, the provision providing the least indemnity shall apply. 3.7. Reinsurance for Eligible Hospital Services: a. shall not exceed the approved Health Care Financing Administration's Medicare Diagnosis-Related Group (DRG) amount with regard to the Covered Payments of Medicare Members; b. shall be limited during each continuous period of hospital confinement to an average of One Thousand Five Hundred Dollars ($1,500) per day of hospital stay, not including operating room charges and post-operative charges on the day of a surgical procedure; and c. shall not include physician charges while hospitalized or otherwise. 3.8. No payment will be made by Lincoln to the Reinsured for Covered Payments which exceed the Reinsured's actual liability on any claim. a. For purposes of this section "actual liability" means the amount actually paid by the Reinsured less any rebates, recapture, recovery, or adjustment of the amount which the Reinsured has paid. b. If the Reinsured receives a rebate, recapture, recovery, or adjustment on any claim which Lincoln has already paid under this Agreement, the following will apply in the order set forth: (1.) the Reinsured's actual liability will be determined as set forth in 3.8.a. above; Form 14803(l)-INVESTORS CORP. 10.14.008 (2.) the Reinsured's Deductible will be applied to the actual liability; (3.) the Reinsured's coinsurance will be applied liability to determine the amounts payable Lincoln; and (4.) if it is determined that Lincoln made payment which exceeds the Reinsured's actual liability, the Reinsured will reimburse Lincoln for the amount of such overpayment. 3.9. The following shall be excluded from the definition of Covered Payments and from reinsurance benefits hereunder: a. expenses or salaries paid to nonprofessional or professional employees of the Reinsured; b. any amount paid by the Reinsured for punitive or exemplary damages or for compensatory damages; c. any amount paid by the Reinsured or awarded to any Insured for damages arising out of the conduct of the Reinsured in the processing, investigation, trial, or settlement of any claim or due to the failure to pay or to any delay in payment of any benefits under the Reinsured's policy or policies; d. any statutory penalty imposed upon the Reinsured; and e. any administrative expenses or expenses defined as non- reimburseable elsewhere in this Agreement. 3.10. Lincoln shall not be liable for, and the Reinsured shall hold harmless and indemnify Lincoln for, any of the following: a. professional liability or liability for any act or omission, tortious or otherwise, in connection with any services rendered to any person or group of persons by the Reinsured or any group, entity, or person employed by or affiliated in any manner with the Reinsured; b. liability assumed by the Reinsured in excess of the Reinsured's policy or policies, including liability under any contract other than the Reinsured's policy or policies; c. expenses or losses for which the Reinsured has released any person or entity from its legal liability; d. liabilities which have no monetary value; e. liabilities, expenses, or losses which are based upon non- compliance or violation of any federal or state statute, rule, or regulation; f. expenses which are paid or payable to any Insured under Subchapter XVIII (Medicare) or Subchapter XIX (Medicaid) of the Social Security Act of 1965, including any amendments thereto, unless Medicare or Medicaid coverage is specified in the Schedule of Reinsurance; Form 148O3(2)-INVESTORS CORP. 10.14.009 g. expenses for which the Reinsured receives any payment or reduction in charges due to a coordination of benefits provision in the Reinsured's policy or policies or because of any right of subrogation; h. liability due to war or act of war; i. liability for replacement of equipment, furniture, or supplies which are not Eligible Hospital Services; and j. liability for any expenses or awards resulting from negligence by any party which causes a failure of any equipment used in the treatment of an Insured. Form 14803(3)-INVESTORS CORP. 10.14.010 ARTICLE 4 PREMIUM RATES AND PAYMENT 4.1. The premiums to be paid by the Reinsured to Lincoln for reinsurance coverage under this Agreement are Payable monthly and shall be based on the number of Insureds enrolled as of the first day of each month. The amount of the premium per Insureds per month shall be as set forth in the Schedule]e of Reinsurance 4.2. The Reinsured shall submit to Lincoln with each premium payment a statement prepared by the Reinsured which lists as accurately as possible the number of Insureds for that month and which adjusts the prior month's report to reflect the actual number of Insureds such prior month. Each statement shall be signed by an authorized official of the Reinsured. 4.3. Premiums are due on the first day of the month for which reinsurance coverage is to be provided. 4.4. All premiums are payable to Lincoln at its Home Office in Fort Wayne, Indiana, or at any other location specified by Lincoln. 4.5. If any premium is not paid within thirty-one (31) days after it is due, this Agreement shall automatically terminate at midnight of the 31st day after the premium due date; provided, however, that the Reinsured shall remain liable to Lincoln for all unpaid premiums, including the premium for that 31-day period. 4.6. The amount of premium charged per Insured shall remain unchanged for an Agreement Year, except that Lincoln may adjust the premium during any Agreement Year to reflect any Material Change as defined in Section 10.6. of this Agreement. 4.7. Lincoln shall have the right to change the premium at the end of each Agreement Year upon providing written notice of such change to the Reinsured at least thirty-one (31) days prior to the end of the Agreement Year. Form 14804(1)-INVESTORS CORP. 10.14.011 ARTICLE 5 SETTLEMENT OF CLAIMS 5.1. NOTICE OF CLAIM The Reinsured shall make every effort to give Lincoln written notice of any claim or potential claim which it may assert under this Agreement within thirty-one (31) days from the date on which the claim is Incurred or potential claim is discovered, or as soon thereafter as is reasonably possible. b. Lincoln shall NOT be liable for any claim for which it has not received written notice within one (1) year from the end of the Agreement Year in which the claim was Incurred. c. The Reinsured shall report to Lincoln the names and claim amounts for those Insureds who have received eligible services which exceed seventy-five percent (75%) of the Deductible. 5.2. CLAIM FORMS Lincoln shall furnish the Reinsured with a supply of claim forms to be used in filing a claim. If such forms are not provided to the Reinsured within fifteen (15) days after Lincoln's receipt of notice of claim, the Reinsured may file proof of loss by providing Lincoln with a written statement that: a. gives the nature and extent of the loss for which claim is made; and b. is furnished to Lincoln within the time limit stated in Section 5.3. below. 5.3. PROOF OF LOSS a. The Reinsured must make every effort to file a completed proof of loss within one (1) year from the end of the Agreement Year in which the claim was Incurred; except as indicated in Section 5.2., a completed proof of loss shall consist of a claim form, including an itemization of the expenses involved, and copies of the various bills. b. If a claim is made under Section 1.1O.b. of this Agreement, the claim form must be accompanied by a detailed medical report. 5.4. PAYMENT OF CLAIMS Subject to the terms and conditions of this Agreement, Lincoln shall make payment to the Reinsured within ninety (90) days of its receipt of a completed proof of loss. Form 14805(2)-INVESTORS CORP. 10.14.012 ARTICLE 6 REPORTS AND RECORDS 6.1. The Reinsured shall report to Lincoln any Material Change, as defined in Section 10.6 of this Agreement. The Reinsured shall use its best efforts to provide such report to Lincoln at least thirty-one (31) days before the effective date of the change, or as soon thereafter as is reasonably possible. Lincoln shall not be liable for any increase in coverage in the event the Reinsured fails to properly notify Lincoln of such changes. 6.2. The Reinsured shall keep a record of the monthly enrollment of Insureds under each policy and the eligible services received by each insured while covered under this Agreement. Such record shall be kept during the time this Agreement is in effect and for a two (2) year period after the termination of this Agreement. 6.3. The Reinsured's books and records, to the extent permitted by law, shall be made available to Lincoln for inspection and audit at any time during normal business hours during the time this Agreement is in effect and for a two (2) year period after the termination of this Agreement. 6.4. All information disclosed to Lincoln by the Reinsured or to the Reinsured by Lincoln, either in the course of conducting negotiations or as a result of complying with the terms and conditions of this Agreement, shall be considered to be confidential information by both the Reinsured and Lincoln. The submission of this Agreement to any state department of insurance or any federal agency shall not be considered a violation. Form 14806(1)-INVESTORS CORP. 10.14.013 ARTICLE 7 ARBITRATION It is the intention of the Reinsured and Lincoln that the customs and practices of the insurance and reinsurance industry shall be given full effect in the operation and interpretation of this Agreement. The parties agree to act in all things with the highest good faith. If the Reinsured and Lincoln cannot mutually resolve a dispute which arises out of or relates to this Agreement, however, the dispute shall be decided through arbitration as set forth below. The arbitrators shall base their decision on the terms and conditions of this Agreement plus, as necessary, on the customs and practices of the insurance and reinsurance industry, rather than solely on a strict interpretation of applicable law. There shall be no appeal from the decision of the arbitrators, except that either party may petition a court having jurisdiction over the parties and the subject matter to reduce the arbitrators' decision to judgment. The parties intend this article to be enforceable in accordance with the Federal Arbitration Act (9 U.S.C. Section 1, et seq.), including any amendments to that Act which are subsequently adopted. In the event that either party refuses to submit to arbitration as required above, the other party may request a United States Federal District Court to compel arbitration in accordance with the Federal Arbitration Act. Both parties consent to the jurisdiction of such court to enforce this article and to confirm and enforce the performance of any award of the arbitrators. PROCEDURES 7.1. To initiate arbitration, either the Reinsured or Lincoln shall notify the other party in writing of its desire to arbitrate, stating the nature of its dispute and the remedy sought. The party to which the notice is sent shall respond to the notification in writing within ten (10) days of its receipt. 7.2. The arbitration hearing shall be before a panel of three arbitrators, each of whom must be a present or former officer of an insurance company or a health maintenance organization. An arbitrator may not be a present or former officer, attorney, or consultant of the Reinsured or Lincoln or either's affiliates. 7.3. The Reinsured and Lincoln shall each name five (5) candidates to serve as an arbitrators The Reinsured and Lincoln shall each choose one candidate from the other party's list, and these two candidates shall serve as the first two arbitrators. If one or more candidates so chosen shall decline to serve as an arbitrator, the party which named such candidate shall add an additional candidate to its list, and the other party shall again choose one candidate from the list. This process shall continue until two arbitrators have been chosen and have accepted. The Reinsured and Lincoln shall each present their initial lists of five (5) candidates by written notification the other party within twenty-five (25) days of the date of the mailing of the notification initiating the arbitration. Any subsequent additions to the list which are required shall be presented within ten (10) days of the date the naming party receives notice that a candidate that has been chosen declines to serve. Form 14807(1)-INVESTORS CORP. 10.14.014 7.4. The two arbitrators shall then select the third arbitrator from the eight (8) candidates remaining on the lists of the Reinsured and Lincoln within fourteen (14) days of the acceptance of their . positions as arbitrators. If the two arbitrators cannot agree on the choice of a third, then this choice shall be referred back to the Reinsured and Lincoln. The Reinsured and Lincoln shall take turns striking the name of one of the remaining candidates from the initial eight (8) candidates until only one candidate remains. If the candidate so chosen shall decline to serve as the third arbitrator, the candidate whose name was stricken last shall be nominated as the third arbitrator. This process shall continue until a candidate has been chosen and has accepted. This candidate shall serve as the third arbitrator. The first turn at striking the name of a candidate shall belong to the party that is responding to the other party's initiation of the arbitration. Once chosen, the arbitrators are empowered to decide all substantive and procedural issues by a majority of votes. 7.5. It is agreed that each of the three arbitrators should be impartial regarding the dispute and should resolve the dispute on the basis described in this article of the Agreement. Therefore, at no time will either the Reinsured or Lincoln contact or otherwise communicate with any person who is to be or has been designated as a candidate to serve as an arbitrator concerning the dispute, except upon the basis of jointly drafted communications provided by both the Reinsured and Lincoln to inform those candidates actually chosen as arbitrators of the nature and facts of the dispute. Likewise, any written or oral arguments provided to the arbitrators concerning the dispute shall be coordinated with the other party and shall be provided simultaneously to the other party or shall take place in the presence of the other party. Further, at no time shall any arbitrator be informed that the arbitrator has been named or chosen by one party or the other 7.6. The arbitration hearing shall be held on the date and at the location fixed by the arbitrators. In no event shall this date be later than six (6) months after the appointment of the third arbitrator. As soon as possible, the arbitrators shall establish prearbitration procedures as warranted by the facts and issues of the particular case. At least ten (10) days prior to the arbitration bearing, each party shall provide the other party and the arbitrators with a detailed statement of the facts and arguments it will present at the arbitration hearing. The arbitrators may consider any relevant evidence; they shall give the evidence such weight as they deem it entitled to after consideration of any objections raised concerning it. The party initiating the arbitration shall have the burden of proving its case by a preponderance of the evidence. Each party may examine any witnesses who testify at the arbitration hearing. Within twenty (20) days after the end of the arbitration hearing, the arbitrators shall issue a written decision. In their decision, the arbitrators shall apportion the costs of arbitration, which shall include but not be limited to their own fees and expenses, as they deem appropriate. 10.14.015 ARTICLE 8 INSOLVENCY AND CESSATION OF OPERATIONS 8.1. DEFINITIONS a. For purposes of this Agreement, "insolvent or insolvency" shall mean that a determination has been made by a court of competent jurisdiction that either the Reinsured or Lincoln is insolvent. The date of insolvency shall be the date such court approves an order of rehabilitation or liquidation. b. A cessation of operations will be deemed to occur if either the Reinsured or Lincoln stop the active conduct of their normal business or cease to service their existing clients or Insureds. 8.2. NOTICES It is the obligation of each party to this Agreement to send notice of its date of insolvency or date of cessation of operations to the other party immediately upon the happening of either event. 8.3. TERMINATION a. In the event that Lincoln should become insolvent or cease operations, this Agreement shall terminate as of the date of such insolvency or cessation of business. b. In the event that the Reinsured should become insolvent or cease operations, this Agreement shall terminate on the earlier of the date of the Reinsured's insolvency or cessation of operations, except as provided elsewhere in this Agreement. 8.4. CLAIMS a. In the event of the insolvency of the Reinsured, Lincoln may investigate any claim arising after such insolvency and interpose, at its own expense in the name of the Reinsured, any defense or defenses which Lincoln deems available to the Reinsured. The expense thus paid by Lincoln shall be chargeable, subject to court approval, against the Reinsured or its successors as part of the expense of liquidation, to the extent of a proportionate share of the benefit which may accrue to the Reinsured solely as a result of the defense undertaken by Lincoln. b. Upon the insolvency of the Reinsured, all reinsurance payable under this Agreement shall be payable directly statutory successor of the Reinsured insolvency of the Reinsured. Form 14808(1).INVESTORS CORP. 10.14.016 ARTICLE 9 OFFSET Any debts or credits, matured or unmatured, liquidated or unliquidated, regardless of when they arose or were incurred, in favor of or against either the Reinsured or Lincoln with respect to this Agreement or any other agreement between the parties, shall be offset and only the balance allowed or paid. If either the Reinsured or Lincoln is under formal delinquency proceedings, this right of offset shall be subject to the laws of the state exercising primary jurisdiction over such delinquency proceedings. Form 148O9(l)-1NVESTORS CORP. 10.14.017 ARTICLE 10 GENERAL PROVISIONS 10.1. This Agreement, including endorsements and attachments, if any, constitutes the entire Reinsurance Agreement between the parties. 10.2. This Agreement shall not be assigned without the express written consent of both parties. 10.3. This Agreement may be amended at any time, but only by the mutual consent of the parties, as evidenced by a written amendment signed by officers of both the Reinsured and Lincoln. Any such amendment shall be binding upon the Reinsured and Lincoln and deemed an integral part of this Agreement. 10.4. If the Reinsured elects to change the coverage provided policies under it's policy or policies in a manner which may have a significant impact under this Agreement, Lincoln's liability hereunder shall not change, unless Lincoln has given advance, written approval of any such change. 10.5. With respect to any payment made by Lincoln under this Agreement, Lincoln shall be subrogated to all of the Reinsured's rights to recover such payment against any Insured, person, or organization, and the Reinsured shall execute and deliver any required documents or instruments and do whatever is necessary to preserve and secure such rights. Any recovery made by the Reinsured shall be paid to Lincoln to the extent of payment made by Lincoln under this Agreement. 10.6. The Reinsured shall report to Lincoln any Material Change. A "Material Change" is a change which may have a significant economic impact on Lincoln's liability under this Agreement. A Material Change shall include, but not be limited to, the following: a. the Reinsured's acquisition of the assets and liabilities of any company, corporation, or foundation; b. the Reinsured's acquisition by, coming under the control of, merged with, any other company, corporation, or foundation; or c. changes in: (1.) Chief Executive Officer (CEO), Chief Operating; Officer (COO), or Chief Financial Officer (CEO); or (2.) majority ownership of the Reinsured Form 14810(l)-INVESTORS CORP. 10.14.018 ARTICLE 11 EFFECTIVE DATE, DURATION, AND TERMINATION 11.1. EFFECTIVE DATE AND DURATION a. This Agreement shall be effective as of December 1, 1992. b. This Agreement shall continue in effect from the Effective Date until it is terminated. 11.2. TERMINATION a. As specified in Article 4, this Agreement shall terminate automatically if premiums are not paid. b. As specified in Article 8, this Agreement shall terminate upon insolvency or cessation of operations of either the Reinsured or Lincoln. c. Lincoln may terminate this Agreement in the event of a Material Change, as defined in Section 10.6., by giving the Reinsured thirty-one (31) days written notice of its intent to so terminate. d. Either party may terminate this Agreement at the end of any Agreement Year by giving the other party written notice of such intention to terminate at least thirty-one (31) days prior to the end of such Agreement Year. e. Termination of this Agreement shall not terminate the rights or liabilities of either the Reinsured or Lincoln arising during any period when this Agreement was in effect; provided, however, that nothing herein shall be construed to extend Lincolns liability for reimbursement under this Agreement for any service Incurred after the date of termination of this Agreement, except as specifically agreed to in any Endorsement hereto. Form 14R11(1)INVESTORS CORP. 10.14.019 ARTICLE 12 EXECUTION OF AGREEMENT IN WITNESS WHEREOF, the Reinsured and Lincoln have, by their respective officers, executed and delivered this Agreement, in duplicate, effective from the date set out in Article 11. INVESTORS INSURANCE CORPORATION By /s/ Melvin C. Parker By /s/ Susan F. Powell Title President Title Sr. Vice Pres. Date 4/19/93 Date 4/16/93 LINCOLN NATIONAL HEALTH & CASUALTY INSURANCE COMPANY By /s/ By /s/ Vice President Assistant Secretary Date 5/7/93 Date 5/7/93 Form 14812(1)-INVESTORS CORP. EX-10 24 10.15 NEW ERA REINSURANCE 10.15.001 AGREEMENT FOR REINSURANCE Among INVESTORS INSURANCE CORPORATION Wilmington, Delaware; and NEW ERA LIFE INSURANCE COMPANY and NEW ERA LIFE INSURANCE COMPANY OF THE MIDWEST Houston, Texas 10.15.002 AGREEMENT FOR REINSURANCE THIS AGREEMENT FOR REINSURANCE ("Agreement"), dated as of January __, 1996, is entered into by and among INVESTORS INSURANCE CORPORATION, a Delaware stock life insurance company (the "Company"), and NEW ERA LIFE INSURANCE COMPANY, a Texas stock life insurance company ("New Era") and NEW ERA LIFE INSURANCE COMPANY OF THE MIDWEST, an Indiana stock life insurance company ("New Era Midwest"), hereinafter collectively referred to as the "Reinsurer". WHEREAS, the Company is the issuer of certain individual deferred annuity Contracts (as defined herein) identified by policy form number and/or plan code at Schedule 1.13 hereto; and WHEREAS, the Company desires to sell, transfer and cede certain of its contractual obligations and risks under the Contracts to the Reinsurer, and the Reinsurer desires to purchase, acquire, assume and reinsure such contractual obligations and risks pursuant to the terms of, first, a Coinsurance Reinsurance Agreement between the Company and New Era in the form shown at Schedule 1.8 hereto, and ultimately, the Assumption Reinsurance Agreement shown at Schedule 1.2 hereto; and WHEREAS, the Company will undertake to provide certain support services with respect to the Contracts on behalf of the Reinsurer for a period of time following the closing under this Agreement and, thereafter New Era shall undertake and assume full responsibility for such support services pursuant to the terms of a certain Administrative Services Agreement between the Company and New Era in the form shown at Schedule 1.26 hereto; NOW, THEREFORE, in consideration of the mutual promises and covenants set forth herein, and in reliance upon the representations, warranties, conditions and covenants herein contained, and intending to be legally bound hereby, the Company and the Reinsurer do hereby agree as follows: ARTICLE I: Definitions Capitalized terms used in this Agreement, but not defined in this Article I, shall have the meaning given them in the other articles of this Agreement. The following capitalized words and terms shall have the following meanings when used in this Agreement: I.1 Assumed Contract. Each Contract that has been reinsured and assumed by the Reinsurer pursuant to the terms of the Assumption Agreement. I.2 Assumption Agreement. The Assumption Reinsurance Agreement to be entered into between the Company and the Reinsurer pursuant to the provisions of Section 2.1 of this Agreement, which shall be in the form shown at Schedule 1.2 hereto. Agreement for Reinsurance Page 1 10.15.003 I.3 Assumption Certificate. The certificate to be issued by the Reinsurer to the Contractholder of any Coinsured Contract that is reinsured by the Reinsurer under the Assumption Agreement, and which is substantially in the form provided in the Assumption Agreement. I.4 Assumption Effective Date. The date upon which the Coinsured Contracts are to be assumed by the Reinsurer under the Assumption Agreement. Such date, determined on a state-by-state basis, shall not be later than December 31, 2000, and shall be subject to the receipt by the Reinsurer of all Required Assumption Approvals and Required Assumption Consents in each such state. I.5 Books and Records. All original files and records in the possession or under the control of the Company related to the Contracts, including, but not limited to policy files, claims files and underwriting files, policy form files (including all files relating to the filing and approval of policy forms, applications and riders with insurance regulatory authorities); rate filings and actuarial data developed or utilized by the Company or on its behalf in support of premium rates charged under the Contracts; and premium tax records and reports for the Contracts covering any period prior to the Transition Date. I.6 Closing. The closing of the transactions contemplated in Article II of this Agreement, including the transfer of the Settlement Amount which shall take place at the offices of the Company, 7200 West Camino Real, Boca Raton, Florida 33433, unless the parties agree to close by facsimile transmission and wire transfer. I.7 Closing Date. The date upon which the Closing shall take place, which shall be (a) January 30, 1996; or (b) the fifth business day following the receipt of the last of the Required Closing Date Approvals, or at such other date and time as the parties may mutually agree in writing. I.8 Coinsurance Agreement. The Coinsurance Reinsurance Agreement to be entered into between the Company and New Era pursuant to the provisions of Section 2.1 of this Agreement, which shall be in the form shown at Schedule 1.8 hereto. I.9 Coinsurance Effective Date. The date upon which the coinsurance of the Contracts by New Era under the terms of the Coinsurance Agreement shall be effective, which shall be 11:59 p.m. Central time, on December 31, 1995. I.10 Coinsured Contract. Each Contract reinsured by New Era under the Coinsurance Agreement; provided, however, that New Era shall not reinsure any Contract that is the subject matter of pending litigation or an attorney demand letter threatening litigation against the Company as of the Transition Date. New Era agrees to reinsure under the Coinsurance Agreement any Contract that is the subject matter of pending litigation or any attorney demand letter threatening litigation against the Company on the Transition Date that has been successfully settled or concluded by the Company after the Transition Date and which remains in force; provided, however, that the Company shall use its best efforts to compromise or settle all disputes involving Agreement for Reinsurance Page 2 10.15.004 Contracts that are the subject matter of pending litigation or any attorney demand letter threatening litigation against the Company on the Transition Date in such a way that such Contracts will not remain in force upon the conclusion or settlement of such disputes. I.11 Company Service Period. The period of time from the Coinsurance Effective Date until the Transition Date, during which the Company shall be required to provide Support Services in connection with the Contracts under the terms of the Services Agreement I.12 Contractholder. Any individual or entity which is the owner of a Contract or which has the right to terminate or lapse the Contract, effect changes of beneficiary, coverage limits, add or terminate persons covered under such Contract or direct any other policy changes in such Contract. I.13 Contracts. All of those individual deferred annuity contracts issued by the Company that are (i) identified by policy form number and/or plan code at Schedule 1.13 hereto, and (ii) which are in force and effect as of the Coinsurance Effective Date. I.14 Excluded Liabilities. Any claims or liability under, in connection with or with respect to the Contracts (a) subject to Section 4.6 of the Coinsurance Agreement, for Taxes (as defined in the Coinsurance Agreement) payable with respect to premiums earned or received on Contracts in force in all periods prior to the Assumption Effective Date; (b) for "bad faith", punitive, exemplary or other extra-contractual damages that are based upon, relate to or arise out of any act, error or omission of the Company or any of its officers, directors, agents or employees, whether intentional or otherwise, which occurred prior to the Transition Date; or (c) subject to Section 4.7 of the Coinsurance Agreement; arising from participation in any guaranty fund, insolvency fund, plan, pool, association or other similar organization and which is based on premiums earned or received on Contracts in force in any period prior to the Assumption Effective Date. I.15 Novation. The substitution of the Reinsurer for the Company under an Assumed Contract with the result that the Reinsurer becomes directly liable to the Contractholder of the Assumed Contract and the Company's liability to the Contractholder under the Assumed Contract is extinguished. I.16 Producer. Any agent, broker, representative, or subagent of any person (i) having a Producer Agreement with the Company and (ii) being entitled to receive any Producer Payments from the Company for the solicitation, sale, marketing, production or servicing of any of the Contracts. I.17 Producer Agreement. Any written agreement, contract, understanding or arrangement between the Company and any Producer, including any assignments of compensation thereunder, and relating to the solicitation, sale, marketing, production or servicing of any of the Contracts. Agreement for Reinsurance Page 3 10.15.005 I.18 Producer Payments. Any expense allowance, commission, override commission, service fee or other compensation payable by the Company to a Producer pursuant to a Producer Agreement. I.19 Reinsurance Agreements. Collectively, the Assumption Agreement and the Coinsurance Agreement. I.20 Reinsurance Allowance. An amount calculated upon