JEFFERSON-PILOT CORPORATION
EXHIBIT 2
Life and Health Agreement In Connection With The
Rehabilitation of Kentucky Central Life Insurance Company (the
"Agreement"), with Exhibit 2.1 (Transfer and Assignment Agreement)
and Exhibit 2.2 (Assumption Reimbursement Agreement) attached.
In February 1994, the Kentucky Insurance Commissioner
recommended to the Franklin County Circuit Court that this
Agreement be approved in connection with the Commissioner's Plan of
Reorganization and Reinsurance for Kentucky Central (the "Plan").
The Plan and the Agreement were approved by the Court on August 18,
1994. The decision has been appealed to the Kentucky Supreme
Court.
Assuming that the decision is upheld, and the other
conditions to closing set forth in the Agreement are satisfied,
certain of the assets of Kentucky Central will be transferred to
the Registrant's wholly-owned subsidiary, Jefferson-Pilot Life
Insurance Company, substantially all of Kentucky Central's life and
health insurance contract obligations will be restructured, and
Jefferson-Pilot Life Insurance Company will assume and reinsure the
restructured insurance contract obligations. It is anticipated
that the assets would include investment assets (primarily bonds)
having a book value of nearly $600,000,000, all business assets
necessary to administer, account for, and manage the assumed
contract obligations, and other assets specified in the Agreement.
It is anticipated that if sufficient subsidiary assets, real estate
owned and mortgage loans are converted into transferable
securities, and all the policyholders of Kentucky Central elect to
participate, the total assets acquired under the Agreement will
have a value of approximately $900,000,000.
20
LIFE AND HEALTH AGREEMENT IN CONNECTION WITH
THE REHABILITATION OF
KENTUCKY CENTRAL LIFE INSURANCE COMPANY
TABLE OF CONTENTS
Page
ARTICLE 1
KCL RESTRUCTURED CONTRACTS. . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.1 Continuation of KCL Contracts. . . . . . . . . . 2
Section 1.2 Calculation of KCL Restructured Account
Value. . . . . . . . . . . . . . . . . . . . . . 2
1.2.1 Computation. . . . . . . . . . . . . . . . . . . 2
1.2.2 Adjustments. . . . . . . . . . . . . . . . . . . 3
Section 1.3 Minimum Interest Crediting Rate. . . . . . . . . 4
Section 1.4 Guaranteed Maximum Cost of Insurance
Charges. . . . . . . . . . . . . . . . . . . . . 4
Section 1.5 Limitations on Cash Surrenders.. . . . . . . . . 5
1.5.1 Surrender Payments.. . . . . . . . . . . . . . . 5
1.5.2 Surrender Charges. . . . . . . . . . . . . . . . 6
Section 1.6 Policy Loans.. . . . . . . . . . . . . . . . . . 7
Section 1.7 Partial Surrenders.. . . . . . . . . . . . . . . 7
Section 1.8 Annuitization Options. . . . . . . . . . . . . . 8
Section 1.9 Changes in Specified Amount. . . . . . . . . . . 8
Section 1.10 Contract Maturities. . . . . . . . . . . . . . . 9
Section 1.11 Hardship Procedures. . . . . . . . . . . . . . . 10
Section 1.12 Graded Premium Whole Life. . . . . . . . . . . . 10
Section 1.13 Traditional Life Contracts . . . . . . . . . . . 11
Section 1.14 Interest Sensitive Whole Life. . . . . . . . . . 12
Section 1.15 Unallocated Group Annuity Contracts. . . . . . . 13
Section 1.16 Immediate Annuities. . . . . . . . . . . . . . . 13
Section 1.17 Health Insurance . . . . . . . . . . . . . . . . 13
Section 1.18 Expense Charges. . . . . . . . . . . . . . . . . 14
Section 1.19 Future Changes . . . . . . . . . . . . . . . . . 14
Section 1.20 Continuation or Exchange of Contracts. . . . . . 15
Section 1.21 Restructured Settlement Options. . . . . . . . . 15
Section 1.22 Rehabilitation Endorsement.. . . . . . . . . . . 16
Section 1.23 Tax Qualification of Life Contracts. . . . . . . 16
ARTICLE 2
TRANSFER OF ASSETS AND ASSUMPTION OF LIABILITIES. . . . . . . . . . . . 16
Section 2.1 Transfer of Assets.. . . . . . . . . . . . . . . 16
2.1.1 Adjustments to Buyer's Transferred
Assets.. . . . . . . . . . . . . . . . . . . . . 18
2.1.2 Allocation of Transferred Assets . . . . . . . . 20
2.1.3 Transferred Asset Value. . . . . . . . . . . . . 21
Section 2.2 Assumption of KCL Restructured
Contracts. . . . . . . . . . . . . . . . . . . . 21
2.2.1 Assumption Certificates. . . . . . . . . . . . . 22
ARTICLE 3
DETERMINATION OF BUYER'S ACCOUNT VALUES . . . . . . . . . . . . . . . . 22
Section 3.1 Buyer's Enhancement. . . . . . . . . . . . . . . 22
3.1.1 Calculation of Adjusted Buyer's
Enhancement. . . . . . . . . . . . . . . . . . . 22
3.1.2 Adjustments. . . . . . . . . . . . . . . . . . . 23
21
3.1.3 Application of Buyer's Enhancement.. . . . . . . 24
Section 3.2 Calculation of Initial Buyer's Account
Values.. . . . . . . . . . . . . . . . . . . . . 25
3.2.1. . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
3.2.2. . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 3.3 Buyer's Interest Crediting Rate. . . . . . . . . 26
Section 3.4 Buyer's Cost of Insurance Charges. . . . . . . . 27
Section 3.5 Post-Closing Account Value Adjustments . . . . . 28
3.5.1 Adjustment to Buyer's Account Values . . . . . . 30
ARTICLE 4
RETAINED ASSETS AND RETAINED LIABILITIES. . . . . . . . . . . . . . . . 31
Section 4.1 Retained Liabilities.. . . . . . . . . . . . . . 31
Section 4.2 Retained Assets. . . . . . . . . . . . . . . . . 31
Section 4.3 Discharge of Retained Liabilities. . . . . . . . 32
Section 4.4 Distributions. . . . . . . . . . . . . . . . . . 32
4.4.1. . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
4.4.2. . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
4.4.3. . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
4.4.4. . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
ARTICLE 5
ELECTION PROCEDURE AND OPT OUT RIGHTS . . . . . . . . . . . . . . . . . 36
Section 5.1 Contract Holder Election.. . . . . . . . . . . . 36
Section 5.2 Election Notice. . . . . . . . . . . . . . . . . 36
Section 5.3 Exercise of Election.. . . . . . . . . . . . . . 39
Section 5.4 Effect of Opt Out. . . . . . . . . . . . . . . . 40
Section 5.5 Calculation and Payment of Preliminary
Opt Out Amount.. . . . . . . . . . . . . . . . . 40
5.5.1. . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
5.5.2. . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
5.5.3. . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
5.5.4. . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 5.6 Waiver and Termination.. . . . . . . . . . . . . 43
Section 5.7 Settlement Annuity.. . . . . . . . . . . . . . . 43
ARTICLE 6
RENEWAL COMMISSIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 6.1 Payment of Commissions by KCL. . . . . . . . . . 44
Section 6.2 Payment of Commissions by Buyer. . . . . . . . . 44
Section 6.3 Renewal Commissions. . . . . . . . . . . . . . . 45
ARTICLE 7
MANAGEMENT OF KCL . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 7.1 Home Office Lease. . . . . . . . . . . . . . . . 45
Section 7.2 KCL Employees. . . . . . . . . . . . . . . . . . 46
7.2.1 KCL Key Employees. . . . . . . . . . . . . . . . 47
Section 7.3 Tax Elections. . . . . . . . . . . . . . . . . . 48
Section 7.4 Tax Returns. . . . . . . . . . . . . . . . . . . 48
Section 7.5 Tax Reporting and Withholding. . . . . . . . . . 48
Section 7.6 KCL Financial Reports, Books and
Records. . . . . . . . . . . . . . . . . . . . . 49
22
ARTICLE 8
REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . . . . . . . . 49
Section 8.1 Representations and Warranties of KCL. . . . . . 49
8.1.1 Valid Appointment. . . . . . . . . . . . . . . . 50
8.1.2 Organization and Standing. . . . . . . . . . . . 50
8.1.3 Authority. . . . . . . . . . . . . . . . . . . . 50
8.1.4 Quarterly Statements . . . . . . . . . . . . . . 51
8.1.5 Compliance with Applicable Laws. . . . . . . . . 51
8.1.6 Taxes. . . . . . . . . . . . . . . . . . . . . . 52
8.1.7 Litigation . . . . . . . . . . . . . . . . . . . 53
8.1.8 Compliance With Labor Laws . . . . . . . . . . . 54
8.1.9 Reinsurance. . . . . . . . . . . . . . . . . . . 55
8.1.10 Investment Company Act . . . . . . . . . . . . . 55
8.1.11 Accuracy of KCL Contract Forms . . . . . . . . . 56
8.1.12 Absence of Undisclosed Liabilities . . . . . . . 56
8.1.13 Base Case Assumptions. . . . . . . . . . . . . . 56
8.1.14 Reserves . . . . . . . . . . . . . . . . . . . . 57
8.1.15 Intangible Property. . . . . . . . . . . . . . . 57
8.1.16 Securities Deposited . . . . . . . . . . . . . . 59
8.1.17 Business Assets. . . . . . . . . . . . . . . . . 59
8.1.18 Commission Agreements. . . . . . . . . . . . . . 59
8.1.19 Insurance Agents . . . . . . . . . . . . . . . . 59
8.1.20 Environmental Condition. . . . . . . . . . . . . 60
Section 8.2 Representations and Warranties of Buyer. . . . . 60
8.2.1 Organization and Standing. . . . . . . . . . . . 60
8.2.2 Authority. . . . . . . . . . . . . . . . . . . . 61
8.2.3 No Breach. . . . . . . . . . . . . . . . . . . . 61
8.2.4 No Litigation. . . . . . . . . . . . . . . . . . 62
8.2.5 Qualified Buyer. . . . . . . . . . . . . . . . . 62
Section 8.3 Survival of Representations and
Warranties . . . . . . . . . . . . . . . . . . . 62
ARTICLE 9
CONDITIONS PRECEDENT TO CLOSING . . . . . . . . . . . . . . . . . . . . 63
Section 9.1 Conditions Precedent to Closing for the
Benefit of KCL and Buyer . . . . . . . . . . . . 63
9.1.1 Order of Rehabilitation. . . . . . . . . . . . . 63
9.1.2 Finality . . . . . . . . . . . . . . . . . . . . 63
9.1.3 Terms of the Order . . . . . . . . . . . . . . . 63
9.1.4 Hart-Scott-Rodino. . . . . . . . . . . . . . . . 64
9.1.5 Schedules. . . . . . . . . . . . . . . . . . . . 64
9.1.6 No Registration. . . . . . . . . . . . . . . . . 64
9.1.7 Consents and Government Approvals. . . . . . . . 65
9.1.8 Closing Date . . . . . . . . . . . . . . . . . . 65
9.1.9 Orders . . . . . . . . . . . . . . . . . . . . . 65
9.1.10 No Prohibition . . . . . . . . . . . . . . . . . 65
9.1.11 Corporate Matters. . . . . . . . . . . . . . . . 66
Section 9.2 Conditions Precedent to Closing for the
Benefit of Buyer . . . . . . . . . . . . . . . . 66
9.2.1 Performance by KCL . . . . . . . . . . . . . . . 67
9.2.2 Judgments. . . . . . . . . . . . . . . . . . . . 67
9.2.3 Litigation . . . . . . . . . . . . . . . . . . . 68
9.2.4 Force Majeure. . . . . . . . . . . . . . . . . . 69
23
9.2.5 Representations and Warranties . . . . . . . . . 69
9.2.6 No Material Adverse Change . . . . . . . . . . . 69
9.2.7 Satisfactory Due Diligence . . . . . . . . . . . 69
9.2.9 Best Efforts of Rehabilitator. . . . . . . . . . 70
9.2.10 Jurisdiction Order . . . . . . . . . . . . . . . 70
9.2.11 Transferrable Asset Value. . . . . . . . . . . . 71
9.2.12 Regulatory Approvals . . . . . . . . . . . . . . 71
9.2.13 Changes in Tax Law, Regulations, or the
Ruling Position of the Internal Revenue
Service. . . . . . . . . . . . . . . . . . . . . 71
Section 9.3 Conditions Precedent to Closing for the
Benefit of KCL . . . . . . . . . . . . . . . . . 72
9.3.1 Performance by Buyer . . . . . . . . . . . . . . 72
9.3.2 Representations and Warranties . . . . . . . . . 73
9.3.3 No Material Adverse Change . . . . . . . . . . . 73
9.3.4 Receipt of Rulings from IRS. . . . . . . . . . . 74
Section 9.4 Satisfaction or Failure of Conditions. . . . . . 76
Section 9.5 Termination. . . . . . . . . . . . . . . . . . . 76
ARTICLE 10
INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Section 10.1 Indemnification of Rehabilitator and
KCL. . . . . . . . . . . . . . . . . . . . . . . 77
10.1.1 Indemnification of Rehabilitator's
Indemnified Parties. . . . . . . . . . . . . . . 77
10.1.2 Indemnification of KCL.. . . . . . . . . . . . . 78
Section 10.2 Indemnification of Buyer . . . . . . . . . . . . 79
INDEMNIFICATION PAYMENTS AND PROCEDURES . . . . . . . . . . . . . 80
Section 10.3 Procedures for all Indemnification
Payments . . . . . . . . . . . . . . . . . . . . 80
10.3.1 Time Limits for Indemnification
Payments.. . . . . . . . . . . . . . . . . . . . 80
10.3.2 Defense of Claims. . . . . . . . . . . . . . . . 81
10.3.3 Adjustment of Consideration for
Assumption Reinsurance Transaction.. . . . . . . 82
Section 10.4 Funding of Indemnity Payments. . . . . . . . . . 82
Section 10.5 Indemnity Adjustment.. . . . . . . . . . . . . . 83
Section 10.6 Notice and Procedure for Indemnity
Adjustment.. . . . . . . . . . . . . . . . . . . 85
10.6.1 Notice and Adjustment. . . . . . . . . . . . . . 85
Section 10.7 Exclusive Remedy.. . . . . . . . . . . . . . . . 86
Section 10.8 Severability.. . . . . . . . . . . . . . . . . . 86
Section 10.9 Survival.. . . . . . . . . . . . . . . . . . . . 87
ARTICLE 11
COVENANTS OF THE PARTIES. . . . . . . . . . . . . . . . . . . . . . . . 87
Section 11.1 Covenants of KCL . . . . . . . . . . . . . . . . 87
11.1.1 . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
11.1.2 . . . . . . . . . . . . . . . . . . . . . . . . . . . 87
11.1.3 . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
11.1.4 . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
11.1.5 . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
11.1.6 . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
24
11.1.7 . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
11.1.8 . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
11.1.9 . . . . . . . . . . . . . . . . . . . . . . . . 90
Section 11.2 Covenants of Buyer . . . . . . . . . . . . . . . 90
11.2.1 . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
11.2.2 . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
11.2.3 . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
Section 11.3 Covenants of All Parties . . . . . . . . . . . . 91
11.3.1 . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
11.3.2 . . . . . . . . . . . . . . . . . . . . . . . . 92
11.3.3 . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
11.3.4 . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
ARTICLE 12
CLOSING EVENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
Section 12.1 Closing. . . . . . . . . . . . . . . . . . . . . 93
Section 12.2 Items to be Delivered at Closing . . . . . . . . 93
12.2.1 . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
12.2.2 . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
Section 12.3 Third Party Consents . . . . . . . . . . . . . . 96
Section 12.4 Further Assurances . . . . . . . . . . . . . . . 96
ARTICLE 13
DISPUTE RESOLUTION. . . . . . . . . . . . . . . . . . . . . . . . . . . 97
Section 13.1 Accounting Procedure . . . . . . . . . . . . . . 97
Section 13.2 Valuation Procedure. . . . . . . . . . . . . . . 99
Section 13.3 Submission to Rehabilitation Court . . . . . . .100
Section 13.4 Expenses Relating to Pre-Closing
Disputes . . . . . . . . . . . . . . . . . . . .100
ARTICLE 14
GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . . . .101
Section 14.1 Media Releases and Interviews. . . . . . . . . .101
Section 14.2 Expenses; Brokers. . . . . . . . . . . . . . . .101
Section 14.3 Sales, Transfer and Documentary Taxes. . . . . .102
Section 14.4 Liability and Capacity of the
Rehabilitator. . . . . . . . . . . . . . . . . .102
Section 14.5 Further Assurances and Tax Matters . . . . . . .102
Section 14.6 Entire Agreement . . . . . . . . . . . . . . . .103
Section 14.7 Amendment. . . . . . . . . . . . . . . . . . . .103
Section 14.8 Waiver . . . . . . . . . . . . . . . . . . . . .103
Section 14.9 No Assignment. . . . . . . . . . . . . . . . . .104
Section 14.10 Governing Law. . . . . . . . . . . . . . . . . .104
Section 14.11 Headings, Gender and Person. . . . . . . . . . .104
Section 14.12 No Benefit to Others . . . . . . . . . . . . . .105
Section 14.13 Notices. . . . . . . . . . . . . . . . . . . . .105
Section 14.14 Notices to Contract Holders, Creditors
of KCL, and Certain Other Authorities. . . . . .106
Section 14.15 Schedules and Exhibits . . . . . . . . . . . . .106
Section 14.16 Counterparts . . . . . . . . . . . . . . . . . .107
Section 14.17 Time . . . . . . . . . . . . . . . . . . . . . .107
ARTICLE 15
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .107
25
LIFE AND HEALTH AGREEMENT IN
CONNECTION WITH THE REHABILITATION OF
KENTUCKY CENTRAL LIFE INSURANCE COMPANY
This AGREEMENT, dated as of the ____ day of February, 1994 (this
"Agreement"), has been made and entered into by and between KENTUCKY CENTRAL
LIFE INSURANCE COMPANY, a Kentucky corporation ("KCL"), acting by and through
Don W. Stephens, Insurance Commissioner of the Commonwealth of Kentucky, the
rehabilitator of KCL, and JEFFERSON-PILOT LIFE INSURANCE COMPANY, a North
Carolina corporation ("Buyer").
RECITALS
A. On February 12, 1993, Don W. Stephens, Insurance Commissioner of
the Commonwealth of Kentucky, was appointed and is acting as rehabilitator of
KCL (the "Rehabilitator") in that certain action pending before the Franklin
Circuit Court, Commonwealth of Kentucky, captioned Don W. Stephens,
Commissioner of the Kentucky Department of Insurance v. Kentucky Central Life
Insurance Company (Case No. 93-CI-00196).
B. This Agreement sets forth the terms and conditions pursuant to
which, in connection with a rehabilitation of KCL under and subject to the
Insurance Code (the "Rehabilitation"), (i) substantially all of the insurance
contract obligations of KCL will be restructured, (ii) the restructured life
and health insurance contract obligations will be assumed and reinsured by
Buyer, and (iii) certain of the assets of KCL will be transferred to Buyer.
NOW THEREFORE, in consideration of the promises, covenants and
conditions contained herein, the parties hereto, intending to be legally
bound, hereby agree as follows:
26
ARTICLE 1
KCL RESTRUCTURED CONTRACTS
Section 1.1 Continuation of KCL Contracts. Except as expressly
modified and restructured prior to the Closing Date as provided in this
Article 1 and in the Rehabilitation Plan, all KCL Contracts, including,
without limitation, all existing contract terms, shall remain in full force
and effect. The death benefit provisions of the KCL Restructured Contracts
shall be the same as provided in the KCL Contracts.
Section 1.2 Calculation of KCL Restructured Account Value.
1.2.1 Computation. The KCL Restructured Account Value as of
the Closing Date for any KCL Restructured Contract, except as provided with
respect to those contracts subject to the adjustments required by Section
1.2.2, shall be determined in accordance with the following two step formula:
Step I:
RP = TA - AIPA - APL
AAV - APL where:
RP = Restructuring Percentage.
TA = The Final Transferred Asset Value.
AIPA = Aggregate Interim Period Amount for all KCL Assumed
Restructured Contracts.
APL = Aggregate Policy Loans outstanding as of the Closing
Date with respect to all KCL Contracts that do not Opt
Out.
AAV = Aggregate Account Values, calculated if applicable as
provided in Section 1.2.2 as of February 12, 1993, for
all KCL Assumed Restructured Contracts.
Step II:
RAV = [RP*(AV - PL)] + IPA + PL where:
RAV = Restructured Account Value for each KCL Assumed
Restructured Contract.
27
AV = Account Value, adjusted if applicable as provided in
Section 1.2.2 as of February 12, 1993, of each KCL
Assumed Restructured Contract.
IPA = Interim Period Amount for each KCL Assumed
Restructured Contract.
PL = Policy Loan outstanding as of the Closing Date with
respect to each such KCL Contract.
1.2.2 Adjustments.
1.2.2.1 With respect to KCL Assumed Restructured
Contracts that are KCL Restructured Immediate Annuity Contracts and that are
KCL Restructured Health Contracts, (i) the aggregate reserves related to such
contracts shall be used in calculating AAV, (ii) the reserves related to each
such contract shall be used in calculating AV, and (iii) RAV shall equal the
restructured reserve allocable to each such contract.
1.2.2.2 With respect to KCL Assumed Restructured
Contracts that are KCL Restructured GPWL Contracts, (i) the aggregate Cash
Values of such contracts shall be used in calculating AAV, and (ii) the Cash
Value of each such contract shall be used in calculating AV.
1.2.2.3 Any KCL Restructured UL Contract, whose
Restructured Account Value is negative as calculated before giving effect to
Buyer's Enhancement, will be deemed to have a Restructured Account Value of
zero before giving effect to Buyer's Enhancement, and such contract shall
remain in force so long as the cumulative premiums paid during the Moratorium
Period are at all times at least as large as the percentage from the table
below times the sum of (i) cost of insurance charges (as determined in Section
3.4), or for KCL Contracts issued under KCL's 1992 guaranteed issue offer, the
cost of insurance charges set forth in Section 1.4, plus (ii) the surrender
charge payable pursuant to each such contract immediately after the end of the
28
Moratorium Period, plus (iii) any other contractual charges payable during the
Moratorium Period pursuant to the terms of such contract, minus (iv) the
Buyer's Account Value of such contract determined immediately after the
Closing Date.
Percentage
During the first Plan Year 20%
During the second Plan Year 40%
During the third Plan Year 60%
During the fourth Plan Year 80%
During the fifth Plan Year 100%
Section 1.3 Minimum Interest Crediting Rate. Each KCL
Restructured Contract shall guarantee that credited interest shall be the
Minimum Crediting Rate.
Section 1.4 Guaranteed Maximum Cost of Insurance Charges. The
guaranteed maximum cost of insurance charges will be modified to be the
greater of (i) the cost of insurance charges guaranteed in each KCL Contract,
or (ii) 100% of 1958 CSO tables for KCL Contracts with 1958 CSO reserve basis,
and 100% of 1980 CSO tables for KCL Contracts with 1980 CSO reserve basis.
These guaranteed maximum cost of insurance charges shall apply beginning on
the Closing Date for the remaining life of the KCL Contracts. The Buyer's
Cost of Insurance Charges for KCL Assumed Restructured Contracts that are KCL
Restructured UL Contracts other than KCL contracts issued under KCL's 1992
guaranteed issue offer as listed on Schedule 1.4, applicable during the
Moratorium Period, as defined in Section 3.4, may not exceed these guaranteed
maximum cost of insurance charges. For KCL Contracts issued under KCL's 1992
guaranteed issue offer, as listed on Schedule 1.4 hereto, the guaranteed
maximum cost of insurance charges, and actual charges imposed for applicable
KCL Restructured Contracts will be 130% of the 1980 CSO tables, effective from
and after the Closing Date.
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Section 1.5 Limitations on Cash Surrenders. No cash surrenders
will be allowed with respect to KCL Assumed Restructured Contracts for a
period of one hundred twenty days after the Closing Date. Commencing one
hundred twenty one days after the Closing Date, and thereafter KCL Contract
Holders shall be entitled to surrender their KCL Restructured Contracts in
full for cash at any time, subject to Sections 1.5.1 and 1.5.2 hereof.
1.5.1 Surrender Payments. Commencing 121 days after Closing
Buyer shall pay to each KCL Restructured Contract Holder who has given notice
of his intention to surrender an amount in cash equal to the Net Cash Value of
such contract less the applicable Moratorium Amount. A surrender payment due
pursuant to this Section 1.5.1 shall be mailed by Buyer to such KCL
Restructured Contract Holder in accordance with the normal practices of Buyer
with regard to cash surrenders of similar contracts issued by Buyer.
1.5.2 Surrender Charges. The surrender charges in the KCL
Restructured Contracts shall equal the table of amounts set forth in the KCL
Contracts immediately prior to restructuring plus the following percentage of
the sum of (i) the Buyer's Account Value of such contract as of the Closing
Date (including the amount of the Adjusted Buyer's Enhancement added to such
contract), plus (ii) all additions to Buyer's Account Value after the Closing
Date resulting from (a) distributions from KCL to Buyer pursuant to Section
4.4.3.2 hereof, and (b) any Subsequent Buyer's Enhancement:
Time of Surrender Amount
121 days after the Closing
Date through the end
of the first Plan Year 10%
Second Plan Year 8%
Third Plan Year 6%
Fourth Plan Year 4%
Fifth Plan Year 2%
After Fifth Plan Year 0%
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In the event the surrender charges in the KCL Restructured Contracts
cause the nonforfeiture value of any KCL Restructured Contract to be less than
the minimum required for such contract at any time by the Standard
Nonforfeiture Law, the portion of such surrender charges provided in this
Section 1.5.2 shall be reduced by an amount sufficient to increase the KCL
Restructured Contract's nonforfeiture value to the legal minimum and the
Moratorium Amount, as defined in Section 15.86 for such contract shall be
increased by the amount by which such surrender charges are reduced.
