Exhibit 10 (i).
2
Agency Agreement
with First Integrated Health, Inc.
February 22,
2006
Dear
Muzzy:
This
Agreement sets forth the general terms upon which First Integrated
Health, Inc. (“FIH”) will produce insurance business
for Independence American Insurance Company ("IAIC") and other
Independence Holding Company (“IHC”) affiliates as
further described in this letter.
1)
New
Business . FIH shall
begin to write all of its fully-insured group and individual
medical insurance (“Fully-Insured”) and stop-loss
medical insurance (“Stop-Loss”) that is currently
underwritten and/or administered by FIH (collectively,
“Health Business”) on IAIC Paper in the states listed
on Schedule A hereto as soon as practicable after the date hereof.
In addition, FIH shall begin to write life and dental
coverage using IHC Paper as soon as practicable (“Other
Business”).
2)
Transfer of
Existing Block . At least
40% of the Fully-Insured Health Business shall be transferred to
IAIC Paper on January 1, 2007 FIH will use its best efforts
to transfer the balance of the Fully-Insured Health Business to
IAIC on January 1, 2007 and in no event later than July 1, 2007.
The Stop-Loss Health Business will be transferred at each
respective renewal date during 2007.
3)
Compensation
.
(a)
Initial
Compensation. Within 5
business days after execution of this Agreement by both parties,
IAIC shall pay to FIH $2,500,000 cash. FIH shall simultaneously pay
such amount to IHC, which hereby agrees to issue to FIH 125,000
shares of unregistered IHC common stock (the “IHC
Stock”) in consideration of $2,500,000 cash and other good
and valuable consideration. IAIC shall hold the IHC Stock in
escrow until such time as the aggregate annualized premiums for the
Health Business and Other Business written by FIH is at least $30
million, at which time IAIC shall distribute to FIH the IHC Stock
less the number of shares of IHC Stock necessary to maintain the
Collateralization of Risk.
(b)
Compensation after
Five Years. If the
Threshold Premium for 2011 is at least $50 million and the
Aggregate Underwriting Gain is at least 6% from inception through
December 31, 2011, in the event that the Fair Market Value of the
IHC Stock as January 1, 2012 is less than $40, IAIC agrees to pay
to FIH, in cash, $5,000,000 less the Fair Market Value as of
January 1, 2012 multiplied by 125,000; provided in no event would
IAIC have to pay FIH more than $2,500,000. In the event that
the Aggregate Underwriting Gain is less than 6%, but not less than
4.5%, then the additional payment will be determined in accordance
with Schedule B hereto.
(c)
Continuation of
Agreement. If the
Threshold Premium for 2011 is at least $50 million and the
Aggregate Underwriting Gain is at least 6% from inception through
December 31, 2011 (the “Renewal Thresholds”), this
Agreement shall automatically be renewed until December 31, 2016 as
follows:
a.
FIH
shall continue to write all Health Business in all states on IAIC
Paper .
b.
If the
Threshold Premium for 2016 is at least $80 million and the
Aggregate Underwriting Gain is at least 6% for years 2012 through
2016, in the event that the Fair Market Value of the IHC Stock as
January 1, 2017 is less than $80, IAIC agrees to pay to FIH, in
cash, $10,000,000 less the Fair Market Value as of January
1, 2017 multiplied by 125,000 and less any amounts paid to
FIH pursuant to paragraph 3(b); provided in no event would IAIC
have to pay FIH more than $5,000,000. In the event that the
Aggregate Underwriting Gain is less than 6%, but not less than
4.5%, then the additional payment will be determined in accordance
with Schedule B hereto.
(d)
2013
Bonus Payment. If the Threshold
Premium for 2013 is at least $100 million and the Aggregate
Underwriting Gain is at least 6% for years 2007 through 2013, then
IAIC shall pay FIH an additional bonus of $1,000,000
cash.
(e)
IHC
Stock. FIH shall not be
required to own the IHC Stock at either Measuring Date in order to
receive any cash difference. However, FIH must retain
ownership of the stock for 12 months following the issuance of the
shares by IHC.
4)
Loss Ratio
Slide . With
respect to all Health Business, IAIC and FIH agree to enter into a
loss ratio slide arrangement whereby IAIC cedes a 0.35 to 1 two-way
slide off of the pivot point of a 100% Combined Ratio risk share.
All premiums with respect to the arrangement shall be
controlled by IAIC. IAIC shall determine the loss ratio 24
months after the beginning of any underwriting year and IAIC shall
pay FIH its pro rata share of any profit or FIH shall pay IAIC its
pro rata share of any loss within 20 days after the parties agree
that such determination is final. The Loss Ratio Slide
payments will be calculated annually and paid on February 15
following each year-end based on estimated losses for the prior
year. The Loss Ratio Slide will be trued-up through each June
30 and December 31, with corresponding payouts on August 15 and
February 15, respectively.
5)
Collateralization
of FIH Risk . FIH
agrees to maintain collateralization in the form of a Letter of
Credit from a bank and in such form as reasonably acceptable to
IAIC, cash or IHC Stock, in the amount of at least 3.5% of the
Earned Premium for the twelve months prior to the evaluation date.
IAIC will evaluate the collateralization of risk every six
months. FIH agrees to adjust the amount of
collateralizat