the average Statutory Reserves and Liabilities established by the Reinsurer under the Reinsurance Agreements with respect of the Contracts for any period on and after the Coinsurance Effective Date. During years 1996 through 2000, the Reinsurance Allowance shall be in an amount equal to one percent (1.0%) of the average Statutory Reserves and Liabilities established by the Reinsurer with respect of the Contracts ("Negative Reinsurance Allowance"), and shall be calculated and paid by the Company to the Reinsurer on a quarterly basis in accordance with the provisions of Section 2.6. During years 2001 through 2005, the Reinsurance Allowance shall be in an amount equal to two percent (2.0%) of the average Statutory Reserves and Liabilities established by the Reinsurer with respect of the Contracts ("Positive Reinsurance Allowance"), and shall be calculated and paid by the Reinsurer to the Company on a quarterly basis in accordance with the provisions of Section 2.6. I.21 Required Assumption Approvals. The approvals of any insurance regulatory authorities that may be required in connection with the reinsurance of any of the Coinsured Contracts by the Reinsurer on an assumption reinsurance basis pursuant to the terms and provisions of the Assumption Agreement, including the approval of the Assumption Certificates to be issued by the Reinsurer to the Contractholders of any Assumed Contracts. I.22 Required Assumption Consents. Any consent of any Contractholder to the assumption of a Coinsured Contract by the Reinsurer on an assumption reinsurance basis that may be required under applicable insurance laws or regulations in any jurisdiction where the Coinsured Contracts were issued or, as applicable, where such Contractholders reside. I.23 Required Closing Date Approvals. The approval of any insurance regulatory authorities that may be required for the reinsurance of the Contracts by New Era pursuant to the terms and provisions of the Coinsurance Agreement. I.24 Service Fees. Amounts payable by the Reinsurer to the Company for Support Services under the terms of the Services Agreement. I.25 Service Notice. The notice to be sent by New Era to the Contractholders of the Coinsured Contracts in the form provided in the Services Agreement I.26 Services Agreement. The Administrative Services Agreement between the Company and New Era shown at Schedule 1.26 hereto. I.27 Settlement Amount. The amount of the payment to be made by the Company to Agreement for Reinsurance Page 4 10.15.006 New Era at Closing pursuant to the terms of the Coinsurance Agreement. I.28 Statutory Reserves and Liabilities. The sum of all of the reserves and claims liabilities required to be maintained by the Company for the Contracts calculated consistent with (i) the reserve requirements, statutory accounting rules and actuarial principles applicable to the Company under the law of each state in which the Contracts were issued or delivered including, without limitation, the minimum valuation and non-forfeiture laws and regulations of such states, and (ii) otherwise in accordance with the methodologies used by the Company to calculate the reserves and claims liabilities for the Contracts for purposes of the Company's year-end 1994 financial statement and quarterly financial statement for the most recent quarterly period ended September 30, 1995. I.29 Support Services. The services to be provided in connection with the Coinsured Contracts under the Services Agreement. I.30 Transition Date. The date upon which New Era shall undertake to perform all Support Services in connection with the Contracts under the terms and provisions of the Services Agreement. ARTICLE II: Reinsurance II.1 Reinsurance of Transferred Contracts. Subject to the terms and conditions of this Agreement, on or before the Closing Date, the Company and the Reinsurer shall enter into the Reinsurance Agreements. At the Closing, New Era shall reinsure the Contracts pursuant to the Coinsurance Agreement, effective as of the Coinsurance Effective Date, and the Company, in consideration of New Era's reinsurance of the Contracts, shall pay the Settlement Amount to the Reinsurer. II.2 Entry into Services Agreement. Subject to the terms and conditions of this Agreement, on or before the Closing Date, the Company and New Era shall enter into the Services Agreement. II.3 Transfer of Books and Records. On the Transition Date, the Company shall transfer the Books and Records relating to the Contracts to the Reinsurer. II.4 Regulatory Approvals. The Company shall be responsible for obtaining all Required Closing Date Approvals of the Delaware Insurance Department and any other states, as applicable, on or before the Closing Date. The Reinsurer shall be responsible for obtaining all other Required Closing Date Approvals and, on and after the Closing Date, all Required Assumption Approvals and Required Assumption Consents. II.5 Assignment of Producer Agreements. On the Closing Date, the Company shall assign, transfer, set over and convey to the Reinsurer all of the Company's rights, liabilities and Agreement for Reinsurance Page 5 10.15.007 obligations with respect to the Contracts under the Producer Agreements (excluding, however, any such rights, liabilities or obligations that relate to any period prior to the Coinsurance Effective Date), and the Reinsurer shall undertake and agree to assume and perform, effective as of the Coinsurance Effective Date, the obligations of the Company to pay any Producer Payments due such Producers from the Company pursuant to any Producer Agreement with respect to premiums collected and received by the Reinsurer or for Reinsurer's account under the Contracts for any periods on and after the Coinsurance Effective Date; provided, however, that from the Closing Date to the Transition Date, the Company will continue to pay Producer Payments to Producers on behalf of and for the account of the Reinsurer, and shall not be required to provide the Reinsurer with a listing of Producers until the Transition Date, unless otherwise agreed to between the parties. If required by law or regulatory authorities, the Company shall cooperate with the Reinsurer to cause the appointment of Producers as agents of the Reinsurer for the purpose of paying such Producer Payments. Any liability for compensation to Producers not set forth in the Producer Agreements furnished by the Company to the Reinsurer shall remain the obligation of the Company, and the Reinsurer shall be indemnified and held harmless by the Company for any compensation to Producers in excess of that set forth in the Producer Agreements. II.6 Calculation and Payment of Reinsurance Allowance. Within forty- five (45) days after the end of each calendar quarter beginning with the first quarter of 1996, the Reinsurer shall calculate the average Statutory Reserves and Liabilities established with respect of the Contracts reinsured under the Reinsurance Agreements during the calendar quarter then ended, using accounting and actuarial methods, practices and assumptions consistent with the Company's calculation of the Statutory Reserves and Liabilities with respect of the Contracts as provided in this Agreement, and the Reinsurance Allowance based upon such Statutory Reserves and Liabilities. For each quarter falling in years 1996 through 2000, the Company shall pay the Reinsurer, within five (5) days of receipt of the Reinsurer's calculations, one-fourth (25.0%) of the Negative Reinsurance Allowance calculated by the Reinsurer for such quarter, which may be credited toward and offset by the Company against any Service Fees due the Company from the Reinsurer during such quarter under the terms of the Services Agreement. For each quarter falling in years 2001 through 2005, the Reinsurer shall pay the Company, within forty-five (45) days after the end of each calendar quarter during such years, one-fourth (25.0%) of the Positive Reinsurance Allowance, which may be credited toward and offset by the Reinsurer against any amounts due the Reinsurer from the Company under the terms of the Reinsurance Agreements. If the Company disputes the Reinsurer's calculations of the average Statutory Reserves and Liabilities or the Reinsurance Allowance for any quarter, the calculation shall be referred to an independent actuary who is a fellow in the Society of Actuaries mutually agreed upon by the parties, whose calculations of the average Statutory Reserves and Liabilities and Reinsurance Allowance for such quarter shall be binding upon the parties. Any payment required to be made hereunder based upon the calculations of an independent actuary shall bear interest at the rate of seven percent (7.0%) per annum from the date such payment was originally due under the provisions of this Section 2.6 until paid. Any fees or expenses charged by the independent actuary for making and furnishing such calculations shall be shared equally by the Company and the Reinsurer. Agreement for Reinsurance Page 6 10.15.008 ARTICLE III: Company Representations and Warranties The Company hereby represents and warrants to the Reinsurer as follows: III.1 Company's Corporate Existence and Authority. The Company is a stock life insurance company organized, existing and in good standing under the laws of the State of Delaware, and the execution, delivery and performance of this Agreement, the Reinsurance Agreements and the Services Agreement by the Company have been duly authorized by all necessary corporate action on the part of the Company. This Agreement has been duly and validly executed and delivered to the Reinsurer by the Company and constitutes the valid and legally binding obligation of the Company, enforceable in accordance with its terms. To the best of the Company's knowledge, the execution, delivery and performance by the Company of this Agreement does not and will not: III.1.1 Conflict with or result in any breach or violation of or any default under (or give rise to any right of termination, cancellation or acceleration under) the bylaws or certificate of incorporation of the Company or any note, bond, mortgage, indenture, lease, license, permit, agreement or other instrument or obligation to which the Company is a party or by which the Company is or may be bound. III.1.2 Subject to obtaining any Required Closing Date Approvals, violate any law, order, rule, or regulation applicable to the Company. III.2 Sufficiency of Statutory Reserves and Liabilities. The Statutory Reserves and Liabilities shall be calculated by the Company (for purposes of the Settlement Amount payment to be made at Closing) in accordance with generally accepted actuarial principles and practices that are (i) consistent with those called for under the terms and provisions of the Contracts and (ii) meet the requirements of the insurance laws and regulations of each of the states in which the Contracts have been issued or delivered including, without limitation, the minimum valuation and non-forfeiture laws and regulations of such states. III.3 Contract Forms. Each policy, amendment, rider and form used in connection with the Contracts has been properly approved or deemed approved by appropriate insurance regulatory authorities, and any of these items issued to Contractholders have been validly issued on approved forms in compliance, in all material respects, with applicable state insurance laws and regulations, and the Company has provided or has agreed to provide the Reinsurer with true, correct and complete specimen copies of all forms representing the Contracts. III.4 Accuracy of Books and Records. To the best of the Company's knowledge, information and belief, all of the Books and Records of the Company relating to the Contracts and which will be transferred by the Company to the Reinsurer pursuant to the terms and provisions of this Agreement are current, complete and accurate in all material respects. III.5 Premium Taxes. Subject to Sections 4.6 and 4.7 of the Coinsurance Agreement, Agreement for Reinsurance Page 7 10.15.009 the Company has paid, or will cause to be paid, all premium taxes and guaranty fund assessments due with respect to the Contracts for all periods prior to the Assumption Effective Date. III.6 Reinsurance Coverage. There are no contracts, agreements or treaties of reinsurance between the Company and any other person which cover any risks associated with the Contracts. III.7 Validity of Producer Agreements. All obligations of the Company to make any Producer Payments to Producers in connection with the Contracts are set forth in written Producer Agreements, true, correct and complete copies of which have been furnished by the Company to the Reinsurer, and the Company is not liable for any compensation to any Producers with respect to the Contracts except to the extent set forth in the Producer Agreements. III.8 Compliance with Law. The Company has, to the best of its knowledge, information and belief, conducted its business, including, without limitation, the sale, issuance and administration of the Contracts, in compliance with all applicable laws (including, without limitation, insurance laws and federal and state laws), statutes, ordinances, rules, governmental regulations, writs, injunctions, judgments, decrees or orders of any governmental instrumentality or court. III.9 Litigation Against Company. Except as disclosed on Schedule 3.9 hereto, there are no actions, suits, investigations or proceedings pending or (to the best knowledge of the Company) threatened against the Company at law or in equity, in, before, or by any person (i) that involve any of the Contracts or (ii) that individually or in the aggregate have or may reasonably be expected to have a material adverse effect on the validity or enforceability of this Agreement or the transactions contemplated hereby. III.10 Company's Brokers. Except as set forth on Schedule 3.10 hereto, all negotiations relating to this Agreement and the transactions contemplated hereby by or on behalf of Company have been carried out by the Company directly with the Reinsurer, without the intervention of any person acting on behalf of the Company in such a manner as to give rise to any valid claim by any other person against the Reinsurer for payment of a finder's fee, brokerage commission or similar payment. III.11 Company Disclosure. To the best of the Company's knowledge, information and belief, no warranty or representation by the Company in this Agreement nor in any writing furnished or to be furnished by the Company to the Reinsurer pursuant hereto or in connection herewith contains or will contain any untrue statement of a material fact or omits, or will fail to state, any material fact necessary to make the statements contained herein or therein not misleading. Agreement for Reinsurance Page 8 10.15.010 ARTICLE IV: Reinsurer Representations and Warranties The Reinsurer represents and warrants to the Company as follows: IV.1 Reinsurer's Corporate Existence and Authority. New Era is a stock life insurance company duly organized, validly existing and in good standing under the laws of the State of Texas and is duly qualified to transact life, accident and health insurance in each of the jurisdictions listed on Schedule 4.1 hereto. New Era Midwest is a stock life insurance company duly organized, validly existing and in good standing under the laws of the State of Indiana and is duly qualified to transact life, accident and health insurance in each of the jurisdictions listed on Schedule 4.1 hereto. The execution, delivery and performance of this Agreement, the Reinsurance Agreements and the Services Agreement by the Reinsurer have been duly authorized by all necessary corporate action on the part of the Reinsurer. This Agreement has been duly and validly executed and delivered to the Company by the Reinsurer and constitutes the valid and legally binding obligation of the Reinsurer, enforceable in accordance with its terms. The execution, delivery and performance by the Reinsurer of this Agreement does not and will not: IV.1.1 Conflict with or result in any breach or violation of or any default under (or give rise to any right of termination, cancellation or acceleration) the bylaws or certificate of incorporation of the Reinsurer or any note, bond, mortgage, indenture, lease, license, permit, agreement or other instrument or obligation to which the Reinsurer is a party or by which the Reinsurer is or may be bound. IV.1.2 Subject to obtaining any Required Closing Date Approvals, violate any law, order, rule, or regulation applicable to the Reinsurer. IV.2 Litigation Against Reinsurer. There are no actions, suits, investigations or proceedings pending or (to the best knowledge of the Reinsurer) threatened against the Reinsurer at law or in equity, in, before, or by any person, that individually or in the aggregate have or may reasonably be expected to have a material adverse effect on the validity or enforceability of this Agreement or the transactions contemplated hereby. IV.3 Reinsurer's Brokers. Except as set forth at Schedule 4.3 hereto, all negotiations relating to this Agreement and the transactions contemplated hereby have been carried out by the Reinsurer directly with the Company, without the intervention of any person on behalf of the Reinsurer in such manner as to give rise to any valid claim by any other person against the Company for a finder's fee, brokerage commission or similar payment. IV.4 Reinsurer Disclosure. No warranty or representation by the Reinsurer in this Agreement or in any writing furnished or to be furnished to the Company by the Reinsurer pursuant hereto or in connection herewith contains or will contain any untrue statement of a material fact or omits or will fail to state any material fact necessary to make the statements herein or therein not Agreement for Reinsurance Page 9 10.15.011 misleading. ARTICLE V: Covenants of the Parties The Company and the Reinsurer hereby covenant and agree as follows: V.1 Maintenance of Business by the Company. From the date of this Agreement until the Closing Date, the Company shall (a) carry on its business in the ordinary course and consistent with past practice, using reasonable efforts, equivalent in all material respects to those business methods and practices historically followed by the Company, to maintain its relationships with those customers, Contractholders, Producers and others with whom it has business relationships with respect to the Contracts; (b) preserve intact the Company's present business organization, reputation and Contractholder relations; (c) maintain all licenses, qualifications and authorizations of the Company to do business in each jurisdiction in which it is presently licensed, qualified or authorized; and (d) use reasonable efforts, equivalent in all material respects to those business methods and practices historically followed by the Company, to service and conserve the Contracts and maintain them in full force and effect. V.2 No Change in Reserving Contracts, Methods or Assumptions. Except as provided in the subsections to this Section 5.2, prior to the Closing Date, the Company (i) shall make no material change in its underwriting, rewriting or reserving policies, practices or procedures applicable to the Contracts, and (ii) will not issue any new policies on any of the forms of the Contracts listed at Schedule 1.13 hereto. V.2.1 In providing Support Services in connection with the Contracts during the Company Service Period under the terms of the Services Agreement, the Company shall be permitted to process and allow reinstatements, renewals, the exercise of purchase options under, or the exercise of contractual conversion rights under, the Contracts if and to the extent required by the provisions of the Contracts (collectively, the "Permitted Transactions"). If a Permitted Transaction is, under the terms of a Contract, conditioned upon evidence of insurability, Company will (i) require such evidence of insurability and (ii) secure the Reinsurer's prior written approval of the Permitted Transaction before processing such Permitted Transaction. V.2.2 Except for Permitted Transactions under Section 5.2.1, the Reinsurer shall neither reinsure nor assume any new policies issued by the Company after the Closing Date unless it shall expressly agree to do so in writing. V.3 Reinsurance Coverage. From and after the Closing Date, the Company covenants and agrees that it will not, except for the reinsurance contemplated by this Agreement, enter into any contracts, agreements or treaties of reinsurance with any other person which cover or purport to cover any risks associated with the Coinsured Contracts. V.4 Continued Access to Books and Records Retained by the Company. In addition to the Books and Records transferred to the Reinsurer pursuant to Agreement for Reinsurance Page 10 10.15.012 the provisions of Section 2.3 of this Agreement, the Company shall retain historical Books and Records relating to the Contracts in accordance with Company's generally applicable records retention policies, as in effect at the date hereof, including, without limitation, advertising materials, complaint files, loss ratio data, closed claims files, and other records relating to the Coinsured Contracts or representing compilations of data with respect thereto ("Retained Books and Records"). On and after the Closing Date, the Company shall provide the Reinsurer with access to all non-privileged information in the possession or control of the Company which pertains to, and which the Reinsurer reasonably requests in connection with, any claim, loss or obligation arising out of any of the Coinsured Contracts. Such access shall be provided by the Company during normal business hours of the Company as reasonably requested by the Reinsurer or its employees, accountants, actuaries, attorneys and other agents for any reasonable purpose including, without limitation, the preparation or examination of tax returns and financial statements, the review of payment and claims procedures, the adequacy of established reserves, the compliance by the Company with any obligations it has under this Agreement, the Reinsurance Agreements or the Services Agreement, and the conduct of any litigation or regulatory dispute resolution, whether pending or threatened, concerning the sale of Contracts, or the servicing of the Contracts by the Company prior to the Transition Date. V.5 Notice of Actions Received by the Company. On and after the Closing Date, the Company shall promptly provide the Reinsurer with notice of any demand letters, summonses, complaints, petitions, notices of litigation and complaints, notices and inquiries or other correspondence from insurance regulatory authorities received by the Company with respect to any of the Contracts and which pertain to any obligations of the Reinsurer to indemnify the Company or hold it harmless under this Agreement, the Reinsurance Agreements or the Services Agreement. V.6 Continued Access to Books and Records Transferred to the Reinsurer. On and after the Transition Date and continuing to the applicable Assumption Effective Date, the Reinsurer agrees to provide the Company with access to all information in the possession or control of the Reinsurer which the Company reasonably requests in connection with the Coinsured Contracts. Such access shall be provided by the Reinsurer during normal business hours of the Reinsurer as may reasonably be requested by the Company or its employees, accountants, actuaries, attorneys or other agents for any reasonable purpose including, without limitation, the preparation or examination of tax returns and financial statements, the review of payment and claims procedures, the adequacy of established reserves, the compliance by the Reinsurer with any obligations it has under this Agreement, the Reinsurance Agreements or the Services Agreement, and the conduct of any litigation or regulatory dispute resolution, whether pending or threatened, concerning the sale of the Coinsured Contracts or the servicing of the Coinsured Contracts by the Reinsurer following the Transition Date. V.7 Notice of Actions Received by the Reinsurer. On and after the Closing Date, the Reinsurer shall promptly provide the Company with notice of any demand letters, summonses, complaints, petitions or notices of litigation received by the Reinsurer with respect to any of the Coinsured Contracts and which pertain to any obligations of the Company to indemnify the Reinsurer Agreement for Reinsurance Page 11 10.15.013 or hold it harmless under this Agreement, the Reinsurance Agreements or the Services Agreement. V.8 Unfair Practices. The Company shall cooperate with the Reinsurer in preserving and exercising all legal and contractual rights that may be available to the Company against any person who shall unlawfully "twist", rewrite, or solicit the lapse or termination of, any of the Coinsured Contracts, or who shall otherwise engage in any unfair or deceptive acts or practices in connection with the Coinsured Contracts, which acts or practices have caused or may result in injury to Reinsurer's commercial interests. Company shall have the right to approve any action proposed to be taken by, on behalf of, or in the name of, Company under this Section 5.8, which approval shall not be unreasonably withheld. Reinsurer shall indemnify, defend and hold Company harmless of, from and against any Losses (as defined at Article IX hereof) incurred by Company as a result of actions taken by or at request of Reinsurer under this Section 5.8. V.9 Regulatory Filings and Approvals. The parties will take all commercially reasonable steps necessary or desirable, and shall proceed diligently and in good faith, to obtain as promptly as practicable all approvals, authorizations and clearances of governmental and regulatory authorities required of the Company and the Reinsurer to consummate the transactions contemplated in this Agreement, the Reinsurance Agreements and the Services Agreement, including, without limitation, the Required Assumption Approvals and the Required Closing Date Approvals, and shall cooperate with each other and provide such information and communications to such governmental and regulatory authorities as the party responsible for obtaining such approvals may reasonably request. V.10 HSR Act Filings. If required by law, the Company and the Reinsurer shall, as promptly as practicable, file any Notification and Report Forms under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), and the rules of the Federal Trade Commission ("FTC") thereunder, with the FTC and the Antitrust Division of the U.S. Department of Justice (the "Antitrust Division") in connection with the transactions contemplated by this Agreement and the Reinsurance Agreements, and shall use their best efforts to respond as promptly as practicable to all inquiries received from the FTC or the Antitrust Division for additional information or documentation. Each of the Company and the Reinsurer will furnish to the other such necessary information and reasonable assistance as the other may request in connection with its preparation of necessary filings or submissions to any governmental or regulatory agency, including, without limitation, any filings necessary under the provisions of the HSR Act. V.11 Conduct Pending Closing. From the date of this Agreement to the Closing Date, (a) the Company shall use its best efforts to conduct its affairs in such a manner so that, except as otherwise contemplated or permitted by this Agreement, the Reinsurance Agreements and the Services Agreement, the representations and warranties of the Company contained in Article III hereof shall continue to be true and correct in all material respects on and as of the Closing Date as if made on and as of the Closing Date; (b) the Reinsurer shall use its best efforts to conduct its affairs in such a manner so that, except as otherwise contemplated or permitted by this Agreement, Agreement for Reinsurance Page 12 10.15.014 the Reinsurance Agreements and the Services Agreement, the representations and warranties of the Reinsurer contained in Article IV hereof shall continue to be true and correct in all material respects on and as of the Closing Date as if made on and as of the Closing Date; (c) the Company shall notify the Reinsurer promptly of any event, condition or circumstance occurring from the date hereof through the Closing Date that would constitute a material violation or breach of this Agreement by the Company; and (d) the Reinsurer shall notify the Company promptly of any event, condition or circumstance occurring from the date hereof through the Closing Date that would constitute a material violation or breach of this Agreement by the Reinsurer. V.12 Further Assurances. Subject to the terms and conditions of this Agreement, the Company and the Reinsurer will use their best efforts to take, or cause to be taken, all actions or to do, or cause to be done, all things or execute any documents reasonably necessary, proper or advisable to consummate and make effective the transactions contemplated by this Agreement, the Reinsurance Agreements and the Services Agreement. On and after the Closing Date, the Company and the Reinsurer will take all appropriate action and execute any documents, instruments or conveyances of any kind which may be reasonably necessary or advisable to carry out any of the provisions hereof, the Reinsurance Agreements or the Services Agreement. V.13 Use by the Reinsurer of the Company's Name, Logo or Service Marks. Except as otherwise agreed upon in writing, the Reinsurer has not acquired by means of this Agreement, the Reinsurance Agreements or the Services Agreement or by any other means, the right to use the name, "Investors Insurance Corporation," or any of the Company's service marks, trademarks, designs or logos related to that name. The Reinsurer agrees that it will not use such name, service marks, trademarks, designs or logos unless the Company shall have agreed in writing to such use; provided, however, that the Reinsurer may utilize existing forms of the Contracts in processing Permitted Transactions under the Contracts after the Transition Date. V.14 Communications with Contractholders. All communications with Contractholders by either the Company or the Reinsurer in connection with the reinsurance of the Contracts by the Reinsurer under the Reinsurance Agreements, including without limitation the Assumption Certificates and the Service Notices, or the servicing of the Contracts under the Services Agreement, shall be in such form as shall be mutually agreed upon by the parties hereto prior to any release thereof, except for communications with Contractholders as required to service the Contracts in the ordinary course of business. The Company and the Reinsurer agree to cooperate fully and promptly regarding the preparation and distribution of any such communications to Contractholders. V.15 Expenses. Except as otherwise specifically provided in this Agreement, the parties hereto shall each bear their own respective expenses incurred in connection with the preparation, execution and performance of this Agreement, the Reinsurance Agreements and the Services