Section 1.6 Policy Loans. Commencing one hundred twenty one
days after the Closing Date, and thereafter at any time during the
Moratorium Period, a KCL Restructured Contract Holder who shall have
received a KCL Restructured UL Contract or a KCL Restructured Traditional
Life Contract shall have the right to effect one Policy Loan in each Plan
Year in an amount not to exceed the Permitted Amount; provided, however,
that the contract holder of such KCL Restructured UL Contract or KCL
Restructured Traditional Life Contract shall not be permitted to effect
Policy Loans which in the aggregate exceed the maximum amount of Policy
Loans permitted pursuant to the KCL UL Contract which such KCL Restructured
UL Contract modifies or the KCL Traditional Life Contract which such KCL
Restructured Traditional Life Contract modifies. The foregoing right to
receive a Policy Loan up to the Permitted Amount shall be non-cumulative
from Plan Year to Plan Year. The rate of interest charged on Policy Loans
under such KCL Restructured UL Contract or KCL Restructured Traditional Life
Contract shall not exceed the corresponding loan interest rate specified in
the KCL UL Contract or the KCL Restructured Traditional Life Contract.
During the Moratorium Period, no Policy Loans shall be permitted except as
provided in this Section 1.6.
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Section 1.7 Partial Surrenders. Commencing one hundred twenty
one days after the Closing Date, and thereafter at any time during the
Moratorium Period, a KCL Restructured Deferred Annuity Contract Holder shall
have the right to effect one Partial Surrender in each Plan Year in an
amount not to exceed the Permitted Amount; provided, however, that a KCL
Restructured Deferred Annuity Contract Holder shall not be permitted to
effect Partial Surrenders which in the aggregate exceed the maximum amount
of Partial Surrenders permitted under the KCL Deferred Annuity Contract
which such KCL Restructured Deferred Annuity Contract modifies. The
foregoing right to receive a Partial Surrender shall be non-cumulative from
Plan Year to Plan Year. During the Moratorium Period, no Partial Surrenders
shall be permitted except as provided in this Section 1.7.
Section 1.8 Annuitization Options. Commencing one hundred
twenty one days after the Closing Date, and thereafter at any time during
the Moratorium Period, each KCL Restructured Contract shall provide its KCL
Restructured Contract Holder with the same annuitization options provided in
the KCL Contract. Exercise of the foregoing annuitization option shall be
subject to the imposition of (i) any contractual surrender charges provided
in the KCL Restructured Contract, and (ii) during the Moratorium Period, the
Moratorium Amount. Notwithstanding the foregoing, if a KCL Restructured
Contract Holder surrenders its KCL Contract, and in connection therewith,
exercises an annuitization option for a Life Annuity, all contractual
surrender charges and the Moratorium Amount shall be waived.
Section 1.9 Changes in Specified Amount. No decreases in
Specified Amount will be permitted during the Moratorium Period; provided,
however, that a one time 10% decrease in Specified Amount will be allowed
32
during the Moratorium Period at any time after the First Plan Year upon
receipt by Buyer of written notice from the KCL Restructured Contract Holder
desiring to reduce its Specified Amount.
Section 1.10 Contract Maturities. Any KCL Contract Holder of a
KCL Deferred Annuity Contract who does not Opt Out pursuant to Article 5 or
who has not been deemed to have Opted Out due to Regulatory Disapproval and
whose KCL Deferred Annuity Contract matured or matures between the
Rehabilitation Date and the Closing Date, and any KCL Restructured Contract
Holder whose KCL Restructured Deferred Annuity Contract matures during the
Moratorium Period shall have the following options: (i) to extend the
maturity date of such KCL Deferred Annuity Contract or KCL Restructured
Deferred Annuity Contract, as the case may be, to the day immediately
following the last day of the Moratorium Period, in which event such KCL
Contract Holder shall be entitled to all of the rights and benefits of KCL
Contract Holders who do not elect to Opt Out and whose KCL Restructured
Deferred Annuity Contracts mature after the last day of the Moratorium
Period or (ii) to annuitize such KCL Deferred Annuity Contract or KCL
Restructured Deferred Annuity Contract, as the case may be, in accordance
with the terms and provisions set forth in Section 1.8 above. Any such KCL
Contract Holder or KCL Restructured Contract Holder who fails to make such
an election shall be deemed to have elected the option set forth in clause
(i) of this Section 1.10. Further, subject to approval of the insurance
regulatory authorities of that state in which a KCL Contract Holder is
domiciled, any provision of a KCL Deferred Annuity Contract to the effect
that the KCL Restructured Contract Holder's retirement date cannot exceed
age 75 will be eliminated.
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Section 1.11 Hardship Procedures. During the Moratorium Period,
a KCL Restructured Contract Holder may at any time request in writing that a
determination be made that such KCL Restructured Contract Holder is in
extreme hardship (each a "Hardship Request"). A circumstance of extreme
hardship shall be deemed to exist and a Hardship Request shall be granted
only when a KCL Restructured Contract Holder experiences financial
difficulties and any one of the facts and circumstances set forth in the
hardship provisions of the Rehabilitation Plan, which shall be generally
consistent with the criteria set forth on Schedule 1.11 attached hereto.
Upon approval of a Hardship Request pursuant to the criteria set forth
on Schedule 1.11 attached hereto, the KCL Restructured Contract Holder whose
Hardship Request was approved shall receive a payment (a "Hardship Payment")
from Buyer either by full or partial surrender, or by Policy Loan, without
being subject to the limitations on the amount of cash withdrawals or Policy
Loans pursuant to Sections 1.5, 1.6 or 1.7 hereof.
Section 1.12 Graded Premium Whole Life. The guaranteed maximum
premium rates for all KCL GPWL Contracts will be restructured to increase
annually on all KCL GPWL Restructured Contracts; provided, however, the
schedule of maximum premium increases will be established at a level
sufficient to avoid deficiency reserves under the provisions of the proposed
NAIC Actuarial Guideline XXX (or any Guideline actually adopted prior to
Closing by either the NAIC or any governmental authority regulating the
Buyer, in the sole discretion of the Rehabilitator). Schedule 1.12 attached
hereto sets forth the premium charges with respect to the KCL Restructured
GPWL Contracts. The Cash Value of each Restructured GPWL Contract shall be
reduced, from time to time, (including, without limitation, after the end of
34
the Moratorium Period) by the amount of the Participating Contract Holder
Reimbursable Amount allocable to each such Contract. KCL Restructured GPWL
Contracts shall be subject to the surrender charges set forth in Section
1.5.2 hereof which shall be imposed upon the Cash Value of each KCL
Restructured GPWL Contract. KCL Restructured GPWL Contracts shall also be
subject to the Moratorium Amount.
Section 1.13 Traditional Life Contracts. KCL Traditional Life
Contracts shall not be restructured except as set forth in this Section
1.13. The Cash Value of each KCL Restructured Traditional Life Contract
shall be reduced, from time to time (including, without limitation, after
the end of the Moratorium Period) by the amount of the Participating
Contract Holder Reimbursable Amount allocable to each such Contract. KCL
Restructured Traditional Life Contracts shall be subject to the surrender
charges set forth in Section 1.5.2 hereof which shall be imposed upon the
Cash Value of each KCL Restructured Traditional Life Contract. KCL
Restructured Traditional Life Contracts shall also be subject to the
Moratorium Amount.
Section 1.14 Interest Sensitive Whole Life. KCL Interest
Sensitive Life Contracts will be restructured in three steps. First, the
KCL Interest Sensitive Life Contracts will be modified into KCL Restructured
UL Contracts using the current KCL VIP 4 form, as amended to conform with
this Agreement. As a result of this step in the restructuring, the KCL
Contract Holder will have an Account Value equal to the Cash Value of each
such contract maintained on the books of KCL. In addition, the contractual
surrender charges for such KCL VIP 4 product form will be eliminated. Under
the second step of the restructuring, such KCL Restructured UL Contracts
will be further modified, as necessary, to comply with the requirements of
35
Section 7702 of the Code, provided, however, that such restructuring will
provide total benefits having a value to the policyholder that is materially
equivalent, as of the Closing Date, to the total value of policy benefits
provided to the policyholder prior to this step in the restructuring. Under
the third step of the restructuring, the KCL Restructured UL Contracts will
be further modified consistent with restructuring of all KCL UL Contracts,
including without limitation the imposition of the new contractual surrender
charge pursuant to Section 1.5.2.
Section 1.15 Unallocated Group Annuity Contracts. KCL
Unallocated Group Annuity Contracts will be modified and restructured in a
manner consistent with the modification and restructuring of all KCL
Deferred Annuity Contracts; provided, however, the partial surrender rights
provided in Section 1.7 hereof shall not apply to KCL Restructured
Unallocated Group Annuity Contracts.
Section 1.16 Immediate Annuities. As described in Article 3
hereof, the reserves allocable to each KCL Immediate Annuity Contract will
be based upon immediate annuity benefit, the monthly and interest
assumptions underlying purchase rates employed by Buyer as of the Closing
Date and will be calculated at Closing. Thereafter, with respect to each
KCL Restructured Immediate Annuity Contract which is a KCL Assumed
Restructured Contract, such restructured reserve allocable to each such
contract will be applied to determine annuity benefits using the mortality
and interest assumptions underlying the immediate annuity benefit purchase
rates employed by Buyer as of the Closing Date in calculating purchase rates
for immediate annuities then being offered by Buyer to the general public.
Section 1.17 Health Insurance. KCL covenants and agrees, between
the date of this Agreement and the Closing Date, to either (i) determine to
36
retain all KCL Health Contracts or (ii) use its best efforts to reinsure all
KCL Health Contracts with an insurer other than Buyer. If KCL either (i)
determines to retain all KCL Health Contracts or (ii) is able to arrange
such reinsurance of all KCL Health Contracts on or before the Closing Date,
the Adjusted Buyer's Enhancement shall be increased by $100,000. If (i) KCL
determines not to retain all KCL Health Contracts and (ii) such reinsurance
of all KCL Health Contracts cannot be arranged by the Closing Date, Buyer
will assume and reinsure the KCL Health Contracts; provided, however, the
Adjusted Buyer's Enhancement shall be reduced by $100,000.
Section 1.18 Expense Charges. All KCL Contracts (other than KCL
Restructured Immediate Annuity Contracts, KCL Restructured Traditional Life
Contracts and KCL Restructured GPWL Contracts) which are KCL Assumed
Restructured Contracts shall bear an additional monthly administrative
charge, during the Moratorium Period, of (i) for KCL Restructured UL
Contracts, $2.25 plus $0.40 times the death benefit set forth in the KCL
Restructured UL Contract divided by one thousand, and (ii) for KCL
Restructured Deferred Annuity Contracts and KCL Restructured Unallocated
Group Annuity Contracts, $4.50.
Section 1.19 Future Changes. At any time after this Agreement is
approved by the Rehabilitation Court and through the end of the Moratorium
Period, subject to the approval of the Rehabilitator, in his sole
discretion, Buyer may, at any time and from time to time, modify any
provisions of some or all of the KCL Assumed Restructured Contracts or add
one or more provisions to such contracts, if such modification or addition
(after giving consideration to the tax consequences of such modification or
addition) is beneficial or favorable to, or has no negative impact on, such
KCL Assumed Restructured Contract Holders.
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Section 1.20 Continuation or Exchange of Contracts. As
restructured pursuant to this Article 1 and the Rehabilitation Plan, all KCL
Contracts (other than KCL Restructured Immediate Annuity Contracts) that are
in force as of the Rehabilitation Date shall continue in force following
restructuring unless terminated by the terms of any such KCL Contracts. KCL
Immediate Annuity Contracts shall be exchanged as provided in this Article 1
for newly issued KCL Contracts or newly issued contracts from Buyer. Any
reduction in value of a KCL Contract by reason of its restructuring,
including without limitation, any reduction in value attributable to
restructuring of account values, shall be deemed distributed to the KCL
Contract Holders as a partial surrender and held by KCL as debt. To the
extent the Retained Assets are not sufficient to satisfy the debt to KCL
Contract Holders or KCL is not required to pay such debt by the terms of
this Agreement, including, without limitation, by reason of the limitations
provided in Section 4.4.3.2 hereof, such debt shall be discharged in such
manner and at such time as provided in Section 4.3 hereof. Buyer shall not
assume any such debt as part of Transferred Liabilities.
Section 1.21 Restructured Settlement Options. For KCL Contract
Holders who Opt Out, the settlement options under their KCL Contracts shall
be restructured to provide for the Initial Cash Opt Out Payment and the
Settlement Annuity.
Section 1.22 Rehabilitation Endorsement. The modifications and
restructuring of KCL Contracts shall be effectuated by a Rehabilitation
Endorsement. Such Rehabilitation Endorsement shall be mailed to KCL Assumed
Restructured Contract Holders together with the Assumption Certificates
referred to in Section 2.2.1. The Rehabilitation Endorsement shall
incorporate by reference all of the terms and conditions of the
38
Rehabilitation Plan, and shall provide that the Buyer's Account Values shall
be increased, as appropriate, by Account Value Increments, and decreased, as
appropriate, by Indemnity Adjustments.
Section 1.23 Tax Qualification of Life Contracts. Each KCL
Restructured Contract that is a life insurance contract shall expressly
provide that at no time will the amount of death benefit thereunder be less
than the amount needed to ensure that such contract qualifies as a life
insurance contract for Federal tax purposes, and that any cost of insurance
charges shall be determined accordingly.
ARTICLE 2
TRANSFER OF ASSETS AND ASSUMPTION OF LIABILITIES
Section 2.1 Transfer of Assets. On the Closing Date, KCL,
acting by and through the Rehabilitator, shall deliver, transfer and assign
to Buyer good, clear and marketable title to the Buyer's Transferred Assets
set forth in (a) through (k) below, fully paid and non-assessable, free of
any rights of offset, contribution, funding obligation, or except as set
forth on Schedule 2.1(g) any lease, claim, encumbrance or other Lien
whatsoever subject to and in accordance with the terms and conditions of the
Transfer and Assignment Agreement set forth in Exhibit 2.1. The Buyer's
Transferred Assets shall consist of the following (as well as all
Derivatives thereof) as of the Closing: (a) the bonds listed on Schedule
2.1(a) and such bonds as may be acquired by KCL between March 31, 1993 and
the Closing Date which are Qualified Investments (but excluding those bonds
sold, redeemed, for which sinking fund payments or the like are received,
which are exchanged prior to the Closing Date or which the Rehabilitator
elects to include as Retained Assets in accordance with Section 4.2);
39
(b) the equities listed on Schedule 2.1(b), excluding those equities sold,
redeemed or which are exchanged prior to the Closing Date; (c) all Policy
Loans attributable to the Buyer's Transferred Liabilities; (d) all cash and
Short Term Investments of KCL (excluding any securities included in
(a) above), including such Short Term Investments as may be acquired by KCL
between March 31, 1993 and the Closing which are Qualified Investments, less
the amount of cash and Short Term Investments retained by KCL as Retained
Assets; (e) all accrued interest and other rights and claims in respect of
the Buyer's Transferred Assets, whether or not shown on the books of KCL,
and the Asset Receivables with respect to the Buyer's Transferred
Securities; (f) the Transferred Other Assets listed on Schedule 2.1(f);
(g) the Business Assets, including, without limitation, the assets listed on
Schedule 2.1(g) attached hereto; (h) all of KCL's rights under contracts,
agreements, leases or other arrangements relating to any of items described
in (a) through (g) above; (i) all goodwill of KCL; (j) all original files,
books, documents, records, reports, lists, summaries, software and other
data related to or identifying any of the foregoing items (except for those
of the foregoing that relate to the Retained Assets); (k) such rights,
claims, interests and powers as relate to or are incident to the items
described in clauses (a)-(j) above or as may be necessary to the use and
enjoyment of the foregoing. Notwithstanding the foregoing, KCL agrees to
make available for inspection and copying those files, records and materials
as pertain or relate to the Buyer's Transferred Assets to the extent
necessary to realize upon the value of those assets or to conduct
third-party litigation in connection therewith.
2.1.1 Adjustments to Buyer's Transferred Assets.
Schedules 2.1(a), 2.1(b) and 2.1(f) shall be adjusted as of the Closing Date
40
to reflect events occurring subsequent to March 31, 1993. On and as of the
date that the schedule described in Section 3.2 is required to be delivered
to Buyer, KCL shall also deliver to Buyer (i) a schedule setting forth all
KCL assets described in Section 2.1, and (ii) a schedule setting forth the
assets KCL intends to retain as Retained Assets.
2.1.1.1 The revised schedule provided pursuant to
Section 2.1.1(i) shall set forth, as of the date of preparation of such
schedule, the actual values, determined with reference to the books and
records of KCL, of all assets listed thereon other than with respect to
Transferred Securities and Short Term Investments. Such schedule shall
include all cash and Short Term Investments held by KCL, less the amount of
cash and Short Term Investments to be retained by KCL as Retained Assets.
Concurrently with the delivery of such schedule, KCL shall deliver to Buyer
revised Schedules 2.1(a) and 2.1(b).
2.1.1.2 At least five Business Days prior to the
Closing Date, KCL shall deliver to Buyer a complete schedule of the Buyer's
Transferred Assets and a schedule of the Retained Assets.
2.1.1.3 Within ten Business Days after the Closing,
KCL shall deliver to Buyer a schedule (the "Estimated Transferred Asset
Value Schedule") that shall set forth KCL's determination of the Transferred
Asset Value, including, without limitation, the fair market values as of the
Closing Date of the Transferred Securities and the Short Term Investments
and shall identify any Transferred Securities that were in default as of the
Closing Date. The Transferred Asset Value as set forth in the Estimated
Transferred Asset Value Schedule shall be binding on the parties hereto and
shall be the "Final Transferred Asset Value" for all purposes of this
Agreement if Buyer shall not have notified KCL in writing within ten
41
Business Days of receipt of such schedule that it disagrees in any material
respect with such schedule, which notice shall set forth with specificity
the basis for disagreement or objection. If Buyer does timely notify KCL of
any such disagreements, then thereafter, the parties shall use their best
efforts to resolve any disagreements and agree upon the Final Transferred
Asset Value. If the parties are unable to resolve all disputes with respect
to the Estimated Transferred Asset Value Schedule, or any values shown
thereon, any remaining disputes shall be resolved in accordance with the
Accounting Procedure, if the dispute is over a Calculation Matter, the
Valuation Procedure if the Dispute is with respect to the fair market value
of any Transferred Security or any Short Term Investment, or in accordance
with the dispute resolution procedures set forth in Section 13.3 hereof with
respect to any other matter; and the Final Transferred Asset Value shall be
determined in accordance with the final resolution of such disputes. The
Final Transferred Asset Value shall be the value used for all calculations
hereunder, including, without limitation, the amount of the Preliminary Opt
Out Amount, the Restructuring Percentage, the KCL Restructured Account
Values and the Adjusted Buyer's Enhancement.
2.1.2 Allocation of Transferred Assets. The Buyer's
Transferred Assets received by the Buyer as consideration under this
Agreement shall be allocated (a) in part to those liabilities for which
insurance reserves under Section 807(c) of the Code may be properly
established, and (b) in part to the other obligations assumed under this
Agreement.
2.1.3 Transferred Asset Value. The "Transferred Asset
Value" of the Buyer's Transferred Assets shall be the sum of (i) the fair
42
market value including any accrued interest of all Transferred Securities
and Short Term Investments transferred to Buyer as of the Closing; (ii) all
cash transferred to Buyer as of the Closing; (iii) the outstanding balance
of all Policy Loans transferred to Buyer as of the Closing; (iv) the book
value of all premium notes, due and deferred life premiums, and due and
unpaid premiums with respect to KCL Health Contracts transferred to Buyer as
of the Closing; and (v) with respect to any other assets included within the
Transferred Other Assets, such value as may be agreed upon by KCL and Buyer.
Notwithstanding anything to the contrary herein, in no event shall any value
be accorded to the Business Assets, the goodwill of KCL or any other assets
not expressly listed in items (i) through (v) of this Section 2.1.3.
Section 2.2 Assumption of KCL Restructured Contracts. Effective
as of the Closing Date, Buyer shall assume and reinsure all the Buyer's
Transferred Liabilities pursuant to the Assumption Reinsurance Agreement in
the form set forth in Exhibit 2.2. No other liabilities, undertakings,
debts, covenants, commitments or other obligations either express or
implied, of KCL or its Affiliates shall be transferred to or in any way
assumed by Buyer. Nothing in this Section is intended to release or
otherwise relieve Buyer of other covenants, commitments or obligations of
Buyer either express or implied in this Agreement, the other Definitive
Agreements and the Ancillary Agreements.
2.2.1 Assumption Certificates. Within one hundred twenty
days following the Closing Date, Buyer shall issue Assumption Certificates
to the KCL Restructured Contract Holders of KCL Assumed Restructured
Contracts in the form shown as Exhibit 2.2.1 hereto and as Exhibit A to the
Assumption Reinsurance Agreement.
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ARTICLE 3
DETERMINATION OF BUYER'S ACCOUNT VALUES
Section 3.1 Buyer's Enhancement. Subject to adjustment as
provided in Section 3.1.1 below, and subject to increase or decrease as
provided in Section 1.17 hereof, the Buyer's Enhancement shall be $286
million.
3.1.1 Calculation of Adjusted Buyer's Enhancement. The
Buyer's Enhancement will be subject to adjustment at the Closing as follows:
ABE = (BE - AA) (XXX/YYY) - EA - Z - D where:
ABE = Adjusted Buyer's Enhancement.
BE = Buyer's Enhancement, as provided in Section 3.1 above.
XXX = Aggregate Account Values at March 31, 1993 for all KCL
Contracts that become KCL Assumed Restructured
Contracts.
YYY = Aggregate Account Values at March 31, 1993 for all KCL
Contracts in force at March 31, 1993.
AA = If the Final Transferred Asset Value is $842 million,
then AA shall be zero. Otherwise, AA shall be a
positive or negative adjustment and shall be
calculated according to the following formula:
AA = 0.04 * ($842 million - the Final
Transferred Asset Value);
provided, however, if the Final Transferred Asset
Value is less than $750 million, then AA shall be
calculated according to the following formula:
AA = (0.04 * $92 million) + [0.09 *
($750 million - the Final Transferred
Asset Value)].
EA = Expense adjustment (not less than zero) of $50 *
(250,000 - ZZ)
Z = UL opt out adjustment (not less than zero) of $1
million, or a portion thereof, for each 1%, or a
portion thereof, by which the aggregate KCL
Restructured Account Values of all KCL Assumed
Restructured Contracts which are KCL Restructured UL
Contracts is less than $700,000,000.
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D = Deferred Closing Adjustment equal to $250,000 per
month, beginning on January 6, 1995 and continuing
through the Closing, pro rated for the month in which
the Closing occurs.
ZZ = Quantity of KCL Assumed Restructured Contracts that
are not KCL Restructured GPWL Contracts.
3.1.2 Adjustments.
(a) For purposes of the calculation of the Adjusted
Buyer's Enhancement, the aggregate reserves relating to KCL Immediate Annuity
Contracts and KCL Health Contracts shall be used in calculating the aggregate
Account Values for determining the Adjusted Buyer's Enhancement.
(b) For purposes of the calculation of the Adjusted
Buyer's Enhancement, the aggregate Cash Values of KCL GPWL Contracts and KCL
Traditional Life Contracts shall be used in calculating the aggregate Account
Values for determining the Adjusted Buyer's Enhancement.
3.1.3 Application of Buyer's Enhancement. Each KCL Assumed
Restructured Contract shall have its KCL Restructured Account Value increased
pursuant to this Agreement immediately after such Contract is assumed and
reinsured by Buyer by an amount equal to the Adjusted Buyer's Enhancement
times a fraction, the numerator of which shall be the Account Value of each
such KCL Contract as of February 12, 1993 reduced by any related outstanding
Policy Loan and immediately prior to the restructuring contemplated by Section
1.2 hereof, and the denominator of which shall be the aggregate Account Values
of all such KCL Contracts as of February 12, 1993 reduced by the aggregate of
related outstanding Policy Loans and immediately prior to the restructuring
contemplated by Section 1.2 hereof.
Immediately after such allocations, the Buyer's Account
Value of each such contract shall be the sum of its KCL Restructured Account
Value plus the portion of the Buyer's Enhancement allocable to such contract.
45
Notwithstanding the foregoing, with respect to KCL Assumed Restructured
Contracts that are KCL Restructured Immediate Annuity Contracts, the reserves
related to such contracts shall be used in place of Account Values in
calculating the allocation of the Adjusted Buyer's Enhancement, and the
Adjusted Buyer's Enhancement allocated to such contracts shall be applied to
increase the restructured reserve related thereto. Further notwithstanding
the foregoing, with respect to KCL Assumed Restructured Contracts that are KCL
Restructured GPWL Contracts and that are KCL Restructured Health Contracts,
the aggregate Cash Values of such contracts shall be used in place of Account
Values in calculating the allocation of the Adjusted Buyer's Enhancement, and
the Adjusted Buyer's Enhancement allocated to such contracts shall be applied
to increase the Cash Value of each such contract.
Section 3.2 Calculation of Initial Buyer's Account Values. Within
sixty days after the Opt Out Record Date, KCL shall prepare and deliver to
Buyer a schedule setting forth each KCL Contract Holder who has not elected to
Opt Out (i.e., who has either affirmatively elected to opt in or has been
deemed to have opted in by not properly exercising the election to Opt Out by
the Opt Out Record Date), together with KCL's calculation of the estimated
Buyer's Account Value for each such contract. Such schedule shall be updated
as of the Closing to exclude any KCL Contract Holders who have been deemed to
have Opted Out due to Regulatory Disapproval and for KCL Contracts that have
lapsed.
3.2.1 Within twenty days of receipt of each schedule
provided by KCL under Section 3.2 above, Buyer shall notify KCL in writing of
any objections to the matters set forth in the schedules. Appropriate
adjustments shall be made to the schedule provided by KCL under Section 3.2
above as of Closing promptly after the completion of the Valuation Procedure
46
(if such procedure is employed). If the parties are unable to resolve any
disputes with respect to the schedules within twenty days after KCL receives
Buyer's written objections, any such disputes shall be resolved by the
Accounting Procedure.
3.2.2 After the resolution of any objections and disputes as
provided in Section 3.2.1 above, the schedule provided by KCL setting forth
the Buyer's Account Value of each KCL Assumed Restructured Contract shall,
subject to Section 3.5 hereof, be a final and binding determination of the
matter set forth therein on all parties, including, without limitation, the
KCL Contract Holders of KCL Assumed Restructured Contracts.
Section 3.3 Buyer's Interest Crediting Rate. From and after the
Closing, and through the end of the Moratorium Period, the Buyer's Account
Value of each KCL Assumed Restructured Contract that provides for crediting of
interest shall be credited interest at the Moratorium Period Crediting Rate.