Agreement, including without limitation all fees and expenses of counsel, actuaries and accountants. Agreement for Reinsurance Page 13 10.15.015 ARTICLE VI: Conditions to Closing VI.1 Conditions to the Reinsurer's Obligations to Close. The obligation of the Reinsurer to close the transactions contemplated under this Agreement shall be subject to the fulfillment of the following conditions, any one or more of which may be waived by the Reinsurer to the extent permitted by law: VI.1.1 Receipt of All Required Closing Date Approvals. All Required Closing Date Approvals shall have been received, and the Company shall have delivered to the Reinsurer a copy of any Required Closing Date Approval issued by the Delaware Insurance Department. VI.1.2 Truth of Representations and Warranties of Company. The representations and warranties of the Company contained in this Agreement shall be true and correct in all material respects on and as of the Closing Date, and the Company shall have delivered to the Reinsurer a certificate, dated as of the Closing Date and executed by a duty authorized executive officer of the Company, to such effect. VI.1.3 Performance of Covenants and Obligations of Company. The Company shall have performed and complied with all agreements, covenants, obligations and conditions required by this Agreement to be so performed or complied with by the Company at or before the Closing, and the Company shall have delivered to the Reinsurer a certificate, dated as of the Closing Date and executed by a duly authorized executive officer of the Company, to such effect. VI.1.4 Receipt of the Settlement Amount. The Settlement Amount shall have been paid to the Reinsurer in the form and manner provided in the Coinsurance Agreement. VI.1.5 Execution and Delivery of Agreements. The Reinsurance Agreements and the Services Agreement shall have been executed by a duly authorized executive officer of the Company and delivered to the Reinsurer. VI.1.6 Delivery of Listing of Contracts. The Company shall have delivered to the Reinsurer a final listing of the Contracts to be reinsured by the Reinsurer under the Reinsurance Agreements. VI.2 Conditions to the Company's Obligations to Close. The obligation of the Company to close the transactions contemplated under this Agreement shall be subject to the fulfillment of the following conditions, any one or more of which may be waived by the Company to the extent permitted by law: VI.2.1 Receipt of All Required Closing Date Approvals. All required Closing Date Approvals shall have been obtained. VI.2.2 Truth of Representations and Warranties of Reinsurer. The representations and warranties of the Reinsurer contained in this Agreement shall be true and correct in all material Agreement for Reinsurance Page 14 10.15.016 respects on and as of the Closing Date, and the Reinsurer shall have delivered to the Company a certificate, dated as of the Closing Date and executed by a duly authorized executive officer of the Reinsurer, to such effect. VI.2.3 Performance of Covenants and Obligations of Reinsurer. The Reinsurer shall have performed and complied with all agreements, covenants, obligations and conditions required by this Agreement to be so performed or complied with by the Reinsurer at or before the Closing, and the Reinsurer shall have delivered to the Company a certificate, dated on the Closing Date and executed by a duly authorized executive officer of the Reinsurer, to such effect. VI.2.4 Execution and Delivery of Agreements. The Reinsurance Agreements and the Services Agreement shall have been executed by a duly authorized executive officer of the Reinsurer and delivered to Company. ARTICLE VII: Survival of Representations and Warranties Except as otherwise expressly provided herein or therein, the representations and warranties made by the Company and the Reinsurer in this Agreement, the Reinsurance Agreements and the Services Agreement, or in any certificate delivered by the Company or the Reinsurer pursuant hereto or thereto, shall survive for a period of two years following the Closing Date. ARTICLE VIII: Arbitration VIII.1 Agreement to Arbitrate. All disputes between the Reinsurer and the Company arising under this Agreement, the Reinsurance Agreements and the Services Agreement on which an amicable understanding cannot be reached will be decided by arbitration between the parties at a location to be mutually agreed upon between the parties or as designated by the arbitrators if agreement as to a location cannot be reached by the parties. Notwithstanding any other provision of this Article VIII, if either the Reinsurer or the Company seeks, consents to, or acquiesces in the appointment of or otherwise becomes subject to any trustee, receiver, liquidator or conservator (including any state insurance regulatory agency or authority acting in such a capacity), the other party shall not be obligated to resolve any claim, dispute or cause of action under this Agreement by arbitration. Notwithstanding any other provision of this Article VIII, nothing contained in this Agreement shall require arbitration of any issue for which equitable or injunctive relief, including specific performance, is sought. VIII.2 Method. To initiate arbitration, either party shall notify the other in writing in the manner set forth in this Agreement for sending notices to the parties of its desire to arbitrate, stating the nature of the dispute and the remedy sought, and designating an arbitrator. The party to which the notice is sent shall respond thereto in writing within thirty (30) days of its receipt of such notice. In such response, the party shall also assert any claim, defense and other dispute it may have against the party initiating arbitration, and which arises out of or relates in any way to this Agreement for Reinsurance Page 15 10.15.017 Agreement, the Reinsurance Agreements or the Services Agreement, and designate its arbitrator. If the second party fails to respond within the time period set forth in this Section 8.2, or fails to designate its arbitrator in its response, the party initiating arbitration shall appoint a second arbitrator. The two arbitrators shall select a third arbitrator within thirty (30) days of the designation of the second arbitrator. If they are unable to agree upon the selection of the third arbitrator, they shall, within such period, each name three (3) individuals of whom the other shall decline two (2), and the decision of the third arbitrator shall be determined by drawing lots from the two remaining designees. All arbitrators shall be active or retired officers of life or health insurance companies and be disinterested in the outcome of the arbitration. The arbitrators shall have the power to determine all procedural rules for the conduct of the arbitration, including but not limited to the production and inspection of documents, the examination of witnesses and any other matter relating to the conduct of the arbitration. The arbitrators shall interpret this Agreement, the Reinsurance Agreements and the Services Agreement as an honorable engagement and not merely as legal obligations between the parties. They shall reach their decision from the standpoint of equity and the customs and practices of the insurance industry, and may abstain from following the strict rules of law. The costs of the arbitration (except legal fees of the parties) shall be split equally between the parties, unless the arbitrators shall otherwise require in their award. Each party shall pay its own legal fees in connection with the arbitration, unless the arbitrators award legal fees and expenses of the prevailing party as part of any award. Except as otherwise specifically provided herein, the arbitration shall be conducted in accordance with rules established by the American Arbitration Association. The decision, in writing, of the arbitrators shall be rendered within forty-five (45) days after the conclusion of the arbitration hearing, and shall be final and binding upon both of the parties. Judgment may be entered upon the final decision of the arbitrators in any court having jurisdiction. ARTICLE IX: Indemnification IX.1 Indemnification Under Reinsurance Agreements. The parties agree to indemnify and defend each other and hold each other harmless against all claims, losses, liabilities, damages, deficiencies, diminution in value, costs and expenses, including interest, penalties, punitive or extracontractual damages, and reasonable attorneys fees and disbursements ("Loss" or "Losses") arising under or in relation to the Contracts as and to the extent provided under the Reinsurance Agreements. IX.2 Indemnification Under this Agreement. In addition to the indemnification provided at Section 9.1 of this Agreement: IX.2.1 The Company agrees to indemnify the Reinsurer and hold it harmless from and against Losses based upon or arising out of (i) Company's material breach of any representation, warranty, covenant or agreement under this Agreement, and (ii) any Excluded Liabilities. IX.2.2 The Reinsurer agrees to indemnify the Company and hold it harmless from Agreement for Reinsurance Page 16 10.15.018 and against Losses based upon or arising out of Reinsurer's material breach of any representation, warranty, covenant or agreement under this Agreement. IX.3 Notice of Claim. As soon as reasonably possible, but in no event subsequent to thirty (30) days after receipt by an indemnified party hereunder of written notice of any demand, claim or circumstances which, upon the lapse of time, would give rise to a claim or the commencement (or threatened commencement) of any action, proceeding or investigation (a "Claim") that may result in a Loss, such indemnified party shall give notice thereof ("Claims Notice") to the indemnifying party. The Claims Notice shall describe the Claim 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. The failure of the indemnified party to give the Claims Notice within in the time provided for herein shall not affect the indemnifying party's obligation under this Article IX except if, and then only to the extent that, such failure materially prejudices the indemnifying party or its ability to defend such Claim. IX.4 Opportunity to Defend. Within thirty (30) days of receipt of any Claims Notice given pursuant to Section 9.3, the indemnifying party shall notify the indemnified party in writing of the acceptance of or objection to the Claim and whether the indemnifying party will indemnify the indemnified party and defend the same at the expense of the indemnifying party with counsel selected by the indemnifying party (who shall be approved in writing by the indemnified party, such approval not to be unreasonably withheld); provided that the indemnified party shall at all times have the right to fully participate in the defense of the Claim at its own expense or, as provided hereinbelow, at the expense of the indemnifying party. Failure by the indemnifying party to object in writing with such thirty (30) day period shall be deemed to be acceptance of the Claim by the indemnifying party. In the event that the indemnifying party objects to a Claim within said thirty (30) days or does not object but fails to vigorously defend and appears to be unable or unwilling to meet its indemnification obligations hereunder, the indemnified party shall have the right, but not the obligation, to undertake the defense, and to compromise and/or settle (in the exercise of reasonable business judgment) the Claim, all at the risk and expense (including, without limitation, reasonable attorneys fees and expenses) of the indemnifying party. Except as provided in the preceding sentence, the indemnified party shall not compromise and/or settle any Claim without the prior written consent of the indemnifying party. If the Claim is one that cannot by its nature be defended solely by the indemnifying party, the indemnified party shall make available all information and assistance that the indemnifying party may reasonably request, provided that any associated expense shall be paid by the indemnifying party. IX.5 Limitation on Indemnification. Neither party shall be entitled to indemnification unless the party seeking indemnification makes claim therefor pursuant to the procedures set forth in Section 9.3 of this Agreement. ARTICLE X: Termination X.1 Termination. This Agreement may be terminated as provided in this Section 10.1. Agreement for Reinsurance Page 17 10.15.019 X.1.1 This Agreement may be terminated at any time before the Closing, by mutual written agreement of the Company and the Reinsurer. X.1.2 Reinsurer may terminate this Agreement at any time prior to closing for material breach by Company of any of the terms or conditions of this Agreement or for failure of any condition to closing, the satisfaction of which is solely within Company's control. X.1.3 Company may terminate this Agreement at any time prior to closing for material breach by Reinsurer of any of the terms or conditions of this Agreement or for failure of any condition to closing, the satisfaction of which is solely within Reinsurer's control. X.1.4 Either Company or Reinsurer may terminate this Agreement at any time prior to closing for failure of any condition to closing, the satisfaction of which is not within either Company or Reinsurer's control, or otherwise chargeable to any act or omission to act on the part of either party. X.1.5 Either Company or Reinsurer may terminate this Agreement if closing hereunder has not occurred by January 31, 1996. X.2 Effect of Termination. If this Agreement is terminated pursuant to Sections 10.1.1, 10.1.4 or 10.1.5, this Agreement will forthwith become null and void, and there will be no liability on the part of the Company or the Reinsurer to the other hereunder. In the event of termination under Sections 10.1.2 or 10.1.3, the parties shall be deemed to have reserved all of their respective rights and remedies hereunder and at law or in equity. ARTICLE XI: Miscellaneous Provisions XI.1 Notice. Any and all notices and other communications required or permitted under this Agreement shall be in writing and shall be deemed to have been duly given when (i) mailed by United States overnight express mail, (ii) sent by facsimile or telecopy machine, followed by confirmation mailed by overnight express mail, or (iii) delivered in person to the parties at the following addresses: If to the Company, to: Investors Insurance Corporation 7200 West Camino Real Boca Raton, Florida 33433 Attention: Melvin C. Parker, President FAX No.: (407) 391-0316 Agreement for Reinsurance Page 18 10.15.020 With a copy to (which shall not constitute notice): Palmarella & Sweeney, P.C. 100 Matsonford Road Suite 310, Building 2 Radnor, Pennsylvania 19087 Attention: Ernie Palmarella, Esquire FAX No.: (610) 687-8830 If to the Reinsurer, to: New Era Life Insurance Company 200 West Lake Park Boulevard P.O. Box 4884 Houston, Texas 77210-4884 Attention: Bill S. Chen, FSA, Ph.D., President & CEO FAX No.: (713) 368-7286 With a copy to (which shall not constitute notice): Winstead Sechrest & Minick, P.C. 910 Travis Street Suite 1700 Houston, Texas 77002-5895 Attention: David D. Knoll, Esquire FAX No.: (713) 951-3800 Either party may change the names on addresses where notice is to be given by providing notice to the other party of such change in accordance with this Section 11.1. XI.2 Entire Agreement. This Agreement, including the Exhibits and Schedules thereto including without limitation the Reinsurance Agreements and the Services Agreement, constitutes the sole and entire agreement of and among the parties hereto with respect to the subject matter hereof, and supersedes all prior discussions and agreements among the parties with respect to the subject matter hereof, which are merged with and into this Agreement. XI.3 Assignment. This Agreement shall not be assigned by any of the parties hereto without the prior written approval of the other parties. XI.4 Waivers and Amendments. Any term or condition of this Agreement may be waived at any time by the party that is entitled to the benefit thereof. Such waiver must be in writing and must be executed by an executive officer of such party. A waiver on one occasion will not be deemed to be a waiver of the same or any other term or condition on a future occasion. This Agreement may be modified or amended only by a writing duly executed by an executive officer of the Company and the Reinsurer, respectively. Agreement for Reinsurance Page 19 10.15.021 XI.5 No Third Party Beneficiaries. The terms and provisions of this Agreement are intended solely for the benefit of the Company and the Reinsurer and their permitted successors and assigns, and it is not the intention of the parties to confer rights as a third-party beneficiary to this Agreement upon any other person. XI.6 Public Announcements. At all times at or before the Closing, the Company and the Reinsurer will each consult with the other before issuing or making any reports, statements or releases to the public with respect to this Agreement or the transactions contemplated hereby and will use good faith efforts to obtain the other party's approval of the form, content and timing of any public report, statement or release to be made solely on behalf of a party. If the Company and the Reinsurer are unable to agree upon or approve the form, content and timing of any such public report, statement or release and such report, statement or release is, in the opinion of legal counsel to the party, required by law or by legal disclosure obligations, then such party may make or issue the legally required report, statement or release. XI.7 Governing Law. This Agreement will be governed by and construed in accordance with the laws of the State of Texas, without regard to its conflicts of law doctrine. XI.8 Counterparts. This Agreement may be executed simultaneously in any number of counterparts, each of which will be deemed an original, but all of which shall constitute one and the same instrument. XI.9 Headings. The headings in this Agreement have been inserted for convenience and do not constitute matter to be construed or interpreted in connection with this Agreement. Agreement for Reinsurance Page 20 10.15.022 XI.10 Severability. If any provision of this Agreement is held to be illegal, invalid or unenforceable under any present or future law or if determined by a court of competent jurisdiction to be unenforceable, and if the rights or obligations of the Company or the Reinsurer under this Agreement will not be materially and adversely affected thereby, such provision shall be fully severable, and this Agreement will be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part of this Agreement, and the remaining provisions of this Agreement shall remain in full force and effect and will not be affected by the illegal, invalid or unenforceable provision or by its severance herefrom. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date first written above. INVESTORS INSURANCE CORPORATION By: Melvin C. Parker Title: President NEW ERA LIFE INSURANCE COMPANY By: Bill S. Chen, FSA, PhD. Title: President & CEO NEW ERA LIFE INSURANCE COMPANY OF THE MIDWEST ___________________________________ By: Bill S. Chen, FSA, Ph.D. Title: President & CEO HO953460171 011696ddk4 9826-31 Agreement for Reinsurance Page 21 10.15.023 TABLE OF CONTENTS Page ARTICLE I: Definitions 1 1.1 Assumed Contract 1 1.2 Assumption Agreement 2 1.3 Assumption Certificate 2 1.4 Assumption Effective Date 2 1.5 Books and Records 2 1.6 Closing 2 1.7 Closing Date 2 1.8 Coinsurance Agreement 2 1.9 Coinsurance Effective Date 2 1.10 Coinsured Contract 2 1.11 Company Service Period 3 1.12 Contractholder 3 1.13 Contracts 3 1.14 Excluded Liabilities 3 1.15 Novation 3 1.16 Producer 3 1.17 Producer Agreement 4 1.18 Producer Payments 4 1.19 Reinsurance Agreements 4 1.20 Reinsurance Allowance 4 1.21 Required Assumption Approvals 4 1.22 Required Assumption Consents 4 1.23 Required Closing Date Approvals 4 1.24 Service Fees 5 1.25 Service Notice 5 1.26 Services Agreement 5 1.27 Settlement Amount 5 1.28 Statutory Reserves and Liabilities 5 1.29 Support Services 5 1.30 Transition Date 5 ARTICLE II: Reinsurance 5 2.1 Reinsurance of Transferred Contracts 5 2.2 Entry into Services Agreement 5 2.3 Transfer of Books and Records 6 2.4 Regulatory Approvals 6 2.5 Assignment of Producer Agreements 6 2.6 Calculation and Payment of Reinsurance Allowance 6 i 10.15.024 ARTICLE III: Company Representations and Warranties 7 3.1 Company's Corporate Existence and Authority 7 3.2 Sufficiency of Statutory Reserves and Liabilities 7 3.3 Contract Forms 8 3.4 Accuracy of Books and Records 8 3.5 Premium Taxes 8 3.6 Reinsurance Coverage 8 3.7 Validity of Producer Agreements 8 3.8 Compliance with Law 8 3.9 Litigation Against Company 8 3.10 Company's Brokers 8 3.11 Company Disclosure 9 ARTICLE IV: Reinsurer Representations and Warranties 9 4.1 Reinsurer's Corporate Existence and Authority 9 4.2 Litigation Against Reinsurer 9 4.3 Reinsurer's Brokers 10 4.4 Reinsurer Disclosure 10 ARTICLE V: Covenants of the Parties 10 5.1 Maintenance of Business by the Company 10 5.2 No Change in Reserving Contracts, Methods or Assumptions 10 5.3 Reinsurance Coverage 11 5.4 Continued Access to Books and Records Retained by the Company 11 5.5 Notice of Actions Received by the Company 11 5.6 Continued Access to Books and Records Transferred to the Reinsurer 11 5.7 Notice of Actions Received by the Reinsurer 12 5.8 Unfair Practices 12 5.9 Regulatory Filings and Approvals 12 5.10 HSR Act Filings 12 5.11 Conduct Pending Closing 13 5.12 Further Assurances 13 5.13 Use by the Reinsurer of the Company's Name, Logo or Service Marks 13 5.14 Communications with Contractholders 13 5.15 Expenses 14 ARTICLE VI: Conditions to Closing 14 6.1 Conditions to the Reinsurer's Obligations to Close 14 6.1.1 Receipt of All Required Closing Date Approvals 14 6.1.2 Truth of Representations and Warranties of Company 14 6.1.3 Performance of Covenants and Obligations of Company 14 6.1.4 Receipt of the Settlement Amount 14 6.1.5 Execution and Delivery of Agreements 15 6.1.6 Delivery of Listing of Contracts 15 ii 10.15.025 6.2 Conditions to the Company's Obligations to Close 15 6.2.1 Receipt of All Required Closing Date Approvals 15 6.2.2 Truth of Representations and Warranties of Reinsurer 15 6.2.3 Performance of Covenants and Obligations of Reinsurer 15 ARTICLE VII: Survival of Representations and Warranties 15 ARTICLE VIII: Arbitration 16 8.1 Agreement to Arbitrate 16 8.2 Method 16 ARTICLE IX: Indemnification 17 9.1 Indemnification Under Reinsurance Agreements 17 9.2 Indemnification Under this Agreement 17 9.3 Notice of Claim 17 9.4 Opportunity to Defend 17 9.5 Limitation on Indemnification 18 ARTICLE X: Termination 18 10.1 Termination 18 10.2 Effect of Termination 19 ARTICLE XI: Miscellaneous Provisions 19 11.1 Notice 19 11.2 Entire Agreement 20 11.3 Assignment 20 11.4 Waivers and Amendments 20 11.5 No Third Party Beneficiaries 20 11.6 Public Announcements 20 11.7 Governing Law 21 11.8 Counterparts 21 11.9 Headings 21 11.10 Severability 21 iii 10.15.026 Schedule 1.2 ASSUMPTION REINSURANCE AGREEMENT (attached) 10.15.027 Schedule 1.8 COINSURANCE AGREEMENT (attached) 10.15.028 Schedule 1.13 CONTRACTS Contract No./Plan Code EPB, EP5, EWP HPB, HP5, HWP IPB, IP5, IWP KPB, KP5, KWP NPB, NP5, NWP PPB, PP5, PWP RPB, RP5, RWP SPB, SP5, SWP TPB, TP5, TWP Statutory reserve as of December 31, 1995 is $76,306,929. 10.15.029 Schedule 1.26 ADMINISTRATIVE SERVICES AGREEMENT (attached) 10.15.030 Schedule 3.9 SCHEDULE OF LITIGATION AGAINST COMPANY None 10.15.031 Schedule 3.10 LISTING OF COMPANY'S BROKERS None 10.15.032 Schedule 4.1 NEW ERA LIFE INSURANCE COMPANY JURISDICTIONS IN WHICH LICENSED Alabama Mississippi Arizona New Mexico Colorado North Carolina Delaware Oklahoma Florida South Carolina Georgia South Dakota Indiana Texas Louisiana Utah NEW ERA LIFE INSURANCE COMPANY OF THE MIDWEST JURISDICTIONS IN WHICH LICENSED Alaska Louisiana California Missouri Colorado Ohio Florida Oklahoma Illinois Tennessee Indiana Texas Kentucky Wisconsin 10.15.033 Schedule 4.3 LISTING OF REINSURER'S BROKERS Martin Teller Search Information Services 21044 Sherman Way, Suite 214 Canoga Park, California 91303 EX-10 25 10.16 MANAGEMENT AND SERVICE AGREEMENT 10.16.001 MANAGEMENT AND SERVICE AGREEMENT THIS AGREEMENT (hereinafter referred to as "Agreement") is hereby made effective this 1st day of January, 1993 between INVESTORS INSURANCE CORPORATION, a Corporation organized under the laws of Delaware (hereinafter referred to as "IIC"), and GEMCO NATIONAL, INC. a corporation organized under the laws of the State of New York (hereinafter referred to as "Gemco"). WHEREAS: IIC is a life insurance company licensed to sell Product in the twenty-one (21) States; and WHEREAS: Gemco has the experience and personnel to render management and the services to IIC and has established a distribution system of Brokerage Agents for the brokerage and sale of Products; and WHEREAS: The parties named above are desirous of reaching an agreement with regard to management and other services and also as to the brokerage and sale of Product through the use of Gemco's brokerage and distribution systems. NOW. THEREFORE: in consideration of mutual covenants and agreements set forth herein and for other good and valuable consideration, the receipt and sufficiency of which is hereby confessed and acknowledged, the Parties hereto mutually understand and agree as follows, to wit: ARTICLE 1: MANAGEMENT AND OTHER SERVICES A. IIC recognizes that Gemco has the expertise and personnel to assist IIC in the development and expansion of its business. IIC 10.16.002 agrees that during the term of this Agreement that it will purchase all of the below services from Gemco. Gemco agrees that during the term of this Agreement that it will provide through its personnel, facilities and network off independent service providers, the services required by IIC to management and expand IIC's business. The services contemplated to be sold and purchased hereunder are as follows: (1) Senior Management Services (a) Coordinate policy decisions (b) Manage the business hierarchy (c) Focus decision making personnel (2) Accounting Services (a) General Accounting (i) Maintain general ledger (ii) Maintain accounts receivable/payable (iii) Handle all financial reporting (b) Investment Accounting (i) Maintain investment reporting system (ii) Handle all investment reporting (3) General Administrative Services (i) Personal and payroll services (ii) Office equipment and supplies - inventory and supply (iii) Miscellaneous office services (4) Insurance Administrative Services (a) New Business Services (i) Underwriting (ii) Prepare and issue policies (b) Policyholder Service (i) Maintain policies in force (ii) Handle policyholder inquirers (iii) Process policy claims, changes, etc. (c) Agent Services (i) Process new agent licenses (ii) Maintain agent records (5) Obtain and Coordinate External Professional Services (a) Legal services (b) Accounting services (c) Actual services (d) Investment advisor services (e) Reinsurance company services (B) Gemco agrees that all information obtained by it in the course of rendering the aforementioned services shall at all times 10.16.003 remain confidential. IIC's written permission shall be required to release any information to non-affiliated persons or entities. Notwithstanding the above, Gemco shall be free to release information to any government agency, bureau or other office upon proper request and nothing herein shall prevent Gemco from releasing any information in furtherance of its duties to provide the services hereunder. (C) Nothing herein shall prevent or prohibit Gemco from providing management and other services to any other person or entity provided, however, such duties do not interfere with Gemco's obligations under this Agreement. ARTICLE 2: AGREEMENT TO BROKER AND SELL A. IIC agrees that Gemco and any of its affiliated Brokerage Agents shall have a right to broker and sell Product as herein defined, in all states in which Product has been approved for sale, subject to the terms and conditions of this Agreement. Gemco agrees that any other brokerage agent not affiliated with Gemco shall have the right to broker and sell Product as defined herein, subject to the terms and conditions of this Agreement. Nothing contained herein will prevent IIC from withdrawing Product from the marketplace at it's sole discretion with five (5) days written notice to Gemco. Except for commissions due and owing to Gemco, IIC shall have no obligation to Gemco whatsoever for IIC's withdrawal of the Product from the market. B. IIC hereby authorizes Gemco to recruit Brokerage Agents on behalf of IIC to broker and sell Product. 10.16.004 C. Gemco agrees to process Brokerage Agent contracts and to forward the same to IIC. IIC hereby agrees to file licensing applications and to pay the required licensing fees in the home states of the applicants recruited by Gemco for the express purpose of obtaining the necessary insurance license. D. IIC shall have the absolute and unconditional right to terminate any Brokerage Agent recruited by Gemco upon written notice, provided such termination is not being made principally for the purpose of limiting or inhibiting Gemco's ability to broker and sell product. E. Gemco will use its best effort to insure that Brokerage Agents recruited by it are properly licensed to sell Product and that these Brokerage Agents maintain all required licenses for the brokering and sale of Product. Gemco hereby agrees to indemnify and hold harmless IIC for any losses, damages, fines, penalties or any other costs incurred by IIC as a result of any Brokerage Agent recruited by Gemco not being properly licensed, failing to maintain required licenses, unless such failure is due to the acts, error or omission of IIC or its agents (other than those Brokerage Agents appointed at the request of Gemco or employees). F. IIC will furnish to Gemco the same production reports and commission statements it customarily supplies to its other national brokerage agents. These reports will be sent to Gemco on the sane basis IIC sends such reports to its Brokerage Agents. Other special reports will be provided by IIC and Gemco as mutually agreed by the parties. 10.16.005 G. Nothing contained herein shall authorize Gemco to alter, modify, change, waive, any forfeiture of, or waive performance of, any terms, rates or conditions of the IIC's policies or contracts; extend the time for payment of premiums or other monies due to IIC; make representation not strictly in accordance with either provisions of the policies and contracts issued by IIC; make settlement or agreement in writing or otherwise regarding the settlement of any claims being handled against IIC unless specifically authorized by IIC in writing to do so; incur any expense or obligation of any kind or nature in the name of or on behalf of IIC without first obtaining the expressed written authority of IIC in each case; fail to return or cause to be returned to an applicant the total sum collected by Gemco from such applicant when the same is returnable to such applicant; bind or obligate IIC or subject IIC to any liability, except as expressly provided herein; act as spokesman for IIC in any proceeding or inquiry by any governmental or regulatory authority having jurisdiction; or do or perform any other act or thing not expressly authorized herein. H. IIC hereby agrees to design, develop and prepare all policy forms and sales materials required in connection with product to be offered by IIC and to be brokered and sold pursuant to this Agreement. IIC will be responsible for the total costs of policy forms, applications, Brokerage Agent contract and all sales promotional materials provided by IIC to Gemco. Gemco will be responsible for the total advertising costs of postcard mailings to prospective agents. Gemco shall bear and pay all expenses incurred by it in the performance of this section unless IIC has agreed in writing to do so otherwise. 10.16.006 I. Gemco hereby agrees that it will comply with the rules of IIC generally applicable to IIC's Brokerage Agents and any applicable statutes and governmental regulations relating to advertising, publicity releases and the use of written or printed material pertaining to IIC product, financial condition or statement concerning production. Gemco will use its best efforts to see that misleading or incomplete comparisons are not made by their affiliated Brokerage Agents or Employees, orally or by any circular, advertising matter or literature. Gemco will not permit or cause IIC's name or Product name to be used in any advertisement, circular or literature without prior written authorization from IIC. J. Gemco and IIC hereby agree and understand that the lists of Brokerage Agents and Insureds and their addresses are information of a confidential nature and the same shall be held in confidence by Gemco and IIC. Gemco and IIC hereby agree and understand that the lists referred to herein are to remain available to all Parties during the term of this Agreement. The Brokerage Agents contracted to IIC by or through Gemco are deemed a part of Gemco's selling organization. K. No Party to this Agreement shall at any time during the term of this Agreement or thereafter knowingly solicit replacement or reassurance of any Product unless mutually agreed upon by the Parties for specific Product. 10.16.007 L. IIC shall at no time during the term of this Agreement or for two (2) years immediately following its expiration or termination, directly or indirectly, for itself or another person, knowingly solicit, divert or take away Brokerage Agents recruited by Gemco by this Agreement unless IIC and Gemco otherwise agree. IIC shall at not time during the term of this Agreement or for two (2) years immediately following its expiration or termination, directly or indirectly, for itself or another person, knowingly solicit, divert or take away any Officer, director or Key Employee of any Brokerage Agent affiliated with Gemco. M. Gemco hereby agrees that it shall at no time during the term of this Agreement or for two (2) years immediately following its expiration or termination, directly or indirectly, for itself or another person, knowingly solicit, divert or take away Brokerage Agents of IIC who specialize in the brokering and sale or Product, unless the Parties hereto otherwise agree. Gemco hereby agrees that it shall at not time during the term of this Agreement or for two (2) years immediately following its expiration or termination, directly or indirectly, for themselves or another person, knowingly solicit, divert or take away any Officer, Director, Key Employee or Agent of any Brokerage Agent affiliated with IIC, unless the Parties hereto otherwise agree. The restrictions contained shall not apply to Brokerage Agents recruited by Gemco. Gemco hereby agrees that it will not, during the aforementioned period, engage in any systematic approach or solicitation of any IIC brokering and/or sales organization. 10.16.008 N. IIC hereby agrees it will not pay to Brokerage Agents not affiliated with Gemco a commission on Product greater than the amount of commission on Product paid to Brokerage Agents affiliated with Gemco unless agreed to by Gemco. IIC and Gemco hereby agree that the stated percentage herein can be adjusted from time to time by written agreement signed by both parties. O. For the purpose of this Section 2., the following definitions shall apply: (1) BROKERAGE AGENT: Persons or organizations who are duly licensed under contract to Gemco to sell Product for IIC. (2) PRODUCT: All annuity policies brokered and sold by IIC. (3) GROSS PREMIUMS: All premiums collected by IIC for the sale of Product. (4) NET PREMIUMS: Gross premiums collected by IIC less any premiums refunded by IIC for any reason as a result of the cancellation by IIC of any policy which is a Product. (5) REFUNDABLE COMMISSIONS: Commissions paid by IIC with respect to Product on which collected premiums were refunded for any reason by IIC to the purchaser of Product. ARTICLE 3: RELATIONSHIP A. IIC and Gemco are independent contractors. Nothing contained in this Agreement or in any course of dealing between IIC and Gemco, whether in the past or currently, shall be construed or interpreted to create an employer-employee relationship between IIC 10.16.009 and Gemco. Further, IIC and Gemco agree that neither party has enticed the other into entering this Agreement, and that IIC and Gemco have not suggested, demanded, or even encouraged either party to limit or reduce their dealings with any other third parties. Specifically, Gemco agrees that IIC had actually encouraged Gemco to maintain all of it's company relationships in recognition of an independent contractors need for the availability of a variety of companies and products necessary to operated a successful national brokering agency. B. Gemco shall be free to choose the persons and entities from whom it shall designate to provide the services hereunder and from whom applications for Product are solicited and as to the time, place and manner of solicitation and the conducting and completion of the services. Gemco shall observe, the applicable statutes and governmental regulations pertaining to the conduct of business in the various jurisdictions. C. IIC and Gemco shall have full and free access at the home office of the other reasonable notice during normal business hours to inspect all books, records, files and personnel directly related to the services provided hereunder and the Products sold hereunder, including but not limited to all production records and service records . D. Gemco hereby agrees to indemnify and hold harmless IIC for any losses, damages, fines, penalties or any other costs incurred by IIC as a result of any acts or omissions to act of Gemco's officers, employees and independent service providers. 10.16.010 ARTICLES 4: TERMINATION A. Term: This Agreement shall be effective as of January 1, 1993. This Agreement shall remain in effect until December 31, 1995. This Agreement shall automatically be renewed for successive one (1) year periods unless either party gives the other party sixty (60) days written notice of termination prior to the end of each term or period. B. Other: This Agreement may be terminated prior to the time specified in Subsection A. above, under any of the following circumstances: (i) By any Party to this Agreement giving at any time ten (10) business days written notice if there is a material breach of this Agreement, which written notice shall specify the reasons for the termination. This Agreement shall not terminate but continue in effect if the material breach is cured prior to the expiration of the ten (10) day notice period. If the material breach is not cured within the ten (10) day notice period, the non- breaching party can immediately terminate this Agreement by providing the breaching party notice of the immediate termination within seven (7) days of the expiration of the ten (10) day notice period. (ii) By any Party to this Agreement without notice or delay in the event of bankruptcy, insolvency or receivership of any Party to this Agreement or in the event of an assignment for the benefit of creditors by any Party to this Agreement. (iii) By IIC if Gemco wrongfully withholds funds 10.16.011 belonging to any applicants; or if Gemco intentionally and willfully fails to comply with the laws, rules or regulations of any governmental or regulatory authority having any jurisdiction. (iv) Change in control of Gemco. (v) Any continuous activity by Gemco or any Brokerage Agent which violates any insurance law or regulation or is detrimental to the reputation or business of IIC determined by IIC in its sole discretion after Gemco fails to correct such activity or activity of its brokerage agent within 10 days after written notice from IIC to correct or cease such activity. C. No termination shall affect the rights of Gemco to any compensation due to it pursuant to this Agreement. D. In the event of the expiration or termination of this Agreement, Gemco agrees to deliver all IIC property to IIC and to repay any existing indebtedness to IIC and conversely IIC shall pay any indebtedness it may then owe to Gemco including, without limitation, all payments due under Article 5. This contract shall automatically terminate in the event Gemco ceases to do business as a corporation, in which case all compensation due and thereafter becoming due to Gemco shall be payable to its successor or duly appointed representative. ARTICLE 5: COMPENSATION A. For the management and other services provided hereunder, IIC shall pay Gemco a monthly fee, to be determined annually based on budget projections of covered expenses, payable on the last day of each month. In addition, IIC shall reimburse Gemco for its out- of-pocket costs and expenses it incurs to perform the services hereunder 10.16.012 upon submission of an itemized account in forms prescribed by IIC. B. IIC shall pay a commission on Product sold by Brokerage Agents recruited by Gemco twice monthly (for annuity product) and monthly (for life and health products) to Gemco. The Commission will be calculated by taking all contributions/premiums which have been collected by IIC on sales of Product as of the close of business on the 15th (for annuity only) and the last day (for annuity, life and health products) of each month respectively less all refundable Commissions on which Gemco had been paid a commission as of the close of business on the 15th (for annuity product) and last day (for annuity, life and health products) of each month respectively. COMMISSION SCHEDULE FOR ANNUITY PRODUCT ANNUITANT'S/OWNER'S AGE AT TIME OF CONTRIBUTION COMMISION AGES INITIAL ADDITIONAL 0-75 CONTRIBUTION CONTRIBUTION $ 2,000.00 - $ 4,999.99 1.0% 2.0% $ 5,000.00 - $ 24,999.99 2.0% 2.0% $25,000.00 - $1,000.000.00 1.0% 1.0% 0% AGES 76-80 $ 2,000.00 - $ 24,999.99 1.0% 1.0% $25,000.00 - $1,000,000.00 .5% .5% COMMISSION SCHEDULE FOR HEALTH PRODUCT RENEWAL RENEWAL RENEWAL RENEWAL 1ST YEAR YRS.2-6 YEARS AFTER 6 YEARS 5% 5% 0% 10.16.013 COMMISSION SCHEDULE FOR LIFE PRODUCT RENEWAL RENEWAL FOR 1ST YEAR YRS. 2-10 YRS AFTER 10 YEARS 6% 10% 0% IIC has the option to revise this Commission schedule from time to time for the sale of future Product. C. If this Agreement expires or is terminated for any reason other than a material breach by Gemco, IIC hereby agrees to pay Gemco commission referred to in subsection B of this Article 5 for the one (1) year period following such expiration or termination for policies issued from the applications for Product generated by Brokerage Agents Recruited by Gemco. D. All Brokerage Agents recruited by Gemco shall not be the subject of any general systematic approach or solicitation by IIC, independently of Gemco, for further the purpose of brokering and selling Product. IIC hereby further agrees that it will not pay any Brokerage Agent recruited by Gemco any producing commission in excess of the commission paid to IIC's Agents generally. The restrictions contained in this Subsection D. Article 5 shall continue for two (2) year period immediately following the expiration or termination of this Agreement. E. In the event IIC is required for any reason to return previously collected premiums from the sale of Product, IIC shall return the premium previously collected directly to the purchaser of the Product contract. The Commission paid to Gemco under Article 5.3 as a result of collected premium which IIC is required to 10.16.014 return shall promptly be returned to IIC by Gemco or the same may be deducted by IIC by Gemco or the same may be deducted by IIC from any commission payable to Gemco. F. (i) For Annuity Policies, if a policyholder/owner or annuitant dies within one hundred eighty days (180) days of the contract effective date counting from the effective date, all commission paid to Gemco for such policy will be returned to IIC immediately. Gemco agrees that upon such an occurrence it will become immediately liable to repay IIC such commission or the same may be deducted by IIC from any commission payable to Gemco and IIC has the right to pursue any legal action to recover any such commission for Gemco. Gemco agrees to reimburse IIC for costs it incurs, including reasonable attorney's fees, in any action by IIC to enforce Gemco obligations under this Agreement: (ii) For Life and Health Policies, if coverage is terminated on a policyholder/owner and a premium refund is required, all unearned commission will be returned to IIC immediately on a pro rate basis. Gemco agrees that upon such an occurrence it will become immediately liable to repay IIC such commission or the same may be deducted by IIC from any commission payable to Gemco and IIC has the right to pursue any legal action to recover any such commission from Gemco. Gemco agrees to reimburse IIC for costs it incurs, including reasonable attorney's fees, in any action by IIC to enforce Gemco's obligations under this Agreement. ARTICLE 6: NOTICE All notices, requests, demands and other communications called 10.16.015 for in this Agreement shall be in writing and shall be deemed to have duly given when personally delivered or five (5) days after being mailed by United States certified or registered mail, postage prepaid, addressed to the Parties, their successors in interest or their assigns, at the following addresses or at such other addresses as the Parties may designate by written notice in the manner aforesaid: If to IIC: Susan F. Powell Senior Vice President INVESTORS INSURANCE CORPORATION 3030 Hartley Road Suite 390 Jacksonville, Florida 32257 If to Gemco: Mr. Melvin C. Parker President GEMCO NATIONAL, INC. 7200 West Camino Real Suite 203 Boca Raton, Florida 33433 ARTICLE 7: LEGAL PROCEEDINGS Each party shall promptly notify the other Party of any complaint, legal proceeding, process, suit, hearings, threats of suit, subpoena or any other form of legal process from any state insurance department or otherwise in connection with any transaction covered by this Agreement. Each Party to this Agreement agrees to indemnify and hold the other party harmless for any and all monetary damages, costs and expenses, including reasonable attorney's fees, incurred by the other party for any legal action pending or threatened wherein the liability is solely the result of 10.16.016 an act or failure the act of the other party. Neither party shall have the authority to institute legal proceedings on behalf of the party without approval in advance by the other party in writing. SECTION 8: DELEGATION OF DUTIES Gemco may delegate any function to be performed by it hereunder to any wholly owned subsidiary or affiliate, or to a third party service provider, provided it obtains the written consent of IIC to such delegation. Any such delegation shall not, however, relieve Gemco of it's obligations under this Agreement. SECTION 9: ENTIRE AGREEMENT This Agreement and any documents required to be delivered pursuant to the terms hereof present the entire agreement of the Parties hereto with respect to the subject matter hereof superseding all prior commitments of any kind. This Agreement may not be amended or supplemented, nor may any rights hereunder be waived except in writing signed by all of the Parties hereto. The failure of Gemco or IIC to enforce any provision of this Agreement or any regulation they may promulgate shall not constitute a waiver thereof . ARTICLE 10: APPLICABLE LAW This Agreement will be interpreted under the laws of the State of Florida in Duval County. IIC and Gemco shall abide by all that laws of any federal, state and city government, department or bureau having jurisdiction or supervision over the service to be provided hereunder the Product to be sold hereunder and the conduct of such business. 10.16.017 ARTICLE 11: PARTIAL INVALIDITY . If any term or provision of this Agreement or any application thereof shall be invalid or unenforceable, the remainder of this Agreement and any other application of such provision shall not be affected thereby. ARTICLE 12: WAIVER The waiver by IIC hereto of any breach or default shall not constitute a waiver of any different or subsequent breach or default. IN WITNESS WHEREOF, the Parties hereto have duly executed this Agreement as of the date first written above. INVESTORS INSURANCE CORPORATION By:/s/ Susan F. Powell Susan F. Powell Senior Vice President GEMCO NATIONAL, INC. By:/s/ Melvin C. Parker Melvin C. Parker President EX-10 26 10.17 IMG MANAGEMENT AGREEMENT 10.17.001 MANAGEMENT AGREEMENT THIS AGREEMENT is hereby made effective thin 10th day of June, 1994, between INVESTORS INSURANCE GROUP, Inc. a Florida Corporation, (hereinafter referred to as "IIG") and INVESTORS MARKETING GROUP, INC., a Florida Corporation (hereinafter referred to as "IMG") . WHEREAS, IIG has the experience and personnel to render management and services to IMG and WHEREAS, IMG, is the National Marketing Agency for various insurance companies; WHEREAS IIG provides marketing and recruitment services for IMG; and WHEREAS, the parties hereto are desirous of reaching an agreement with regard to management and other related services. NOW THEREFORE, in consideration of the mutual covenants and promises herein contained and intending to be legally bound hereby, the parties hereto agree as follows: 1. MANAGEMENT AND OTHER SERVICES. IIG shall provide the following services to IMG to assist IMG in the furtherance of its duties as National Marketing Agency. IMG agrees that will purchase the below services from IIG. IIG agrees that during the term of this Agreement that it will provide through its personnel facilities and network of independent service providers the services required by IMG. The services contemplated to be sold and purchased hereunder are as follows: (1) Senior Management Services (a) Coordinate policy decisions (b) Manage the business hierarchy (c) Focus decision making personnel (2) Accounting services (a) General Accounting (i) Maintain general ledger (ii) Maintain accounts receivable/payable (iii)Handle all financial reporting (b) Investment Accounting (i) Maintain investment reporting system (ii) Handle all investment reporting 10.17.002 (3) General Administrative services (i) Personal and payroll services (ii) Office equipment and supplies - inventory and supply (iii)Miscellaneous office services (4) Insurance Administrative Services (a) New Business Services (i) Underwriting (ii) Prepare and issue policies (b) Policyholder Service (i) Maintain policies in force (ii) Handle policyholder inquiries (iii)Process policy claims, changes, etc. (c) Agent services (i) Process new agent licensee (ii) Maintain agent records (5) Obtain and Coordinate External Professional Services (a) Legal services (b) Accounting services (c) Actual services (d) Investment advisor services (e) Reinsurance company services (B) IIG agrees that all information obtained by it in the course of rendering the aforementioned services shall at all times remain confidential. IMG'S written permission shall be required to release any information to non- affiliated persons or entities. Notwithstanding the above, IIG shall be free to release information to any government agency, bureau or other office upon proper request and nothing herein shall prevent IIG from releasing any information in furtherance of its duties to provide the services hereunder. (C) Nothing herein shall prevent or prohibit IIG from providing management and other services to any other person or entity provided, however, such duties do not interfere with IIG's obligations under this Agreement. ARTICLE 2: RELATIONSHIP A. IMG and IIG are independent contractors. Nothing contained in this Agreement or in any course of dealing between IMG and IIG, whether in the past or currently, shall be construed or interpreted to create an employer- employee relationship between IMG's and IIG's employees and agents. 10.17.003 B. IMG and IIG shall have full and free access at the home office of the other reasonable notice during normal business hours to inspect all books, records, files and personnel directly related to the services provided hereunder. C. IIG hereby agrees to indemnify and hold harmless IMG for any losses damages, fines, penalties or any other costs incurred by IMG as a result of any acts or omissions to act of IIG's officers, employees and independent service providers. ARTICLES 3: TERMINATION A. Term: This Agreement shall be effective as of June 10, 1994. This Agreement shall remain in effect until December 31, 1995. This Agreement shall automatically be renewed for successive one (1) year periods unless either party gives the other party sixty (60) days written notice of termination prior to the and of each term or period. B. Other: This Agreement may be terminated prior to the time specified in Subsection A. above, under any of the following circumstances: (i) By any Party to this Agreement giving at any time ten (10) business days written notice if there is a material breach of this Agreement, which written notice shall specify the reasons for the termination. This Agreement shall not terminate but continue in effect if the material breach is cured prior to the expiration of the ten (10) day notice period. If the material breach is not cured within the ten (10) day notice period, the non-breaching party can immediately terminate this Agreement by providing the breaching party notice of the immediate termination within seven (7) days of the expiration of the ten (10) day notice period . (ii) By any Party to this Agreement without notice or delay in the event of bankruptcy insolvency or receivership of any Party to this Agreement or in the event of an assignment for the benefit of creditors by any Party to this Agreement. 10.17.004 (iii) Change in control of IIG. C. No termination shall affect the rights of IIG to any compensation due to it pursuant to this Agreement. D. In the event of the expiration or termination of Agreement, IIG agrees to deliver all IIG property to IMG and this to repay any existing indebtedness to IMG and conversely IMG shall pay any indebtedness it may then owe to IIG including, without limitation, all payments due under Article 4. This contract shall automatically terminate in the event IIG ceases to do business as a corporation, in which case all compensation due and thereafter becoming due to IIG shall be payable to its successor or duly appointed representative . ARTICLE 4 COMPENSATION For the management and other services provided hereunder IMG shall pay IIC a monthly fee, to be determined annually based on budget projections of covered expenses, payable on the last day of each month. In addition, IMG agrees to pay IIG additional income for extraordinary services rendered hereunder. IMG shall reimburse IIG for its out-of-pocket costs and expenses it incurs to perform the services hereunder upon submission of an itemized account in forms prescribed by INS. ARTICLE 5: NOTICE All notices, requests, demands and other communications called for in this Agreement shall be in writing and shall be deemed to have duly given when personally delivered or five (5)) days after being mailed by United States certified or registered mail, postage prepaid, addressed to the Parties, their successors in interest or their assigns, at the following addresses or at such other addresses as the Parties may designate by written notice in the manner aforesaid: 10.17.005 If to IMG: Susan F. Powell Senior Vice President INVESTORS MARKETING GROUP, INC. 3030 Hartley Road suite 390 Jacksonville, Florida 32257 If to IIG : Mr. Melvin c. Parker President INVESTORS INSURANCE GROUP, INC. 7200 West Camino Real suite 203 Boca Raton, Florida 33433 ARTICLE 6: LEGAL PROCEEDINGS Each party shall promptly notify the other Party of any complaint, legal proceeding, process, suit, hearings, threats of suit, subpoena or any other form of legal process from any state insurance department or otherwise in connection with any transaction covered by this Agreement. Each Party to this Agreement agrees to indemnify and hold the other party harmless for any and all monetary damages, costs and expense, including reasonable attorney's fees, incurred by the other party for any legal action pending or threatened wherein the liability is solely the result of an act or failure the act of the other party. Neither party shall have the authority to institute legal proceedings on behalf of the party without approval in advance by the other party in writing. SECTION 7: DELEGATION OF DUTIES IIG may delegate any function to be performed by it hereunder to any wholly owned subsidiary or affiliate, or to a third party service provider, provided it obtains the written consent of IMG to such delegation. Any such delegation shall not, however, relieve IIG of it's obligations under this Agreement. 10.17.006 SECTION 8: ENTIRE AGREEMENT This Agreement and any documents required to be delivered pursuant to the terms hereof present the entire agreement of the Parties hereto with respect to the subject matter hereof superseding all prior commitments of any kind. This Agreement may not be amended or supplemented, nor may any rights hereunder be waived except in writing signed by all or the Parties hereto. The failure of IIG or IMG to enforce any provision of this Agreement or any regulation they may promulgate shall not constitute a waiver thereof . ARTICLE 9: APPLICABLE LAW This Agreement will be interpreted under the laws of the state of Florida in Duval County. IMG and IIG shall abide by all that laws of any federal, state and city government, department or bureau having jurisdiction or supervision over the service to be provided hereunder the Product to be sold hereunder and the conduct of such business. ARTICLE 10: PARTIAL INVALIDITY If any term or provision of this Agreement or any application thereof shall be invalid or unenforceable, the remainder of this Agreement and any other application or such provision shall not be affected thereby. ARTICLE 11: WAIVER The waiver by IMG hereto of any breach or default shall not constitute a waiver of any different or subsequent breach or default. 10.17.007 IN WITNESS WHEREOF, the Parties hereto have duly executed this Agreement as of the date first written above. INVESTORS MARKETING GROUP, INC. By: Susan F. Powell Senior Vice President INVESTORS INSURANCE GROUP, INC. By: Melvin C. Parker President EX-10 27 10.18 INDEPENDENT CONTRACTOR AGREEMENT-GOEBERT 10.18.001 122091 INDEPENDENT CONTRACTOR AGREEMENT AGREEMENT made this 30th day of December, 1991, between Investors Insurance Corporation, a corporation organized and existing under the laws of the State of Delaware, with its principal office in Jacksonville, Florida (hereinafter referred to as the "Corporation") and Donald F. U. Goebert (hereinafter referred to as "Contractor"). WHEREAS, the Corporation desires to engage the services of Contractor as an independent contractor on the terms and conditions hereafter provided in this Agreement; and WHEREAS, the Contractor desires to render services to the Corporation; NOW THEREFORE, in consideration of the promises and covenants hereinafter set forth, the parties hereto intending to be legally bound, hereby agree as follows; 1. Engagement. The Corporation hereby engages the services of Contractor and Contractor hereby accepts such engagement upon the terms and conditions set forth herein. 2. Term. This Agreement shall commence on January 1, 1992 and shall remain in full force and effect until terminated by either the Corporation or Contractor by giving the other party written notice of such termination; at least ninety (90) days prior to the effective date of such termination a 3. Services. Contractor is engaged as an independent contractor to perform consulting and management services in regard to Corporation's investments. The services rendered by Contractor hereunder shall be provided to the Corporation at such times as may be agreed to by Contractor and the Corporation. The method to complete the services shall be at the sole and exclusive option of Contractor, 4. Compensation. Contractor shall receive compensation for Contractor's services in such amounts as Contractor and Corporation shall agree to from time to time. Initially, Contractor shall receive an annual compensation of One Hundred Thousand ($100,000.00) dollars payable in equally bi-monthly installments. 5. Status as Independent Contractor. Contractor is retained and employed by the Corporation only for the purposes and to the extent set forth in this Agreement. Contractor's relationship to the Corporation shall, during the period of this Agreement, be that of an independent contractor and not that of an employee of the Corporation. 6. Taxes. All federal and state income and employment taxes, similar obligations and withholdings, including but not limited to social security taxes, shall remain the sole responsibility of Contractor. 10.18.002 E-19 7. Expenses. Corporation shall reimburse Contractor for any expenses incurred by Contractor in the ordinary course of performing services hereunder upon Contractor's presentation of an itemized account of such expenses in the form approved by Corporation. 8. Employee Benefits. Contractor shall not be entitled to participate in any plans or arrangements of the Corporation pertaining to or in connection with any employee benefit, including pension or profit sharing plans and health benefit plans. 9. Business and Financial Records. All business and financial records pertaining to the business of the Corporation shall at all times be the property of the Corporation. 10. Confidentiality Requirement. All written material or otherwise communicated material, data, computer programs or other property, tangible or intangible relating to Corporation's business or to Corporation's products customers, agents, brokers and other sources of business and all proprietary rights, including copyrights, trademarks and service marks (hereinafter all of the above, collectively "Information") shall at all times be the property of the Corporation. Contractor shall forever keep confidential all Information obtained during the course of Contractor's engagement with Corporation and Contractor shall not directly or indirectly for Contractor or with others use or disclose such Information for purposes other than performance of Contractor's duties hereunder, without the prior written consent of the Corporation. 