Notwithstanding the foregoing, all New Premiums paid by KCL Contract Holders
shall be credited interest at the New Premium Crediting Rate. After the end
of the Moratorium Period, subject to the Minimum Crediting Rate, the Buyer's
Account Value (including the amount thereof attributable to New
Premiums) shall be credited interest at such rates as Buyer may declare from
time to time in accordance with Actuarial Standard of Practice No. 1, "The
Redetermination (or Determination) of Non-Guaranteed Charges and/or Benefits
for Life Insurance and Annuity Contracts," adopted by the Interim Actuarial
Standards Board, October 1986.
Section 3.4 Buyer's Cost of Insurance Charges. Other than for the
KCL Contracts issued under KCL's 1992 guaranteed issue offer as listed on
Schedule 1.4, Buyer may, effective as of the Closing Date, increase cost of
insurance charge rates for KCL Assumed Restructured Contracts that are KCL
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Restructured UL Contracts to a level not to exceed 115% of such cost of
insurance charge rates according to the schedules in effect on February 12,
1993. During the Moratorium Period, Buyer shall perform periodic (but not
more frequently than once every six months) experience studies of the
mortality under KCL Assumed Restructured Contracts that are KCL Restructured
UL Contracts other than KCL Contracts issued under KCL's 1992 guaranteed issue
offer as listed on Schedule 1.4. Such experience studies of mortality shall
be performed in a manner consistent with similar studies performed during 1993
by KCL. If the ratio of actual to expected death claims (based on the dollar
amount of death claims) on a cumulative basis since the Closing Date, as
measured by such experience studies of mortality, exceeds 95% of expected
mortality based on the Tillinghast 1975-1980 Mortality Table as shown in
Schedule 3.4, cost of insurance charge rates for KCL Assumed Restructured
Contracts that are KCL Restructured Contracts, other than KCL contracts issued
under KCL's 1992 guaranteed issue offer as listed on Schedule 1.4, may be
increased in proportion to the ratio of (a) to (b) where (a) is the expected
ratio of actual to expected death claims (based on the dollar amount of death
claims) and (b) is 95%. Any such increase in the cost of insurance charge
rates shall be subject to review by the Rehabilitator, such review to be
completed within 20 days of submission of documentation of the supporting
experience study of mortality. In the event the Rehabilitator and Buyer do
not agree to such increases in cost of insurance charge rates, the dispute
shall be resolved in accordance with the Accounting Procedures of Article 13
of this Agreement. Nothing in this Section 3.4 is intended to restrict cost
of insurance charge rates to 115% of the cost of insurance charge rates in
effect at February 12, 1993, if such increases are warranted by actual death
claims as provided in this Section 3.4.
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Section 3.5 Post-Closing Account Value Adjustments. In the event,
at any time and from time to time within eighteen months after the Closing
Date, Buyer determines that the final schedule of Transferred Liabilities
delivered by KCL to Buyer pursuant to Section 2.6 of the Assumption
Reinsurance Agreement contains any inaccuracies or omissions, Buyer shall
provide prompt written notice to KCL setting forth any such inaccuracies or
omissions, and Buyer's calculation of the necessary adjustments to the Buyer's
Account Values of all KCL Assumed Restructured Contracts of Persisting KCL
Restructured Contract Holders. Inaccuracies or omissions shall be deemed to
include any of the following:
(a) any KCL Restructured Assumed Contract not properly considered in
the determination of the Buyer's Account Values or as to which the
liabilities were not properly stated or estimated in calculating
the Buyer's Account Values;
(b) any KCL Restructured Assumed Contract as to which the calculation
contained in the final schedule of Transferred Liabilities
contained errors or omissions relating to the account value,
surrender value, benefits, including without limitation, death
benefit, loan value, minimum guaranteed crediting rate, premiums
paid and premiums due or policy or policyholder information, such
as issue date, effective date of coverage, and age and sex of the
insured; and
(c) any KCL Contract or KCL Restructured Contract which Buyer did not
assume, but with respect to which KCL mistakenly paid Buyer
amounts included in the determination of the Buyer's Account
Values.
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Such errors or omissions, and the necessary adjustments to the Buyer's
Account Values shall be deemed to be final, and the procedures set forth in
Section 3.5.1 hereof shall apply, unless KCL delivers written notice to Buyer
within twenty days of receipt of Buyer's notice of errors, omissions and
adjustments, setting forth with reasonable specificity any objections to the
matters set forth in Buyer's notice. If the parties are unable to resolve any
disagreements with respect to any such post-closing Account Value Adjustments
within twenty days after Buyer's receipt of an objection notice from KCL, any
such dispute shall be resolved in accordance with the Accounting Procedure, if
the dispute relates to a Calculation Matter, or the dispute resolution
procedures set forth in Section 13.3 with respect to any other matter.
3.5.1 Adjustment to Buyer's Account Values.
3.5.1.1 If such errors, omissions and adjustments (if
agreed to, or upon resolution of any dispute with respect thereto) would
result, in the aggregate, in a reduction in the Buyer's Account Values, KCL
shall remit to Buyer out of Retained Assets, if the Rehabilitator deems such
funds available, as a claim of KCL Contract Holders under Section 304.33-
430(3) of the Insurance Code, such amounts in cash as would be necessary to
maintain the Buyer's Account Values without reduction. Buyer's Subsequent
Enhancement shall be added to all such amounts received from KCL under this
Section 3.5.1.1. If for any reason, Buyer does not receive the amounts
required to effect such Post-Closing Adjustments within such twenty Business
Day period, or, in the event of a dispute with respect to such adjustment,
within twenty Business Days after such dispute has been resolved, Buyer shall
be entitled to recover the amount of such adjustment as an Indemnity
Adjustment in accordance with Section 10.5 hereof provided however an
Indemnity Adjustment pursuant to this Section 3.5.1.1 shall not be subject to
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the threshold set forth in Section 10.5 hereof but the expense charge provided
for in Section 15.47 hereof shall only apply if Buyer has to notify
policyholders of recalculated account values and then only to the policies
requiring such notification.
3.5.1.2 If the errors, omissions or adjustments (if
agreed to, or upon resolution of any dispute with respect thereto) would
result, in the aggregate, in an increase in the Buyer's Account Values, Buyer
shall hold such amounts in reserve. All amounts so held in reserve shall bear
interest at the Moratorium Period Crediting Rate. On the next succeeding date
upon which Buyer receives a distribution from KCL pursuant to Section 4.4
hereof, the amount held in reserve, together with all interest accrued
thereon, shall be allocated and/or paid in the manner provided in
Section 4.4.3.2 hereof. All such amounts shall be treated as an Account Value
Increment.
ARTICLE 4
RETAINED ASSETS AND RETAINED LIABILITIES
Section 4.1 Retained Liabilities. All liabilities, undertakings,
debts, covenants, commitments and other obligations of KCL, of whatever type
or form and however described or denominated, including, but not limited to,
the Retained Liabilities and any and all other liabilities, undertakings,
debts, covenants, commitments, and other obligations or claims against the
Buyer's Transferred Assets that are not expressly assumed by Buyer under this
Agreement or the Assumption Reinsurance Agreement shall be retained by KCL.
Section 4.2 Retained Assets. KCL shall retain the Retained
Assets. The cash and Short Term Investments included in the Retained Assets
shall be in an amount reasonably calculated as necessary to (i) satisfy the
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Priority Claims, (ii) pay all costs to administer the KCL Estate, (iii) pursue
claims and causes of action against third parties, (iv) provide for payment of
the Preliminary Opt Out Amount and (v) satisfy the obligations of KCL set
forth in the Assumption Reinsurance Agreement and the Transfer and Assignment
Agreement. Except as specifically provided in this Agreement, nothing in this
Agreement shall be interpreted as preventing the Rehabilitator in his sole
discretion to retain such assets and third party causes of action as he deems
necessary, proper or desirable.
Section 4.3 Discharge of Retained Liabilities. Upon order of the
Rehabilitation Court, after notice and opportunity for hearing to the KCL
Contract Holders as the Rehabilitation Court may order, and after all Retained
Assets have been used to satisfy obligations of KCL, and after the
Rehabilitator shall have determined that the debts described in Section 5.4
and Section 1.20 hereof cannot be satisfied in full, all liabilities for such
debt of KCL and all obligations arising under the KCL Contracts and the KCL
Restructured Contracts, other than the Transferred Liabilities and all
Retained Liabilities, shall be discharged, without exception with respect to
the liability of KCL and its successors.
Section 4.4 Distributions. The Retained Assets shall be
distributed as follows:
4.4.1 at any time for (i) the payment of all Priority
Claims, (ii) the payment of the costs of administration of the KCL Estate,
(iii) to the Rehabilitator in payment of any indemnification obligation to the
Rehabilitator pursuant to Section 10.1 hereof, (iv) to the Buyer, in payment
of any adjustments pursuant to Section 3.5 hereof, and (v) to the Buyer for
payment of any indemnification obligation to the Buyer pursuant to Section
10.2 hereof.
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4.4.2 in payment of the Opt Out Holdback as provided in
Section 5.7 hereof.
4.4.3 at such time as the Rehabilitation Court may determine
upon application of the Rehabilitator, but subject to the provisions of
Sections 4.4.3.3 and 5.7 hereof (each such distribution being referred to as a
"Distribution Date"), a distribution of all cash available for distribution,
as determined by the Rehabilitator, shall be made to or on behalf of (i) all
KCL Contract Holders who Opted Out, (ii) all Non-Persisting KCL Restructured
Contract Holders, and (iii) all Persisting KCL Restructured Contract Holders,
all in the proportions and amounts specified in Sections 4.4.3.1 and 4.4.3.2
below.
4.4.3.1 All distributions under Section 4.4.3 hereof
from the Retained Assets shall be allocated and paid by KCL to all KCL
Contract Holders who Opted Out in satisfaction of the Settlement Annuities
issued to such KCL Contract Holders, in an amount equal to the total amount
distributed from the Retained Assets at any time, times a fraction, the
numerator of which is the statutory reserve maintained on the books of KCL as
of February 12, 1993 reduced by any related outstanding Policy Loan
immediately prior to Closing with respect to the KCL Contract of each such KCL
Contract Holder who Opted Out, less any due and deferred net premium with
respect to such KCL Contract as of such date, and the denominator of which is
the aggregate statutory reserves maintained on the books of KCL as of February
12, 1993 reduced by the aggregate of related outstanding Policy Loans
immediately prior to Closing, less the aggregate due and deferred net premiums
of all KCL Contracts as of such date. KCL shall mail a check for the
allocable amount of each distribution to each KCL Contract Holder who Opted
Out within thirty days of each Distribution Date. KCL Contract Holders who
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Opted Out shall not be entitled to receive any distributions from Retained
Assets after such time as the Opt Out Reimbursable Amount equals zero.
4.4.3.2 All remaining distributions under Section 4.4.3
hereof from the Retained Assets shall be delivered to Buyer, in cash, for the
benefit of Non-Persisting KCL Restructured Contract Holders and Persisting KCL
Restructured Contract Holders, subject to the limit set forth in Section
4.4.4. The amount received by Buyer, together with the Subsequent Buyer's
Enhancement as to Persisting KCL Restructured Contract Holders, shall be
allocated among all such KCL Contract Holders with a Participating Contract
Holder Reimbursable Amount equal to the total amount received times a
fraction, the numerator of which shall be the Buyer's Account Value of each
such KCL Contract Holder reduced by any related outstanding Policy Loan
immediately after the Closing Date, and the denominator of which shall be the
aggregate of Buyer's Account Values of all such contracts reduced by the
aggregate of related outstanding Policy Loans immediately after the Closing
Date. Within twenty Business Days of receipt of distributions, (i) Buyer
shall credit the allocable amount of each such distribution, together with the
Subsequent Buyer's Enhancement related thereto, to the Buyer's Account Value
of each Persisting KCL Restructured Contract Holder with an Account Value as
an Account Value Increment, and (ii) shall mail a check for the allocable
amount of each distribution to each Persisting KCL Restructured Contract
Holder without an Account Value and each Non-Persisting KCL Restructured
Contract Holder. Non-Persisting KCL Restructured Contract Holders and
Persisting KCL Restructured Contract Holders shall not be entitled to receive
any distributions or Account Value Increments, including, without limitation,
any Subsequent Buyer's Enhancement, to the extent that such receipt would
cause Participating Contract Holder Reimbursable Amount to be less than zero.
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4.4.3.3 No distributions of Retained Assets (other than the
final distribution to Buyer from the Retained Assets) shall be made to Buyer
until the amount of each such distribution is $50 million or more. Further
distributions to Buyer from the Retained Assets shall not be made more
frequently than once each six month anniversary of the Closing Date.
4.4.4 At the end of the Moratorium Period, if the Opt Out
Reimbursable Amount and the Participating Contract Holder Reimbursable Amount
equals zero for all KCL Contract Holders, the Retained Assets shall thereafter
be distributed in accordance with the priorities set forth in an order of the
Rehabilitation Court. If, prior to the end of the Moratorium Period, the
Rehabilitator, in his sole discretion, determines that based upon current
assumptions, the Opt Out Reimbursable Amount and the Participating Contract
Holder Reimbursable Amount is anticipated (as of the end of the Moratorium
Period) to be zero, upon application to and approval of the Rehabilitation
Court, the Rehabilitator may make distributions prior to the end of the
Moratorium Period in accordance with the priorities set forth in such Court
order.
ARTICLE 5
ELECTION PROCEDURE AND OPT OUT RIGHTS
Section 5.1 Contract Holder Election. As of 11:59 p.m. on the day
immediately preceding the Closing Date, all KCL Contract Holders shall either:
(i) surrender fully their KCL Restructured Contracts ("Opt Out") or
(ii) continue as KCL Restructured Contract Holders.
Section 5.2 Election Notice. Within ninety days after entry of
the Final Order of Rehabilitation or such other date as Buyer and
Rehabilitator shall agree, KCL shall mail to all KCL Contract Holders, by
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United States mail, postage prepaid, to the address as last shown in the book
and records of KCL, a notice of election ("Notice"), in a form approved by the
Rehabilitation Court, along with a pre-addressed postage paid envelope. The
Notice shall include full and complete information regarding Buyer, including,
without limitation, a statement as to the ratings of Buyer, the experience and
capitalization of Buyer, and such other information as Buyer reasonably
requests be included with the Notice. The Notice shall request each KCL
Contract Holder to make the election set forth in Section 5.1 above, such
election to be effective as of 11:59 p.m. on the day immediately preceding the
Closing Date. The Notice shall set forth the following information: (i) a
reasonable estimate of the amount that will be paid to each KCL Contract
Holder who elects to Opt Out, including, without limitation, the Estimated
Preliminary Opt Out Amount, and the exact amount of the Initial Cash Opt Out
Payment, (ii) a description of the Settlement Annuity described in
Section 1.20 hereof, and the sources of funding of such Settlement Annuity,
(iii) a summary of such KCL Contract Holder's rights, obligations and
liabilities pursuant to the KCL Restructured Contract, including, without
limitation, a reasonable estimate of the post-closing Buyer's Account Value of
each such KCL Contract assuming all KCL Contract Holders opt in, (iv) a
statement to the effect that KCL Contract Holders who do not elect to Opt Out
will be deemed to have completely and finally released, to the maximum extent
permitted by law, any Released Claims, including, without limitation, any
Released Claims with respect to any Taxes imposed on or incurred by the KCL
Contract Holders as a result of this Agreement or the Rehabilitation Plan or
which relate to, arise out of or are in connection with the purchase of a KCL
Contract or otherwise relate to, arise out of or are in connection with a KCL
Contract, which such KCL Contract Holders may have as KCL Contract Holders
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with respect to KCL, the Rehabilitator or their respective officers,
directors, agents or advisors and (v) a statement that if a KCL Contract
Holder is domiciled in a state that does not approve the form of the KCL
Restructured Contracts on or before the Closing Date, or lives in a state in
which approval of the Assumption Reinsurance Agreement is required, and the
insurance regulatory authorities of such state do not approve the Assumption
Reinsurance Agreement on or before the Closing Date (collectively, "Regulatory
Disapproval"), such KCL Contract Holder will be deemed to have elected to Opt
Out. Those KCL Contract Holders who desire to elect to Opt Out must execute
and return by mail, with a U.S. postal service postmark no later than that day
which is sixty days after the date of the Notice (the "Opt Out Record Date"),
the opt out election form (the "Form") attached to the Notice, which Form
shall provide for a complete and final release, to the maximum extent
permitted by law, of any Released Claims, including, without limitation, any
Released Claims with respect to any Taxes imposed on or incurred by the KCL
Contract Holders as a result of this Agreement or the Rehabilitation Plan or
which relate to, arise out of or are in connection with the purchase of a KCL
Contract or otherwise relate to, arise out of or are in connection with a KCL
Contract, which any such KCL Contract Holders may have as KCL Contract Holders
with respect to KCL, the Rehabilitator or their respective officers,
directors, agents or advisors.
Section 5.3 Exercise of Election. The Notice provided in Section
5.2 shall also expressly state that, if the KCL Contract Holder desires to
elect to Opt Out, such election shall only be effective if (i) the KCL
Contract Holder affirmatively elects to Opt Out by properly completing the
Form and (ii) the Form is postmarked no later than the Opt Out Record Date.
In the event that the Form is not mailed to KCL or, if mailed, is not properly
57
completed and postmarked on or before the Opt Out Record Date, such KCL
Contract Holder shall conclusively (i) be deemed to have elected to continue
to be a KCL Restructured Contract Holder, (ii) be deemed to have agreed to all
terms of the KCL Restructured Contract as provided for in this Agreement, and
(iii) be deemed to have completely and finally released, to the maximum extent
permitted by law, any Released Claims, including, without limitation, any
Released Claims with respect to any Taxes imposed on or incurred by the KCL
Contract Holders as a result of this Agreement or the Rehabilitation Plan or
which relate to, arise out of or are in connection with the purchase of a KCL
Contract or otherwise relate to, arise out of or are in connection with a KCL
Contract, which such KCL Contract Holders may have as KCL Contract Holders
with respect to the Rehabilitator, KCL or their respective officers,
directors, agents or advisors. Subject to the consummation of the Closing,
the election of any KCL Contract Holder to Opt Out shall be irrevocable as of
the date the Form is postmarked.
Section 5.4 Effect of Opt Out. Each KCL Contract Holder electing
to Opt Out or who has been deemed to have Opted Out due to Regulatory
Disapproval shall be treated as having surrendered his KCL Restructured
Contract in full, immediately prior to the Closing Date, but after such KCL
Contract has been restructured pursuant to Article 1 of this Agreement. The
debt of KCL to each such KCL Contract Holder arising from such a deemed
surrender shall be in the amount of the Opt Out Reimbursable Amount
attributable to such KCL Contract immediately prior to the Closing Date. Any
unpaid balance of such debt of KCL shall bear interest at the rate of six
percent per annum. The debt of KCL to each such KCL Contract Holder who has
elected to Opt Out arising from such deemed surrender shall be satisfied by
the Initial Cash Opt Out Payment and distributions paid under the Settlement
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Annuity as provided in this Article 5. To the extent such Initial Cash Opt
Out Payment and distributions paid under the Settlement Annuity are not
sufficient to satisfy the debt to KCL Contract Holders that elect to Opt Out,
such debt of KCL shall be discharged in such manner and at such time as
provided in Section 4.3 hereof.
Section 5.5 Calculation and Payment of Preliminary Opt Out Amount.
All KCL Contract Holders who Opt Out (including KCL Contract Holders who have
been deemed to Opt Out due to Regulatory Disapproval) shall be paid the
liquidation value of their claim. Subject to approval of the Rehabilitation
Court, the liquidation value of the claim of each KCL Contract Holder who Opts
Out shall be the sum of the Initial Cash Opt Out Payment plus all amounts
distributed from the Settlement Annuity. The Settlement Annuity shall be
funded from the KCL Estate. The sum of the Initial Cash Opt Out Payment and
the Opt Out Holdback equals the Preliminary Opt Out Amount.
5.5.1 The Initial Cash Opt Out Payment and the Preliminary
Opt Out Amount shall be determined in accordance with the following three step
formula:
Step I:
OOP = A - APL - TIPA
AR - APL where:
OOP = Opt Out Percentage.
A = Transferable Asset Value. The Transferable Asset
Value as of any date prior to the Closing Date means
the Rehabilitator's best estimate of the Transferred
Asset Value as of any such date, assuming no KCL
Contract Holder Opts Out. The Transferable Asset
Value as of any date on or after the Closing Date
means the sum of the Final Transferred Asset Value,
plus the fair market value of cash and Short-Term
Investments then included in Retained Assets less the
Rehabilitator's best estimate of amounts required to
administer the KCL Estate and carry out his statutory
duties.
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APL = Aggregate Policy Loans outstanding as of the Closing
Date with respect to all KCL Contracts that remain in
force as of the Closing Date.
TIPA = Total of all Interim Period Amounts.
AR = Aggregate statutory reserves as of February 12, 1993,
less aggregate due and deferred net premiums, for
those KCL Contracts that remain in force as of the
Closing Date.
Step II:
POOA = [OOP*(R - PL)] + IPA where:
POOA = Preliminary Opt Out Amount to be paid or distributed
to each KCL Contract Holder who Opts Out.
R = Statutory reserve of each KCL Contract as of February
12, 1993, less due and deferred net premiums for such
KCL Contract, for those KCL Contracts that remain in
force as of the Closing Date and Opt Out.
IPA = Interim Period Amount.
PL = Policy Loan outstanding with respect to each such KCL
Contract that Opts Out.
Step III:
IOP = .75(EPOOA) where:
IOP = Initial Cash Opt Out Payment.
EPOOA = Estimated Preliminary Opt Out Amount
5.5.2 Within forty-five days after the Opt Out Record Date,
KCL shall prepare and deliver to Buyer a schedule setting forth each KCL
Contract Holder who has elected to Opt Out, together with the Rehabilitator's
calculation as to the estimate of the Preliminary Opt Out Amount and Initial
Cash Opt Out Payment due to each such KCL Contract Holder. Such schedule
shall be updated as of the Closing Date to include any additional KCL Contract
Holders who have been deemed to Opt Out due to Regulatory Disapproval. The
Retained Assets shall include an amount sufficient in cash and Short-Term
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Investments for KCL to pay the Preliminary Opt Out Amount.
5.5.3 The Rehabilitator shall cause KCL to pay each KCL
Contract Holder who Opted Out the Initial Cash Opt Out Payment from the
Retained Assets within one hundred twenty days after the Closing Date.
5.5.4 In addition to the Initial Cash Opt Out Payment, each
KCL Contract Holder who Opted Out shall be entitled to receive payments under
the Settlement Annuity, which shall be funded by distributions from the KCL
Estate allocable to KCL Contract Holders who Opt Out.
Section 5.6 Waiver and Termination. As of 11:59 p.m. on the day
immediately preceding the Closing Date, the rights and obligations under the
KCL Contracts and KCL Restructured Contracts of those KCL Contract Holders who
have elected to Opt Out (including those KCL Contract Holders deemed to have
Opted Out due to Regulatory Disapproval) shall be terminated, except for the
right of each such KCL Contract Holder to receive its Initial Cash Opt Out
Payment and distributions from the Settlement Annuity, and the waivers and
releases provided in the Form shall become effective.
Section 5.7 Settlement Annuity. KCL Contract Holders who have
elected to Opt Out shall receive distributions under the Settlement Annuity
attributable to the Opt Out Holdback in two installments. The first
distribution shall be made at the end of the second Plan Year and shall be
equal to one-half of the difference between (i) the Preliminary Opt Out Amount
and (ii) the Initial Cash Opt Out Payment, plus interest at the Short Term
Rate. The second and final distribution of the Opt Out Holdback shall be made
at the end of the fourth Plan Year, together with interest at the Short Term
Rate. All such payments made pursuant to this Section 5.7 shall be subject to
(i) the indemnity provisions of Article 10 hereof, but only to the extent of
the Indemnity Amounts relating to Priority Claims, and (ii) the pro rata share
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of Priority Claims paid from the Retained Assets attributable to the KCL
Contracts that Opt Out; provided, however, that additional distributions may
be made after the end of the fourth Plan Year, in accordance with the
provisions of Section 4.4.3.
ARTICLE 6
RENEWAL COMMISSIONS
Section 6.1 Payment of Commissions by KCL. On or before the
Closing Date as an expense of administration, KCL shall pay all renewal
commissions with respect to the KCL Contracts accruing between February 12,
1993 and the Closing Date; provided, however, payment of such commissions
shall be subject to the limitations set forth in Section 6.3 hereof and to all
rights of setoff or counterclaim which KCL or the Rehabilitator may have.
Section 6.2 Payment of Commissions by Buyer. From and after the
Closing Date, Buyer shall pay all renewal commissions with respect to the KCL
Assumed Restructured Contracts accruing from and after the Closing Date;
provided, however, payment of such commissions shall be subject to the
limitations set forth in Section 6.3 hereof.
Section 6.3 Renewal Commissions. The renewal commissions payable
pursuant to Sections 6.1 and 6.2 hereof shall be the renewal commissions
provided in the commission and/or agency agreements between KCL and any
general agents, agents, brokers, marketers or other persons who produced or
generated any of the KCL Contracts; provided, however, such commissions shall
not exceed those commissions which are normal and customary in the insurance
industry for the types of policies and coverage related to such commissions,
and shall be in accordance with the existing KCL commission schedule, which is
attached hereto as Schedule 6.3.
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ARTICLE 7
MANAGEMENT OF KCL
Section 7.1 Home Office Lease. From and after the Closing Date,
Buyer shall enter into a sublease with KCL pursuant to which Buyer shall
sublease three contiguous floors consisting of floors 10 through 12 and
containing approximately 30,000 square feet and the basement storage area in
the KCL Home Office Building in Lexington, Kentucky. Such sublease shall have
a term of three years at a fully-serviced rental rate of $12.00 per square
foot per year for the three contiguous floors and $36,000.00 per year for the
basement space (inclusive of taxes, maintenance, HVAC and insurance), and
including such parking as may be agreed between KCL and Buyer on or before the
Closing Date. The space subleased to Buyer will be subleased in "as is"
condition, and KCL shall not have any obligation to make or provide funds for
any tenant improvements. During the term of the sub-lease and any extensions
thereof Buyer shall retain such custody of KCL's closed files as KCL may
request. Such sublease shall also provide Buyer the option to extend the term
thereof for an additional three years at a fair market rental rate as may be
agreed between KCL and Buyer at the end of the initial term. KCL shall use
reasonable efforts to obtain all necessary consents of the landlord of the KCL
Home Office Building to the sublease, including the agreement of such landlord
not to disturb Buyer's occupancy of the KCL Home Office Building provided that
Buyer is not in default under the sublease. In the event such consent is not
obtained before Closing, Buyer shall have the option to locate its operations
and employees elsewhere in Lexington, Kentucky, in which event Buyer shall
have no obligations under this Section 7.1. At the option of KCL, Buyer shall
enter into a direct lease with the landlord of the KCL Home Office Building,
provided that such direct lease shall be substantially on the same terms and
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conditions as the sublease described in this Section 7.1.