11. Contractual Obligations. Contractor agrees that Contractor shall not, unless authorized to do so by the Corporation, make, draw, accept or endorse any contract, lease, promissory note or other instrument requiring the payment of money by the Corporation, nor pledge the credit of the Corporation. 12. Entire Agreement. This Agreement supersedes any and all other Agreements, either oral or in writing, between the parties to this Agreement with respect to the subject matter contained herein or necessarily implied hereby. 13. Modification. No change or modification of this Agreement shall be valid unless the same be in writing and signed by all of the parties hereto. 14. Binding Effect. This Agreement shall be binding upon the parties, heirs, legal representatives, successors and assigns of the respective parties. 15. Invalid Provision. The invalidity or unenforceability of any particular provision of this Agreement shall render the remainder of the Agreement to be construed in all respects as if such invalid or unenforceable provision was omitted. 16. Interpretation. The validity of this Agreement and any of its terms and provisions, as well as the rights and duties of the parties to this Agreement, shall be governed by the laws of the State of Florida. 2 10.18.003 E-2O 17. Assignment. This Agreement shall be binding and shall inure to the successors and assigns of the Corporation. This Agreement, being for the personal services of Contractor, shall not be assignable or subject to anticipation by Contractor. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first written above. INVESTORS INSURANCE CORPORATION ATTEST: By: Susan F. Powell, Secretary Melvin C. Parker, President Witness Donald F.U. Goebert, Contractor 3 EX-10 28 10.19 TERMINATION OF INDEPENDENT CONTRACTOR AGREEMENT 10.19.001 TERMINATION OF INDEPENDENT CONTRACTOR AGREEMENT This Termination Agreement made effective the 1st day July, 1994 by and between INVESTORS INSURANCE CORPORATION, a corporation organized and existing under the laws of the State of Delaware, with its executive office in Jacksonville, Florida (hereinafter referred to as "Corporation") and DONALD F. U. GOEBERT (hereinafter referred to as "Contractor"). WHEREAS, the Corporation and the Contractor entered into an Independent Contractor Agreement dated December 31, 1991 which permits either party to terminate the Agreement with ninety (90) day written notice; and WHEREAS, the Corporation no longer desires to engage the services of Contractor; and WHEREAS, the Contractor no longer desires to render consulting and management services to the Corporation. NOW THEREFORE, in consideration of the promises and covenants hereinafter set forth, the parties hereto intending to be legally bound hereby agree as follows: The Independent contractor Agreement, dated December 31, 1991, shall be terminated effective at 12:00 midnight on June 30, 1994. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first above written. Attest: INVESTORS INSURANCE CORPORATION Susan F. Powell, Secretary Melvin C. Parker, President Witness Donald F.U. Goebert, Contractor E-33 EX-10 29 10.20 INDEPENDENT CONTRACTOR AGREEMENT 10.20.001 INDEPENDENT CONTRACTOR AGREEMENT AGREEMENT made effective the 1st day of July, 1994, between Investors Insurance Group, Inc., a corporation organized and existing under the laws of the State of Florida, with its principal office in Boca Raton, Florida, (hereinafter referred to as the "Corporation") and Donald F. U. Goebert (hereinafter referred to as "Contractor"). WHEREAS, the Corporation desires to engage the services of Contractor as an independent contractor on the terms and conditions hereafter provided in this Agreement; and WHEREAS, the Contractor desires to render services to the Corporation; NOW THEREFORE, in consideration of the promises and covenants hereinafter set forth, the parties hereto intending to be legally bound, hereby agree as follows: 1. Engagement. The Corporation hereby engages the services of Contractor and Contractor hereby accepts such engagement upon the terms and conditions set forth herein. 2. Term. This Agreement shall commence on July 1, 1994 and shall remain in full force and effect until terminated by either the Corporation or Contractor by giving the other party written notice of such termination, at least ninety (90) days prior to the effective date of such termination. 3. Services. Contractor shall provide such consulting and management services as are required by the Corporation and its affiliates and agreed to by Contractor, including, but not limited to providing professional advice regarding investments and financial opportunities, providing consultation on proposed sales and purchases of assets, performing management and supervisory duties, providing counsel to management, officers and directors of Corporation and affiliates, analyzing and reporting on financial aspects of transactions, coordinating development projecting, analyzing legal issues confronting the Corporation and its affiliates and initiating mergers and acquisitions. The services rendered by Contractor hereunder shall be provided to the Corporation or its affiliates at such times as may be agreed to by Contractor and the Corporation. The method to complete the services shall be at the sole and exclusive option of Contractor. 4. Duties. Contractor shall devote to the Corporation all of the time, attention, and energy necessary for him to perform all the duties for which he is contracted, including but not limited to providing prompt and professional consulting and management services, at such times as Contractor and Corporation may agree, and supervising and coordinating efforts of support staff in the performance of such services. Contractor shall evaluate and determine the most efficient method to complete such services, which determination shall be made at Contractor's sole and absolute discretion. 10.20.002 5. Compensation. Contractor shall receive compensation for Contractor's services in such amounts as Contractor and Corporation shall agree to from time to time. Initially,, Contractor shall receive an annual compensation of One Hundred Thousand ($100,000.00) dollars payable in equal bi-monthly installments. At the option of Corporation, the aforesaid compensation may be payable by one or more subsidiaries of the Corporation. 6. Status as Independent Contractor. Contractor is retained and employed by the only for the purposes and to the extent set forth in this Agreement. Contractor's to the Corporation shall, during the period of this Agreement, be that of an contractor and not that of an employee of the Corporation. 7. Taxes. All federal and state income and employment taxes, similar obligations and withholdings, including but not limited to social security taxes, shall remain the sole responsibility of Contractor. If Contractor is deemed an Employee by any taxing authority or government agency. contractor agrees to indemnify the Corporation for any taxes, penalties or interest imposed upon the Corporation by such taxing authority or other government agency, whether as a result of compromise, litigation or consent by the Corporation. 8. Expenses. Corporation shall reimburse Contractor for any expenses incurred by Contractor in the ordinary course of performing services hereunder upon Contractor's presentation of an itemized account of such expenses in the form approved by Corporation. 9. Vacation. Contractor shall not be entitled to pay for vacation or sick leave from his duties as an independent contractor. Periods of absence may be arranged as mutually convenient. 10. Employee Benefits Contractor shall not be entitled to participate in any plans or arrangements of the Corporation pertaining to or in connection with any employee benefit, including pension or profit sharing plans and health benefit plans. 11. Business and Financial Records. All business and financial records pertaining to the business of the Corporation and its affiliates shall at all times be the property of the Corporation. 12. Confidentiality Requirement. All written material or otherwise communicated material, data, computer programs or other property, tangible or intangible relating to Corporation's or its affiliates' businesses or to Corporation's or its affiliates' products, customers, agents, brokers and other sources of business and all proprietary rights, including copyrights, trademarks and service marks (hereinafter all of the above, collectively "Information") shall at all times be the property of the Corporation or its affiliates, as the case may be. Contractor shall forever keep confidential all Information obtained during the course of Contractor's engagement with Corporation and Contractor shall not directly or indirectly for Contractor or with others use or disclose such information for purposes other than performance of Contractor's duties hereunder, without the prior written consent of the Corporation and/or its 10.20.003 affiliates in each instance. 13. Contractual Obligations. Contractor agrees that Contractor shall not, unless authorized to do so by the Corporation, make, draw, accept or endorse any contract, lease, promissory note or other instrument requiring the payment of money by the Corporation, nor pledge the credit of the Corporation. 14. Notice. Any notice required to be given under this Agreement shall be in writing and sent by registered mail, postage prepaid to the addresses set forth below unless a party designates another address by written notice to the other patty. To Corporation: Investors Insurance Group, Inc. 7200 West Camino Real, Suite 203 Boca Raton, Florida 33433 To Donald F.U. Goebert: 615 Willowbrook Lane West Chester, PA 19382 15. Arbitration. Any dispute, including a claimed breach of terms hereof, arising out of or in connection with this Agreement shall be resolved by arbitration conducted by the American Arbitration Association for West Chester, Pennsylvania in accordance with its rules then in existence. The arbitrators shall not contravene or vary in any respect any of the terms or provisions of this Agreement. The award of the arbitrators shall be final and binding upon the parties thereto, their heirs, legal representative, successors and assigns and judgment upon such award may be entered in any court having jurisdiction thereof. 16. Conflict of Counsel. In preparation of this Agreement and in connection therewith and related matters, Palmarella & Sweeney, P.C. and Ernest D. Palmarella, Esquire (collectively "Counsel") is, was or may be considered to have been in a position of conflict of interest which may continue, and the same is understood and nevertheless agreed to and the parties hereto have been so advised with respect thereto and with respect to their own right to counsel with respect to all of the above. Notwithstanding such advice, each party to this Agreement has determined to continue to retain counsel's services in connection with the within described transaction. In light of the foregoing, the parties waive and release any claims which they may have arising from any such conflict of interest. 17. Entire Agreement. This Agreement supersedes any and all other Agreements, either oral or in writing, between the parties to this Agreement with respect to the subject matter contained herein or necessarily implied hereby. 10.20.004 18. Modification. No change or modification of this Agreement shall be valid unless the same be in writing and signed by all of the parties hereto. 19. Binding Effect. This Agreement shall be binding upon the parties, heirs, legal representatives, successors and assigns of the respective parties. 20. Invalid Provision. The invalidity unenforceability of any particular provision remainder of the Agreement to be construed in all respects provision was omitted. 21. Interpretation. The validity of this Agreement and any of its terms and provisions, as well as the rights and duties of the parties to this Agreement, shall be governed by the laws of the State of Florida. 22. Assignment. This Agreement shall be binding and shall inure to the successors and assigns of the Corporation. This Agreement being for the personal services of Contractor, shall not be assignable or subject to anticipation by Contractor. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first written above. INVESTORS INSURANCE GROUP, INC. ATTEST: /s/ Susan F. Powell By: /s/ Melvin C. Parker Susan F. Powell Melvin C. Parker, President Assistant Secretary /s/ Donald Goebert Witness Donald F.U. Goebert, Contractor EX-10 30 10.21 TERMINATION OF INDEPENDENT CONTRACTOR AGREEMENT 10.21.001 TERMINATION OF INDEPENDENT CONTRACTOR AGREEMENT This Termination Agreement made effective the 31st day of March, 1996 by and between INVESTORS INSURANCE GROUP, INC., a corporation organized and existing under the laws of the State of Florida with its executive office in Boca Raton, Florida (hereinafter referred to as "Corporation") and DONALD F.U. GOEBERT (hereinafter referred to as "Contractor"). WHEREAS, the Corporation and Contractor entered into an Independent Contractor Agreement dated July 1, 1994 (the "Agreement") which permits either party to terminate the Agreement with ninety (90) days written notice, and which notice has been waived by both parties; WHEREAS, the Corporation no longer desires to engage the services of Contractor; and WHEREAS, the Contractor no longer desires to render consulting services to the Corporation. NOW, THEREFORE, in consideration of the promises and covenants herein set forth, the parties hereto, intending to be legally bound hereby, agree as follows: Termination of Agreement. The Independent Contractor Agreement, dated July 1, 1994 shall be terminated effective at 12:00 midnight on March 31, 1996. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first above written. Attest: INVESTORS INSURANCE GROUP, INC. /s/ Susan F. Powell By: /s/ Melvin C. Parker - ------------------------- ------------------------------ Susan F. Powell, Secretary Melvin C. Parker, President /s/ Donald F. U. Goebert - ------------------------- ------------------------------ Witness Donald F.U. Goebert, Contractor EX-10 31 10.22 EMPLOYMENT AGREEMENT-HAYES 10.22.001 E-39 123091 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT executed on the 30th day of December, 1991, by and between INVESTORS INSURANCE CORPORATION, a corporation organized and existing under the laws of the State of Delaware, having its principal office at Jacksonville, Florida, (hereinafter referred to as "Employer") and RONALD W. HAYES (hereinafter referred to as "Employee"). WITNESSETH: WHERAS, the Employer has determined that it is to the advantage and interest of the Employer to employ the unique experience, ability and services of Employee from the effective date hereof; and WHEREAS, the Employee desires to accept employment with the Employer upon the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the mutual promises, covenants and agreements herein and intending to be legally bound hereby, the parties mutually agree as follows: 1. Duties. During the period of employment, Employee shall devote Employee's best efforts, attention and energy necessary for Employee to perform the duties required by the Employer and by the terms of this Agreement or otherwise inherent in Employee's job description. 10.22.002 E-40 2. Term. This Employment Agreement shall be effective January and shall continue until terminated as provided herein. Either party shall have the right to terminate this Agreement by giving the other party written notice of such termination, at least ninety (90) days prior to the effective date of such termination. 3. Compensation. In exchange for the services and duties to be performed hereunder, Employee shall receive such compensation as agreed to by Employer and Employee from time to time. Initially, Employee shall receive a monthly compensation equal to ten thousand ($10,000.00) dollars payable in equal installments every 2 weeks. 4. Fringe Benefits. During the term of this Agreement, the Employee shall be entitled to all fringe benefits offered generally to the Employer's employees; subject to the participation requirements of such plans. Nothing herein contained shall prohibit Employee from waiving participation in any such benefit plans. 5. Business Expenses. The Employee is authorized to incur reasonable, ordinary and necessary business expenses on behalf of the Employer. The Employer will reimburse the Employee for the expenses incurred pursuant to this paragraph, unless such expenses have been paid directly by the Employer, upon presentation by the Employee of an itemized account of such expenditures in a manner prescribed by the Employer. 6. Vacation and Sick Leave. The Employee shall be entitled to such vacation and sick leave as agreed to with Employer from time to time. 7. Business and Financial Records. All business and financial records of Employer pertaining to Employer's products, customers, agents, brokers and sources of business shall at all times be the property of Employer. 2 10.22.003 E-41 8. Confidentiality Requirement. All written or otherwise communicated material, data, computer programs or other property, tangible or intangible relating to Employer's business or to Employer's products, customers, agents, brokers and other sources of business and all proprietary rights, including copyrights, trademarks and service marks (hereinafter all of the above, collectively "Information") shall at all times be the property of the Employer. Employee shall forever keep confidential all Information obtained during the course of Employee's employment with Employer and Employee shall not directly or indirectly for Employee or with others use or disclose such Information for purposes other than the performance of Employee's duties hereunder, without the prior written consent of the Employer. 9. Contractual Obligations. The Employee agrees that Employee shall not, unless authorized to do so by the Employer, make, draw, accept or endorse any contract, lease, promissory note, or other instrument requiring the payment of money by the Employer, nor pledge the credit of the Employer. 10. Governing Law. This Agreement shall be interpreted in accordance with, and the rights of the parties hereto shall be determined, by the laws of the State of Florida. 11. Assignment. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, executors, administrators and permitted assigns. Notwithstanding the foregoing, this Agreement is a personal service contract, and shall not be assigned or transferred, in whole or in part, by Employee 12. Severability. If any provision of this Agreement is held invalid or unenforceable, such invalidity or unenforceability shall not affect the validity or enforceability of the other provisions hereof, all of which are hereby declared severable, 3 10.22.004 E-42 13. Headings. The headings used in this Agreement are solely for convenience of reference and shall not affect its interpretation. 14. Modification and Amendments. This Agreement represents the entire understanding between the parties with respect to the subject matter set forth herein or necessarily implied hereby. This Agreement may not be modified unless in writing signed by the party against whom enforcement of any waiver, change, modification or discharge is sought. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date and year first above written. INVESTORS INSURANCE CORPORATION Attest:___________ By:_________________ Susan F. Powell, Secretary Melvin C. Parker, President Witness Ronald W. Hayes, Employee 4 EX-10 32 10.23 TERMINATION OF EMPLOYMENT AGREEMENT-HAYES 10.23.001 TERMINATION OF EMPLOYMENT CONTRACT This Termination Agreement made effective the 1st day of July, 1994 by and between INVESTORS INSURANCE CORPORATION a corporation organized and existing under the laws of the State of Delaware with its executive office in Jacksonville, Florida (hereinafter referred to as "Corporation") and RONALD W. HAYES (hereinafter referred to as "Employee"). WHEREAS, the Corporation and Employee entered into an Employment Contract dated December 30, 1991, which permits either party to terminate the Agreement with ninety (90) days written notice; and WHEREAS, the Corporation no longer desires to employ the Employee; and WHEREAS, the Employee no longer desires to render services to the Corporation. NOW, THEREFORE, in consideration of the promises and covenants herein set forth, the parties hereto, intending to be legally bound hereby, agree as follows; The Employment Agreement, dated December 30, 1991, shall be terminated effective at 12:00 midnight on June 30, 1994. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first above written. Attest: INVESTORS INSURANCE CORPORATION By: Susan F. Powell, Secretary Melvin C. Parker, President Witness Ronald W. Hayes, Employee E-1 EX-10 33 10.24 EMPLOYMENT AGREEMENT-HAYES 10.24.001 EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT made effective the 1st day of July, 1994, between Investors Insurance Group, Inc., a corporation organized and existing under the laws of the State of Delaware, with its principal office in Boca Raton, Florida (hereinafter referred to as the "Corporation") and Ronald W. Hayes (hereinafter referred to as "Appointee"). WITNESSETH: WHEREAS, the Corporation has determined that it is to the advantage and interest of the Corporation to appoint the Appointee as Chairman of the Board of Directors of the Corporation from the effective date hereof; and WHEREAS, the Appointee desires to accept such appointment by the corporation upon the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the mutual promises, covenants and agreements herein and intending to e legally bound hereby, the parties mutually agree as follows: 1. Services. Appointees shall provide such services as are required by the Corporation and its subsidiaries and agreed to by Appointee, including, but not limited to, participating in mergers and acquisitions, raising capital, interacting with management, officers and directors of the Corporation, assisting with shareholder relations of the Corporation, and insurance department relations of its subsidiaries, overseeing the 10.24.002 Corporation marketing efforts, and undertaking the duties and responsibilities inherent in Appointee's position as Chairman of the Board of Directors. 2. Duties. As Chairman of the Board of Directors for the corporation, Appointee shall devote is best efforts and all of the time, attention and energy necessary for Appointee to perform the duties required by the corporation and by the terms of this Agreement or otherwise inherent in Appointee's position. 3. Compensation and Benefits 3.1 Salary. The corporation shall pay Appointee an annual salary of $120,000.00, payable in equal Installments every two weeks, commencing on July 1, 1994 for services performed for and on the behalf of the corporation and its subsidiaries and related companies. Additionally, the Corporation shall pay Appointee's health insurance as the premiums become due. 3.2 Fringe Benefits. Appointee shall be entitled to participate in the Simplified Employee Pension plan established by the Corporation, to the extent that Appointee's position, tenure, salary, age, health and other qualifications make Appointee eligible to participate 3.3 Reimbursement of Expenses. The Corporation shall reimburse Appointee for all reasonable travel, entertainment and other expenses incurred or paid by Appointee in connection with, or related to, the performance of Appointee's duties, responsibilities or services under this Agreement, upon presentation by the Appointee or documentation, expense statements, vouchers 10.24.003 and/or such other supporting information as the Corporation may request. 4. Term. Employment Agreement shall be effective July 13, 1994 and shall continue until terminated as provided herein. Either party shall have the right to terminate this Agreement by giving the other party written notice of such termination, at least thirty (30) days prior to the effective date of such termination. 5. Business and Financial Records. All business and financial records at the Corporation pertaining to the corporation's products, customers agents, brokers and sources of business shall at all times be the property of the corporation. 6. Confidentiality Requirement. All written or otherwise communicated material, data, computer programs or other property tangible or intangible relating to the corporation's business or the corporation's products, customers, agents, brokers and other sources or business and all proprietary rights, including copyrights, trademarks and service marks (hereinafter all of the above collectively "Information") shall at times the property of the Corporation. Appointee shall forever keep confidential all Information obtained during the course of Appointee's employment with the Corporation and Appointee shall not directly or indirectly for Appointee or with others use or disclose such Information for purposes other than the performance of Appointee's duties hereunder, without the prior written consent of the Corporation. 10.24.004 7. Contractual Obligations. The Corporation agrees that Appointee shall not, unless authorized to do so by the Corporation, make, draw, accept or endorse any contract, lease, promissory note, or other instrument requiring the payment of money by the corporation, nor pledge the credit at the Corporation. 8. Governing Law. This Agreement shall be interpreted in accordance with, and the rights of the parties hereto shall be determined, by the laws of the state of Florida. 9. Assignment. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, executors, administrators and permitted assigns. Notwithstanding the foregoing, this Agreement is a personal service contract by appointment, and shall not be assigned or transferred, in whole or in part, by Appointee. 10. Severability. If any provision of this Agreement is held invalid or unenforceable such invalidity or unenforceability shall not affect the validity or enforceability of the other provision hereof all of which are hereby declared severable. 11. Headings. The headings used in this Agreement are solely for convenience of reference and shall not affect its interpretation . 12. Modifications and Amendments. This Agreement represents the entire understanding between the parties with respect to the subject matter set forth herein or necessarily implied hereby. This Agreement may not be modified unless in writing signed by the party against whom enforcement at any waiver, change, modification or discharged is sought. 10.24.005 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date and year first above written. INVESTORS INSURANCE GROUP, INC. Attest: By: Susan Powell Melvin C. Parker Assistant Secretary President Ronald W. Hayes, Appointee Witness EX-10 34 10.25 TERMINATION OF EMPLOYMENT-HAYES 10.25.001 TERMINATION OF EMPLOYMENT AGREEMENT This Termination Agreement made effective the 15th day of March, 1996 by and between INVESTORS INSURANCE GROUP, INC., a corporation organized and existing under the laws of the State of Florida with its executive office in Boca Raton, Florida (hereinafter referred to as "Corporation") and RONALD W. HAYES (hereinafter referred to as "Appointee"). WHEREAS, the Corporation and Appointee entered into an Employment Agreement dated July 1, 1994 (the "Agreement") whereby Appointee was employed as Chairman of the Board of Directors of the Corporation; WHEREAS, The Agreement permits either party to terminate the Agreement with thirty (30) days written notice, and which notice has been waived by both parties; WHEREAS, the Corporation no longer desires to employ the Appointee as Chairman of the Board; and WHEREAS, the Appointee no longer desires to serve as Chairman of the Board. NOW, THEREFORE, in consideration of the promises and covenants herein set forth, the parties hereto, intending to be legally bound hereby, agree as follows: 1. Termination of Agreement. The Employment Agreement, dated July 1, 1994 shall be terminated effective at 12:00 midnight on March 15, 1996. 2. Resignation. Appointee shall tender his resignation as Chairman of the Board of Directors of Corporation. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first above written. Attest: INVESTORS INSURANCE GROUP, INC. /s/ Susan F. Powell /s/ Melvin C. Parker - --------------------------- ----------------------------- Susan F. Powell, Secretary Melvin C. Parker, President /s/ /s/ Ronald W. Hayes - --------------------------- ---------------------------- Witness Ronald W. Hayes, Appointee EX-10 35 10.26 EMPLOYMENT AGREEMENT-PARKER 10.26.001 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (the "Agreement"), effective the 1st day of July, 1993, between Investors Insurance Corporation, a Delaware corporation with its principal executive offices at 3030 Hartley Road, Suite 390, Jacksonville, Florida 32257, (the "Company"), and Melvin C. Parker, residing at 6443 Via Rosa Road, Boca Raton, Florida ("Employee") superseding and terminating all prior written and oral Employment Agreements between Company and Employee. INTRODUCTION The Company desires to continue to employ Employee, and Employee desires to continue to be employed by the Company. In consideration of the mutual covenants and promises contained herein, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by the parties hereto, the parties hereto, intending to be legally bound hereby, agree as follows: 1. Term of Employment. The Company hereby continues to employ Employee and Employee hereby accepts the continuation of Employee's employment with the Company upon the terms set forth in this Agreement for a period commencing on July 1, 1993 and continuing until terminated as provided herein, in accordance with the provisions of Section 4. 2. Title Capacity. Employee shall serve as President and Chief Executive Officer of the Company and shall have such authority as is delegated to Employee by the Board of Directors. Employee hereby accepts the continuation of Employee's employment and agrees to undertake the duties and responsibilities inherent in Employee's position and such other duties and responsibilities as 10.26.002 the Board of Directors shall from time to time reasonably assign to Employee. Employee agrees to devote Employee's entire business time to the business and interest of the Company, the parent of Company and those companies affiliated with either during the Employment Period and Employee agrees to abide by the rules, regulations, instructions, personnel practices and policies of the Company and any changes therein which may be adopted from time to time by the Company. 3. Compensation and Benefits. 3.1 Salary. The Company's parent, Investors Insurance Group, Inc. (formerly Gemco National, Inc.), shall pay Employee an annual salary of $208,000.00, payable in equal installments every two weeks, commencing on July 1, 1993 for services performed for and on behalf of the Company, the Company's parent and its subsidiaries and related companies. No compensation hereunder shall be paid to Employee if Employee exceeds the number of days of vacation leave and/or sick and disability leave which Employee is the entitled to receive. Such salary shall be increased by such amounts as the Board of Directors shall, in its absolute discretion, deem appropriate. 3.2 Incentive Compensation. An amount equal to ten (10%) percent of the net marketing commissions paid by the Company to the Company's parent, Investors Insurance Group, Inc. (formerly Gemco National, Inc.). Net marketing commissions represent commissions paid by the Company to the Company's parent for marketing services, pursuant to any present or future marketing agreement, oral or written, existing between the Company and 10.26.003 Company's Parent, less air expenses incurred by the Company's Parent related to such marketing services. No compensation hereunder will be paid to Employee if Employee exceeds the number of days of vacation leave and/or sick and disability leave which Employee is then entitled to receive. 3.3 Fringe Benefits. Employee shall be entitled to participate in all benefit programs that the Company or its parent establishes and makes available to their employees generally, if any, to the extent that Employee's position, tenure, salary, age, health and other qualifications make Employee eligible to participate. The Employee shall be entitled to paid vacation each year in accordance with Company policy, to be taken at such times as may be approved by the Board of Directors or its designee. The Employee shall be entitled to paid sick and disability leave in accordance with Company policy. 3.4 Reimbursement of Expenses. The Company shall reimburse Employee for all reasonable travel, entertainment and other expenses incurred or paid by Employee in connection with, or related to, the performance of Employee's duties, responsibilities or services under this Agreement, upon presentation by the Employee of documentation, expense statements, vouchers and/or such other supporting information as the Company may request. 4. Employment Termination. The employment of Employee by the Company pursuant to this Agreement shall terminate upon the occurrence of any of the following: 4.1 Written notice by either Employer or Employee, sixty (60) days prior to anticipated date of departure. 10.26.004 4.2 At the election of the Company, for cause, immediately upon written notice from the Company to the Employee. For the purposes of this Section 4.2, cause for termination shall be deemed to include only (a) acts of dishonesty, (b) acts involving moral turpitude, (c) drug or alcohol abuse if Employee fails to seek appropriate counseling or fails to complete a prescribed counseling program, (d) malfeasance in office and (e) material failure of Employee to comply with the terms of this Agreement; 4.3 Thirty (30) days after the disability of the Employee. As used in this Agreement, the term "Disability" shall mean the inability of the Employee, due to a physical or mental disability, for a period of ninety (90) days, whether or not consecutive, during any twelve (12) month period to perform the services required of Employee pursuant to this Agreement. A determination of disability shall be made by a physician satisfactory to both Employee and the Company, provided that, if Employee and the Company do not agree on a physician, Employee and the Company shall each select a physician and these two together shall select a third physician, whose determination as to disability shall be binding on all parties. 5. Effect of Termination. 5.1 Termination for Cause. In the event that Employee's employment is terminated for cause pursuant to Section 4.2, the Company shall pay Employee the compensation and benefits otherwise payable to Employee under Section 3.1 through the last day of Employee's actual employment hereunder. 10.26.005 5.2 Termination for Disability. If Employee's employment is terminated by disability pursuant to Section 4.3, the Company shall pay to the Employee, the compensation due the Employee up to the date Employee ceased performing services for Company plus the number of sick days Employee is then entitled to receive. 5.3 Termination for Death. If Employee's employment is terminated by death, the Company shall pay the estate of Employee, the compensation which would otherwise be payable to Employee up to the date of Employee's death if Employee is then receiving compensation from the Company. 6. Non-Competition. 6.1 Employee agrees that, during the Employment Period and for a period of time equal to the duration of Employee's employment with the Company, but in no instance to exceed two (2) years after the termination of the Employment Period for any reason (a) Employee will not directly or indirectly, as an employee of any person or entity (whether or not engaged in business for profit, or as an individual, proprietor, partner, stockholder, officer, director, joint venturer, investor, lender or in any other capacity whatsoever (otherwise than as the holder of a non-controlling investment in any publicly traded securities), compete with the business of the Company, Company's parent or any of their subsidiaries or affiliated companies; (b) Employee will not recruit or solicit any employee of the Company, Company's parent or their subsidiaries and affiliated companies or otherwise induce any employee 10.26.006 to leave the employment of the Company, Company's parent or their subsidiaries and affiliated companies to become an employee of or otherwise become associated with Employee or any firm, corporation, business or institution with which Employee is or may become associated; and (c) Employee will not solicit or divert the business or patronage of any of the customers or accounts of the Company, Company's parent or their subsidiaries and affiliated companies or prospective customers or accounts of the aforementioned, which were contracted, solicited or served by the Employee while Employee was employed by the Company. As used in this Agreement, "compete" or "competition", or any variation thereof, means the Employee's engagement or participation in, or furnishing of aid or assistance in connection with, the distribution, sale, marketing or rendering of products or services of the type or kind distributed, sold, marketed or rendered by the Company, Company's parent or any of their subsidiaries or affiliated companies at the termination of the Employment Period, including those products or services that the Company, Company's parent or any of their subsidiaries or affiliated companies, as the case may be, was in the process of developing or designing for distribution, sale, marketing or rendering at such time. 6.2 The parties to this Agreement consider the restrictions contained herein reasonable. If, however, such restrictions 10.26.007 are found by any court having jurisdiction to be unreasonable because they are (or one of them is, as the case may be) overly broad, then such restriction(s) will nevertheless remain effective, but shall be considered amended in whatever manner is considered reasonable by that court, and as so amended shall be enforced. 6.3 If there is any breach by the Employee of any of the covenants contained in this Section 6., the damage to the Company, Company's parent or their subsidiaries or affiliated companies will be substantial, although difficult to ascertain, and money damages will not afford the injured party an adequate remedy. Therefore, if any breach occurs, in addition to such other remedies as may be provided by law, the Company, the Company's parent or subsidiaries or affiliated companies, as the case may be, has the right to specific performance of the covenants of the Employee contained in this Agreement by way of temporary or permanent injunctive relief. 7. Non-Disclosure. Employee agrees not to disclose to any third party, or to use for Employee's own benefit or for the benefit of any third party, any trade secrets or confidential or other proprietary information relating to the products, services, markets, customers, suppliers or current or planned business operations of the Company, Company's parent, their subsidiaries and affiliated companies without the Company's prior written consent. Employee further agrees that all documents, notes, letters, records, models, prototypes, computer programs and other tangible and intangible evidence of such trade secrets or confidential or other proprietary information are the sole and 10.26.008 exclusive property of the Company, Company's parent, their subsidiaries and affiliated companies; that Employee shall surrender all such evidence in Employee's possession or control to the Company upon the termination of the Employment Period or at any other time upon request and that Employee shall not retain or use any copies or summaries thereof. 8. Inventions, Improvements, Copyrights, Ideas and Similar Creative Property. Employee agrees that any inventions, improvements or ideas which Employee may make or conceive, and any copyrightable subject matter of which Employee may be the author, either solely or jointly with others, which Employee makes, conceives, or authors during the period of Employee's employment with the Company,shall be the property of the Company, Company's parent, a subsidiary or affiliated company, as the case may be, and that Employee will promptly disclose all such inventions, improvements, ideas and material to the Company, Company's parent, subsidiary or affiliate, as the case may be, and that on request, Employee will execute all applications, assignments, and other papers necessary to enable the Company, Company's parent, subsidiary or affiliate to obtain full protection and title in all countries to such inventions, improvements, ideas and matter. 9. Notices. All notices required or permitted under this Agreement shall be in writing and shall be deemed effective upon personal delivery or upon deposit in the United States Post Office, postage prepaid, by registered mail return receipt requested, or when delivered by a nationally recognized overnight delivery service issuing a receipt, addressed to the other party at the address shown above, or at such other address or addresses as either party 10.26.009 shall designate to the other in accordance with this Section 9. 10. Pronouns. Whenever the context may require, any pronouns used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular forms of nouns and pronouns shall include the plural, and vice versa. 11. Entire Agreement. This Agreement constitutes the entire agreement between the parties and supersedes all prior agreements and understandings, whether written or oral, relating to the subject matter of this Agreement. 12. Amendment. This Agreement may be amended or modified only by a written instrument executed by both the Company and the Employee. 13. Governing law. This Agreement shall be construed, interpreted and enforced In accordance with the laws of the State of Florida. 14. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of both parties and their respective successors and assigns, including any corporation with which or into which the Company may be merged or which may succeed to its assets or business, provided however, that the obligations of the Employee are personal and shall not be assigned by Employee. 15. Miscellaneous. 15.1 No delay or omission by the Company in exercising any right under this Agreement shall operate as a waiver of that or any other right. A waiver or consent given by the Company on any one occasion shall be effective only in that instance and shall not be construed as a bar or waiver of any right on any other occasion. 15.2 The captions of the Sections of this Agreement are for convenience of reference only and in no way define, limit or affect the scope or substance of any Section of this Agreement. 10.26.010 15.3 In the case any provision of this Agreement shall be invalid, illegal or otherwise unenforceable, the validity, legality and enforceability of the remaining provisions shall in no way be affected or impaired thereby. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year set forth above. INVESTORS INSURANCE CORPORATION ATTEST /s/ Susan F. Powell By: /s/ Ronald W. Hayes - ------------------------- --------------------- Susan F Powell, Secretary Ronald W. Hayes Chairman of the Board Witness: /s/ Glenn Thigpen EMPLOYEE: - ----------------------- /s/ Melvin C Parker Glenn Thigpen -------------------- Melvin C. Parker EX-10 36 10.27 DEFERRED COMPENSATION-PARKER 10.27.001 112594 DEFERRED COMPENSATION PLAN AGREEMENT made effective this 12th day of December, 1994 between INVESTORS INSURANCE GROUP, INC., a corporation organized and existing under the laws of the State of Florida (hereinafter called the "Company"), and MELVIN C. PARKER (hereinafter called the "Employee"). WHEREAS, Employee has provided services for and on behalf of the Company for many years, has served as an officer and director of the Company and has performed such duties in a capable and efficient manner, resulting in substantial growth of the Company; and WHEREAS, the Company desires to retain the services performed by Employee, and WHEREAS, the Employee desires to remain in the employ of the Company, provided that Company agrees to pay Employee, or his beneficiary, certain amounts all in accordance with the terms and conditions hereinafter set forth. NOW THEREFORE in consideration of the foregoing and in consideration of the mutual promises contained herein, and intending to be legally bound, the parties agree as follows: 1. Continuation of Employment. Employee shall continue in the employ of the Company, upon the same terms as heretofore, until his death, retirement or disability. 2. Definitions. For purposes of this Agreement the following terms shall have the meaning set forth below, unless their context clearly indicates to the contrary. (a) Retirement. Employee shall be considered in retirement at such time as he ceases to perform services for Company and he has attained age 60. (b) Disability. Disability means inability of Employee to perform the substantial and material duties as an Employee of Company for a period exceeding six (6) months in any twelve (12) consecutive month period. 3. Payments Upon Retirement. Disability or Death. (a) Upon Employee's retirement, disability or death, the Company shall pay to the Employee, if living, otherwise to the 10.27.002 Employee's designated beneficiary such amount then existing in the Trust Account established pursuant to the Trust, attached hereto and made a part hereof as Exhibit "A". (b) On December 1st each year, the Company shall set aside for Employee Eight Thousand Five Hundred ($8,500.00) Dollars in the Trust. The Trustee shall invest the Trust funds at the direction of Employee. (c) The amounts held in Trust pursuant to Section 3(a) shall be paid in full to Employee or his named beneficiary within thirty (30) days of Employee's death, disability or retirement. 4. No Interest in Fund by Employee. Neither the Employee nor any beneficiary of the Employee shall have any interest in accrued sums which are so segregated in Trust and such funds shall at all times remain assets of the Company subject to the claims of its general creditors. 5. Assignment. Neither Employee, his beneficiaries or their estates shall have any right to commute, encumber, or dispose of the right to receive payments hereunder. Except as expressly permitted hereunder, the payments and the right thereto are expressly declared to be non-assignable and non-transferable. 6. Reorganization. The Company shall not merge or consolidate with any other corporation until such corporation expressly assumes this contract and becomes obligated to perform all of the duties of the Company herein set forth. 7. Waiver. The failure of either party to insist, in any one or more instances, upon performance of any of the terms and conditions of this Agreement shall not be construed as a waiver or relinquishment of any right granted hereunder or of the future performance of any such term, covenant or condition, but the obligations of either party with respect thereto shall continue in full force and effect. 8. Modification. This Agreement contains the entire understanding between the parties with respect to the subject matter set forth herein or necessarily implied hereby. The Agreement may not be modified unless in writing signed by the party against whom enforcement of any waiver, change, modification or discharge is sought. 9. Governing Law. This Agreement shall be construed in accordance with and governed by the laws of the State of Florida. 2 10.27.003 10. Benefit. This Agreement shall be binding upon the parties hereto, their heirs, executors, administrators, or successors. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and year first above written. INVESTORS INSURANCE GROUP, INC.. ATTEST: By:_______________________ Ernest D. Palmarella, Susan F. Powell, Vice President Assistant Secretary Witness Melvin C. Parker, Employee 3 10.27.004 Exhibit "A" TRUST UNDER DEFERRED COMPENSATION PLAN This Agreement made this 12th day of December, 1994 by and between INVESTORS INSURANCE GROUP, INC. ("Company") and JACK L. HOWARD and RONALD W. HAYES ("Trustees "). WHEREAS , Company has adopted a Deferred Compensation Plan (hereinafter referred to as the "Plan") for its President, Melvin C. Parker (hereinafter referred to as "Employee"). WHEREAS , Company wishes to establish a trust (hereinafter referred to as "Trust") and to contribute to the Trust assets that shall be held therein, subject to the claims of Company's creditors in the event of Company's Insolvency, as herein defined, until paid to Employee or his beneficiaries in such manner and at such times as specified in the Plan; WHEREAS , it is the intention of the parties that this Trust shall constitute an unfunded arrangement and shall not affect the status of the Plan as an unfunded plan maintained for the purpose of providing pension benefits for a select group of management or highly compensated employees for purpose of Title I of the Employee Retirement Income Security Act of 1974; WHEREAS , it is the intention of Company to make contributions to the Trust to provide itself with a source of funds to assist it in the meeting of liabilities under the Plan; NOW, THEREFORE, the parties do hereby establish the Trust and agree that the Trust shall be comprised , held and disposed of as follows: Section 1. Establishment or Trust (a) Company hereby deposits with Trustee in an amount equal to the sum of eight thousand five hundred ($8,500.00) dollars, which shall become the principal of the Trust to be held, administered and disposed of by Trustee as provided in this Trust Agreement. On December 1st of each year commencing December 1, 1994, Company shall deposit with Trustee the aforementioned sum subject to the termination provisions of the Plan. (b) The Trust hereby established shall be revocable by Company. (c) The Trust is intended to be a grantor trust, of which Company is the grantor, within the meaning of subpart B, part I, subchapter J, chapter 1, subtitle A of the Internal Revenue Code of 1986, as amended, and shall be construed accordingly. (d) The principal of the Trust, and any earnings thereof shall be held separate and apart from other funds of Company and shall be used exclusively for the uses and purposes of the Plan and general creditors as 10.27.005 herein set forth. Employee shall have no preferred claim on, or any beneficial ownership interest in, any assets of the Trust. Any rights created under the Plan and this Trust Agreement shall be mere unsecured contractual rights of Employee and his beneficiaries against Company. Any assets held by the Trust will be subject to the claims of Company's general creditors under federal and state law in the event of Insolvency, as defined in Section 3(a) herein. (e) Company, in its sole discretion, may at any time, or from time to time, make additional deposits of cash or other properly in trust with Trustees to augment the principal to be held, administered and disposed of by Trustees as provided in this Trust Agreement. Neither Trustees nor Employee or his beneficiaries shall have any right to compel such additional deposits. Section 2. Payments to Employee and his Beneficiaries. (a) Trustees shall make payments to the Employee or his beneficiaries in accordance with the Plan. The Trustees shall make provision for the reporting and withholding of any federal, state or local taxes that may be required to be withheld with respect to the payment of benefits pursuant to the terms of the Plan and shall pay amounts withheld to the appropriate taxing authorities or determine that such amounts have been reported, withheld and paid by Company. (b) The entitlement of Employee or his beneficiaries to benefits under the Plan shall be determined by Company or such party as it shall designate under the Plan, and any claim for such benefits shall be considered and reviewed under the procedures set out in the Plan. (c) Company may make payment of benefits directly to Employee or his beneficiaries as they become due under the terms of the Plan. Company shall notify Trustees of its decision to make payment of benefits directly prior to the time amounts are payable to Employee or his beneficiaries. In addition if the principal of the Trust, and any earnings thereon, are not sufficient to make payment as it falls due, the Trustees shall notify Company that principal and earnings are not sufficient. Section 3. Trustees Responsibility Regarding Payments to Trust Beneficiary when Company is Insolvent. (a) Trustees shall cease payment of benefits to Employee or his beneficiaries if the Company is Insolvent. Company shall be considered "insolvent" for purposes of this Trust-Agreement if (i) Company is unable to pay its debts as they become due, or (ii) Company is subject to a pending proceeding as a debtor under the United States Bankruptcy Code. (b) At the time during the continuance of this Trust, as provided in Section 1(d) hereof, the principal and income of the Trust shall be subject to the claims of general creditors of Company under federal and state law as set forth below. 2 10.27.006 (1) The Board of Directors of Company shall have the duty to inform Trustees in writing of Company's insolvency. If a person claiming to be a creditor of Company alleges in writing to Trustees that Company has become insolvent, Trustees shall determine whether Company is Insolvent and, pending such determination, Trustees shall discontinue payment of benefits to Plan Participants or his beneficiaries. (2) Unless Trustees have actual knowledge of Company's insolvency, or have received notice from Company or a person claiming to be a creditor alleging that Company is Insolvent, Trustees shall have no duty to inquire whether Company's solvency as may be furnished to Trustees and that provide Trustees with a reasonable basis for making a determination concerning Company's solvency. (3) If at any time Trustees have determined that Company is Insolvent, Trustees shall discontinue payments to Employee or his beneficiaries and shall hold the assets of the Trust for the benefit of Company's general creditors. Nothing in this Trust Agreement shall in any way diminish any rights of Employee or his beneficiaries to pursue their rights as general creditors of Company with respect to benefits due under the Plan or otherwise. (4) Trustees shall resume the payment of benefits to Employee or his beneficiaries in accordance with Section 2 of this Trust Agreement only after Trustees has determined that Company is not Insolvent (or is no longer insolvent). (c) Provided that there are sufficient assets, if Trustees discontinue the payment of benefits from the Trust pursuant to Section 3(b) hereof and subsequently resume such payments, the first payment following such discontinuance shall include the aggregate amount of all payments due to Employee or his beneficiaries under the terms of the Plan for the period of such discontinuance, less the aggregate amount of any payments made to Employee or his beneficiaries by Company in lieu of the payments provided for hereunder during any such period of discontinuance. Section 4. Investment Authority. Trustees will invest in securities (including stock or rights to acquire stock) or obligations issued by Company. All rights associated with assets of the Trust shall be exercised by Trustees of the person designated by Trustees at the written direction of Employee or his beneficiaries. Section 5. Disposition of Income. During the term of this Trust, all income received by the Trust, net of taxes, if any, shall be accumulated and reinvested. 3 10.27.007 Section 6. Accounting by Trustees. Trustees shall keep accurate and detailed records of all investments, receipts, disbursements, and all other transactions required to be made including such specific records as shall be agreed upon in writing between Company and Trustees. Within thirty (30) days following the close of each calendar year and within thirty (30) days after the removal or resignation of Trustees, Trustees shall deliver to Company a written account of their administration of the Trust during such year or during the period from the close of the last preceding year to the date of such removal or resignation, setting forth all investments, receipts, disbursements and other transactions effected by it, including a description of all securities and investments purchased and sold with the cost or net proceeds of such purchases or sales (accrued interest paid or receivable being shown separately), and showing all cash, securities and other property held in the Trust at the end of such year or as of the date of such removal or resignation, as the case may be. Section 7. Responsibility of Trustees. (a) Trustees shall act with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims, provided, however, that Trustees shall incur no liability to any person for any action taken pursuant to a direction, request or approval given by Employee which is contemplated by, and in conformity with, the terms of the Plan or this Trust and is given in writing by Employee. In the event of a dispute between Company and any other party, Trustees may apply to a court of competent jurisdiction to resolve the dispute. (b) If Trustees undertake or defend any litigation arising in connection with this Trust, Company agrees to indemnify Trustees against Trustees' costs, expenses and liabilities (including, without limitation, attorneys' fees and expenses) relating thereto and to be primarily liable for such payments. If Company does not pay such costs, expenses and liabilities in a reasonably timely manner, Trustees may obtain payment from the Trust. (c) Trustees may consult with legal counsel (who may also be counsel for Company generally) with respect to any of its duties or obligations hereunder. (d) Trustees may hire agents, accountants, actuaries, investment advisors, financial consultants or other professionals to assist them in performing any of their duties or obligations hereunder. (e) Trustees shall have, without exclusion, all powers conferred on Trustees by applicable law, unless expressly provided otherwise herein, provided, however, that if an insurance policy is held as an asset of the Trust, Trustee shall have no power to name a beneficiary of the policy other than the Trust, to assign the policy (as distinct from 10.27.008 conversion of the policy to a different form) other than to a successor Trustee, or to loan to any person the proceeds of any borrowing against such policy. (f) However, notwithstanding the provisions of Section 7(e) above, Trustees may loan to Company the proceeds of any borrowing against an insurance policy held as an asset of the Trust. (g) Notwithstanding any powers granted to Trustees pursuant to this Trust Agreement or to applicable law, Trustees shall not have any power that could give this Trust the objective of carrying on a business and dividing the gains therefrom, within the meaning of section 301.7701-2 of the Procedure and Administrative Regulations promulgated pursuant to the Internal Revenue Code. Section 8. Compensation and Expenses of Trustees. Company shall pay all administrative fees and expenses. If not so paid, the fees and expenses shall be paid from the Trust. Trustees shall serve hereunder without compensation. Section 9. Resignation and Removal of Trustees. (a) Trustees may resign at any time by written notice to Company, which shall be effective ten (10) days after receipt of such notice unless Company and Trustees agree otherwise. (b) Trustees may be removed by Company on thirty (30) days notice or upon shorter notice accepted by Trustees. (c) Upon resignation or removal of a Trustee and appointment of a successor Trustee, all assets shall subsequently be transferred to the remaining Trustee, if any, and the successor Trustee(s). The transfer shall be completed within sixty (60) days after receipt of notice of resignation, removal or transfer, unless Company extends the time limit. (d) If a Trustee resigns or is removed, a successor shall be appointed, in accordance with Section 10, hereof, by the effective date of resignation or removal under paragraph(s) (a) or (b) of this section. If no such appointment has been made, Trustees may apply to a court of competent jurisdiction for appointment of a successor or for instructions. All expenses of Trustees in connection with the proceeding shall be allowed as administrative expenses of the Trust. Section 10. Appointment of Successor. (a) If a Trustee resigns or is removed in accordance with Section 9(a) or (b) hereof, Company may appoint any third party, as a successor to replace Trustee upon resignation or removal. The appointment shall be effective when accepted in writing by the new Trustee, who 5 10.27.009 shall have all of the rights and powers of the former Trustee, including ownership rights in the Trust assets. The former Trustee shall execute any instrument necessary or reasonably requested by Company or the successor Trustee to evidence the transfer. (b) If a Trustee resigns or is removed pursuant to the provisions of Section 9(e) hereof and selects a successor Trustee, Trustee may appoint any third party such as a bank trust department or other party that may be granted corporate trustee powers under state law. The appointment of a successor Trustee shall be effective when accepted in writing by the new Trustee. The new Trustee shall have all the rights and powers of the former Trustee, including ownership fights in Trust assets. The former Trustee shall execute any instrument necessary or reasonably requested by the successor Trustee to evidence the transfer. (c) The successor Trustee shall not be responsible for and Company shall indemnify and defend the successor Trustee from any claim or liability resulting from any action or inaction of any prior Trustee or from any other past event, or any condition existing at the time it becomes successor Trustee. Section 11. Amendment or Termination. (a) This Trust may be amended by a written instrument executed by Trustees and Company. (b) The Trust shall not terminate until the date on which Employee and his beneficiaries are no longer entitled to benefits pursuant to the terms of the Plan, unless sooner revoked in accordance with Section 1(b) hereof. Upon termination of the Trust any assets remaining in the Trust shall be returned to Company. (c) Upon written approval of Employee or beneficiaries entitled to payment of benefits pursuant to the terms of the Plan, Company may terminate this Trust prior to the time all benefit payments under the Plan have been made. All assets in the Trust at termination shall be retired to Company. Section 12. Miscellaneous. (a) Any provision of this Trust Agreement prohibited by law shall be effective to the extent of any such prohibition, without invalidating the remaining provisions hereof. (b) Benefits payable to Employee and his beneficiaries under this Trust Agreement may not be anticipated, assigned (either at law or in equity), alienated, pledged, encumbered or subjected to attachment, garnishment, levy, execution or other legal or equitable process. (c) This Trust Agreement shall be governed by and construed in accordance with the laws of the State of Florida. 