Section 7.2 KCL Employees. During the Moratorium Period, Buyer
shall employ, maintain and locate in Lexington, Kentucky, not less than one
employee for each 2,000 KCL Assumed Restructured Contracts, as the same may be
determined from time to time. Buyer will, as of the Closing Date, employ
certain former KCL employees in connection with its obligations in the
preceding sentence. Former KCL employees hired by Buyer will initially
receive the same base salaries they were being paid by KCL before the Closing
Date (not including any retention bonuses paid between February 12, 1993 and
the Closing Date), pending integration of such employees into Buyer's
compensation structure. Pension and other benefits accrued during each such
employee's service at KCL shall be the responsibility of KCL. Except for any
KCL employees that KCL determines to retain after the Closing Date to
administer the KCL Estate, all KCL employees shall be terminated as of the
Closing Date, and KCL shall properly and timely provide all notifications and
communications to the KCL employees pursuant to Federal, state and local law,
including, without limitation, the Worker Adjustment and Retraining
Notification Act, and Buyer shall have no responsibility or liability for
providing any such notices or communications. Former KCL employees hired by
Buyer will begin to accrue medical, pension and certain other benefits
comparable to those accrued by other newly hired Buyer employees; provided,
however, that for the purposes of computing eligibility to participate under
such Buyer benefit plans, each such employee's term of service with KCL shall
be included.
7.2.1 KCL Key Employees. KCL shall consult with Buyer
regarding the identification and retention of certain current KCL employees
who are necessary for the administration of KCL through the Closing Date and
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the consummation of the transactions described in this Agreement.
Section 7.3 Tax Elections. KCL agrees to make the elections
provided by Section 1.848-2(g)(8) and Section 1.848-2(i)(4) of the Treasury
Regulations with respect to the Assumption Reinsurance Agreement, and to make
any other elections as the Rehabilitator may determine to be necessary or
appropriate with respect to the Federal income tax obligations of KCL, Buyer
or the KCL Contract Holders.
Section 7.4 Tax Returns. The Tax Returns of KCL that are due
after the Closing Date shall be prepared by KCL. The payment of, all Taxes
shown to be due on the Tax Returns, and all fees, costs or expenses associated
with the preparation and filing of the Tax Returns shall be the responsibility
of KCL and not the Buyer. Following execution of this Agreement, and
throughout the Moratorium Period, the parties shall consult, cooperate and
take all reasonable and necessary steps to ensure to the extent practical and
consistent with their best interests that all transactions contemplated by the
Rehabilitation Plan are reported by the parties on their respective tax
returns in a consistent manner.
Section 7.5 Tax Reporting and Withholding. KCL shall be
responsible for filing all information returns required by Federal, state and
local taxing authorities and withholding and depositing all Taxes required to
be withheld and deposited with respect to any payments or distributions made
by KCL, including, without limitation, payments or distributions to KCL
Contract Holders who elect to Opt Out, payments or distributions to KCL
Contract Holders made prior to the Closing Date, wages paid by KCL to
employees, and payments made by KCL to third parties subject to backup
withholding.
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Section 7.6 KCL Financial Reports, Books and Records. Prior to
the Closing, KCL shall continue to timely prepare, at its sole expense,
periodic reports of its financial condition and results of operations. KCL
shall promptly provide Buyer with copies of such reports when available, and
shall provide Buyer with reasonable access to all other books and records and
employees of KCL that Buyer may request in order to facilitate Buyer's
compliance with the terms of this Agreement or its evaluation of the Buyer's
Transferred Assets, Buyer's Transferred Liabilities or life and health
insurance operations of KCL.
ARTICLE 8
REPRESENTATIONS AND WARRANTIES
Section 8.1 Representations and Warranties of KCL. In order to
induce Buyer to enter into this Agreement and each of the Definitive
Agreements, and to cause Buyer to consummate the transactions contemplated
hereby, KCL represents and warrants to Buyer as follows:
8.1.1 Valid Appointment. The Rehabilitator has been duly
and validly appointed to be the rehabilitator of KCL as that term is used in
Section 304.33-150 of the Insurance Code.
8.1.2 Organization and Standing. KCL is a corporation
validly existing and in good standing under the laws of the Commonwealth of
Kentucky and has the corporate power and authority to carry on its business as
now being conducted and to own or lease its properties and assets, subject to
the powers and authority of the Rehabilitator.
8.1.3 Authority. Subject to entry of a Final Order of
Rehabilitation, KCL, acting by and through the Rehabilitator, has all
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requisite power and authority to execute and deliver this Agreement, the other
Definitive Agreements and the Ancillary Agreements, to perform its obligations
under this Agreement, the other Definitive Agreements and the Ancillary
Agreements and to consummate the transactions contemplated by this Agreement,
the other Definitive Agreements and the Ancillary Agreements. Upon execution
and delivery hereof by KCL, acting by and through the Rehabilitator, and entry
of the Final Order of Rehabilitation, this Agreement will constitute the
legal, valid and binding obligation of KCL and the Rehabilitator acting on
behalf of KCL, enforceable against them in accordance with its terms. Upon
execution and delivery thereof by KCL, acting by and through the
Rehabilitator, and upon entry of a Final Order of Rehabilitation, each of the
Definitive Agreements and Ancillary Agreements will constitute a legal, valid
and binding obligation of KCL, and the Rehabilitator acting for KCL,
enforceable against them in accordance with its terms.
8.1.4 Quarterly Statements. KCL has furnished to Buyer the
Quarterly Statements of KCL for the periods from January 1, 1993 through
September 30, 1993, as filed with the Commissioner. The Quarterly Statements
for the periods then ended present fairly in all material respects the
statutory financial condition of KCL as at such dates, and the statutory
results of its operations for the periods then ended and were prepared in
conformity with statutory accounting principles prescribed or permitted by the
Commissioner (which have been applied on a consistent basis), except as
expressly set forth therein. The Quarterly Statements for the periods ended
March 31, 1993, June 30, 1993 and September 30, 1993 were correct in all
material respects when filed and there were no material omissions therefrom.
In addition, the schedules included in such Quarterly Statements delivered to
Buyer, when considered in relation to the basic statutory financial
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statements, present fairly in all material respects the information shown
therein.
8.1.5 Compliance with Applicable Laws. Except as set forth
on Schedule 8.1.5, since February 12, 1993, the life and health insurance
business and operations of KCL have been conducted in material compliance with
(i) all applicable statutes and regulations regulating the business of
insurance and all applicable orders and directives of insurance regulatory
authorities, and (ii) all other applicable laws, ordinances, regulations and
orders of all governmental entities. Except as set forth on Schedule 8.1.5
hereto, (i) KCL has not been charged with, and to the best of KCL's knowledge
after reasonable inquiry, has not been threatened with, or under any
investigation with respect to, any charge concerning any violation of any
provision of any Federal, state, county or local law, ordinance or regulation
or any other requirement or order of any governmental or regulatory body or
court or arbitrator applicable to the operation of its business and (ii) KCL
is not in default with respect to any order, award, judgment, writ, injunction
or decree of any court, agency, instrumentality or governmental or regulatory
body.
8.1.6 Taxes. (a) KCL has filed with the appropriate
governmental authorities all material Federal, state and local Tax Returns
required to be filed by it for all periods for which tax returns are due on or
before the Closing Date, taking extensions into account. Except as set forth
on Schedule 8.1.6, KCL has paid in full or made adequate provision for the
payment of all material Taxes for all tax periods ending prior to and
including the Closing Date. The Retained Assets are adequate to cover all
Taxes (after taking into consideration all uses of the Retained Assets) and
there are no material Liens for Taxes upon the assets of KCL which are
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anticipated to become Buyer's Transferred Assets. Except as set forth on
Schedule 8.1.6, KCL has not received any notice of deficiency, proposed
deficiency or assessment from any governmental taxing authority with respect
to Taxes of KCL, and the Federal income Tax Returns for KCL are not currently
the subject of any audit by the IRS. Except as set forth on Schedule 8.1.6,
there are no outstanding requests, agreements, consents or waivers to extend
the statutory period of limitations applicable to the assessment of any Taxes
or deficiencies against KCL.
(b) KCL has fully disclosed to Buyer any material Federal, state
or local income, franchise or premium tax issues, and the amount of potential
liability for Taxes associated with such issues, that KCL believes could arise
as a result of the treatment by KCL of any item of income, gain, loss,
deduction or credit with respect to any taxable period ending prior to the
Closing Date, without regard to whether a Tax Return has been filed, or is due
to be filed for such period, and no representation by KCL or any of its
representatives concerning KCL's potential liability for Taxes has omitted or
materially misstated any information materially relevant to estimating such
potential liability for Taxes.
8.1.7 Litigation. Except as disclosed on Schedule 8.1.7
hereto, there are no material claims, suits, actions or proceedings pending
or, to the knowledge of KCL, threatened, nor to the knowledge of KCL are there
any material investigations or reviews pending or threatened, against,
relating to or affecting the assets and liabilities which are anticipated to
become Buyer's Transferred Assets or Buyer's Transferred Liabilities before
any court, arbitrator, governmental agency, commission or administrative or
regulatory authority. None of the matters listed on Schedule 8.1.7 (singly or
in the aggregate) will result in a material adverse effect on the assets and
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liabilities which are anticipated to become Buyer's Transferred Assets or
Buyer's Transferred Liabilities, and KCL is unaware of any grounds for the
assertion of any such claim. Further, except as set forth in Schedule 8.1.7,
there are no material judgments, orders, injunctions, decrees, stipulations or
awards (whether rendered by a court, administrative agency, or by arbitration,
pursuant to a grievance or other procedure) against or relating to the assets
and liabilities which are anticipated to become Buyer's Transferred Assets or
Buyer's Transferred Liabilities.
8.1.8 Compliance With Labor Laws. (a) Except as set forth
on Schedule 8.1.8 KCL has complied in all material respects with all, and has
no liability with respect to any, laws relating to the employment of labor,
including, without limitation, those relating to wages, hours, collective
bargaining, unemployment insurance, worker's compensation, equal employment
opportunity, occupational safety and the payment and withholding of Taxes.
(b) KCL is not a party to any labor or collective bargaining
agreement and there are no labor or collective bargaining agreements that
pertain to employees of KCL.
(c) No employees of KCL are represented by any labor organization
with respect to their employment by KCL. No labor organization or group of
employees of KCL has made a pending demand for recognition, and there are no
representation proceedings or petitions seeking a representation proceeding
presently pending or, to the knowledge of KCL, threatened to be brought or
filed, with the National Labor Relations Board or other labor relations
tribunal. There is no organizing activity pending involving KCL.
(d) There are no (i) strikes, work stoppages, slow- downs,
lockouts or labor arbitrations or (ii) material grievance proceedings or other
material labor disputes pending against KCL.
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8.1.9 Reinsurance. (a) Schedule 8.1.9 lists all contractual
treaties and agreements regarding reinsurance, coinsurance, excess insurance,
ceding of insurance, assumption of insurance or indemnification with respect
to insurance to which KCL is a party which are in effect as of the date hereof
(collectively, the "Reinsurance Agreements"). Neither KCL nor any other
party, to the knowledge of KCL, is in default in any material respect as to
any Reinsurance Agreement and KCL has no reason to believe that the financial
condition of any other party thereto is impaired to the extent that a default
thereunder may reasonably be anticipated. KCL shall utilize its best efforts
to transfer such reinsurance but there is no assurance such a transfer will be
effectuated.
8.1.10 Investment Company Act. KCL is either (i) not an
"investment company," or a company "controlled" by, or an "affiliated company"
with respect to, an "investment company," within the meaning of the Investment
Company Act or (ii) satisfies all conditions for an exemption from the
Investment Company Act, and, accordingly, is not required to be registered
under the Investment Company Act.
8.1.11 Accuracy of KCL Contract Forms. Set forth on Schedule
15.58 hereto are true, complete and accurate lists of all forms of KCL
Contracts that are in effect as of the date of this Agreement. KCL has
delivered to Buyer copies of all of the forms of KCL Contracts listed on such
schedule.
8.1.12 Absence of Undisclosed Liabilities. Except as set
forth on Schedule 8.1.12 hereto, or disclosed on the Quarterly Statement for
the period ending September 30, 1993, KCL has no liabilities or obligations
(whether absolute, accrued, contingent or otherwise) of any nature, except
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liabilities, obligations or contingencies (i) which are Taxes, (ii) which are
accrued or adequately reserved against in the KCL NAIC Blank for the year
ended December 31, 1992, or reflected in the notes thereto, or (iii) which
were incurred after December 31, 1992 and were incurred in the ordinary course
of business and consistent with past practices, none of which liabilities,
obligations or contingencies (A) would, in the aggregate, have a material
adverse effect on the condition of Buyer's Transferred Assets or Buyer's
Transferred Liabilities or (B) have not been discharged or paid in full prior
to the date of this Agreement.
8.1.13 Base Case Assumptions. Each of the Base Case
Assumptions set forth on Schedule 8.1.13 is true, correct and complete in all
material respects.
8.1.14 Reserves. The statutory reserves and liabilities
established by KCL for past and future insurance policy benefits, losses,
claims and expenses under insurance policies and any other reserves, in each
case as of March 31, 1993, were computed in accordance with accepted actuarial
standards of practice as prescribed by the American Academy of Actuaries, are
fairly stated in accordance with sound actuarial principles, are in compliance
with the statutory requirements of the State of Kentucky and were computed in
a manner consistent with the computation of such items included in the KCL
NAIC Blank.
8.1.15 Intangible Property.
(a) Schedule 8.1.15(a) sets forth a complete and accurate list
and description of (i) all United States and foreign patents, trademarks,
trade names, service marks, copyrights and applications therefor related to
the life and health insurance business conducted by KCL (hereinafter the
"Patent and Trademark Rights") and (ii) all United States and foreign patents,
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trademarks, trade names, service marks, copyrights and applications therefor
licensed to KCL and related to the life and health insurance business
conducted by KCL (hereinafter the "Licensed Rights"). Except as specifically
set forth on Schedule 8.1.15(a), (i) the Patent and Trademark Rights are free
of any Liens, are not subject to any license (royalty bearing or royalty
free) and are not subject to any other arrangement requiring any payment to
any Person or the obligation to grant rights to any Person in exchange,
(ii) to the knowledge of KCL, the Licensed Rights are free and clear of any
Liens, royalties or other obligations, and (iii) the Patent and Trademark
Rights and the Licensed Rights are all those rights necessary to the conduct
of the life and health insurance business of KCL as currently being conducted
or currently proposed to be conducted. Except as specifically set forth on
Schedule 8.1.15(a), the validity of the Patent and Trademark Rights and title
thereto, and to the knowledge of KCL, the validity of the Licensed Rights,
(i) have not been questioned in any prior litigation; (ii) are not being
questioned in any pending litigation; and (iii) are not, to the knowledge of
KCL, the subject(s) of any threatened or proposed litigation. Except as
specifically set forth on Schedule 8.1.15(a), the life and health insurance
business of KCL, as now conducted or currently proposed to be conducted, does
not conflict with and has not been alleged to conflict with any patents,
trademarks, trade names, service marks, or copyrights of others. The
consummation of the transactions contemplated hereby will not result in the
loss or impairment of any of the Patent and Trademark Rights or any of the
Licensed Rights. Except as specifically set forth on Schedule 8.1.15(a), KCL
knows of no use by others of the Patent and Trademark Rights or the Licensed
Rights.
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(b) Schedule 8.1.15(b) sets forth a list of all material
computer hardware and computer software used in the life and health insurance
business of KCL. KCL possesses the valid rights to use any computer software
now used to conduct its life and health insurance business, and KCL knows of
no conflict between the same and rights asserted by others. KCL possesses
adequate know-how and information, including any source codes, to enable it to
utilize effectively and manipulate the computer software currently used in its
life and health insurance business.
8.1.16 Securities Deposited. Schedule 8.1.16 sets forth a
complete and accurate list of all securities deposited by KCL with any state
insurance department or agency.
8.1.17 Business Assets. Except as set forth on Schedule
2.1(g), KCL owns good, clear and marketable title to all of the Business
Assets, free and clear of all leases and Liens.
8.1.18 Commission Agreements. Listed on Schedule 8.1.18
attached hereto are all of the forms of agreements utilized with general
agents, agents, brokers, marketers or other persons who produced or generated
any of the KCL Contracts. Except as set forth on Schedule 8.1.18, KCL has no
obligation to pay any such general agent, agent, broker, marketer or producer
any renewal commissions or other form of compensation which exceeds, in the
aggregate, the amounts calculated based on Schedule 6.3 attached hereto.
8.1.19 Insurance Agents. Except for collection of premiums
and except as set forth on Schedule 8.1.19 hereto, there is no pending
litigation between KCL and any of its insurance agents or brokers, nor has any
such litigation been threatened in writing by either KCL or any agent or
broker. KCL shall make available to Buyer a list of such pending collection
cases within ten (10) days of Buyer's request.
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8.1.20 Environmental Condition. Except as set forth on
Schedule 8.1.20 hereto, KCL has not had any environmental liability asserted
against it by any third party, including, without limitation, any Federal,
state or local governmental authority, which would result in a potential or
actual liability in excess of $1 million as to any single occurrence or in
excess of $5 million in the aggregate.
8.1.21 KCL Mortality Studies. KCL has conducted in 1993 one
or more studies comparing actual mortality experience to the mortality
anticipated for the time period under study. The 1993 studies of mortality
experience for KCL have generally been conducted in accordance with accepted
methods and practices of the Society of Actuaries and the American Academy of
Actuaries.
Section 8.2 Representations and Warranties of Buyer.
Notwithstanding any independent investigation or verification undertaken by
KCL, in order to induce KCL to enter into this Agreement, and to cause KCL to
consummate the transactions contemplated by this Agreement, Buyer represents
and warrants to KCL as follows:
8.2.1 Organization and Standing. Buyer is a corporation in
good standing under the laws of the State of North Carolina and has all
requisite power to own, operate and lease its assets and conduct its business.
8.2.2 Authority. Buyer has all requisite power and
authority to execute and deliver this Agreement, the other Definitive
Agreements and the Ancillary Agreements, to perform its obligations under this
Agreement, the other Definitive Agreements and the Ancillary Agreements and to
consummate the transactions contemplated by this Agreement, the other
Definitive Agreements and the Ancillary Agreements. This Agreement has been
duly executed and delivered by Buyer and constitutes the legal, valid and
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binding obligation of Buyer, enforceable against it in accordance with its
terms. Upon execution and delivery hereof by Buyer, each of the Definitive
Agreements and Ancillary Agreements will constitute a legal, valid and binding
obligation of Buyer, enforceable against Buyer in accordance with its terms.
8.2.3 No Breach. Except as set forth on Schedule 8.2.3
hereto, the execution, delivery and performance of this Agreement, the other
Definitive Agreements and the Ancillary Agreements and the consummation of the
transactions contemplated by this Agreement, the other Definitive Agreements,
and the Ancillary Agreements in accordance with the terms and conditions of
this Agreement, the other Definitive Agreements and the Ancillary Agreements
by Buyer will not materially (i) violate or conflict with any provision of the
Articles of Incorporation or Bylaws of Buyer, (ii) violate, conflict with or
result in the breach or default under, or cause the termination of, any of the
terms of any material indenture, contract, agreement or instrument to which
Buyer is a party or by which it or any of its assets or properties is bound,
or (iii) violate or conflict with any statute, law or governmental regulation
or any judicial, administrative or arbitration order, award, judgment, writ,
injunction or decree applicable to Buyer or any of its assets or properties.
8.2.4 No Litigation. There are no actions, suits,
arbitrations or other legal or administrative proceedings pending, or to the
best of Buyer's knowledge, threatened against, relating to or affecting Buyer,
before any court, commission, board or governmental agency that would
materially impair Buyer's ability to consummate or perform all of the terms,
covenants and conditions of this Agreement or the other Definitive Agreements
and Ancillary Agreements to which it is a party.
8.2.5 Qualified Buyer. Buyer is, as of the date hereof, and
will be as of the Closing Date and on any date the Buyer's Transferred Assets
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are transferred to Buyer, a "Qualified Institutional Buyer" as that term is
defined under Rule 144 under the Securities Act of 1933.
Section 8.3 Survival of Representations and Warranties. None of
the representations and warranties made by the parties in this Agreement, the
other Definitive Agreements and the Ancillary Agreements, as well as in any
certificate, recital, exhibit, schedule, statement, document or instrument
furnished hereunder or in connection with the negotiation, execution and
performance of this Agreement or any other Definitive Agreement or Ancillary
Agreement shall survive the Closing Date.
ARTICLE 9
CONDITIONS PRECEDENT TO CLOSING
Section 9.1 Conditions Precedent to Closing for the Benefit of KCL
and Buyer. Except as otherwise expressly provided herein or mutually agreed
to by the parties, the obligations of each of KCL and Buyer to proceed with
the Closing are subject to the fulfillment or satisfaction, prior to or at the
Closing Date, of each of the following conditions precedent:
9.1.1 Order of Rehabilitation. The Order of Rehabilitation
shall have been entered by the Rehabilitation Court.
9.1.2 Finality. All appeal periods in respect of the Order
of Rehabilitation shall have expired, or all appeals shall have been resolved
to the satisfaction of the parties hereto and the Order of Rehabilitation
shall have become final.
9.1.3 Terms of the Order. The Final Order of Rehabilitation
shall have confirmed: (a) the terms and conditions of this Agreement and the
other Definitive Agreements; (b) the restructuring of the liabilities in
respect of the KCL Contracts; (c) the fairness to the KCL Contract Holders of
this Agreement, the other Definitive Agreements and the Rehabilitation Plan;
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(d) the transfer of the Buyer's Transferred Assets from KCL to Buyer and that
Buyer shall receive good, clear and marketable title to Buyer's Transferred
Assets; (e) the Assumption Reinsurance Agreement, including, without
limitation, the assumption by Buyer of the Buyer's Transferred Liabilities;
(f) the Opt Out rights provided to the KCL Contract Holders; (g) the complete
and final release, to the maximum extent permitted by law, of any Released
Claims, including, without limitation, any Released Claims with respect to any
Taxes imposed on or incurred by the KCL Contract Holders as a result of this
Agreement or the Rehabilitation Plan or which relate to, arise out of or are
in connection with the purchase of a KCL Contract, which KCL Contract Holders,
regardless of whether or not they Opt Out, may have as KCL Contract Holders;
and (h) the terms of the indemnification obligations and the KCL Restructured
Contracts, including, without limitation, the Indemnity Adjustment contained
herein.
9.1.4 Hart-Scott-Rodino. The termination for all purposes
of the waiting period required under the Hart-Scott- Rodino Act, in the event
counsel for the parties hereto mutually determine that a notification under
such Act is required to be made.
9.1.5 Schedules. Buyer and KCL shall have agreed on the
terms, conditions and content of each of the schedules hereto which have been
marked "TO BE SUPPLIED" and which are to be completed and appended hereto
prior to Closing.
9.1.6 No Registration. Buyer and KCL shall be satisfied
that none of the transactions, interests, obligations or participations set
forth in or contemplated by this Agreement shall require registration,
consent, authorization, approval or notification by any of them pursuant to
the Securities Act of 1933, the Securities Exchange Act of 1934, the
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Investment Company Act or any other federal or state securities laws, and
Buyer and KCL shall have received such orders, interpretations, no-action
letters or other rulings as they deem necessary or appropriate. All of the
foregoing parties shall cooperate in the making of any requests to the
Securities and Exchange Commission or state securities divisions for any
orders, interpretations, no-action letters or other rulings.
9.1.7 Consents and Government Approvals. Buyer and KCL
shall have received all consents, approvals and certifications (including,
without limitation, estoppel certificates), in form and substance reasonably
satisfactory to them, of third parties whose consent, approval or
certification is reasonably required for the consummation of the transactions
contemplated hereby.
9.1.8 Closing Date. The Closing shall have occurred on or
before June 30, 1995. In the event the Closing Date is after January 6, 1995,
Buyer's Enhancement shall be adjusted pursuant to Section 3.1.1.
Notwithstanding the foregoing, KCL and Buyer may extend the Closing by mutual
agreement.
9.1.9 Orders. Buyer and KCL shall have obtained from the
Rehabilitation Court those orders as necessary or appropriate to the
implementation of this Agreement and the other Definitive Agreements.
9.1.10 No Prohibition. There shall not have been any action
taken, or any statute, rule, regulation, judgment, order or injunction
promulgated, entered, enforced, enacted, issued or purported to be applicable
to the transactions contemplated by this Agreement, any other Definitive
Agreement or the Rehabilitation Plan by any Federal or state governmental
authority, court or administrative agency which, directly or indirectly,
(i) prohibits or makes illegal the consummation of the transactions
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contemplated by this Agreement, the other Definitive Agreements or the
Rehabilitation Plan, or (ii) imposes any material conditions or limitations on
the ability of Buyer or KCL to exercise rights under this Agreement, the other
Definitive Agreements and the Rehabilitation Plan.
9.1.11 Corporate Matters. All actions, proceedings,
resolutions, instruments and documents required to carry out this Agreement or
any Definitive Agreement or incidental hereto or thereto and all other related
legal matters, including any Ancillary Agreements, instruments or materials
referred to herein or required to be supplied hereafter shall have been
approved by Buyer and KCL in the exercise of their reasonable judgment. Each
party shall have delivered to the other such other documents, instruments,
certifications and further assurances as the other party may reasonably
require.
Section 9.2 Conditions Precedent to Closing for the Benefit of
Buyer. The obligation of Buyer to proceed with the Closing is subject to the
fulfillment or satisfaction, prior to or at the Closing Date, of each of the
following conditions precedent:
9.2.1 Performance by KCL. KCL, acting by and through the
Rehabilitator, shall have performed and complied with all material provisions
of the agreements and covenants required by this Agreement or the other
Definitive Agreements to be performed or complied with by it prior to or at
the Closing Date.