6 10.27.010 Section 13. Effective Date. The effective date of this Trust Agreement shall be December 12, 1994. IN WITNESS WHEREOF, the parties hereto have executed this Trust Agreement the day and year first above written. INVESTORS INSURANCE GROUP, INC. ATTEST: By: ___________________________ Ernest D. Palmarella, Susan F. Powell, Vice President Assistant Secretary Jack L. Howard, Trustee Ronald W. Hayes, Trustee EX-10 37 10.28 EMPLOYMENT AGREEMENT-PARKER 10.28.001 April 19, 1996 Mr. Melvin C. Parker Investors Insurance Group, Inc. 7200 West Camino Real Boca Raton, FL 33433 Dear Mr. Parker: The purpose of this letter is to inform you that the Board of Directors of Investors Insurance Group, Inc. (the "Company"), have resolved to grant you monthly compensation in the amount of two thousand five hundred ($2,500.00) dollars for serving in the position of Chairman of the Board of the Company. This Commitment on the part of the Company shall be effective as of March 15, 1996 and shall continue in effect until the next annual meeting of the Board of Directors or until your earlier resignation or removal as acting Chairman of the Board. Monthly payments in the gross amount of $2,500 shall be made payable to you commencing retroactively as of March 1, 1996. If this Commitment is acceptable to you, please not your acceptance by signing below and returning your executed acceptance to the Company. ATTEST: INVESTORS INSURANCE GROUP, INC. /s/ Susan F. Powell By: /s/ Donald F. U. Goebert, - -------------------- ----------------------------- Susan F. Powell Donald F. U. Goebert, Vice President AGREED AND ACCEPTED this 19 day of April, 1996. /s/ Melvin C. Parker - --------------------- ------------------------ Melvin C. Parker EX-10 38 10.29 EMPLOYMENT AGREEMENT-POWELL 10.29.001 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (the "Agreement"), effective the 1st day of July ,1993, between Investors Insurance Corporation, a Delaware corporation with its principal executive offices at 3030 Hartley Road, Suite 390, Jacksonville, Florida 32257, (the "Company"), and Susan F. Powell, residing at 2957 Magnolia Road South, Orange Park, Florida 32065 ("Employee") superseding and terminating all prior written and oral Employment Agreements between Company and Employee. INTRODUCTION The Company desires to continue to employ Employee, and Employee desires to continue to be employed by the Company. In consideration of the mutual covenants and promises contained herein, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by the parties hereto, the parties hereto, intending to be legally bound hereby, agree as follows: 1. Term of Employment. The Company hereby continues to employ Employee and Employee hereby accepts the continuation of Employee's employment with the Company upon the terms set forth in this Agreement for a period commencing on July 1, 1993 and continuing until terminated as provided herein, in accordance with the provisions of Section 4. 2. Title Capacity. Employee shall serve as Executive Vice President, Secretary and Chief Operating Officer of the Company and shall have such authority as is delegated to Employee by the Board of Directors. Employee hereby accepts the continuation of Employee's employment and agrees to undertake the duties and 10.29.002 responsibilities inherent in Employee's position and such other duties and responsibilities as the Board of Directors shall from time to time reasonably assign to Employee. Employee agrees to devote Employee's entire business time to the business and interest of the Company, the parent of Company and those companies affiliated with either during the Employment Period and Employee agrees to abide by the rules, regulations, instructions, personnel practices and policies of the Company and any changes therein which may be adopted from time to time by the Company. 3. Compensation and Benefits. 3.1 Salary. The Company's parent, Investors Insurance Group, Inc. (formerly Gemco National, Inc.), shall pay Employee an annual salary of $114,400.00, payable in equal installments every two weeks, commencing on July 1, 1993 for services performed for and on behalf of the Company, the Company's parent and its subsidiaries and related companies. No compensation hereunder shall be paid to Employee if Employee exceeds the number of days of vacation leave and/or sick and disability leave which Employee is the entitled to receive. Such salary shall be increased by such amounts as the Board of Directors shall, in its absolute discretion, deem appropriate. 3.2 Incentive Compensation. An amount equal to three (3%) percent of the net marketing commissions paid by the Company to the Company's parent, Investors Insurance Group, Inc. (formerly Gemco National, Inc.). Net marketing commissions represent commissions paid by the Company to the Company's parent for marketing services, pursuant to any present or 10.29.003 future marketing agreement, oral or written, existing between the Company and Company's Parent, less all expenses incurred by the Company's Parent related to such marketing services. No compensation hereunder will be paid to Employee if Employee exceeds the number of days of vacation leave and/or sick and disability leave which Employee is then entitled to receive. 3.3 Fringe Benefits. Employee shall be entitled to participate in all benefit programs that the Company or its parent establishes and makes available to their employees generally, if any, to the extent that Employee's position, tenure, salary, age, health and other qualifications make Employee eligible to participate. The Employee shall be entitled to paid vacation each year in accordance with Company policy, to be taken at such times as may be approved by the Board of Directors or its designee. The Employee shall be entitled to paid sick and disability leave in accordance with Company policy. 3.4 Reimbursement of Expenses. The Company shall reimburse Employee for all reasonable travel, entertainment and other expenses incurred or paid by Employee in connection with, or related to, the performance of Employee's duties, responsibilities or services under this Agreement, upon presentation by the Employee of documentation, expense statements, vouchers and/or such other supporting information as the Company may request. 4. Employment Termination. The employment of Employee by the Company pursuant to this Agreement shall terminate upon the occurrence of any of the following: 10.29.004 4.1 Written notice by either Employer or Employee, sixty (60) days prior to anticipated date of departure. 4.2 At the election of the Company, for cause, immediately upon written notice from the Company to the Employee. For the purposes of this Section 4.2, cause for termination shall be deemed to include only (a) acts of dishonesty, (b) acts involving moral turpitude, (c) drug or alcohol abuse if Employee fails to seek appropriate counseling or fails to complete a prescribed counseling program, (d) malfeasance in office and (e) material failure of Employee to comply with the terms of this Agreement; 4.3 Thirty (30) days after the disability of the Employee. As used in this Agreement, the term "Disability" shall mean the inability of the Employee, due to a physical or mental disability, for a period of ninety (90) days, whether or not consecutive, during any twelve (12) month period to perform the services required of Employee pursuant to this Agreement. A determination of disability shall be made by a physician satisfactory to both Employee and the Company, provided that if Employee and the Company do not agree on a physician, Employee and the Company shall each select a physician and these two together shall select a third physician, whose determination as to disability shall be binding on all parties. 5. Effect of Termination. 5.1 Termination for Cause. In the event that Employee's employment is terminated for cause pursuant to Section 4.2, the Company shall pay Employee the compensation and 10.29.005 benefits otherwise payable to Employee under Section 3.1 through the last day of Employee's actual employment hereunder. 5.2 Termination for Disability. If Employee's employment is terminated by disability pursuant to Section 4.3, the Company shall pay to the Employee, the compensation due the Employee up to the date Employee ceased performing services for Company plus the number of sick days Employee is then entitled to receive. 5.3 Termination for Death. If Employee's employment is terminated by death, the Company shall pay the estate of Employee, the compensation which would otherwise be payable to Employee up to the date of Employee's death if Employee is then receiving compensation from the Company. 6. Non-Competition. 6.1 Employee agrees that, during the Employment Period and for a period of time equal to the duration of Employee's employment with the Company, but in no instance to exceed two (2) years after the termination of the Employment Period for any reason. (a). Employee will not directly or indirectly, as an employee of any person or entity (whether or not engaged in business for profit), or as an individual, proprietor, partner, stockholder, officer, director, joint venturer, investor, lender or in any other capacity whatsoever (otherwise than as the holder of a non-controlling investment in any publicly traded securities), compete with the business of the Company, Company's parent or any of their subsidiaries or 10.29.006 affiliated companies; (b) Employee will not recruit or solicit any employee of the Company, Company's parent or their subsidiaries and affiliated companies or otherwise induce any employee to leave the employment of the Company, Company's parent or their subsidiaries and affiliated companies to become an employee of or otherwise become associated with Employee or any firm, corporation, business or institution with which Employee is or may become associated; and (c) Employee will not solicit or divert the business or patronage of any of the customers or accounts of the Company, Company's parent or their subsidiaries and affiliated companies or prospective customers or accounts of the aforementioned, which were contracted, solicited or served by the Employee while Employee was employed by the Company. As used in this Agreement, "compete" or "competition", or any variation thereof, means the Employee's engagement or participation in, or furnishing of aid or assistance in connection with, the distribution, sale, marketing or rendering of products or services of the type or kind distributed, sold, marketed or rendered by the Company, Company's parent or any of their subsidiaries or affiliated companies at the termination of the Employment Period, including those products or services that the Company, Company's parent or any of their subsidiaries or affiliated companies, as the case may be, was in the process of 10.29.007 developing or designing for distribution, sale, marketing or rendering at such time. 6.2 The parties to this Agreement consider the restrictions contained herein reasonable. If, however, such restrictions are found by any court having jurisdiction to be unreasonable because they are (or one of them is, as the case may be) overly broad, then such restriction(s) will nevertheless remain effective, but shall be considered amended in whatever manner is considered reasonable by that court, and as so amended shall be enforced. 6.3 If there is any breach by the Employee of any of the covenants contained in this Section 6., the damage to the Company, Company's parent or their subsidiaries or affiliated companies will be substantial, although difficult to ascertain, and money damages will not afford the injured party an adequate remedy. Therefore, if any breach occurs, in addition to such other remedies as may be provided by law, the Company, the Company's parent or subsidiaries or affiliated companies, as the case may be, has the right to specific performance of the covenants of the Employee contained in this Agreement by way of temporary or permanent injunctive relief. 7. Non-Disclosure. Employee agrees not to disclose to any third party, or to use for Employee's own benefit or for the benefit of any third party, any trade secrets or confidential or other proprietary information relating to the products, services, markets, customers, suppliers or current or planned business operations of the Company, Company's parent, their subsidiaries and affiliated companies without the Company's prior written 10.29.008 consent. Employee further agrees that all documents, notes, letters, records, models, prototypes, computer programs and other tangible and intangible evidence of such trade secrets or confidential or other proprietary information are the sole and exclusive property of the Company, Company's parent, their subsidiaries and affiliated companies; that Employee shall surrender all such evidence in Employee's possession or control to the Company upon the termination of the Employment Period or at any other time upon request and that Employee shall not retain or use any copies or summaries thereof. 8. Inventions, Improvements, Copyrights, Ideas and Similar Creative Property. Employee agrees that any inventions, improvements or ideas which Employee may make or conceive, and any copyrightable subject matter of which Employee may be the author, either solely or jointly with others, which Employee makes, conceives, or authors during the period of Employee's employment with the Company, shall be the property of the Company, Company's parent, a subsidiary or affiliated company, as the case may be, and that Employee will promptly disclose all such inventions, improvements, ideas and material to the Company, Company's parent, subsidiary or affiliate, as the case may be, and that on request, Employee will execute all applications, assignments, and other papers necessary to enable the Company, Company's parent, subsidiary or affiliate to obtain full protection and title in all countries to such inventions, improvements, ideas and matter. 9. Notices. All notices required or permitted under this Agreement shall be in writing and shall be deemed effective upon personal 10.29.009 delivery or upon deposit in the United States Post Office, postage prepaid, by registered mail return receipt requested, or when delivered by a nationally recognized overnight delivery service issuing a receipt, addressed to the other party at the address shown above, or at such other address or addresses as either party shall designate to the other in accordance with this Section 9. 10. Pronouns. Whenever the context may require, any pronouns used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular forms of nouns and pronouns shall include the plural, and vice versa. 11. Entire Agreement. This Agreement constitutes the entire agreement between the parties and supersedes all prior agreements and understandings, whether written or oral, relating to the subject matter of this Agreement. 12. Amendment. This Agreement may be amended or modified only by a written instrument executed by both the Company and the Employee. 13. Governing Law. This Agreement shall be construed, interpreted and enforced in accordance with the laws of the State of Florida. 14. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of both parties and their respective successors and assigns, including any corporation with which or into which the Company may be merged or which may succeed to its assets or business, provided however, that the obligations of the Employee are personal and shall not be assigned by Employee. 15. Miscellaneous. 15.1 No delay or omission by the Company in exercising any right under this Agreement shall operate as a waiver of that or any other right. A waiver or consent given by the Company 10.29.010 on any one occasion shall be effective only in that instance and shall not be construed as a bar or waiver of any fight on any other occasion. 15.2 The captions of the Sections of this Agreement are for convenience of reference only and in no way define, limit or affect the scope or substance of any Section of this Agreement. 15.3 In the case any provision of this Agreement shall be invalid, illegal or otherwise unenforceable, the validity, legality and enforceability of the remaining provisions shall in no way be affected or impaired thereby. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year set forth above. INVESTORS INSURANCE CORPORATION ATTEST: /s/ Richard T. Magsam By: /s/ Melvin C. Parker - ---------------------------- --------------------------- Richard T. Magsam Senior Melvin C. Parker, President Vice President Witness: EMPLOYEE: /s/ Glenn Thigpen /s/ Susan F. Powell - ------------------- ------------------------- Susan F. Powell EX-10 39 10.30 EMPLOYMENT AGREEMENT-MAGSAM 10.30.001 090293 EMPLOYMENT AGREEMENT THIS EMPLOYMENT AGREEMENT (the "Agreement"), effective the 1st day of July, 1993, between Investors Insurance Corporation, a Delaware corporation with its principal executive offices at 3030 Hartley Road, Suite 390, Jacksonville, Florida 32257, (the "Company"), and Richard T. Magsam, residing at 11208 Chester Lake Road West, Jacksonville, Florida 32256 ("Employee") superseding and terminating all prior written and oral Employment Agreements between Company and Employee. INTRODUCTION The Company desires to continue to employ Employee, and Employee desires to continue to be employed by the Company. In consideration of the mutual covenants and promises contained herein, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by the parties hereto, the parties hereto, intending to be legally bound hereby, agree as follows: 1. Term of Employment. The Company hereby continues to employ Employee and Employee hereby accepts the continuation of Employee's employment with the Company upon the terms set forth in this Agreement or a period commencing on July 1, 1993 and continuing until terminated as provided herein, in accordance with the provisions of Section 4. 2. Title Capacity. Employee shall serve as Senior Vice President, Treasurer and Chief Financial Officer of the Company and shall have such authority as is delegated to Employee by the Board of Directors. 10.30.002 Employee hereby accepts the continuation of Employee's employment and agrees to undertake the duties and responsibilities inherent in Employee's position and such other duties and responsibilities as the Board of Directors shall from time to time reasonably assign to Employee. Employee agrees to devote Employee's entire business time to the business and interest of the Company, the parent of Company and those Companies affiliated with either during the Employment Period and Employee agrees to abide by the rules, regulations, instructions, personnel practices and policies of the Company and any changes therein which may be adopted from time to time by the Company. 3. Compensation and Benefits. 3. 1 Salary. The Company's parent, Investors Insurance Group, Inc. (formerly Gemco National, Inc.), shall pay Employee an annual salary of $80,000.00, payable in equal installments every two weeks, commencing on July 1, 1993 for services performed for and on behalf of the Company, the Company's parent and its subsidiaries and related companies. No compensation hereunder shall be paid to Employee if Employee exceeds the number of days of vacation leave and/or sick and disability leave which Employee is the entitled to receive. Such salary shall be increased by such amounts as the Board of Directors shall, in its absolute discretion, deem appropriate. 3.2 Incentive Compensation. An amount equal to two and 1/2 (2.5%) percent of the net marketing commissions paid by the Company to the Company's parent, Investors Insurance Group, Inc. (formerly Gemco National, Inc.). Net marketing commissions represent commissions paid by the Company to the Company's parent for marketing services, pursuant to any present or future marketing agreement, oral or written, existing between the Company and Company's Parent, less all expenses incurred by the Company's Parent related to such marketing services. No compensation hereunder will be paid to Employee if Employee exceeds the number of days of vacation leave and/or sick and disability leave which Employee is then entitled to receive. 2 10.30.003 3.3 Fringe Benefits. Employee shall be entitled to participate in all benefit programs that the Company or its parent establishes and makes available to their employees generally, if any, to the extent that Employee's position, tenure, salary, age, health and other qualifications make Employee eligible to participate. The Employee shall be entitled to paid vacation each year in accordance with Company policy, to be taken at such times as may be approved by the Board of Directors or its designee. The Employee shall be entitled to paid sick and disability leave in accordance with Company policy. 3.4 Reimbursement of Expenses. The Company shall reimburse Employee for all reasonable travel, entertainment and other expenses incurred or paid by Employee in connection with, or related to, the performance of Employee's duties, responsibilities or services under this Agreement, upon presentation by the Employee of documentation, expense statements, vouchers and/or such other supporting information as the Company may request. 4. Employment Termination. The employment of Employee by the Company pursuant to this Agreement shall terminate upon the occurrence of any of the following: 4.1 Written notice by either Employer or Employee, sixty (60) days prior to anticipated date of departure. 4.2 At the election of the Company, for cause, immediately upon written notice from the Company to the Employee. For the purposes of this Section 4.2, cause for termination shall be deemed to include only (a) acts of dishonesty, (b) acts involving moral turpitude, (c) drug or alcohol abuse if Employee fails to seek appropriate counseling or fails to complete a prescribed counseling program, (d) malfeasance in office and (e) material failure of Employee to comply with the terms of this Agreement; 3 10.30.004 4.3 Thirty (30) days after the disability of the Employee. As used in this Agreement, the term "Disability" shall mean the inability of the Employee, due to a physical or mental disability, for a period of ninety (90) days, whether or not consecutive, during any twelve (12) month period to perform the services required of Employee pursuant to this Agreement. A determination of disability shall be made by a physician satisfactory to both Employee and the Company, provided that, if Employee and the Company do not agree on a physician, Employee and the Company shall each select a physician and these two together shall select a third physician, whose determination as to disability shall be binding on all parties. 5. Effect of Termination. 5.1 Termination for Cause. In the event that Employee's employment is terminated for cause pursuant to Section 4.2, the Company shall pay Employee the compensation and benefits otherwise payable to Employee under Section 3.1 through the last day of Employee's actual employment hereunder. 5.2 Termination for Disability. If Employee's employment is terminated by disability pursuant to Section 4.3, the Company shall pay to the Employee, the compensation due the Employee up to the date Employee ceased performing services for Company plus the number of sick days Employee is then entitled to receive. 5.3 Termination for Death. If Employee's employment is terminated by death, the Company shall pay the estate of Employee, the compensation which would otherwise be payable to Employee up to the date of Employee's death if Employee is then receiving compensation from the Company. 4 10.30.005 6. Non-Competition. 6.1 Employee agrees that, during the Employment Period and for a period of time equal to the duration of Employee's employment with the Company, but in no instance to exceed two (2) years after the termination of the Employment Period for any reason - (a) Employee Will not directly or indirectly, as an employee of any person or entity (whether or not engaged in business for profit), or as an individual, proprietor, partner, stockholder, officer, director, joint venturer, investor, lender or in any other capacity whatsoever (otherwise than as the holder of a non-controlling investment in any publicly traded securities), compete with the business of the Company, Company's parent or any of their subsidiaries or affiliated companies; (b) Employee will not recruit or solicit any employee of the Company, Company's parent or their subsidiaries and affiliated companies or otherwise induce any employee to leave the employment of the Company, Company's parent or their subsidiaries and affiliated companies to become an employee of or otherwise become associated with Employee or any firm, corporation, business or institution with which Employee is or may become associated; and (c) Employee will not solicit or divert the business or patronage of any of the customers or accounts of the Company, Company's parent or their subsidiaries and affiliated companies or prospective customers or accounts of the aforementioned, which were contracted, solicited or served by the Employee while Employee was employed by the Company. 5 10.30.006 As used in this Agreement, "compete" or "competition", or any variation thereof, means the Employee's engagement or participation in, or furnishing of aid or assistance in connection with, the distribution, sale, marketing or rendering of products or services of the type or kind distributed, sold, marketed or rendered by the Company, Company's parent or any of their subsidiaries or affiliated companies at the termination of the Employment Period, including those products or services that the Company, Company's parent or any of their subsidiaries or affiliated companies, as the case may be, was in the process of developing or designing for distribution, sale, marketing or rendering at such time. 6.2 The parties to this Agreement consider the restrictions contained herein reasonable. If, however, such restrictions are found by any court having jurisdiction to be unreasonable because they are (or one of them is, as the case may be) overly broad, then such restriction(s) will nevertheless remain effective, but shall be considered amended in whatever manner is considered reasonable by that court, and as so amended shall be enforced. 6.3 If there is any breach by the Employee of any of the covenants contained in this Section 6., the damage to the Company, Company's parent or their subsidiaries or affiliated companies will be substantial, although difficult to ascertain, and money damages will not afford the injured party an adequate remedy. Therefore, if any breach occurs, in addition to such other remedies as may be provided by law, the Company, the Company's parent or subsidiaries or affiliated companies, as the case may be, has the right to specific performance of the covenants of the Employee contained in this Agreement by way of temporary or permanent injunctive relief. 6 10.30.007 7. Non-Disclosure. Employee agrees not to disclose to any third party, or to use for Employee's own benefit or for the benefit of any third party, any trade secrets or confidential or other proprietary information relating to the products, services, markets, customers, suppliers or current or planned business operations of the Company, Company's parent, their subsidiaries and affiliated companies without the Company's prior written consent. Employee further agrees that all documents, notes, letters, records, models, prototypes, computer programs and other tangible and intangible evidence of such trade secrets or confidential or other proprietary information are the sole and exclusive property of the Company, Company's parent, their subsidiaries and affiliated companies; that Employee shall surrender all such evidence in Employee's possession or control to the Company upon the termination of the Employment Period or at any other time upon request and that Employee shall not retain or use any copies or summaries thereof. 8. Inventions. Improvements. Copyrights. Ideas and Similar Creative Property. Employee agrees that any inventions, improvements or ideas which Employee may make or conceive, and any copyrightable subject matter of which Employee may be the author, either solely or jointly with others, which Employee makes, conceives, or authors during the period of Employee's employment with the Company, shall be the property of the Company, Company's parent, a subsidiary or affiliated company, as the case may be, and that Employee will promptly disclose all such inventions, improvements, ideas and material to the Company, Company's parent, subsidiary or affiliate, as the case may be, and that on request, Employee will execute all applications, assignments, and other papers necessary to enable the Company, Company's parent, subsidiary or affiliate to obtain full protection and title in all countries to such inventions, improvements, ideas and matter. 7 10.30.008 9. Notices. All notices required or permitted under this Agreement shall be in writing and shall be deemed effective upon personal delivery or upon deposit in the United States Post Office, postage prepaid, by registered mail return receipt requested, or when delivered by a nationally recognized overnight delivery service issuing a receipt, addressed to the other party at the address shown above, or at such other address or addresses as either party shall designate to the other in accordance with this Section 10. Pronouns. Whenever the context may require, any pronouns used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular forms of nouns and pronouns shall include the plural, and vice versa. 11. Entire Agreement. This Agreement constitutes the entire agreement between the parties and supersedes all prior agreements and understandings, whether written or oral, relating to the subject matter of this Agreement. 12. Amendment. This Agreement may be amended or modified only by a written instrument executed by both the Company and the Employee. 13. Governing Law. This Agreement shall be construed, interpreted and enforced in accordance with the laws of the State of Florida. 14. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of both parties and their respective successors and assigns, including any corporation with which or into which the Company may be merged or which may succeed to its assets or business, provided however, that the obligations of the Employee are personal and shall not be assigned by Employee. 8 10.30.009 15. Miscellaneous. 15.1 No delay or omission by the Company in exercising any right under this Agreement shall operate as a waiver of that or any other right. A waiver or consent given by the Company on any one occasion shall be effective only in that instance and shall not be construed as a bar or waiver of any right on any other occasion. 15.2 The captions of the Sections of this Agreement are for convenience of reference only and in no way define, limit or affect the scope or substance of any Section of this Agreement. 15.3 In the case any provision of this Agreement shall be invalid, illegal or otherwise unenforceable, the validity, legality and enforceability of the remaining provisions shall in no way be affected or impaired thereby. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year set forth above. INVESTORS INSURANCE CORPORATION ATTEST: By:__________________________________ Susan F. Powell, Secretary Melvin C. Parker, President Witness: EMPLOYEE: Richard T. Magsam 9 EX-10 40 10.31 RESIGNATION-MAGSAM 10.31.001 March 13, 1995 Mr. Melvin C. Parker President and Chief Executive Officer Investors Insurance Group, Inc. 7200 West Camino Real, Suite 203 Boca Raton, Florida 33433 Dear Mel: Please accept this letter as notice of my resignation as Vice President, Secretary and Treasurer of Investors Insurance Group, Inc. and as Senior Vice President and Treasurer of IIC, Inc. and Investors Insurance Corporation. The effective date of my resignations will be March 31, 1995. I would like to take this opportunity to thank you and the Board of Directors for the opportunity to serve the Investors Insurance operation for the past three plus years. However, I believe it is time to broaden my expertise outside the annuity area to enhance my future career potential. I would like to wish you and the Company the best of luck in the current endeavor to obtain some much needed capital. I am sure everything will come together and that under your guidance, Investors Insurance will continue to flourish in the expanding annuity marketplace. Sincerely, /s/ Richard T. Magsam - --------------------- Richard T. Magsam, CPA EX-10 41 10.32 IMG INDEMNITY-PARKER 10.32.001 INDEMNITY AGREEMENT AGREEMENT, dated June 10, 1994 between INVESTORS INSURANCE GROUP, INC. (the "Corporation"), organized and incorporated under the laws of the state of Florida and MELVIN C. PARKER ("Indemnitee") . W I T N E S S E T H: WHEREAS, the Corporation formed a new subsidiary corporation known as Investors Marketing Group, Inc. (hereinafter referred to as "IMG") under the laws of State of Florida; WHEREAS, the corporation owns one hundred (100%) percent of all common stock of IMG; WHEREAS, the corporation has requested that IMG appoint Indemnitee as a Director, President and Treasurer of IMG; and WHEREAS, in order to induce Indemnitee to serve as director or officer of IMG, the Corporation has determined that it is in best interest to enter into this Agreement; NOW THEREFORE, in consideration of the foregoing and in consideration of the mutual promises contained herein, and intending to be legally bound, the parties agree as follows: FIRST: Indemnification. The Corporation hereby agrees to hold harmless and indemnify Indemnitee from and against any and all judgments, fines, amounts paid in settlement and expenses, including attorneys' fees, actually and reasonably, incurred as a 10.32.002 result of or in connection with any threatened pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative or as a result of or in connection with any appeal therein, (other than an action by or in the right of IMG and/or the Corporation unless a court of competent jurisdiction approves the right to indemnification), or is threatened to be made a party or as a result of or by reason of the fact that Indemnitee is, was or at any time becomes a director or officer of IMG, or is or was serving or at any time served another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, in any capacity at the request of IMG or Corporation, whether or not arising out of any breach of Indemnitee's fiduciary duty, under any state or federal law or otherwise, as a director or officer of IMG and/or as a director, officer, employee or agent of such other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise. Indemnity, pursuant to this Article FIRST, shall be paid by the corporation only to the extent the aggregate of losses to be indemnified exceeds the amount of such losses for which Indemnitee is actually paid from INC or pursuant to any insurance purchased and maintained by the Corporation or IMG for the benefit of Indemnitee. There shall be no indemnity hereunder if judgment or other final adjudication establishes that the Indemnitee's act or failure to act were material to the cause of action so adjudicated and constitute: a violation of criminal law, unless the Indemnitee had reasonable cause to believe his conduct was lawful or had no reasonable cause to believe his conduct was unlawful; a transaction 10.32.003 from which the Indemnitee derived an improper personal benefit; in the case where Indemnitee is a director, a circumstance under which the liability provisions of subsection 607.0834 of the Florida Statutes are applicable; wilful misconduct or a conscious disregard for the best interests of IMG in a proceeding by or in the right of IMG to procure a judgment in its favor or in a proceeding by or in the right of a shareholder; or a failure to act in good faith and in a manner he reasonably believed to be not in or opposed to the best interests of IMG and/or the Corporation. The termination of any such civil or criminal action or proceeding by judgment order settlement, conviction or upon a plea of nolo contendere, or its equivalent, shall not create any presumption that Indemnitee acted in bad faith or was dishonest. For purposes of this Agreement, (1) IMG and/or the Corporation shall be deemed to have requested Indemnitee to serve in a capacity with respect to an employee benefit plan where the performance by Indemnitee of the duties to IMG and/or the corporation also imposes duties on, or otherwise involves services by, Indemnitee to the plan or participants or beneficiaries of the plan and (2) action taken or omitted by Indemnitee with respect to an employee benefit plan in the performance of Indemnitee's duties for a purpose reasonably believed by Indemnitee to be either in the interest of IMG and/or the Corporation or in the interest of the participants or beneficiaries of the plan shall not be deemed to be in bad faith or dishonest. SECOND: Continuation of Indemnity. All agreements and 10.32.004 obligations of the Corporation contained herein shall continue during the period Indemnitee shall serve as a director or officer of IMG and thereafter so long as Indemnitee shall be subject to any possible claim or threatened, pending or completed action, suit or proceeding whether civil, criminal or investigative, by reason of the fact that Indemnitee was a director or officer of IMG or served at the request of IMG in any capacity in any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise . THIRD: Notification and Defense of Claim. Within ten (lO) days after receipt by Indemnitee of notice of the commencement of any action, suit, or proceeding, Indemnitee will, if a claim in respect thereof is to be made against IMG under this agreement, notify the corporation of the commencement thereof, but the omission to so notify the Corporation will not relieve it from any liability which it may have to Indemnitee otherwise than under this Agreement. With respect to any such action, suit or proceeding as to which Indemnitee notifies the corporation of the commencement thereof: A. The corporation will be entitled to participate therein at its own expense; and, B. Except as otherwise provided below, the Corporation jointly with any other indemnifying party similarly notified will be entitled to assume the defense thereof, with counsel satisfactory to Indemnitee. After notice from the corporation to Indemnitee of its election so to assume the defense thereof, the 10.32.005 Corporation will not be liable to Indemnitee under this Agreement for any legal or other expenses subsequently incurred by Indemnitee in connection with the defense thereof other than reasonable costs of investigation or as otherwise provided below. Indemnitee shall have the right to employ his own counsel in such action, suit or proceeding, but the fees and expenses of such counsel incurred after notice from the Corporation of its assumption of the defense thereof shall be at the expense of Indemnitee unless (l) the employment of counsel by Indemnitee has been authorized by the corporation in connection with the defense of such action, (2) Indemnitee shall have reasonably concluded that there may be a conflict of interest among IMG, the Corporation and/or Indemnitee in the conduct of the defense of such action. In no event shall the Corporation be liable for the expenses of more than one counsel for Indemnitee in connection with any action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances. The Corporation shall not be entitled to assume the defense of any action, suit or proceeding brought by or on behalf of the Corporation or as to which Indemnitee shall have reasonably concluded that there may be a conflict of interest between IMG and/or the Corporation and Indemnitee with respect to the defense of such action. C. Anything in this Agreement to the contrary notwithstanding, the Corporation shall not be liable to indemnify Indemnitee for any amounts paid in settlement of any action or claim effected without the written consent of IMG and/or the 10.32.006 Corporation. IMG and/or the Corporation shall not settle any action or claim in any manner which would impose any penalty or limitation on Indemnitee without Indemnitee's written consent. Neither IMG and/or the Corporation nor Indemnitee will unreasonably withhold consent to any proposed settlement. FOURTH: Advancement and Repayment of Expenses. In the event of any threatened or pending action, suit or proceeding which may give rise to a right of indemnification from the Corporation to Indemnitee pursuant to this Agreement, the Corporation shall pay, on demand, in advance of the final disposition thereof any and all expenses of the Indemnitee hereunder, other than (a) those expenses for which Indemnitee is not entitled to indemnification pursuant to Article THIRD hereof or due to a final judgement that Indemnitee's act or failure to act constituted willful misconduct or recklessness or that indemnification is not lawful and (b) those expenses for which Indemnitee has been paid under any insurance purchased and maintained by the Corporation for the benefit of Indemnitee. The Corporation shall make such payments upon receipt of (1) a written request by Indemnitee for payment of such expenses, (2) an undertaking by or on behalf or Indemnitee to repay such amount if it shall ultimately be determined that he or she is not entitled to be indemnified by the Corporation hereunder, and (3) satisfactory evidence as to the amount of such expenses. Indemnitee's written certification together with a copy of the statement paid or to be paid by the Indemnitee shall constitute satisfactory evidence as to the amount of such expenses. 10.32.007 FIFTH: Enforcement. A. The Corporation expressly confirms and agrees that it has entered into this Agreement and assumed the obligations imposed on the corporation hereby in order to induce Indemnitee to continue as a director and/or officer of IMG and acknowledges that Indemnitee is relying upon this Agreement in continuing in such capacity. B. In the event Indemnitee is required to bring any action to enforce rights or to collect moneys due under this Agreement and is successful in such action, the Corporation shall reimburse Indemnitee for all costs and expenses, including attorneys' fees, incurred by Indemnitee in connection with such action. SIXTH: Indemnification Hereunder Not Exclusive. The rights to indemnification and advancement of expenses granted to Indemnitee under this Agreement shall not be deemed exclusive of, or in limitation of, any other rights to which indemnitee may now or hereafter be entitled under the laws of the State of Florida or other governing state statute, IMG's Certificate of Incorporation or By-Laws, as now in effect or as may hereafter be amended, any agreement, any vote of shareholders or directors, or otherwise. SEVENTH: Miscellaneous. A. All communications hereunder shall be in writing and shall be sent by registered or certified mail, return receipt requested Communications intended for the Corporation, shall be addressed to the Corporation, attention of its President, at its principal office, or at such other address of which the Corporation shall have given notice to Indemnitee in the manner herein 10.32.008 provided. Communication intended for Indemnitee shall be addressed to Indemnitee at his present home address or at such other address of which Indemnitee shall have given notice to the Corporation in the manner herein provided. B. In the event that any provision of this Agreement is invalid, illegal or unenforceable, the balance of this Agreement shall remain in effect, and if any provision is inapplicable to any party on circumstance, it shall nevertheless remain applicable to all other parties and circumstances. C. This Agreement constitutes the entire understanding among the parties with respect to the subject matter hereof and no waiver or modification of the terms hereof shall be valid unless in writing signed by the party to be charged and only to the extent therein set forth. D. This Agreement shall be binding upon Indemnitee and upon the Corporation, its successors and assigns and shall inure to the benefit of Indemnitee his or her heirs, personal representatives and assigns and to the benefit of the corporation, its successors and assigns. E. The captions appearing in this Agreement. are inserted only as a matter of convenience and for reference and in no way define, limit or describe the scope and intent of this Agreement or any of the provisions hereof. F. This Agreement shall be governed by, and construed in accordance with, the laws of the state of Florida applicable to contracts made and to be performed wholly within said State without 10.32.009 giving effect to conflict of laws principles thereof, unless the Corporation, its successors or assigns are domesticated in another state at the time of occurrence of any act or failure to act that gives rise to a claim for indemnification hereunder. In such case, the Agreement shall be governed by and construed in accordance with the laws of such State of domestication. IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement the day and year first above written. ATTEST: INVESTORS INSURANCE GROUP, INC. /s/ Susan F. Powell By:/s/ Ernest D. Palmarella Ernest D. Palmarella Vice President /s/ Melvin C. Parker MELVIN C. PARKER, Indemnitee Agreed an Accepted: By: /s/ Melvin C. Parker Melvin C. Parker, President of IMG EX-10 42 10.33 IMG INDEMNITY-POWELL 10.33.001 INDEMNITY AGREEMENT AGREEMENT, dated JUNE 10, 1994 between INVESTORS INSURANCE GROUP, INC. (the "Corporation"), organized and incorporated under the laws of the State of Florida and SUSAN F. POWELL ("Indemnitee") W I T N E S S E T H WHEREAS, the corporation formed a new subsidiary corporation known as Investors Marketing Group, Inc. (hereinafter referred to as "IMG") under the laws of State of Florida; WHEREAS, the Corporation owns one hundred (100%) percent of all common stock of IMG; WHEREAS, the Corporation has requested that IMG appoint Indemnitee as Secretary of IMG; and WHEREAS, in order to induce Indemnitee to serve as an officer of IMG, the Corporation has determined that it is in its best interest to enter into this Agreement; NOW THEREFORE, in consideration of the foregoing and in consideration of the mutual promises contained herein, and intending to be legally bound, the parties agree as follows: FIRST: Indemnification. The Corporation hereby agrees to hold harmless and indemnify Indemnitee from and against any and all judgments, fines, amounts paid in settlement and expenses, including attorneys' fees, actually and reasonably, incurred as a 10.33.002 result of or in connection with any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative or as a result of or in connection with any appeal therein, (other than an action by or in the right of IMG and/or the Corporation unless a court of competent jurisdiction approves the right to indemnification), or is threatened to be made a party or as a result of or by reason of the fact that Indemnitee is, was or at any time becomes a director or officer of IMG, or is or was serving or at any time served another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, in any capacity at the request of IMG or corporation, whether or not arising out of any breach of Indemnitee's fiduciary duty, under any state or federal law or otherwise, as a director or officer of IMG and/or as a director, officer, employee or agent of such other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise. Indemnity, pursuant to this Article FIRST, shall be paid by the Corporation only to the extent the aggregate of losses to be indemnified exceeds the amount of such losses for which Indemnitee is actually paid from IMG or pursuant to any insurance purchased and maintained by the Corporation or IMG for the benefit of Indemnitee. There shall be no indemnity hereunder if judgment or other final adjudication establishes that the Indemnitee's act or failure to act were material to the cause of action so adjudicated and constitute: a violation of criminal law, unless the Indemnitee had reasonable cause to believe her conduct was lawful or had no reasonable cause to believe her conduct was unlawful; a transaction 10.33.003 from which the Indemnitee derived an improper personal benefit; in the case where Indemnitee is a director, a circumstance under which the liability provisions of subsection 607.0834 of the Florida Statutes are applicable; wilful misconduct or a conscious disregard for the best interests of IMG in a proceeding by or in the right of IMG to procure a judgment in its favor or in a proceeding by or in the right of a shareholder; or a failure to act in good faith and in a manner she reasonably believed to be not in or opposed to the best interests of IMG and/or the corporation. The termination of any such civil or criminal action or proceeding by judgment order settlement, conviction or upon a plea of nolo contendere, or its equivalent, shall not create any presumption that Indemnitee acted in bad faith or was dishonest. For purposes of this Agreement, (1) IMG and/or the Corporation shall be deemed to have requested Indemnitee to serve in a capacity with respect to an employee benefit plan where the performance by Indemnitee of the duties to IMG and/or the corporation also imposes duties on, or otherwise involves services by, Indemnitee to the plan or participants or beneficiaries of the plan and (2) action taken or omitted by Indemnitee with respect to an employee benefit plan in the performance of Indemnitee's duties for a purpose reasonably believed by Indemnitee to be either in the interest of IMG and/or the Corporation or in the interest of the participants or beneficiaries of the plan shall not be deemed to be in bad faith or dishonest . SECOND: Continuation of Indemnity. All agreements and 10.33.004 obligations of the Corporation contained herein shall continue during the period Indemnitee shall serve as a director or officer of IMG and thereafter so long as Indemnitee shall be subject to any possible claim or threatened, pending or completed action, suit or proceeding, whether civil, criminal or investigative, by reason of the fact that Indemnitee was a director or officer of IMG or served at the request of IMG in any capacity in any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise . THIRD: Notification and Defense of claim. Within ten (10) days after receipt by Indemnitee of notice of the commencement of any action, suit, or proceeding, Indemnitee will, if a claim in respect thereof is to be made against IMG under this agreement, notify the Corporation of the commencement thereof, but the omission to so notify the corporation will not relieve it from any liability which it may have to Indemnitee otherwise than under this Agreement. with respect to any such action, suit or proceeding as to which Indemnitee notifies the Corporation of the commencement thereof: A. The corporation will be entitled to participate therein at its own expense; and, B. Except as otherwise provided below, the corporation jointly with any other indemnifying party similarly notified will be entitled to assume the defense thereof, with counsel satisfactory to Indemnitee. After notice from the corporation to Indemnitee of its election so to assume the defense thereof, the Corporation will not be 10.33.005 liable to Indemnitee under this Agreement for any legal or other expenses subsequently incurred by Indemnitee in connection with the defense thereof other than reasonable costs of investigation or as otherwise provided below. Indemnitee shall have the right to employ her own counsel in such action, suit or proceeding, but the fees and expenses of such counsel incurred after notice from the Corporation of its assumption of the defense thereof shall be at the expense of Indemnitee unless (1) the employment of counsel by Indemnitee has been authorized by the corporation in connection with the defense of such action, (2) Indemnitee shall have reasonably concluded that there may be a conflict of interest among IMG, the Corporation and/or Indemnitee in the conduct of the defense of such action. In no event shall the Corporation be liable for the expenses of more than one counsel for Indemnitee in connection with any action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances. The Corporation shall not be entitled to assume the defense of any action, suit or proceeding brought by or on behalf of the Corporation or as to which Indemnitee shall have reasonably concluded that there may be a conflict of interest between IMG and/or the Corporation and Indemnitee with respect to the defense of such action. C. Anything in this Agreement to the contrary notwithstanding, the corporation shall not be liable to indemnify Indemnitee for any amounts paid in settlement of any action or claim effected without the written consent of IMG and/or the 10.33.006 Corporation. IMG and/or the Corporation shall not settle any action or claim in any manner which would impose any penalty or limitation on Indemnitee without Indemnitee's written consent. Neither IMG and/or the corporation nor Indemnitee will unreasonably withhold consent to any proposed settlement. FOURTH: Advancement and Repayment of Expenses. In the event of any threatened or pending action, suit or proceeding which may give rise to a right of indemnification from the Corporation to Indemnitee pursuant to this Agreement, the corporation shall pay, on demand, in advance of the final disposition thereof any and all expenses of the Indemnitee hereunder, other than (a) those expenses for which Indemnitee is not entitled to indemnification pursuant to Article THIRD hereof or due to a final judgement that Indemnitee's act or failure to act constituted willful misconduct or recklessness or that indemnification is not lawful and (b) those expenses for which Indemnitee has been paid under any insurance purchased and maintained by the Corporation for the benefit of Indemnitee. The corporation shall make such payments upon receipt of (1) a written request by Indemnitee for payment of such expenses, (2) an undertaking by or on behalf of Indemnitee to repay such amount if it shall ultimately be determined that she is not entitled to be indemnified by the Corporation hereunder, and (3) satisfactory evidence as to the amount of such expenses. Indemnitee's written certification together with a copy of the statement paid or to be paid by the Indemnitee shall constitute satisfactory evidence as to the amount of such expenses. 10.33.007 FIFTH: Enforcement . A. The Corporation expressly confirms and agrees that it has entered into this Agreement and assumed the obligations imposed on the Corporation hereby in order to induce Indemnitee to continue as a director and/or officer of IMG and acknowledges that Indemnitee is relying upon this Agreement in continuing in such capacity. B. In the event Indemnitee is required to bring any action to enforce rights or to collect moneys due under this Agreement and is successful in such action, the Corporation shall reimburse Indemnitee for all costs and expenses, including attorneys' fees, incurred by Indemnitee in connection with such action. SIXTH: Indemnification Hereunder Not Exclusive. The rights to indemnification and advancement of expenses granted to Indemnitee under this Agreement shall not be deemed exclusive of, or in limitation of, any other rights to which Indemnitee may now or hereafter be entitled under the laws of the State of Florida or other governing state statute, IMG's certificate of Incorporation or By-Laws, as now in effect or as may hereafter be amended, any agreement, any vote of shareholders or directors, or otherwise. SEVENTH: Miscellaneous. A. All communications hereunder shall be in writing and shall be sent by registered or certified mail, return receipt requested Communications intended for the corporation, shall be addressed to the Corporation, attention of its President, at its principal office, or at such other address of which the Corporation shall have given notice to Indemnitee in the manner herein 10.33.008 provided. Communication intended for Indemnitee shall be addressed to Indemnitee at her present home address or at such other address of which Indemnitee shall have given notice to the Corporation in the manner herein provided. B. In the event that any provision of this Agreement is invalid, illegal or unenforceable, the balance of this Agreement shall remain in effect, and if any provision is inapplicable to any party or circumstance, it shall nevertheless remain applicable to all other parities and circumstances. C. This Agreement constitutes the entire understanding among the parties with respect to the subject matter hereof and no waiver or modification of the terms hereof shall be valid unless in writing signed by the party to be charged and only to the extent therein set forth. D. This Agreement shall be binding upon Indemnitee and upon the Corporation, its successors and assigns and shall inure to the benefit of Indemnitee her heirs, personal representatives and assigns and to the benefit of the Corporation, its successors and assigns . E. The captions appearing in this Agreement are inserted only as a matter of convenience and for reference and in no way define, limit or describe the scope and intent of this Agreement or any of the provisions hereof. F. This Agreement shall be governed by, and construed in accordance with, the laws of the State of Florida applicable to contracts made and to be performed wholly within said State without 10.33.009 giving effect to conflict of laws principles thereof, unless the Corporation, its successors or assigns are domesticated in another state at the time of occurrence of any act or failure to act that gives rise to a claim for indemnification hereunder. In such case, the Agreement shall be governed by and construed in accordance with the laws of such State of domestication. IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement the day and year first above written. ATTEST: INVESTOR INSURANCE GROUP, INC. Karla K. Steinmetz By:/s/ Melvin C. Parker Melvin C. Parker, President /s/ Susan F. Powell Susan F. Powell, Indemnitee Agreed and Accepted: By: /s/ Melvin C. Parker Melvin C. Parker, President of IMG EX-11 43 18.01 KPMG LETTER ON 1994 ACCCOUNTING CHANGE 18.01.001 KPMG Peat Marwick LLP Suite 2700, Independent Square Telephone 904 354 5671 Telefax 904 350 1260 One Independent Drive P.0. Box 190 Jacksonville, FL 32201-0190 July 5, 1995 Investors Insurance Group, Inc. Boca Raton, Florida Ladies and Gentlemen: We have audited the consolidated balance sheets of Investors Insurance Group, Inc. and subsidiaries as of December 31, 1994 and 1993, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the years in the three-year period ended December 31, 1994, and have reported thereon under date of June 30, 1995. The aforementioned consolidated financial statements and our audit report thereon are included in the Company's annual report on Form 10-K for the year ended December 31, 1994. As stated in note 1 to those financial statements, effective January 1, 1994 the Company changed its method of accounting for excess ceding commissions received for ceding annuity contracts having insignificant insurance risk from immediate recognition to deferral and amortization over the life of the related contracts, and indicates that the Company has decided to adopt this approach to be more consistent with the accounting treatment followed by other insurance companies with similar products. In accordance with your request, we have reviewed and discussed with Company officials the circumstances and business judgment and planning upon which the decision to make this change in the method of accounting was based. With regard to the aforementioned accounting change, authoritative criteria have not been established for evaluating the preferability of one acceptable method of accounting over another acceptable method. However, for purposes of Investors Insurance Group, Inc.'s compliance with the requirements of the Securities and Exchange Commission, we are furnishing this letter. Based on our review and discussion, with reliance on management's business judgment and planning, we concur that the newly adopted method of accounting is preferable in the Company's circumstances. Very truly yours, /s/ KPMG Peat Marwick LLP EX-21 44 21.01 IIG SUBSIDIARIES 21.01.001 Investors Insurance Group, Inc. Listing of Subsidiaries December 31, 1995 Name State of Incorporation IIC, Inc. Oregon Investors Insurance Corporation Delaware Investors Marketing Group, Inc. Florida EX-27 45 27.01 FINANCIAL DATA SCHEDULE
7 YEAR DEC-31-1995 DEC-31-1995 149,231,000 9,504,000 10,556,000 366,000 564,000 0 160,619,000 11,372,000 0 42,468,000 574,486,000 518,504,000 5 0 518,504,000 8,000,000 0 0 1,384,000 44,000 574,486,000 1,660,000 11,598,000 1,090,000 912,000 10,529,000 1,351,000 3,897,000 (517,000) (136,000) (381,000) 0 0 0 (381,000) (0.14) (0.14) 0 0 0 0 0 0 0
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