9.2.2 Judgments. There shall not have been any action
taken, or any statute, rule, regulation, judgment, order or injunction
promulgated, entered, enforced, enacted, issued or purported to be applicable
to the transactions contemplated by this Agreement or any of the other
Definitive Agreements by any Federal or state governmental authority, court or
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administrative agency which directly or indirectly (i) prohibits, or imposes
any material conditions or material limitations on Buyer or its ownership of
the KCL assets which are anticipated to become Buyer's Transferred Assets and
the KCL liabilities which are anticipated to become Buyer's Transferred
Liabilities as a result of the transactions contemplated by this Agreement or
the other Definitive Agreements, or compels Buyer to dispose of or hold
separate any material portion of Buyer's assets or liabilities as a result of
the transactions contemplated by this Agreement and the other Definitive
Agreements, (ii) prohibits, or makes illegal, the consummation of the
transactions contemplated hereby, (iii) imposes any material conditions or
limitations on the ability of Buyer to exercise full rights of ownership with
respect to the KCL assets which are anticipated to become Buyer's Transferred
Assets (provided, however, that a default or bankruptcy of the issuer of a
Transferred Security shall not be deemed a material condition or limitation),
or (iv) otherwise materially and adversely affects the condition of KCL assets
which are anticipated to become Buyer's Transferred Assets taken as a whole.
9.2.3 Litigation. As of the Closing Date, there shall not
be threatened, instituted or pending any action, proceeding, claim or
counterclaim or appeal brought by any private party or any Federal or state
governmental, regulatory or administrative agency or authority, including but
not limited to the IRS, (i) challenging the consummation of the transactions
contemplated by this Agreement or seeking to obtain any damages as a result
thereof, (ii) seeking to prohibit or impose any material conditions or
material limitations on Buyer or its ownership of the KCL assets which are
anticipated to become Buyer's Transferred Assets or the KCL liabilities which
are anticipated to become Buyer's Transferred Liabilities, or to compel Buyer
to dispose of any material portion of Buyer's assets or liabilities to be
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owned by it on and after the Closing Date, or (iii) which would materially
adversely affect the value of the KCL assets which are anticipated to become
Buyer's Transferred Assets or the KCL liabilities which are anticipated to
become Buyer's Transferred Liabilities, expressly excluding default or
threatened default under any Transferred Security, or the bankruptcy or
insolvency of the issuer of any such Transferred Security.
9.2.4 Force Majeure. There shall not have occurred (a) any
general suspension of, or limitation on prices for, or trading in, securities
on the New York Stock Exchange, the American Stock Exchange or the
over-the-counter market, (b) a declaration of a banking moratorium or any
suspension of payments in respect of banks in the United States, or (c) a
declaration by Congress of a commencement of a war or armed hostilities
directly involving the United States.
9.2.5 Representations and Warranties. The representations
and warranties of KCL contained herein and in the other Definitive Agreements
shall be true and correct in all material respects on the Closing Date with
the same effect as though made on and as of the Closing Date.
9.2.6 No Material Adverse Change. Since June 30, 1993,
there shall have been no unanticipated material adverse change in the
condition (financial or otherwise), of the Buyer's Transferred Assets or the
Buyer's Transferred Liabilities other than could be reasonably be expected in
a rehabilitation or liquidation.
9.2.7 Satisfactory Due Diligence. On or before the Closing
Date, Buyer shall have conducted and completed to the satisfaction of Buyer a
due diligence review verifying (i) using the March 31, 1993 KCL policy master
file and other records, that the Tillinghast Model was an accurate, true and
complete representation in all material respects of KCL life insurance
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business in force at March 31, 1993; (ii) that the statutory reserves related
to such business on the books and records of KCL as of March 31, 1993, met or
exceeded applicable regulatory minimum requirements; and (iii) that the
mortality studies conducted by KCL in 1993 comparing actual mortality
experience to expected mortality experience were generally conducted in
accordance with accepted methods and practices of the Society of Actuaries and
the American Academy of Actuaries.
9.2.8 Interim Operations. KCL shall have operated its
business in a manner consistent with the terms and conditions of this
Agreement and the other Definitive Agreements from the date hereof through the
Closing Date.
9.2.9 Best Efforts of Rehabilitator. The Rehabilitator
shall have used his best efforts to assist Buyer in securing all required
regulatory approvals with respect to (i) the restructuring of the KCL
Contracts as provided in the Rehabilitation Plan, including, without
limitation, all contract forms associated therewith, and (ii) the assumption
transaction described in the Assumption Reinsurance Agreement, in each case
from insurance regulatory authorities having jurisdiction over such, including
those states where the KCL Restructured Contract Holders are domiciled.
9.2.10 Jurisdiction Order. The Rehabilitator shall have used
his best efforts to secure an order from the Rehabilitation Court expressly
reserving jurisdiction for the Rehabilitation Court during the Moratorium
Period to adjudicate all claims, counterclaims, actions, or other matters of
any nature whatsoever asserted by any third parties (including any
issuers) with respect to any of the Buyer's Transferred Assets and Buyer's
Transferred Liabilities.
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9.2.11 Transferrable Asset Value. The Transferrable Asset
Value shall be equal to or greater than $600 million.
9.2.12 Regulatory Approvals. Buyer shall have received all
consents and approvals, in form and substance reasonably satisfactory to it,
from all appropriate insurance regulatory authorities of the forms of KCL
Restructured Contracts, the form of Assumption Certificate and the
transactions contemplated by the Assumption Reinsurance Agreement and all
other regulatory consents and approvals necessary to consummate the
transactions contemplated by this Agreement.
9.2.13 Changes in Tax Law, Regulations, or the Ruling
Position of the Internal Revenue Service. Prior to Closing: (i) there shall
have been no material adverse change in the Buyer's tax treatment of the
transactions contemplated by this Agreement as a result of a change in the
Code; (ii) KCL shall have received the IRS Letter Rulings which are similar to
those listed on Schedule 9.2.13(ii); and (iii) Buyer shall have received from
the IRS Letter Rulings which are similar to those listed on Schedule
9.2.13(iii). If Buyer exercises its right not to proceed to Closing pursuant
to Section 9.2.13(iii), Buyer and KCL agree to take all reasonable actions
necessary to remove such impediment to Closing as quickly as possible,
including, if possible, modifying or amending this Agreement to preserve for
Buyer the economic consequences of this Agreement, as originally contemplated
by Buyer, while eliminating any adverse economic consequences to KCL and the
KCL Contract Holders, in each case taking into account the tax consequences of
such modification or amendment; provided, however, that no such modification
or amendment shall require Buyer, KCL or KCL Contract Holders to accept an
adverse change in the overall economic consequences of the transactions as
originally contemplated by this Agreement. Buyer will at all times exercise
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good faith regarding this Section 9.2.13, shall diligently pursue the Letter
Rulings listed on Schedule 9.2.13(iii), and shall consult with, and keep KCL
and its tax counsel fully informed regarding, the progress of its requests for
Letter Rulings. Buyer shall provide KCL 30 days prior written notice of its
determination not to proceed to Closing pursuant to this Section 9.2.13. The
parties shall submit any dispute regarding this Section 9.2.13 to the
Rehabilitation Court pursuant to Section 13.3, and shall take actions
necessary to assist the Rehabilitation Court in reaching a rapid and equitable
resolution of such dispute.
Section 9.3 Conditions Precedent to Closing for the Benefit
of KCL. The obligation of KCL to proceed with the Closing shall be subject to
the fulfillment or satisfaction, prior to or at the Closing Date, of each of
the following conditions precedent.
9.3.1 Performance by Buyer. Buyer shall have performed and
complied with all material provisions of the covenants and agreements required
by this Agreement or the other Definitive Agreements to be performed or
complied with by it prior to or at Closing Date and there shall have been no
adverse event which materially impairs or interferes with the ability of Buyer
to close the transactions contemplated by this Agreement or any of the other
Definitive Agreements and perform its obligations hereunder and thereunder.
9.3.2 Representations and Warranties. All representations
and warranties of Buyer contained herein and in the other Definitive
Agreements shall be true and correct in all material respects on the Closing
Date with the same effect as though made on and as of the Closing Date.
ll be No Material Adverse Change. Since June 30, 1993,
there shall have been no material adverse change in the condition (financial
or otherwise), results of operation or business of Buyer. In determining a
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material adverse change in the financial condition of Buyer, a reduction in
the risk based capital ratio of Buyer of less than 20% of such ratio,
determined based upon the financial condition and results of operations of
Buyer as set forth in the most recent Annual Statement or Quarterly Statement
of Buyer filed with the Department of Insurance of the state where Buyer is
domiciled, prior to Closing, shall not be material and a reduction in the risk
based capital ratio of Buyer of 20% or greater of such ratio, determined as
aforesaid, shall not be material if Buyer's risk based capital ratio is not
less than 300%. For the purposes of this Section 9.3.3 only, Buyer shall refer
to Buyer and any other entity which will capitalize Buyer or which will
guarantee the financial solvency of Buyer and/or policyholder benefits to the
KCL Restructured Contract Holders.
9.3.4 Receipt of Rulings from IRS. (a) KCL shall have
received the favorable Letter Rulings from the IRS contemplated by Section
11.1.8; provided, however, that KCL will exercise its right not to proceed to
Closing pursuant to this Section 9.3.4(a) only if the issue with respect to
which KCL failed to secure a requested Letter Ruling would, if decided
adversely to KCL or the KCL Contract Holders, have a material adverse effect
upon KCL or the KCL Contract Holders. If KCL exercises its right not to
proceed to Closing pursuant to this Section 9.3.4(a), KCL and Buyer shall take
all reasonable actions necessary to remove such impediment to Closing as
quickly as possible, including, if possible, modifying or amending this
Agreement to preserve for Buyer the economic consequences of this Agreement,
as originally contemplated by Buyer, while eliminating any adverse economic
consequences to KCL and the KCL Contract Holders, in each case taking into
account the tax consequences of such modification or amendment; provided,
however, that no such modification or amendment shall require Buyer, KCL or
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KCL Contract Holders to accept an adverse change in the overall economic
consequences of the transactions as originally contemplated by this Agreement.
KCL shall at all times exercise good faith regarding this Section 9.3.4(a).
For purposes of the preceding sentence, Buyer and KCL agree that KCL will not
be in compliance with its good faith obligation if KCL exercises its right not
to proceed to Closing pursuant to this Section 9.3.4.(a) and either (i)
voluntarily pursues a self-rehabilitation (which includes, for purposes of
this Section 9.3.4(a), run-offs of insurance business or multiple dispositions
of such business to third parties) for reasons other than the failure to
obtain a favorable Letter Ruling from the IRS, or (ii) voluntarily pursues a
reinsurance transaction with a third party relating to the insurance business
of KCL: (A) for reasons other than the failure to obtain a favorable Letter
Ruling from the IRS; or (B) for the principal purpose of providing economic
benefits to any person more favorable than those contemplated by this
Agreement, other than economic benefits which are directly related to curing
or avoiding the tax issue with respect to which KCL failed to obtain a
favorable Letter Ruling. In the event the Rehabilitator does not act in good
faith regarding its obligations under this Section 9.3.4(a), Buyer shall have
the right, subject to the approval of the Rehabilitation Court, to cause a
Closing of the Agreement without regard to the fact that such Closing may
occur after the time contemplated by this Agreement. Any economic detriment
to Buyer caused by the Rehabilitator's noncompliance with its good faith
obligation, will be treated as Indemnity Losses. KCL shall diligently pursue
the Letter Rulings contemplated by Section 11.1.8, and shall consult with, and
keep Buyer and its tax consultants fully informed regarding, the progress of
its requests for Letter Rulings. KCL shall provide Buyer 30 days prior
written notice of its determination not to proceed to Closing pursuant to this
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Section 9.3.4(a). The parties shall submit any dispute regarding this Section
9.3.4(a) to the Rehabilitation Court pursuant to Section 13.3, and shall take
actions necessary to assist the Rehabilitation Court in reaching a rapid and
equitable resolution of such dispute.
(b) There shall not have been any material adverse change in the tax
treatment to KCL or the KCL Contract Holders of the transactions contemplated
by this Agreement as a result of a change in the Code.
Section 9.4 Satisfaction or Failure of Conditions. Each condition
precedent, whether for the benefit of KCL or Buyer, or both of the parties,
shall be deemed waived or satisfied as of the Closing Date or, if earlier,
upon written notice of such satisfaction by the performing party to the other
party, unless the party for whose benefit each such condition exists shall
provide written notice to the other of the failure of one or more particular
conditions precedent to be satisfied. The parties shall use their best
efforts to satisfy the conditions precedent to their respective obligations
hereunder.
Section 9.5 Termination. This Agreement shall terminate upon the
failure of any of the conditions precedent to Closing set forth in this
Article 9, if such failure is neither waived by the party in whose favor such
condition runs, nor cured (if such failure is capable of being cured) within a
reasonable period of time after the time for the occurrence or performance of
such condition, but in any event prior to the Closing Date. In the event of
termination of this Agreement for any reason, the parties hereto shall have no
further rights, duties or obligations hereunder.
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ARTICLE 10
INDEMNIFICATION
Section 10.1 Indemnification of Rehabilitator and KCL.
10.1.1 Indemnification of Rehabilitator's Indemnified
Parties. The Rehabilitator's Indemnified Parties shall be indemnified by
Buyer in the event taxing authorities successfully assert personal liability
against the Rehabilitator's Indemnified Parties for (i) unpaid Taxes of KCL or
its Affiliates which relate to any taxable period, or partial taxable period,
ending on or prior to the Closing, or (ii) unpaid Taxes of KCL (or its
Affiliates on account of consolidated Tax Return liability that relates solely
to the taxes described in this (ii) provision), which pertain to, arise out
of, or otherwise relate to the transfer of the Buyer's Transferred Assets and
Buyer's Transferred Liabilities to Buyer. Notwithstanding the right to such
indemnification, the liability shall first be paid or recovered from the
Retained Assets; provided, however, such liability shall not be paid or
recovered to the extent, at the time such liability becomes payable, the
Rehabilitator reasonably determines that the Retained Assets are sufficient to
pay all Priority Claims and expenses of administration of the KCL Estate after
deduction for the payment of such liability. If such liability is not fully
satisfied from the Retained Assets, then Buyer shall pay such liability or
reimburse the Rehabilitator's Indemnified Parties therefor, and Buyer shall be
entitled to recover the full amount paid in respect of this Section 10.1.1 as
an Indemnity Adjustment as provided in Sections 10.4, 10.5 and 10.6 hereof
without regard to the $500,000 threshold on Indemnity Adjustments. The
indemnity provided in Section 10.1.1 hereof shall include reasonable legal and
other professional fees, costs and other expenses incurred by any
Rehabilitator Indemnified Party that are incident to any of the matters set
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forth in this Section 10.1.1.
10.1.2 Indemnification of KCL. Except for disputes
specifically governed by the Accounting or Valuation Procedures of Article 13
hereof, Buyer will defend, hold harmless and indemnify KCL for all Indemnity
Losses incurred by KCL in connection with KCL's successful enforcement of its
rights against Buyer under this Agreement and the other Definitive Agreements
including, without limitation, (i) indemnification rights as set forth in this
Section 10.1.2, (ii) the Rehabilitator's or KCL's successful defense of an
action brought by Buyer to enforce this Agreement, or (iii) any claims or
actions by third parties arising subsequent to the Closing Date and related to
any obligation or liability of KCL under any KCL Assumed Restructured Contract
or any Reinsurance Agreement or other KCL agreement assigned to Buyer. Any
Indemnity Losses paid to KCL by Buyer pursuant to this Section 10.1.2 shall
not be recoverable from the Retained Assets nor treated as an Indemnity
Adjustment.
Section 10.2 Indemnification of Buyer. Except for disputes
specifically governed by the Accounting or Valuation Procedures of Article 13
hereof, KCL, acting by and through the Rehabilitator, will defend, hold
harmless and indemnify the Buyer's Indemnified Parties in accordance with this
Article 10 from and against:
10.2.1 Any and all Indemnity Losses incurred by Buyer in
connection with Buyer's successful enforcement of its rights against KCL under
this Agreement and the other Definitive Agreements including, without
limitation, (i) indemnification rights as set forth in this Section 10.2, (ii)
Buyer's successful defense of an action brought by KCL or the Rehabilitator to
enforce this Agreement, (iii) any claims or actions by third parties related
to the Retained Liabilities, (iv) the costs, expenses, losses and fees KCL has
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agreed, in this Agreement or the other Definitive Agreements, to pay or
reimburse to Buyer or (v) claims asserted against Buyer or any Buyer's
Indemnified Party by KCL creditors or shareholders except for claims related
to any liability or obligation of KCL under any KCL Assumed Restructured
Contract or any Reinsurance Agreement or other KCL agreement assigned to
Buyer.
10.2.2 Any and all Indemnity Losses that result from, relate
to or arise out of actual or alleged title defects or any other material
limitations affecting the Buyer's Transferred Assets (including, without
limitation, liens, rights of first refusal, contribution, funding, or guaranty
obligations or any other limitations or encumbrances, or any claim that any
Transferred Security is not genuine or enforceable); provided, however, that
the foregoing indemnification shall not apply to any losses caused by general
market conditions or credit deterioration of the issuer of any Transferred
Security; and provided, further, that the foregoing indemnification for
Transferred Securities shall not include special, expectancy or consequential
damages.
INDEMNIFICATION PAYMENTS AND PROCEDURES
Section 10.3 Procedures for all Indemnification Payments. The
procedures set forth in Section 10.3, 10.4, 10.5 and 10.6, and all subsections
thereof, are applicable to all matters for which indemnification is provided
for in Sections 10.1 and 10.2 hereof.
10.3.1 Time Limits for Indemnification Payments. The
Rehabilitator's Indemnified Parties, KCL and the Buyer's Indemnified Parties
shall only be entitled to indemnification under this Article 10 for those
claims with respect to which the indemnifying parties have received notice on
or before the later of (i) the end of the Moratorium Period, or (ii) in the
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case of all Federal income tax liabilities, the date which is one (1) year
after the expiration of the statute of limitations for assessment and
collection of additional Federal tax liabilities against the Rehabilitator or
KCL for the taxable period that includes the final distribution of assets of
the KCL Estate.
10.3.2 Defense of Claims. Upon receipt of written notice of
the commencement of or threat to commence any action by a third-party for
which a claim for indemnity may be made under Sections 10.1 and 10.2 hereof,
the party entitled to indemnification will promptly notify the indemnifying
parties thereof in writing. The failure to give such notice shall not relieve
the indemnifying parties of their obligations hereunder except to the extent
that they are materially prejudiced thereby or as otherwise set forth herein.
The Rehabilitator, as either an indemnified and/or indemnifying party, shall
be entitled to participate in, and, to the extent that he elects to do so, to
assume control of the defense of such action or threat and to employ counsel
of his choice for such purpose. The Buyer, as an indemnifying party, shall be
entitled to participate in, and to the extent that it wishes, with the prior
written consent of the indemnified parties, to assume control of the defense
of such actions or threat, with counsel reasonably acceptable to all parties.
The indemnifying parties shall not be liable for any settlement of any such
action or threatened action effected without their written consent (which
shall not be unreasonably withheld), but if settled with such written consent,
or if there is a final judgment or decree for the plaintiff in any such action
by a court, arbitrator or other tribunal of competent jurisdiction, and the
time to appeal shall have expired or the last appeal shall have been denied,
the indemnifying parties agree to indemnify and hold harmless any party
entitled to indemnification from and against any loss or liability by reason
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of such settlement or judgment.
10.3.3 Adjustment of Consideration for Assumption Reinsurance
Transaction. The payment or satisfaction by KCL or Buyer of any Indemnity
Losses of the Indemnified Parties shall be deemed to be an adjustment or
replacement of the consideration payable to Buyer, as appropriate, under the
provisions of the Assumption Reinsurance Agreement.
Section 10.4 Funding of Indemnity Payments. Neither the
Rehabilitator nor the Commonwealth of Kentucky shall have any personal
liability with respect to indemnity payments due under Section 10.2. Any
amount claimed by any of Buyer's Indemnified Parties under Section 10.2
("Indemnity Amount") shall first be recovered by payment from the Retained
Assets; provided, however, distributions to Buyer's Indemnified Parties to
discharge indemnification obligations under Section 10.2 shall only be made to
the extent, at the time any such indemnification obligation becomes payable,
the Rehabilitator reasonably determines that the Retained Assets are
sufficient to pay all Priority Claims and expenses of administration of the
KCL estate after deduction for the payment of such indemnification obligation
to Buyer's Indemnified Parties. In the event KCL does not pay an Indemnity
Amount due within twenty days of demand, as a result of a determination made
by the Rehabilitator pursuant to the preceding sentence, such Indemnity Amount
may be recovered by Buyer solely by an adjustment to the Account Values of the
KCL Assumed Restructured Contracts of Persisting KCL Restructured Contract
Holders in accordance with the notice and procedure described under Section
10.6. Indemnity Amounts shall include any indemnifiable amounts paid by Buyer
to any of Buyer's Indemnified Parties pursuant to Section 10.2.
Section 10.5 Indemnity Adjustment. An Indemnity Adjustment may be
made not more frequently than once each six month anniversary of the Closing
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Date, which dates shall initially correspond to the dates on which
distributions of Retained Assets may be made to Buyer pursuant to
Section 4.4.3.3 hereof ("Adjustment Date"). To the extent assets are
transferred to Buyer by KCL as part of a distribution pursuant to Section 4.4
hereof, simultaneously with such transfer, such Indemnity Adjustment (together
with interest on such amounts at the Moratorium Period Crediting Rate
calculated from the date of any Indemnity Adjustment to the Adjustment Date)
shall be netted against the portion of such distributions allocable to
Persisting KCL Restructured Contract Holders, and be retained by Buyer in full
or partial satisfaction of the Indemnity Adjustment. The portion of any
Indemnity Adjustment not so recovered from assets transferred to Buyer by KCL
pursuant to Section 4.4 hereof will take the form of a reduction in the
Buyer's Account Values of Persisting KCL Restructured Contract Holders by an
amount equal to the unrecovered Indemnity Amount; provided, however, no
Indemnity Adjustment shall be made unless at the time Buyer makes a claim for
indemnification the aggregate of all unrecovered Indemnity Amounts equals at
least $500,000, in which case the Buyer's Indemnified Party shall be entitled
to recover the full amount of the Indemnity Amounts, but shall not make an
additional claim until unpaid Indemnity Amounts again equal or exceed
$500,000. The portion of any Indemnity Adjustment not recovered against
distributions received by Buyer from KCL shall be fully offset against each in
force KCL Assumed Restructured Contract based on the total Indemnity
Adjustment times a fraction, the numerator of which shall be the Buyer's
Account Value of each such contract, and the denominator of which shall be the
aggregate Buyer's Account Values of all KCL Assumed Restructured Contracts
then in force, all calculated as of the Adjustment Date of such Indemnity
Adjustment. After calculating the amount to be charged against each KCL
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Assumed Restructured Contract, the amount of any Indemnity Adjustment shall be
deducted from the Buyer's Account Values of all in force KCL Assumed
Restructured Contracts.
Section 10.6 Notice and Procedure for Indemnity Adjustment.
10.6.1 Notice and Adjustment. Buyer shall provide the
Rehabilitator with not less than twenty days prior written notice of a
proposed Indemnity Adjustment. The notice shall include such supporting
information as may be required to allow determination and verification of the
basis upon which the Indemnity Adjustment is sought and has been calculated.
The Rehabilitator shall have twenty days within which to object to the
proposed Indemnity Adjustment, failing which the Indemnity Adjustment shall be
final for all purposes and thereafter may be made as provided in Section 10.5
hereof. An objection by the Rehabilitator shall be in writing, shall state
the portion, if any, of the proposed Indemnity Adjustment which the
Rehabilitator agrees, on a reasonable basis and in good faith, may be made
("Interim Adjustment"), and shall include such supporting information as may
reasonably be required to allow determination and verification of the basis
upon which the Rehabilitator has calculated the Interim Adjustment and
objected to the remainder ("Differential Amount"). Disputes regarding the
calculation of the Interim Adjustments and Differential Amounts shall be
resolved by the dispute resolution procedures provided in Article 13 hereof.
Subject to Section 10.5 hereof, Buyer may make a proposed Indemnity Adjustment
up to an amount equal to any Interim Adjustment allowed by the Rehabilitator.
10.6.1.1 During the pendency of any dispute with respect
to the validity or amount of any claim for indemnification by any of Buyer's
Indemnified Parties, whether such claim is to be paid or payable from the
Retained Assets or by means of an Indemnity Adjustment, or as to any Indemnity
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Adjustment that arises prior to any Adjustment Date, if any KCL Restructured
Contract Holder has delivered a notice to Buyer pursuant to Section 1.5 hereof
surrendering their KCL Restructured Contract in full, Buyer shall be entitled
to reduce the surrender payment otherwise provided for in Section 1.5 hereof
by such KCL Restructured Contract's allocable share of the asserted indemnity
claim or the Indemnity Adjustment, as the case may be. Such amounts shall be
held in reserve by Buyer pending the next Adjustment Date or the resolution of
any dispute with respect to a proposed Indemnity Adjustment. Upon resolution
of any such dispute, the surrender payment to which such KCL Restructured
Contract Holder(s) were entitled shall be recalculated, and any amounts due to
any such KCL Restructured Contract Holder shall be promptly paid by Buyer from
such reserve.
Section 10.7 Exclusive Remedy. As to matters for which indemnity
is provided to KCL or the Indemnified Parties under this Article 10, the
remedies and procedures prescribed herein shall be exclusive.
Section 10.8 Severability. In case any provision in or obligations
under this Article 10 shall be invalid, illegal or unenforceable in any
jurisdiction, the validity, legality or enforceability of the remaining
provisions or obligations shall not in any way be affected or impaired
thereby.
Section 10.9 Survival. The indemnity obligations set forth in this
Article 10 shall survive the Closing of this Agreement and the other
Definitive Agreements.
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ARTICLE 11
COVENANTS OF THE PARTIES
Section 11.1 Covenants of KCL. KCL, acting by and through the
Rehabilitator, covenants to take the following actions:
11.1.1 As soon as possible after the execution of this
Agreement by Buyer and KCL, KCL shall file this Agreement and the Plan of
Rehabilitation with the Rehabilitation Court and KCL shall apply to the
Rehabilitation Court for approval of the Order of Rehabilitation. KCL shall
request that the Rehabilitation Court set a hearing date sufficiently far in
advance so that adequate notice can be given to all interested parties. KCL
shall give actual notice in accordance with Section 14.14 hereof to all known
interested parties. KCL shall take all reasonable actions to make the Order
of Rehabilitation binding on all interested parties and subject to full faith
and credit in all state and federal courts.
11.1.2 KCL shall recommend the Plan of Rehabilitation and
this Agreement to the Rehabilitation Court, and use its best efforts to obtain
the Final Order of Rehabilitation with respect to this Agreement and the
Rehabilitation Plan.
11.1.3 Without limiting any other obligations of KCL
contained in this Agreement, KCL shall act in good faith to take, or cause to
be taken, all actions and to do, or cause to be done, all things necessary,
proper or advisable to consummate the transactions contemplated by this
Agreement as expeditiously as possible.
11.1.4 Without the prior written consent of Buyer, from the
date of this Agreement until the Closing Date, KCL shall not, directly or
indirectly, acquire or sell, pledge, dispose of or encumber any of the assets
of KCL described in Section 2.1 (a) through (k) hereof, other than in the
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ordinary course of business and consistent with past practice; provided,
however, this prohibition shall not apply in any way whatsoever to the assets
of KCL which are anticipated to become Retained Assets, including, without
limitation, the assets or stock of any Subsidiary of KCL; further, provided,
nothing herein is intended to restrict the management of the investment
portfolio of KCL by the Rehabilitator.
11.1.5 From the date hereof through the Closing Date, KCL
shall use its best efforts under the circumstances to keep available to KCL
the goodwill of the KCL Contract Holders and shall administer the KCL
Contracts in a manner consistent with the Rehabilitation Plan for KCL.
Without limiting the generality of the foregoing, KCL shall maintain adequate
personnel to properly administer the KCL Contracts, and shall promptly and
efficiently service requests of KCL Contract Holders. KCL shall use its best
efforts to continue in effect through the Closing Date the existing moratorium
on cash withdrawals with respect to the KCL Contracts.
11.1.6 At least five days prior to the Closing Date, KCL
shall deliver to Buyer revisions to any schedule (other than Schedule 2.1(a),
2.1(b) and 2.1(f) for which separate updating procedures are provided in
Article 2) delivered in connection with the execution of this Agreement to
make such schedule accurate and complete as of the Closing. Delivery of the
revised schedules shall be for informational purposes only and shall not
enlarge, limit or affect the rights or obligations of any party hereunder.
Such revised schedules shall not constitute schedules for purposes of this
Agreement.
11.1.7 On and after the date hereof, KCL will consult with
Buyer regarding whether it is in the best interests of KCL and the KCL
Contract Holders to disavow all or any of the Reinsurance Agreements. KCL
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shall take all reasonable actions necessary to continue in full force and
effect after the Closing Date, such Reinsurance Agreements as Buyer shall have
requested to be continued; provided, however, that all expenses and premiums
related to such Reinsurance Agreements from and after the Closing Date shall
be the sole expense of Buyer.
11.1.8 KCL agrees to file with the IRS as soon as possible
after the date of this Agreement a request or requests for Letter Rulings,
which may include, but not be limited to, Letter Rulings with respect to the
application of Code Sections 61, 72, 101, 108, 264, 451, 803, 805, 807, 848,
1035, 7702 and 7702A to the transactions contemplated by this Agreement,
relating to the KCL Contracts, the KCL Restructured Contracts, the KCL Assumed
Restructured Contracts, the KCL Contract Holders and the KCL Restructured
Contract Holders taking into account both the liability for Taxes or potential
liability for Taxes of KCL, Buyer, the KCL Contract Holders and the KCL
Restructured Contract Holders. Buyer agrees to reasonably cooperate with KCL
with respect to such requests for Letter Rulings. KCL agrees to reasonably
cooperate with Buyer with respect to any request for a Letter Ruling or Letter
Rulings concerning the Federal income tax consequences to Buyer of the
transactions contemplated by this Agreement.
11.1.9 KCL shall take all actions necessary to deliver good,
clear and marketable title to the Business Assets to Buyer at closing, free
and clear of any leases or Liens.
Section 11.2 Covenants of Buyer.
11.2.1 Buyer shall act in good faith to take, or cause to be
taken, all actions and to do, or cause to be done, all things necessary,
proper or advisable to consummate the transactions contemplated by this
Agreement as expeditiously as possible.
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11.2.2 Buyer covenants to offer employment on the Closing
Date to certain persons employed by KCL as of the Closing Date as set forth in
Section 7.2 hereof.
11.2.3 After the Closing Date, the Buyer shall give, or cause
to be given, to KCL or the Rehabilitator and their representatives such
reasonable access to the Buyer's personnel, books, records, files and affairs
and copies thereof as may be requested by KCL or the Rehabilitator and their
representatives in connection with KCL Assumed Restructured Contracts, KCL
Restructured Contract Holders, Buyer's Transferred Assets or Buyer's
Transferred Liabilities. From and after the Closing through the Moratorium
Period, Buyer shall prepare such accountings and reports as reasonably
requested from time to time by Rehabilitator to assure Buyer's performance of
its obligations under this Agreement, the other Definitive Agreements and
Ancillary Agreements.
Section 11.3 Covenants of All Parties.
11.3.1 Each of the parties hereto covenants with the other to
take the following actions: (i) act in mutual cooperation and provide to each
other all reasonable assistance in furtherance of the implementation and
effectuation of this Agreement; (ii) use best efforts to obtain the approval
of this Agreement and all of the Definitive Agreements by the Rehabilitation
Court; and (iii) execute, acknowledge, deliver, file and record such further
certificates, amendments, instruments, agreements and documents (including the
filing of any notices with any regulatory agencies or other governmental
entities), and to do all other acts and things as may be required by law or as
may be necessary or advisable to carry out the intent of this Agreement.
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11.3.2 KCL and Buyer shall use their best efforts and shall
cooperate with each other to ensure that all required consents and approvals
of the appropriate regulatory and/or licensing authorities are obtained on a
timely, expedited basis in those jurisdictions where the nature of the
business to be conducted by Buyer on and after the Closing requires the
consent and/or approval of such regulatory or licensing authority. Such
cooperation shall include, without limitation, contacting the representatives
of each of such regulatory or licensing authorities on a regular, ongoing
basis from the date of this Agreement until the date that all such consents
and approvals have been obtained in order to secure the licensing of Buyer and
the approval of all forms, certificates, policies, agreements and documents to
be utilized in the conduct of Buyer's business in such jurisdiction on and
after the Closing Date.
11.3.3 KCL shall retain as Retained Liabilities, and Buyer
shall have no responsibility whatsoever for satisfying, any liabilities and
obligations of any kind or description arising prior to the Closing Date or
relating to periods of service prior to the Closing Date, with respect to
KCL's employees and former employees (and their respective dependents and
beneficiaries), including KCL's liabilities and obligations to pay
compensation, to provide benefits under KCL's various Benefit Plans and to
make any payments to any other Person due as a result of such employees
participating in any Benefit Plan.
11.3.4 Buyer shall compute statutory reserves for the KCL
Restructured UL Contracts, the KCL Assumed Restructured UL Contracts, the KCL
Restructured Deferred Annuity Contracts, and the KCL Assumed Restructured
Deferred Annuity Contracts in a manner consistent with the Commissioner's
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Reserve Valuation Method or the Commissioner's Annuity Reserve Valuation
Method, as appropriate, as provided by the NAIC Guideline Concerning Reserves
of Companies in Rehabilitation and/or as approved by the insurance regulatory
authority of the state of Buyer's domicile. KCL shall reasonably cooperate to
compute statutory reserves on the KCL Restructured Contracts using a similar
methodology, provided, however, that such methodology is not contrary to the
laws and regulations of the Commonwealth of Kentucky, or materially adverse to
the interests of KCL or the policyholders.
ARTICLE 12
CLOSING EVENTS
Section 12.1 Closing. The Closing shall take place on the Closing
Date at the offices of Stites & Harbison, 2300 Lexington Financial Center,
Lexington, Kentucky, commencing at 9:00 a.m., local time.
Section 12.2 Items to be Delivered at Closing. At the Closing and
subject to the terms and conditions herein contained:
12.2.1 KCL, acting by and through the Rehabilitator, will
deliver in accordance with this Agreement and the other Definitive Agreements,
or cause to be delivered, to Buyer, the following:
(i) The Transfer and Assignment Agreement, duly executed by KCL,
acting by and through the Rehabilitator;
(ii) The Assumption Reinsurance Agreement, duly executed by KCL,
acting by and through the Rehabilitator;
(iii) Such bills of sale duly executed by KCL, acting by and
through the Rehabilitator, with covenants of warranty, endorsements,
assignments and other good and sufficient instruments of transfer as may
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be necessary or appropriate to convey, transfer and assign to, and vest in,
Buyer good, clear and marketable title to all of KCL's right, title and
interest in and to the Buyer's Transferred Assets;
(iv) A certificate of the Rehabilitator, acting on behalf of KCL,
dated the Closing Date, certifying that KCL has performed and complied
in all material respects with all representations, warranties, covenants
and agreements required by this Agreement to be performed and complied
with by KCL at the Closing;
(v) All of the agreements, contracts, commitments, proposals,
leases, licenses, permits, authorizations, instruments, computer
programs and software, policies, policyholder lists, supplier lists,
sales records, price lists, files, correspondence and other documents,
books, records, papers, files and data, in any form, belonging to KCL
which are part of the Buyer's Transferred Assets, and simultaneously
with such delivery, all such steps will be taken as may be required to
put Buyer in actual possession and control of the Buyer's Transferred
Assets;
(vi) A certificate of the Secretary of State of the
Commonwealth of Kentucky, certifying that KCL is in good standing under
the laws of the Commonwealth of Kentucky as of the Closing Date, and the
articles of incorporation of KCL certified by the Secretary of State of
the Commonwealth of Kentucky as of a recent date;
(vii) Such Orders of the Rehabilitation Court confirming the terms
hereof and the transactions contemplated hereby as Buyer may reasonably
require relative to its transactions and interests hereunder;
(viii) All other Definitive Agreements and Ancillary Agreements;
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(ix) Such other documents as Buyer may reasonably request.
12.2.2 Buyer will deliver, or cause to be delivered, to KCL
the following:
(i) The Assumption Reinsurance Agreement, duly executed by
Buyer;
(ii) The Transfer and Assignment Agreement, duly executed by
Buyer;
(iii) A certificate of the President or a Vice President of
Buyer, dated as of the Closing Date, certifying that Buyer has performed
and complied in all material respects with all agreements and conditions
required by this Agreement to be performed and complied with by Buyer at
the Closing;
(iv) An incumbency certificate for Buyer dated as of the
Closing Date, including specimen signatures;
(v) A copy of all of the resolutions adopted by Buyer's board
of directors relating to the transactions contemplated by this
Agreement, certified on the Closing Date to be complete and correct by
the Secretary or an Assistant Secretary of Buyer;
(vii) A certificate of the Secretary of State of the State of
North Carolina certifying that Buyer is in good standing under the laws
of North Carolina, and the articles of incorporation of Buyer certified
by the Secretary of State of the State of North Carolina as of a recent
date; and
(viii) Such other documents as KCL may reasonably request.
Section 12.3 Third Party Consents. To the extent that KCL's rights
under any agreement, contract, commitment, lease, license, permit or
authorization to be conveyed or assigned to Buyer hereunder may not be
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conveyed or assigned without the consent of another person which has not been
obtained, KCL shall use its best efforts to obtain any such required consents
as promptly as possible prior to the Closing.
Section 12.4 Further Assurances. KCL from time to time before or
after the Closing, at Buyer's request, and Buyer, at KCL's request, will
execute, acknowledge and deliver such other instruments of conveyance and
transfer and will take such other proper actions and execute and deliver such
other documents, certifications and further assurances: (i) as Buyer may
reasonably request in order to vest more effectively in Buyer, or to put Buyer
more fully in possession of, any of the Buyer's Transferred Assets; (ii) as
otherwise may be required to better enable Buyer to complete, perform or
discharge any of the liabilities or obligations assumed by Buyer hereunder;
(iii) as KCL may request in order to facilitate securing the Letter Rulings
described in Section 11.1.8 (including at KCL's request making modifications
to this Agreement that do not have material adverse economic consequences, of
a type not contemplated under this Agreement, to Buyer or the policyholders);
or (iv) as may be required or necessary to effectuate the intent and purpose
of this Agreement and the other Definitive Agreements.
ARTICLE 13
DISPUTE RESOLUTION
Section 13.1 Accounting Procedure. In the event of any dispute
with respect to a Calculation Matter, Buyer and KCL, shall, as appropriate
given the nature of the dispute, each retain one actuarial consulting firm of
nationally recognized standing or independent certified public accounting firm
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of nationally recognized standing which will perform the calculations required
as expeditiously as possible and issue their respective reports to Buyer and
to the Rehabilitator on behalf of KCL. To the extent the variation between
the two reports of the firms with respect to a Calculation Matter is in the
aggregate less than the lesser of (i) five percent of the smaller of the two
amounts in dispute or (ii) $500,000, the reports shall be averaged, with the
result deemed to be a final and determinative calculation of the amount at
issue. In the event the two reports with respect to a Calculation Matter have
a variation in the aggregate equal to or more than the lesser of (i) five
percent of the smaller of the two amounts in dispute or (ii) $500,000, the two
firms shall choose another actuarial consulting firm of nationally recognized
standing or independent certified public accounting firm of nationally
recognized standing, as the case may be, (the "Third Firm"), which shall
perform the calculations with respect to the Calculation Matter in dispute and
issue a report to Buyer and KCL. Thereafter, the two calculations that are
the closest shall be averaged and the third calculation shall be disregarded,
with the result deemed to be a final and determinative calculation of the
amount at issue. Each party to this Agreement shall promptly make available
to the actuarial consulting firm or independent certified public accounting
firm selected by each other party to this Agreement, and to the Third Firm,
all non-privileged information in its possession which is relevant to the
Calculation Matter in dispute; provided that any proprietary or confidential
information shall only be provided subject to an agreement of the parties or
order of the Rehabilitation Court imposing appropriate measures and
limitations on the use, maintenance and disclosure thereof. The fees and
expenses of the actuaries or accountants retained pursuant to the Accounting
Procedure by KCL shall be paid by KCL. The fees and expenses of the actuaries
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or accountants retained pursuant to the Accounting Procedure by Buyer shall be
paid by Buyer. The fees and expenses of the Third Firm shall be paid equally
by KCL and Buyer.
Section 13.2 Valuation Procedure. The determination of the fair
market value of each Transferred Security for which the value is disputed
shall be made by the Valuation Firm, as of the Closing Date. The fair market
value of each such disputed Transferred Security shall be determined (i) if
such bond or equity is traded on a national exchange, by reference to the
average closing price with respect to such bond or equity for the ten Business
Days prior to the Closing Date on such exchange, as reported by the Wall
Street Journal, (ii) if such bond or equity is traded on the over-the-counter
market, by reference to the average closing price with respect to such bond or
equity for the ten Business Days prior to the Closing Date on NASDAQ, as
reported by the Wall Street Journal (and if not traded on NASDAQ, the most
recent bid quotation by a market maker therefor), or (iii) if such bond or
equity is neither traded on a national exchange nor on the over-the-counter
market, by the price that would be paid to purchase such security in an arm's
length transaction between a willing buyer and a willing seller, as determined
by the Valuation Firm.
Section 13.3 Submission to Rehabilitation Court. In the event of
any dispute or disagreement between the parties to this Agreement
(individually, a "Dispute" and collectively, the "Disputes") (other than any
dispute relating to, arising out of or in connection with a Calculation
Matter, which shall be resolved in accordance with the Accounting Procedure,
or any dispute regarding the fair market value of the Transferred Securities,
which shall be resolved in accordance with the Valuation Procedure), the
parties to this Agreement and their respective designees, successors and
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assigns agree that any such Disputes shall be settled by submission to the
Rehabilitation Court.
Section 13.4 Expenses Relating to Pre-Closing Disputes.
Notwithstanding anything in this Agreement to the contrary, if any disputes
arise prior to the Closing Date and the parties are unable to resolve such
disputes without resort to the procedures set forth in this Article 13, then
all costs relating to the Accounting Procedure, the Valuation Procedure shall
be paid by KCL as an expense of administration pursuant to Insurance Code
Section 304.33-430(1).
ARTICLE 14
GENERAL PROVISIONS
Section 14.1 Media Releases and Interviews. Except as may be
required by law, neither party hereto shall issue any media release nor grant
any media interview relating to this Agreement or the transactions
contemplated hereby; provided, however, the Rehabilitator shall be free to
issue such media releases, grant such press interviews and make such public
statements as he may deem appropriate; further provided, it is understood and
agreed that normal and customary communications by Buyer with its
shareholders, industry analysts, bankers, governmental regulators, or other
parties with whom Buyer customarily communicates shall not be deemed media
releases, nor shall Buyer be responsible for any information concerning this
Agreement or the transactions contemplated hereby which may be released to the
media by such persons or entities. Prior to issuing any media release as may
be required by law, Buyer shall use its best efforts to discuss such release
with the Rehabilitator.
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Section 14.2 Expenses; Brokers. Except as provided in Article 13
hereof and that certain Expense Reimbursement Agreement by and between the
Rehabilitator and Buyer (the "Expense Agreement") and approved by the
Rehabilitation Court on December 21, 1993, each party shall pay its own
expenses in connection with the authorization, preparation, execution and
performance of this Agreement, including, without limitation, all fees and
expenses of agents, representatives, attorneys, accountants and consultants.
Section 14.3 Sales, Transfer and Documentary Taxes. KCL shall pay
(i) all sales, transfer and documentary taxes, if any, due as a result of the
transfer of the Buyer's Transferred Assets to Buyer, (ii) all affidavit and
acknowledgment fees and (iii) all other fees directly relating to the transfer
of the Buyer's Transferred Assets, including all transfer costs incurred in
connection with the assignment to Buyer of KCL's right, title and interest in
and to all patents, trademarks, trade names, service marks and copyrights
being assigned to Buyer as part of the Business Assets.
Section 14.4 Liability and Capacity of the Rehabilitator. The
parties hereto agree and acknowledge that neither the Rehabilitator nor any of
his agents or advisors shall have any personal liability for any matters or
obligations hereunder. The Rehabilitator has executed this Agreement solely in
his representative capacity acting on behalf of KCL. All representations,
warranties, covenants and agreements of KCL shall be deemed to be
representations, warranties, covenants and agreements of KCL acting by and
through the Rehabilitator.
Section 14.5 Further Assurances and Tax Matters. Each party hereto
shall execute and deliver all letters, applications, certificates and other
documents as reasonably requested by any other party hereto as are necessary
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to effect or carry out the provisions of this Agreement and the other
Definitive Agreements. The parties also shall reasonably cooperate on
regulatory and tax matters affecting their respective interests before, on and
after the Closing Date.
Section 14.6 Entire Agreement. This Agreement, the other
Definitive Agreements and the Ancillary Agreements constitute the entire
agreement among the parties with respect to the subject matter hereof and upon
execution shall supersede all prior agreements, understandings, negotiations
and discussions, whether oral or written, of the parties, except for (i) that
certain Confidentiality Agreement dated as of April 8, 1993 by and between KCL
and Buyer, (ii) the Expense Agreement, and (iii) that certain Deposit
Agreement dated July 28, 1993 by and between the Rehabilitator and Buyer.
There are no representations, warranties, covenants or agreements other than
those expressly set forth or referred to in this Agreement, the other
Definitive Agreements and the Ancillary Agreements.
Section 14.7 Amendment. This Agreement may be amended only in
writing executed by all of the parties hereto.
Section 14.8 Waiver. Any term or provision of this Agreement may
be waived at any time by the party or parties entitled to the benefit thereof
by a written instrument duly executed by such party or parties. No failure or
delay of any party hereto in exercising any power or right under this
Agreement shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right or power, or any abandonment or discontinuance of
steps to enforce such a right or power, preclude any other or further exercise
thereof or the exercise of any other right or power. The rights and remedies
of each party under this Agreement are cumulative and are not exclusive of any
rights or remedies which it would otherwise have. No waiver of any provision
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of this Agreement or consent to any departure by the other parties hereto
therefrom shall in any event be effective unless permitted in accordance with
the first sentence of this Section 14.8, and then such waiver or consent shall
be effective only in the specific instance and for the purpose for which
given. No notice to or demand on the other parties hereto by a party in any
case shall entitle such other parties to any other or further notice or demand
in similar or other circumstances.
Section 14.9 No Assignment. This Agreement shall not be assignable
by either KCL or Buyer.
Section 14.10 Governing Law. This Agreement, the other Definitive
Agreements and the Ancillary Agreements shall be governed by and construed in
accordance with the laws of the Commonwealth of Kentucky, without giving
effect to the principles of conflicts of law thereof.
Section 14.11 Headings, Gender and Person. All section headings
contained in this Agreement are for convenience of reference only, do not form
a part of this Agreement and shall not affect in any way the meaning or
interpretation of this Agreement. Words used herein, regardless of the number
and gender specifically used, shall be deemed and construed to include any
other number, singular or plural, and any other gender, masculine, feminine or
neuter, as the context requires.
Section 14.12 No Benefit to Others. The representations,
warranties, covenants and agreements are for the sole benefit of KCL and Buyer
and they shall not be construed as conferring any rights on any other persons
except for the Indemnified Parties.
Section 14.13 Notices. Except as provided in Section 14.14, any
notice, request, demand, waiver, consent, approval or other communication
required or permitted to be made hereunder shall be in writing and shall be
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deemed given only if delivered by hand, or mailed by certified or registered
mail with postage prepaid and return receipt requested, or sent by facsimile
transmission, as follows:
(a) If to KCL, to:
Kentucky Central Life Insurance Company
Kincaid Towers
Lexington, Kentucky 40506
Attention: Don W. Stephens, Rehabilitator
Telefax No.: (606) 253-5220
with a copy to:
Ernst & Young
787 7th Avenue
New York, New York 10019
Attention: Mr. Charles Carroll
Telefax No.: (212) 773-5333
and with a copy to:
Stites & Harbison
2300 Lexington Financial Center
Lexington, Kentucky 40507
Attention: Mr. Steven L. Beshear and
Ms. Janet A. Craig
Telefax No.: (606) 253-9144
(b) If to Buyer, to:
Jefferson-Pilot Life Insurance Company
P.O. Box 21008
Greensboro, North Carolina 27420
Attention: Mr. John D. Hopkins
Telefax No.: (919) 691-3258
or to such other address or parties as may be designated by either party
hereto by written notice to the other parties hereto. Such notice, request,
demand, waiver, consent, approval or other communication will be deemed to
have been given as of the date so delivered, sent by facsimile or mailed.
Section 14.14 Notices to Contract Holders, Creditors of KCL, and
Certain Other Authorities. Any notice contemplated by this Agreement to be
delivered to the KCL Contract Holders, creditors of KCL, and all state
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insurance regulatory authorities shall be in writing and shall be deemed given
if (i) delivered by hand or mailed by first class mail with postage prepaid to
such person's last known address, and (ii) published in the Wall Street
Journal, New York Times, Louisville Courier-Journal, Lexington Herald-Leader,
Frankfort State Journal, USA Today, or such other publications of general
circulation, or (iii) as otherwise required by court order, if any, not less
than once a week for four successive weeks. A copy of the notice, accompanied
by an affidavit of due publication, including a statement of the date of first
publication, shall be filed with the Rehabilitation Court.
Section 14.15 Schedules and Exhibits. All Schedules and Exhibits
referred to herein are intended to be and hereby are specifically made a part
of this Agreement.
Section 14.16 Counterparts. This Agreement may be executed in any
number of counterparts, each of which when executed and delivered shall be
deemed to be an original and all of which counterparts taken together shall
constitute but one and the same instrument.
Section 14.17 Time. The dates and time periods set forth in this
Agreement for the occurrence, completion or performance of each of the
obligations and conditions set forth herein are of the essence. In the event
that any party hereto becomes aware of circumstances or events which create a
reasonable likelihood that any such time requirement is inadequate, such party
immediately shall provide notice thereof to all of the other parties hereto in
accordance with the notice provisions of Section 14.13, which notice shall
include a revised estimate by such party of the time of occurrence, completion
or performance of the particular obligation. Such notice shall not excuse
compliance with the original deadline unless such be waived in writing by the
party receiving the notice. Any time periods set forth in this Agreement, any
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Definitive Agreements or any Ancillary Agreements may be changed by mutual
written agreement of the parties.
ARTICLE 15
DEFINITIONS
In this Agreement, unless otherwise specifically provided or the context
so requires, the terms listed below shall have the following meanings:
Section 15.1 "Accounting Procedure" means a procedure for the
resolution of disputes relating to any numerical calculations required
hereunder or under any of the Definitive Agreements or Ancillary Agreements
executed in connection herewith ("Calculation Matters"), as provided in
Section 13.1.
Section 15.2 "Account Value" means, with respect to a KCL Contract
or KCL Restructured Contract, the amount provided in each KCL Contract upon
which interest is credited; provided, however, for KCL Contracts without
stated account values, for computational purposes of this Agreement only,
reserves or cash values shall be used in lieu of Account Value as appropriate.
Section 15.3 "Account Value Increments" means any amounts received
after the Closing Date by Buyer for the benefit of KCL Contract Holders of
Persisting KCL Restructured Contracts from the KCL Estate or from any other
source, other than any Subsequent Buyer's Enhancement.
Section 15.4 "Adjusted Buyer's Enhancement" means the Buyer's
Enhancement, adjusted as provided in Article 3 hereof.
Section 15.5 "Adjustment Date" shall have the meaning set forth in
Section 10.4 hereof.
Section 15.6 "Affiliate" means, with respect to a Person, any other
Person directly or indirectly controlling, controlled by or under common
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control with such Person and the directors, officers and employees of such
Person.
Section 15.7 "Agreement" has the meaning set forth in the first
paragraph of this Agreement.
Section 15.8 "Ancillary Agreements" means all documents and
certificates executed and/or delivered by KCL or Buyer in connection with the
transactions described in this Agreement other than the Definitive Agreements.
Section 15.9 "Annual Statement" means the annual statement required
to be filed by life and health insurance companies with the domiciliary state
of any such insurer.
Section 15.10 "Asset Receivables" shall refer to all amounts accrued
or payable by or other property deliverable in respect of any issuer or
obligor with respect to any Buyer's Transferred Assets, whether current, past
due or in default, including, without limitation, principal, interest,
dividends or other distributions of any kind or nature whatsoever, whether in
cash, in equity or debt securities, in kind or otherwise, whether or not
payable with respect to any period of time during which KCL was the record or
beneficial owner of such Buyer's Transferred Asset, irrespective of whether
any record date with respect to such payment pre-dates the Closing Date, and
irrespective of whether any special record date with respect to such payment
or distribution relates in whole or in part to the period during which KCL was
the record or beneficial owner of such Buyer's Transferred Asset.
Section 15.11 "Assumption Certificates" means the Assumption
Certificate in the form attached hereto as Exhibit 2.2.1.
Section 15.12 "Assumption Reinsurance Agreement" means the
Reinsurance and Assumption Agreement between the Commissioner, as
Rehabilitator, and Buyer in the form attached hereto as Exhibit 2.2.
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Section 15.13 "Base Case Assumptions" means the assumptions set
forth on Schedule 8.1.13 hereto.
Section 15.14 "Benefit Plan" means each and every employee benefit
plan, contract or arrangement, including, without limitation, any employee
benefit plan within the meaning of Section 3(3) of ERISA.
Section 15.15 "Business Assets" means all tangible and intangible
business assets of KCL or any of its Affiliates reasonably necessary to
administer, account for and manage the KCL Assumed Restructured Contracts,
including, without limitation, all vehicles, all office furniture, fixtures
and improvements, all original files pertaining to the KCL Assumed
Restructured Contracts, all computer equipment and related software and
software licenses (including all mainframes, peripherals and personal
computers), all other office equipment utilized by KCL in connection with the
insurance business of KCL, and all copyrights, trademarks, trade names,
licenses and other intellectual property. As used herein, the term "Business
Assets" shall include, without limitation, the items set forth on
Schedule 2.1(g), but shall not include any real estate owned or leased by KCL.
Section 15.16 "Business Day" means any day other than a Saturday, a
Sunday or a day on which banking institutions in the Commonwealth of Kentucky
are authorized or obligated by law or executive order to be closed.
Section 15.17 "Buyer" has the meaning set forth in the first
paragraph of this Agreement.
Section 15.18 "Buyer's Account Value" means the Account Value on the
books of Buyer for certain KCL Assumed Restructured Contracts as defined in
Section 3.1.3.2.
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Section 15.19 "Buyer's Enhancement" means the enhancement to KCL
Assumed Restructured Contracts in the amount provided in Section 3.1 hereof.
Section 15.20 "Buyer's Indemnified Parties" means Buyer and its
directors, officers, employees, agents, advisors, counsel and other
representatives acting on Buyer's behalf in connection with the transactions
contemplated by this Agreement.
Section 15.21 "Buyer's Transferred Assets" means all of the assets
of KCL transferred to Buyer at the Closing pursuant to Section 2.1 hereof and
the Transfer and Assignment Agreement.
Section 15.22 "Buyer's Transferred Liabilities" means only those
liabilities under the KCL Restructured Contracts expressly transferred by KCL
and assumed by Buyer under this Agreement and the Assumption Reinsurance
Agreement, and no other liabilities of KCL whatsoever.
Section 15.23 "Calculation Matters" means any matter related to or
arising from the application of the following:
(a) Statutory accounting principles or other accounting principles
used to calculate the statutory reserves under KCL Traditional
Life Contracts, KCL Health Contracts or KCL Immediate Annuity
Contracts, or KCL Restructured Account Values or Account Values
for the KCL Contracts or the KCL Assumed Restructured Contracts,
as the case may be;
(b) Actuarial principles, actuarial assumptions and methods used to
calculate the statutory reserves under KCL Traditional Life
Contracts, KCL Health Contracts or KCL Immediate Annuity
Contracts, or KCL Restructured Account Values or Account Values
for the KCL Contracts or the KCL Assumed Restructured Contracts,
as the case may be;
(c) Statutory reserve methodology under KCL Traditional Life
Contracts, KCL Health Contracts, or KCL Immediate Annuity
Contracts, including reinsurance reserve methodology applied to
the KCL Assumed Restructured Contracts;
(d) Valuation interest rates applied to the KCL Assumed Restructured
Contracts;
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(e) The calculation of the outstanding principal balances of Policy
Loans, and accrued and prepaid interest thereon; and
(f) Any other matter which the parties mutually agree is appropriate.
Section 15.24 "Calendar Quarter" means the three-month period ending
on March 31, June 30, September 30 or December 31 of any given year.
Section 15.25 "Cash Value" means, with respect to a KCL Contract or
a KCL Restructured Contract, the cash available to the KCL Contract Holder
upon a full surrender of such contract (after taking all contractual surrender
charges into account), but without reduction for any outstanding Policy Loans.
Section 15.26 "Closing" means the closing of the transactions
contemplated by this Agreement.
Section 15.27 "Closing Date" means 9:00 a.m., local time, on the
fifteenth Business Day immediately following the date on which the last of the
conditions (other than conditions which contemplate only delivery or filing of
one or more documents contemporaneously with the Closing) to the parties'
obligations hereunder has been satisfied or waived, or such other date and
time as the parties hereto shall mutually agree; provided, however, that in no
event shall the Closing occur on or prior to the Opt Out Record Date.
Section 15.28 "Code" means the Internal Revenue Code of 1986, as
amended, including the regulations promulgated thereunder in effect from time
to time.
Section 15.29 "Commissioner" means the Insurance Commissioner of the
Commonwealth of Kentucky.
Section 15.30 "Crediting Rate" means, with respect to a KCL Assumed
Restructured Contract, the rate of interest credited to the Account Value of
such Contract. The Crediting Rate may be different for different types of KCL
Assumed Restructured Contracts. After the Closing Date and through the end of
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the Moratorium Period the Crediting Rate shall be the Moratorium Period
Crediting Rate, except with respect to New Premiums which shall be the New
Premium Crediting Rate. After the end of the Moratorium Period, the rate of
interest credited to the Account Value of such contract will be the rate or
rates declared from time to time by Buyer in accordance with sound actuarial
standards of practice as prescribed by the American Academy of Actuaries with
respect to determining credited interest rates for such contracts.
Section 15.31 "Definitive Agreements" means this Agreement and the
Assumption Reinsurance Agreement and the Transfer and Assignment Agreement,
all in the form attached hereto.
Section 15.32 "Derivatives" means any and all securities, contracts,
rights, notes, instruments, obligations, claims or property of whatever kind
or nature, other than cash, issued or distributed on, or in respect of, or
exchanged for, any assets, including Derivatives of Derivatives, and not
required to be repaid as a result of bankruptcy or other legal requirement.
Section 15.33 "Differential Amount" has the meaning set forth in
Section 10.5.1.
Section 15.34 "Dispute" has the meaning set forth in Section 13.3.
Section 15.35 "Distribution Date" means the date distributions are made
from the KCL Estate as provided in Section 4.4 hereof.
Section 15.36 "ERISA" means the Employee Retirement Income Security
Act of 1974, as amended.
Section 15.37 "Estimated Preliminary Opt Out Amount" means a good
faith estimate by the Rehabilitator of the Preliminary Opt Out Amount, which
estimate shall be made in connection with the preparation and mailing of the
Notice to KCL Contract Holders.
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Section 15.38 "Estimated Transferred Asset Value Schedule" has the
meaning set forth in Section 2.1.1.3.
Section 15.39 "Final Order of Rehabilitation" means the Order of
Rehabilitation after all appeals have been exhausted and no further appellate
relief is available, or after all appeal periods shall have lapsed with no
appeals having been taken.
Section 15.40 "Final Transferred Asset Value" has the meaning set
forth in Section 2.1.1.3.
Section 15.41 "Form" has the meaning set forth in Section 5.2.
Section 15.42 "Hardship Payment" has the meaning set forth in
Section 1.11.
Section 15.43 "Hardship Request" has the meaning set forth in
Section 1.11.
Section 15.44 "Indemnified Parties" means the Buyer's Indemnified
Parties and the Rehabilitator's Indemnified Parties, as the case may be.
Section 15.45 "Indemnity Adjustment" means the adjustment to be made
to the Buyer's Account Values of all in force KCL Assumed Restructured
Contracts due to Indemnity Losses as provided in Section 10.4 hereof.
Section 15.46 "Indemnity Amount" means the amount of Indemnity
Losses suffered by Buyer as more particularly described in Article 10 hereof.
Section 15.47 "Indemnity Losses" means any and all damages, losses,
deficiencies, liabilities, judgments, costs and expenses, Tax liabilities, any
diminution in value, and (except for disputes specifically governed by the
Accounting or Valuation Procedures of Article 13 hereof) all reasonable legal
and other professional fees, costs and other expenses incurred by, asserted
against or suffered by KCL or any Indemnified Party, which pertain to, arise
out of, or otherwise relate to actions, suits or claims of any kind or nature
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whatsoever (including counterclaims or defenses) involving any of the matters
for which indemnification is provided in Article 10 of this Agreement or any
of the other Definitive Agreements. In the case of indemnification made by
means of an Indemnity Adjustment, the amount of Indemnity Losses shall be
equal to one hundred four percent of the amount of the Indemnity Losses
determined without regard to this sentence, plus an expense charge equal to
$4.00 for each KCL Assumed Restructured Contract to which the Indemnity
Adjustment applies.
Section 15.48 "Initial Cash Opt Out Payment" means an amount equal
to 75% of the Estimated Preliminary Opt Out Amount.
Section 15.49 "Insurance Code" means the Kentucky Insurance Code,
including the regulations thereunder, in effect from time to time.
Section 15.50 "Interim Adjustment" has the meaning set forth in
Section 10.5.1.
Section 15.51 "Interim Period" means the period from and after
February 12, 1993 through the Closing Date.
Section 15.52 "Interim Period Amount" means, for each KCL Contract
other than KCL Immediate Annuities, the aggregate of all premiums paid with
respect to each such KCL Contract during the Interim Period, less all
mortality and contractual expense charges charged to each such KCL Contract
during the Interim Period, and less any benefits paid, including any
withdrawals, under such KCL Contract during the Interim Period, all such
amounts accumulated with interest during the Interim Period at the maximum
Interim Period Crediting Rate determined in accordance with Section 15.53
hereof. For KCL GPWL Contracts, the mortality and contractual expense charges
during the Interim Period will be equal to the total premiums paid during the
Interim Period with respect to each such Contract. For KCL Traditional Life
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Contracts, the mortality and contractual expense charges during the Interim
Period will be equal to the valuation mortality cost and loading for each such
Contract. KCL Immediate Annuities shall be deemed to have a zero Interim
Period Amount.
Section 15.53 "Interim Period Crediting Rate" means the rate or
rates of interest credited to the account values of KCL Contracts during the
Interim Period for the purpose of calculating the Participating Contract
Holder Closing Reimbursable Amount. Such rate shall be determined at Closing.
Such rate shall not exceed during a calendar year the five year Treasury Rate
as published in the Federal Reserve Statistical Release at the beginning of a
calendar year plus: (i) one percent (1%) for KCL UL Contracts, and (ii) one-
fourth of one percent (0.25%) for KCL Deferred Annuity Contracts and KCL
Unallocated Group Annuity Contracts and shall not be less than zero. In the
event the Participating Contract Holder Closing Reimbursable Amount is greater
than zero, the Interim Period Crediting Rate shall be uniformly reduced (but
not to less than zero) until the Participating Contract Holder Closing
Reimbursable Amount is zero.
Section 15.54 "Investment Company Act" means the Investment Company
Act of 1940, as amended.
Section 15.55 "IRS" means the Internal Revenue Service.
Section 15.56 "KCL" has the meaning set forth in the first paragraph
of this Agreement.
Section 15.57 "KCL Assumed Restructured Contract" means a KCL
Restructured Contract that is assumed and reinsured by Buyer pursuant to the
Assumption Reinsurance Agreement.
Section 15.58 "KCL Contract" means a KCL Deferred Annuity Contract,
a KCL UL Contract, a KCL GPWL Contract, a KCL Traditional Life Contract, a KCL
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Interest Sensitive Life Contract, a KCL allocated Group Annuity Contract, a
KCL Immediate Annuity Contract or a KCL Health Contract. Schedule 15.58
contains a true and complete list of all of the forms utilized by KCL in
connection with the issuance of such KCL Contracts.
Section 15.59 "KCL Contract Holder" means the record owner of a KCL
Contract as determined by reference to the books and records of KCL.
Section 15.60 "KCL Credit Insurance" means a written individual or
group credit life or health insurance contract, including, without limitation,
any contract issued by KCL under one of the forms listed on Schedule 15.60
hereto.
Section 15.61 "KCL Deferred Annuity Contract" means a written
annuity contract issued by KCL under one of the forms listed on Schedule 15.61
hereto.
Section 15.62 "KCL Estate" means the estate of KCL, including,
without limitation, all assets and liabilities remaining in KCL after the
transfer to Buyer of the Buyer's Transferred Assets and Buyer's Transferred
Liabilities, including, without limitation, the Retained Assets and the
Retained Liabilities.
Section 15.63 "KCL GPWL Contract" means a written graded premium
whole life contract or term life contract issued by KCL under one of the forms
listed on Schedule 15.63 hereto.
Section 15.64 "KCL Health Contract" means a written individual
health or group life and health contract issued by KCL under one of the forms
listed on Schedule 15.64 hereto, excluding KCL Credit Insurance.
Section 15.65 "KCL Home Office Building" means Kincaid Towers, West
Vine Street, Lexington, Kentucky 40507.
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Section 15.66 "KCL Immediate Annuity Contract" means a written
immediate annuity contract issued by KCL under one of the forms listed on
Schedule 15.66 hereto.
Section 15.67 "KCL Interest Sensitive Life Contract" means a written
interest sensitive whole life contract issued by KCL under one of the forms
listed on Schedule 15.67 hereto.
Section 15.68 "KCL Restructured Account Value" means the Account
Value of each KCL Contract, restructured as provided in Article 1 hereof.
Section 15.69 "KCL Restructured Contract" means the KCL Contracts,
each as modified by the Rehabilitation Endorsement prior to the transactions
contemplated by the Assumption Reinsurance Agreement.
Section 15.70 "KCL Restructured Contract Holder" means the record
owner of a KCL Restructured Contract as determined by reference to the books
and records of KCL.
Section 15.71 "KCL Restructured Deferred Annuity Contract" means the
KCL Restructured Contract that modifies a KCL Deferred Annuity Contract.
Section 15.72 "KCL Restructured GPWL Contract" means the KCL
Restructured Contract that modifies a KCL GPWL Contract.
Section 15.73 "KCL Restructured Health Contract" means the KCL
Restructured Contract that modifies a KCL Health Contract.
Section 15.74 "KCL Restructured Immediate Annuity Contract" means
the KCL Restructured Contract that modifies a KCL Immediate Annuity Contract,
or other similar contracts.
Section 15.75 "KCL Restructured Traditional Life Contract" means the
KCL Restructured Contract that modifies a KCL Traditional Life Contract.
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Section 15.76 "KCL Restructured UL Contract" means the KCL
Restructured Contract that modifies a KCL UL Contract or a KCL Interest
Sensitive Life Contract.
Section 15.77 "KCL Restructured Unallocated Group Annuity Contract"
means the KCL Restructured Contract that modifies a KCL Unallocated Group
Annuity Contract.
Section 15.78 "KCL Traditional Life Contract" means a written
traditional whole life contract issued by KCL under one of the forms listed on
Schedule 15.78 hereto.
Section 15.79 "KCL UL Contract" means a written universal life
insurance contract issued by KCL under one of the forms listed on Schedule
15.79 hereto.
Section 15.80 "KCL Unallocated Group Annuity Contract" means a
written annuity contract or group annuity certificate which is not issued to
and owned by an individual, except to the extent of any annuity benefit
guaranteed to an individual by an insurer under such contract or certificate,
under one of the forms listed on Schedule 15.80 hereto.
Section 15.81 "Letter Ruling" means a ruling issued by the IRS as
referred to in Section 601.201(a)(2) of the procedural regulations of the IRS.
Section 15.82 "Licensed Rights" has the meaning set forth in Section
8.1.15 hereof.
Section 15.83 "Liens" means all liens, pledges, mortgages, security
interests, claims, leases, charges, options, rights of first refusal,
easements, servitudes, transfer restrictions or encumbrances.
Section 15.84 "Life Annuity" means an immediate annuity with benefit
payments for the lifetime of one or more designated beneficiaries.
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Section 15.85 "Minimum Crediting Rate" means three percent per
annum.
Section 15.86 "Moratorium Amount" means, for any KCL Assumed
Restructured Contract that is surrendered during the Moratorium Period, at any
time, the sum of (i) the Buyer's Account Value of such contract as of the
Closing Date (including the amount of the Adjusted Buyer's Enhancement added
to such contract), plus (ii) all additions to Buyer's Account Value after the
Closing Date resulting from (a) distributions from KCL to Buyer pursuant to
Section 4.4.3.2 hereof, and (b) any Subsequent Buyer's Enhancement, times the
following amount:
Time of Surrender Amount
121 days after the Closing Date
through the end of the first
Plan Year 5%
Second Plan Year 7%
Third Plan Year 9%
Fourth Plan Year 6%
Fifth Plan Year 3%
After Fifth Plan Year 0%
No Moratorium Amount will be imposed upon full cash surrenders after the end
of the fifth Plan Year.
Section 15.87 "Moratorium Period" means the period commencing with
the Closing Date and ending on the last day of the fifth Plan Year.
Section 15.88 "Moratorium Period Crediting Rate" means a rate,
determined as of the Closing Date, equal to five and one-half percent plus or
minus, as the case may be, the change in the yield on United States Treasury
obligations with a maturity of five years between March 31, 1993 and the
Closing Date; provided, however, the Moratorium Period Crediting Rate shall
not be less than the Minimum Crediting Rate. The yield on the United States
Treasury obligations with a five year maturity as of March 31, 1993 was 5.23%,
and the yield on the United States Treasury obligations with a five year
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maturity as of the Closing Date shall be determined with reference to the
Federal Reserve Statistical Release published for the day of Closing.
Section 15.89 "NAIC" means the National Association of Insurance
Commissioners or any successor organization.
Section 15.90 "NAIC Blank" means the Annual Statement Blank for Life
and Health Insurance Companies promulgated by the NAIC and required to be
filed with the Commissioner for the applicable calendar year.
Section 15.91 "Net Cash Value" means, with respect to a KCL Assumed
Restructured Contract, the Cash Value of KCL Assumed Restructured Contract
less the aggregate amount of outstanding Policy Loans relating to such KCL
Assumed Restructured Contract.
Section 15.92 "Net Loan Value" means, with respect to a KCL
Restructured UL Contract, the maximum amount of Policy Loans permitted to be
effected pursuant to the KCL UL Contract.
Section 15.93 "New Premiums" means, with respect to a KCL Assumed
Restructured Contract, all premiums paid from and after the Closing Date
through the end of the Moratorium Period with respect to a KCL Assumed
Restructured UL Contract and a KCL Assumed Restructured Deferred Annuity
Contract.
Section 15.94 "New Premium Crediting Rates" means, with respect to a
KCL Assumed Restructured UL Contract or a KCL Assumed Restructured Deferred
Annuity Contract, the rate of interest credited during the Moratorium Period
to all New Premiums paid with respect to such contract. Such interest rate
shall be determined from time to time by Buyer and shall equal during a
calendar year the five year Treasury Rate as published in the Federal Reserve
Statistical Release at the beginning of a calendar year plus: (i) 1% (one
percent) for a KCL Assumed Restructured UL Contract and (ii) 0.25% (one-fourth
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of one percent) for a KCL Assumed Restructured Deferred Annuity Contract or a
KCL Assumed Restructured Unallocated Group Annuity Contract. However, the rate
during a calendar year shall not exceed such rate as determined as of the
Closing Date.
Section 15.95 "Non-Persisting KCL Restructured Contract" means a KCL
Assumed Restructured Contract that has lapsed, been surrendered or otherwise
terminated in accordance with the terms of such contract prior to any
Distribution Date.
Section 15.96 Non-Persisting KCL Restructured Contract Holder" means
the record owner of a Non-Persisting KCL Restructured Contract as determined
by reference to the books and records of Buyer.
Section 15.97 "Notice" has the meaning set forth in Section 5.2.
Section 15.98 "Opt Out" has the meaning set forth in Section 5.1,
but shall also include KCL Contracts the holders of which have been deemed to
Opt Out due to Regulatory Disapproval.
Section 15.99 "Opt Out Holdback" means the difference between the
Preliminary Opt Out Amount and the Initial Cash Opt Out Payment.
Section 15.100 "Opt Out Percentage" means the percentage of the
statutory reserves of KCL as of February 12, 1993 allocable to each KCL
Contract that Opts Out, as determined pursuant to Section 5.5.1 hereof.
Section 15.101 "Opt Out Record Date" has the meaning set forth in
Section 5.2.
Section 15.102 "Opt Out Reimbursable Amount" means the statutory
reserves of KCL as of February 12, 1993 allocable to any KCL Contract that
Opts Out, plus the Interim Period Amount as of the Closing Date with respect
to each such KCL Contract, reduced by all amounts received from time to time
by a KCL Contract Holder who Opts Out, including, without limitation, the
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Initial Cash Opt Out Payment, the Opt Out Holdback and any other distributions
received under the Settlement Annuity. The Opt Out Reimbursable Amount as
determined from time to time in accordance with the foregoing sentence will
accumulate with interest at a rate equal to six percent per annum.
Section 15.103 "Order of Rehabilitation" means the order of the
Rehabilitation Court approving the Rehabilitation Plan, including this
Agreement, the other Definitive Agreements and the Ancillary Agreements,
including all transactions contemplated hereby and thereby, without
modification, unless such modification has been approved in writing by all of
the parties hereto.
Section 15.104 "Partial Surrender" means, with respect to a KCL
Restructured Contract, a "partial surrender" or "partial withdrawal," as
either of such terms is defined in the KCL Contract which is modified by such
KCL Restructured Contract.
Section 15.105 "Participating Contract Holder Closing Reimbursable
Amount" for any given KCL Assumed Restructured Contract means the difference
between the Buyer's Account Value and the Account Value, as of February 12,
1993, increased with interest during the Interim Period at the Interim Period
Crediting Rate plus the Interim Period Amount applicable to each such
Contract.
Section 15.106 "Participating Contract Holder Reimbursable Amount"
for any given KCL Assumed Restructured Contract means the difference between
the Account Value as of February 12, 1993 increased with interest at the
maximum Interim Period Crediting Rate allowed by Section 15.53 hereof, plus
the Interim Period Amount applicable to each such Contract and the Buyer's
Account Value for each such Contract, plus the sum of (i) any Indemnity
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Adjustment, (ii) all moratorium expense charges imposed on each KCL Assumed
Restructured Contract pursuant to Section 1.18 above, and (iii) the difference
between the amount of interest actually credited to each KCL Assumed
Restructured Contract during the Moratorium Period and the amount of interest
that would have been credited to each such Contract during the Moratorium
Period had interest been credited to the full Account Value of each such
Contract at the New Premium Crediting Rate; and minus any Account Value
Increments or distributions pursuant to Section 4.4, and minus the portion of
any Subsequent Buyer's Enhancement allocated to each such contract. The
Participating Contract Holder Reimbursable Amount as determined from time to
time in accordance with the foregoing sentence will accumulate with interest
at a rate equal to the New Premium Crediting Rate. For the purpose of
computing the Participating Contract Holder Reimbursable Amount of KCL Assumed
Restructured Contracts without Account Values, the same interest rates
utilized to calculate the Participating Contract Holder Reimbursable Amount
for KCL Assumed Restructured UL Contracts, both during the Interim Period and
after Closing, shall be utilized to calculate the Participating Contract
Holder Reimbursable Amount for such Contracts.
Section 15.107 "Patent and Trademark Rights" has the meaning set
forth in Section 8.1.15 hereof.
Section 15.108 "Permits" means all material licenses, franchises,
permits, orders, approvals, consents, authorizations, qualifications and
filings with and under all Federal, state or local laws and of all
governmental or regulatory bodies, including, without limitation, state
insurance regulatory authorities.
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Section 15.109 "Permitted Amount" means, (i) with respect to a KCL
Restructured UL Contract, an amount equal to 10% of the Net Loan Value of each
such contract; and (ii) with respect to a KCL Restructured Deferred Annuity,
an amount equal to 10% of the Net Cash Value of each such contract, not to
exceed $50,000. In no event shall the Permitted Amount be reduced by the
additional surrender charges set forth in Section 1.5.2.
Section 15.110 "Persisting KCL Restructured Contract" means a KCL
Assumed Restructured Contract that is in force on any Distribution Date.
Section 15.111 "Persisting KCL Restructured Contract Holder" means
the record owner of a Persisting KCL Restructured Contract as determined by
reference to the books and records of Buyer.
Section 15.112 "Person" means any individual, corporation,
partnership, firm, joint venture, association, joint-stock company, trust,
unincorporated organization, public, governmental, judicial or regulatory
authority or body or other entity.
Section 15.113 "Plan Year" means each twelve-month period commencing
with the Closing Date, or if the Closing Date does not occur on the first day
of a month, each twelve-month period commencing with the first day of the
month immediately following the Closing Date.
Section 15.114 "Policy Loans" means any loans of KCL made to KCL
Contract Holders upon the security of KCL Contracts or KCL Restructured
Contracts.
Section 15.115 "Preliminary Opt Out Amount" means the total cash opt
out payment to be paid to KCL Contract Holders who Opt Out, attributable to
the Transferable Assets, all as determined in accordance with Section 5.5.1
hereof.
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Section 15.116 "Priority Claims" means all claims against KCL which
are entitled priority over claims of KCL Contract Holders.
Section 15.117 "Qualified Institutional Buyer" has the meaning set
forth in Section 8.2.5 hereof.
Section 15.118 "Qualified Investments" means (i) investments in bonds
that are publicly traded and are rated in category 1 or 2 by the Securities
Valuation Office of the NAIC; (ii) investments in (A) U.S. government
securities or (B) commercial paper rated A-1 or better by Standard & Poor's
Corporation or P-1 or better by Moody's Investors Service, and (iii) such
other securities as Buyer may agree in writing to accept.
Section 15.119 "Quarterly Statement" means the quarterly statement
required to be filed by life and health insurance companies with the
domiciliary state of any such insurer with respect to each of the first three
Calendar Quarters of each year.
Section 15.120 "Regulatory Disapproval" shall have the meaning set
forth in Section 5.2 hereof.
Section 15.121 "Rehabilitation" has the meaning set forth in
Recital B of this Agreement.
Section 15.122 "Rehabilitation Court" means the Franklin Circuit
Court, Commonwealth of Kentucky, before which the legal proceedings involving
KCL described in Recital A of this Agreement are pending.
Section 15.123 "Rehabilitation Date" means February 12, 1993.
Section 15.124 "Rehabilitation Endorsement" means an endorsement
which modifies certain provisions of a KCL Contract pursuant to the terms of
this Agreement and the Rehabilitation Plan.
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Section 15.125 "Rehabilitation Plan" means that certain plan of
rehabilitation for KCL relating to the rehabilitation of KCL's life and health
insurance business contemplated by this Agreement, the Definitive Agreements,
the Ancillary Agreements and any related motions and supporting documents
filed by the Rehabilitator with the Rehabilitation Court.
Section 15.126 "Rehabilitator" has the meaning set forth in Recital A
of this Agreement, and includes Commissioner Stephens and his successors in
his or her capacity as Rehabilitator or Liquidator of KCL.
Section 15.127 "Rehabilitator's Indemnified Parties" means the
Rehabilitator and his Special Deputies, employees, agents, advisors, counsel
and other representatives acting on the Rehabilitator's behalf in connection
with the transactions contemplated by this Agreement.
Section 15.128 "Released Claims" shall mean a release which
absolutely and forever discharges the releasee from any and all claims,
liabilities, debts, demands, damages, obligations, costs, offsets and the
like, expenses, liens, actions, proceedings, suits and causes of action of
every kind and nature whatsoever, whether known or unknown, suspected or not.
Section 15.129 "Restructuring Percentage" means the percentage by
which the Account Values of KCL Contracts are restructured, determined as
provided in Section 1.2 hereof.
Section 15.130 "Retained Assets" means all KCL assets other than the
assets transferred to Buyer by KCL at the Closing.
Section 15.131 "Retained Liabilities" means all of the liabilities or
obligations of KCL other than the Buyer's Transferred Liabilities, whether or
not such liability or obligation arose before or after the appointment of the
Rehabilitator as the Rehabilitator of KCL, including, without limitation,
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(i) any liability for Taxes of KCL; (ii) any liability related to or arising
out of any litigation or proceeding in which either KCL or the Rehabilitator
is a party which was commenced prior to the Closing Date; (iii) any liability
arising out of any conduct, acts or omissions of, or in any way relating to
any current or former director, officer, employee, general agent, managing
general agent, agent, broker, third party administrator, consultant or
representative of KCL or the Rehabilitator and relating to conduct, acts or
omissions prior to the Closing Date; (iv) any Unassumed Obligations; (v) any
Tax liability of KCL for premiums received by KCL; (vi) any liability of KCL
arising on account of premiums received by KCL or the Commissioner prior to
the Closing Date in connection with participation by KCL, whether voluntary or
involuntary, in any guaranty association, risk pool or association established
or governed by the state or federal law; (vii) any liability of KCL or the
Rehabilitator arising under assets or contracts of KCL which are not
transferred or assigned to Buyer under this Agreement or the Assumption
Reinsurance Agreement; (viii) any liability resulting from the failure of any
KCL Contract (including any KCL Assumed Restructured Contract) to qualify as a
life insurance contract under Section 101(f) or 7702 of the Code, the
treatment of any such contract as a modified endowment contract under
Section 7702A of the Code or the failure of any KCL Contract (including any
KCL Assumed Restructured Contract) to qualify as an annuity contract under
Section 72 of the Code (without the contract holder's actual or implied
consent), unless in any such case such liability results from actions taken or
failures to act by Buyer or a contract holder on or after the Closing Date;
(ix) any liability for claims incurred prior to the Closing Date; (x) any
liability for any payments due to any KCL Contract Holder who Opts Out;
(xi) any liability assumed or incurred by KCL or the Rehabilitator under any
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Definitive Agreement; (xii) any liability arising under ERISA related to
employee benefit plans of KCL; and (xiii) any other liability of KCL, other
than a contractual liability under a KCL Assumed Restructured Contract based
on acts or omissions of KCL or the Rehabilitator.
Section 15.132 "Settlement Annuity" means the annuity to be issued to
all KCL Contract Holders who Opt Out, which Settlement Annuity is to be funded
from the KCL Estate, including, without limitation, the Opt Out Holdback.
Section 15.133 "Short Term Investments" means the short term
investments of KCL as determined by reference to Page 2, Line 8.2 of the NAIC
Blank.
Section 15.134 "Short Term Rate" means the ninety-day Treasury rate
as published in the Federal Reserve Statistical Release, determined at the end
of each Calendar Quarter.
Section 15.135 "Specified Amount" means, with respect to a KCL UL
Contract or KCL Restructured UL Contract, the "specified amount" or "face
amount," as either of such terms is defined in such KCL UL Contract or KCL
Restructured UL Contract.
Section 15.136 "Subsequent Buyer Enhancement" means an additional
enhancement provided by Buyer based upon the amount of all assets distributed
by KCL to Buyer during the Moratorium Period for the benefit of Persisting KCL
Restructured Contract Holders. The Subsequent Buyer Enhancement, as to any
such distribution, shall initially equal the amount of cash, plus the fair
market value of any other assets transferred to Buyer solely for the benefit
of Persisting KCL Contract Holders times four percent. The foregoing
percentage shall be subject to reduction on the first day of each subsequent
month after the Closing Date, and on each such monthaversary, shall equal four
percent times a fraction, the numerator of which is the number of months
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remaining in the Moratorium Period, and the denominator of which is sixty.
Section 15.137 "Subsidiary" means any corporation or other entity of
which a majority of the (i) securities entitled to vote generally in the
election of directors or (ii) equity interest, is owned directly or indirectly
by any Person.
Section 15.138 "Tax" or "Taxes" means all taxes, charges, fees,
levies or other assessments, including, without limitation, income, gross
receipts, excise, property, premium, sales, withholding, social security,
occupation, use, service, service use, license, payroll, franchise, transfer
and recording taxes, fees and charges, imposed by the United States, or by any
state, territory, local or foreign government or subdivision or agency
thereof, whether computed on a separate, consolidated, unitary, combined or
any other basis; and such term shall include any interest, fines, penalties or
additional amounts attributable or imposed or with respect to any such taxes,
charges, fees, levies or other assessments.
Section 15.139 "Tax Return" means any return, report or other
document or information required to be supplied to a taxing authority in
connection with Taxes.
Section 15.140 "Third Firm" has the meaning set forth in Section
13.1.
Section 15.141 "Tillinghast Model" means the actuarial valuation
report of Tillinghast, a Towers Perrin company ("Tillinghast"), dated as of
May 20, 1993 using information as to the in-force assets and liabilities of
KCL as of March 31, 1993.
Section 15.142 "Transfer and Assignment Agreement" means the Transfer
and Assignment Agreement between KCL and Buyer, in the form attached hereto as
Exhibit 2.1.
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Section 15.143 "Transferable Asset Value" has the meaning set forth
in Section 5.5.1.
Section 15.144 "Transferred Asset Value" means the value of the
Buyer's Transferred Assets, determined in accordance with Section 2.1.3
hereof. The Transferred Asset Value shall be calculated as of the Closing
Date according to the procedures set forth in Section 2.1 hereof and the
Transfer and Assignment Agreement.
Section 15.145 "Transferred Bonds" means all Buyer's Transferred
Assets which are bonds, as provided in Section 2.1(a).
Section 15.146 "Transferred Equities" means all Buyer's Transferred
Assets which are common or preferred stocks, as provided in Section 2.1(b).
Section 15.147 "Transferred Liabilities" means all liabilities of KCL
which are Buyer's Transferred Liabilities.
Section 15.148 "Transferred Other Assets" means all other assets of
KCL which are Buyer's Transferred Assets which are not Transferred Bonds,
Transferred Equities, Short Term Investments, cash or Business Assets, as set
forth on Schedule 2.1(f) hereto.
Section 15.149 "Transferred Securities" means the Transferred Bonds,
the Transferred Equities, and all Derivatives thereof.
Section 15.150 "Unassumed Obligations" means all liabilities or
obligations of KCL, other than the Buyer's Transferred Liabilities, including,
without limitation, (i) any Tax or other liability or obligation relating to
or arising from the restructuring of any KCL Contract; and (ii) any liability
for punitive, exemplary or any other form of extracontractual damages relating
to the KCL Contracts or the KCL Assumed Restructured Contracts, which
liability arises from any act, error or omission by KCL (including any
Affiliate thereof) or the Rehabilitator or any of their respective officers,
137
employees, agents or representatives prior to the Closing Date, whether or not
intentional, in bad faith or otherwise, including, without limitation, any
act, error or omission relating to (A) the marketing, underwriting,
production, issuance, cancellation or administration of the KCL Contracts,
(B) the investigation, defense, trial settlement or handling of claims,
benefits or payments under the KCL Contracts, (C) the failure to pay or the
delay in payment of benefits, claims or any other amounts due or alleged to be
due under or in connection with the KCL Contracts, (D) any advice concerning
tax matters, (E) any amount alleged to be due on the grounds that the KCL
Contracts were not validly restructured pursuant to the Rehabilitation Plan,
(F) any liability for commissions, fees or any payment to any agent, general
agent, manager, broker or producer or any other person who marketed or
produced the KCL Contracts (other than liabilities for such commissions, fees
or payments specifically assumed by Buyer pursuant to the Rehabilitation
Plan), and (G) any liability under any reinsurance or other contracts of KCL
other than those reinsurance or other contracts specifically accepted by Buyer
pursuant to the Rehabilitation Plan.
Section 15.151 "Valuation Firm" means an investment banking firm of
national standing which is mutually agreed upon by the Rehabilitator and
Buyer. In the event the parties are unable to agree upon the Valuation Firm,
each party shall submit the names and qualifications of two firms of national
standing that would be acceptable to such party to the Rehabilitation Court,
and the Rehabilitation Court shall designate the Valuation Firm.
Section 15.152 "Valuation Procedure" means a procedure for resolving
any disputes between the Rehabilitator and Buyer with respect to the fair
market value of any Transferred Security, as provided in Section 13.2.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
"KCL": KENTUCKY CENTRAL LIFE INSURANCE COMPANY,
a Kentucky corporation
By:
Don W. Stephens, Insurance Commissioner
for the Commonwealth of Kentucky in his
capacity as Rehabilitator and not
individually
"BUYER": JEFFERSON-PILOT LIFE INSURANCE COMPANY, a North
Carolina corporation
By:
David Stonecipher
Chief Executive Officer
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EXHIBIT 2.1
TRANSFER AND ASSIGNMENT AGREEMENT
between
KENTUCKY CENTRAL LIFE INSURANCE COMPANY
(In Rehabilitation)
Lexington, Kentucky
and
JEFFERSON-PILOT LIFE INSURANCE COMPANY
Greensboro, North Carolina
140
TRANSFER AND ASSIGNMENT AGREEMENT
This Agreement, dated as the ___ day of ___________, 1993 (this
"Agreement"), has been made and entered into by and between Kentucky Central
Life Insurance Company, a Kentucky corporation ("KCL"), acting by and through
Don W. Stephens, Insurance Commissioner of the Commonwealth of Kentucky, the
rehabilitator of KCL ("Rehabilitator"), and Jefferson-Pilot Life Insurance
Company, a North Carolina corporation ("Buyer").
RECITALS
15.153 On _____________, 1993, KCL and Buyer entered into that
certain Life and Health Agreement in connection with the Rehabilitation of
Kentucky Central Life Insurance Company (the "Life and Health Agreement").
15.154 This is the Transfer and Assignment Agreement described in
Section 2.1 of the Life and Health Agreement. Pursuant to Article 2 of the
Life and Health Agreement, KCL has agreed to sell, and Buyer has agreed to
purchase, the Buyer's Transferred Assets on the terms and conditions contained
in the Life and Health Agreement and as set forth in this Agreement. In
consideration thereof, Buyer will reinsure and assume certain KCL Restructured
Contracts identified in the Assumption Reinsurance Agreement ("Reinsurance
Agreement") between KCL and Buyer of even date herewith.
In consideration of the promises, covenants and conditions contained
herein, in the Life and Health Agreement and in the other Definitive
Agreements (such Definitive Agreements being defined in the Life and Health
Agreement), the parties hereto, intending to be legally bound, hereby agree as
follows:
1. Certain Definitions
As used in this Agreement, capitalized terms used herein and not
otherwise defined below shall have the meanings given to such terms in the
Life and Health Agreement:
1.1 "Book-Entry Securities" shall mean a security, held by a
nominee or clearinghouse, with ownership of such security transferred by entry
on the books and records of the nominee or clearinghouse, and not on the books
and records of the issuer.
1.2 "Buyer" shall have the meaning given to such term in the
first paragraph of this Agreement.
1.3 "Buyer's Nominee" means Depository Trust Company or other
third party custodian who Buyer identifies as the nominee holder of securities
for the benefit of Buyer.
1.4 "Cash" shall mean cash, deposits in banks, or other cash
equivalents not evidenced by a security.
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1.5 "Closing" shall have the meaning given to such term in
Section 3.1 of this Agreement.
1.6 "Irrevocable Payment Instruction" means an irrevocable
payment instruction, in form and substance satisfactory to Buyer, in its
reasonable discretion, directing the issuer or obligor (and any indenture
trustee or paying agent) with respect to the Transferred Securities Assets
transferred to Buyer under this Agreement to make payments of Asset
Receivables with respect to those Transferred Securities Assets directly to
Buyer.
1.7 "KCL Deposits" means any security deposited with the
insurance department of any state, or custodian for such department, in
accordance with the requirements of the laws or regulations of that state.
1.8 "KCL Held Securities" shall mean any security, other than
bearer bonds, which is in the physical possession of KCL.
1.9 "KCL Pledged Securities" shall mean any security delivered
or pledged to a third party as security or collateral for any debt, obligation
or contract.
1.10 "Miscellaneous Instruments" refers to Transferred Securities
Assets consisting of bearer bonds, in a form such that those bearer bonds can
only be transferred by physical delivery, and commercial paper but does not
include any real estate notes or real estate related Retained Assets.
1.11 "Life and Health Agreement" shall have the meaning given to
such term in Recital A of this Agreement.
1.12 "Registered Securities" shall mean a security, ownership of
which is recorded in the name of the beneficial owner of the security on the
issuer's books.
1.13 "Restricted Transfer Contract" shall have the meaning given
to such terms in Section 2.4.2 of this Agreement.
1.14 "Subsequent Closing" shall have the meaning given to such
term in Section 4.1 of this Agreement.
1.15 "Subsequent Closing Date" shall have the meaning given to
such term in Section 4.2 of this Agreement.
1.16 "Subsequent Transferred Assets" shall have the meaning given
to such term in Section 4.1 of this Agreement.
1.17 "Transfer Pre-Clearance" shall have the meaning given to
such term in Section 2.1 of this Agreement.
1.18 "Transferred Securities Assets" shall refer to Buyer's
Transferred Assets which are securities, commercial paper or interests in
partnerships, including, without limitation, Book-Entry Securities, Registered
Securities, Miscellaneous Instruments or Treasury Securities, as the context
so requires.
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1.19 "Treasury Securities" refers to Transferred Securities
Assets consisting of securities commonly known as treasury securities.
1.20 "Working Procedure" shall have the meaning given to such
term in Section 2.1 of this Agreement.
2. Purchase and Sale of Buyer's Transferred Assets
2.1 Working Procedures. Commencing immediately upon the
execution of this Agreement, KCL shall meet and confer with Buyer for the
purpose of developing working procedures ("Working Procedures") applicable to
each category of Buyer's Transferred Assets described in this Agreement to
facilitate giving effect to the intent of the parties as expressed in this
Agreement in the most efficient and expeditious manner possible. Included as
part of the Working Procedures shall be an agreed upon procedure for the
identification of those assets which (a) may require special handling or
procedures to effect the transfer of ownership to Buyer, or (b) may be
difficult to value because the asset is not frequently traded on securities
markets, or is a private placement. Included as part of the Working
Procedures shall be an agreed upon procedure for "Transfer Pre-Clearance,"
which shall mean, among other things, that KCL shall have used reasonable
efforts to obtain prior to the Closing for each Transferred Securities Asset
from all necessary or appropriate Persons, written assurance in form
reasonably satisfactory to Buyer that upon presentation of the Transferred
Securities Asset certificates, along with the executed opinions, certificates,
powers and other documents in the form attached to such written assurance,
that such Transferred Securities Asset will be registered in the name of Buyer
or the Buyer's Nominee. The Rehabilitator and KCL agree at the Closing to use
reasonable efforts to present such opinions, certificates, powers and other
documents referenced above executed and dated as of the Closing. The Working
Procedures shall constitute a part of this Agreement.
2.2 Identification of Buyer's Transferred Assets. Within sixty
days after the Opt Out Record Date, KCL shall prepare and deliver to Buyer
preliminary schedules identifying (a) the Buyer's Transferred Assets, and
(b) the Retained Assets, as provided in Section 2.1.1 of the Life and Health
Agreement. The Buyer's Transferred Assets, which are not investment assets,
shall be listed in accordance with Annual Statement classifications, provided,
however, that KCL shall specifically identify any Restricted Transfer
Contracts included in the non-investment assets, shall be listed in accordance
with Annual Statement classifications within the following categories:
(a) Cash
(b) Book-Entry Securities
(c) KCL Deposits
(d) KCL Pledged Securities
(e) KCL Held Securities
(f) Miscellaneous Instruments
(g) Registered Securities
(h) Restricted Transfer Contracts
The Retained Assets shall be listed in accordance with Annual Statement
classifications.
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2.3 Pre-Closing Schedule of Buyer's Transferred Assets.
In accordance with Section 2.1.1.2 of the Life and Health Agreement, the
Rehabilitator shall deliver a complete schedule of the Buyer's Transferred
Assets and a schedule of the Retained Assets, listed and identified as
provided by section 2.2, above.
2.3.1 Transfer of Buyer's Transferred Assets. Subject to
the terms and conditions of this Agreement, at the Closing, KCL, acting by and
through the Rehabilitator, shall sell, assign, transfer, convey and deliver to
Buyer, and Buyer shall purchase, acquire and accept from KCL, all right, title
and interest in and to the Buyer's Transferred Assets (including, without
limitation, the Transferred Securities Assets), all as required by the
provisions of Article 2 of the Life and Health Agreement. Simultaneously with
the transfer to Buyer of any of such Buyer's Transferred Assets, the
Rehabilitator and KCL shall assign, transfer, convey and deliver to Buyer all
agreements, contracts, commitments, proposals, leases, licenses, permits,
authorizations, instruments, computer programs and software, computer files
and computer records, policies, policyholder lists, supplier lists, sales
records, price lists, correspondence, and other documents, books, records,
papers, files and data, in any form, that at any time evidence or contain
information relating to any of such Buyer's Transferred Assets, all of which
shall be deemed to be part of the Business Assets being transferred to Buyer
pursuant to the Life and Health Agreement, provided, however, that the
Rehabilitator and KCL may retain such copies as necessary or appropriate for
the administration of KCL and provided, further, that the Rehabilitator and
KCL shall have reasonable access to the Buyer's Transferred Assets as
necessary or appropriate for the administration of KCL.
acting by and through the Rehabilitator, shall
(a) effect the transfer of (i) the Transferred Securities
Assets held in registered form (the "Registered
Securities") by physical delivery of such Registered
Securities to Buyer, or at the election of Buyer, the
Buyer's Nominee, duly endorsed, bearing all requisite
signature guaranties and otherwise in deliverable
form, together with evidence satisfactory to Buyer
that Transfer Pre-Clearance has been completed;
(ii) the Transferred Securities Assets held in
book-entry form or through a clearinghouse (the
"Book-Entry Securities") by duly executed instructions
to The Depository Trust Company and such other
appropriate depositaries and clearinghouses to
transfer such Book-Entry Securities to Buyer, or at
the election of Buyer, the Buyer's Nominee, together
with evidence satisfactory to Buyer that Transfer
Pre-Clearance has been completed and that such
depositaries and clearinghouses have properly recorded
such transfers; (iii) the Miscellaneous Instruments by
delivery to Buyer, or at the election of Buyer, to the
Buyer's Nominee, of the original Miscellaneous
Instruments, duly endorsed and otherwise indeliverable
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form, (iv) the Treasury Securities to Buyer by appropriate
wire transfer; and (v) all other Transferred Securities
Assets, by duly endorsed documents of assignment and
transfer customary to the transfer of such Transferred
Securities Assets and in form and substance reasonably
satisfactory to Buyer;
(b) assign to Buyer by execution and delivery of the Bill of
Sale and Assignment (in the form attached hereto as Exhibit
B), to the extent permitted by law, any and all choices in
action, or causes in action, or other similar rights related
to the Buyer's Transferred Assets; and
(c) effect the transfer of the Asset Receivables with respect to
the Transferred Securities Assets transferred to Buyer at
the Closing by execution and delivery to Buyer of the Bill
of Sale and Assignment (in the form attached hereto as
Exhibit B).
2.3.2.1 KCL, acting by and through the
Rehabilitator, hereby covenants and agrees that it shall hold in trust for,
and immediately pay over to Buyer, any and all Asset Receivables that it shall
receive for any reason whatsoever, whether because KCL was the record or
beneficial owner of the Transferred Securities Asset during the record date
with respect to which the Investment Receivable so paid relates, as a result
of mistake, or otherwise.
2.3.2.2 At the Closing, KCL, acting by and through
the Rehabilitator, shall assign, transfer, convey and deliver to Buyer all
information and documentation with respect to the issuers of the Transferred
Securities Assets and all agreements, proposals, licenses, permits,
instruments, computer programs and software, computer files and computer
records, disks, tapes, policies, policyholder lists, files, correspondence,
and other documents, records and data, in any form, at any time evidence or
contain information relating to any of the Transferred Securities Assets, or
Asset Receivables; provided however, that Rehabilitator and KCL may keep
copies as necessary or appropriate for administration of KCL and provided,
further, that the Rehabilitator and KCL shall have reasonable access as
necessary or appropriate for the administration of KCL. In the case of any of
the books, records and documents described in this Section 2.3.2.2 which, in
the reasonable belief of KCL, contain material nonpublic information, KCL
shall use its reasonable best efforts to provide those books, records and
documents to Buyer under seal conspicuously marked to indicate their nonpublic
nature. Further, Buyer shall have the right, exercisable in its sole
discretion, to refuse delivery from KCL of any books, records or documents
which KCL has provided under such seal.
2.3.3 Actions and Deliveries, Etc., to Effect Transfer
of the Transferred Securities Assets to Buyer at the Closing.
2.3.3.1 Buyer shall deliver to KCL for delivery to the
issuer, transfer agent, indenture trustee, or counsel for KCL for purposes
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of any opinions, all purchase and investment representations relating to
exemptions under Federal and state securities laws customarily required to be
delivered by buyers in arms-length transactions.
2.3.3.2 KCL, and Buyer, shall each, at its sole expense,
take all other actions reasonably necessary, including, without limitation,
providing reasonable and customary opinions of counsel, certificates and other
documents, as may be required in order to transfer the Transferred Securities
Assets in accordance with applicable law, the requirements of this Agreement,
or any issuer, transfer agent or indenture trustee, or as may otherwise be
reasonably necessary or appropriate in order to transfer the Transferred
Securities Assets to Buyer at the Closing. Notwithstanding the foregoing, in
the case of any opinion of counsel otherwise required to be delivered by KCL
or Buyer hereunder, KCL and Buyer shall have the option of delivering that
opinion or obtaining an order the Rehabilitation Court that permits the
transfer of the securities in lieu of the opinion.
2.3.3.3 KCL shall, at Buyer's request, use its best
efforts to eliminate, or cooperate with Buyer to eliminate, to the extent it
is possible to eliminate, continuing transfer restrictions on the Transferred
Securities Assets transferred at the Closing imposed by applicable state or
federal securities laws.
2.3.4 The consideration received by the Reinsurer
under this Agreement shall be allocated (a) in part to those liabilities for
which insurance reserves under Section 807(c) of the Code may be properly
established, and (b) in part to the other obligations assumed under this
Agreement.
2.4 Assignment of Contracts, Permits and Licenses.
2.4.1 At the Closing, the Rehabilitator and KCL shall
convey to Buyer, and Buyer shall assume, at the Closing, all of the rights and
obligations of KCL existing as of the Closing under contracts, permits and
licenses (other than Transferred Securities Assets) which constitute Buyer's
Transferred Assets and which are assignable without the approval, consent or
waiver of any third party.
2.4.2 To the extent that any contract, permit or
license (other than a Securities Asset) which constitutes a Buyer's
Transferred Asset, or any claim, right or benefit arising thereunder or
resulting therefrom, is not capable of being transferred or conveyed without
the approval, consent or waiver of the issuer thereof or any other third
person (including a governmental unit), or if such transfer or conveyance or
attempted transfer or conveyance would constitute a breach thereof or a
violation of any law, decree, order, regulation or other governmental edict
(such contracts, permits, licenses, claims, rights and benefits being
hereinafter referred to as the "Restricted Transfer Contracts"), this
Agreement shall not constitute a transfer or conveyance thereof, or an
attempted transfer or conveyance thereof unless or until the requisite
approval has been obtained.
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2.4.3 Both the Rehabilitator and KCL shall use
reasonable efforts, and Buyer shall reasonably cooperate with the
Rehabilitator and KCL, to obtain all necessary approvals, consents or waivers
referred to in Section 2.4.2 necessary to transfer and convey to Buyer each
such Restricted Transfer Contract at the Closing and, if obtained, shall
transfer and convey such Restricted Transfer Contract at the Closing. Buyer
shall not be obligated to accept any transfer or conveyance of a Restricted
Transfer Contract unless and until the Rehabilitator and KCL have obtained all
of the necessary approvals, consents and waivers to that transfer and
conveyance. Buyer shall not be obligated to pay any consideration therefor,
including any filing fees and other ordinary administrative charges, all of
which shall be paid by KCL.
2.4.4 To the extent that any of the approvals,
consents or waivers referred to in Section 2.4.3 have not been obtained by the
Rehabilitator and KCL as of the Closing, each of the Rehabilitator and KCL
shall, during the remaining term of such Restricted Transfer Contracts, use
reasonable efforts, to (i) obtain the approval, consent or waiver of any such
third party and transfer and convey such Restricted Transfer Contract to Buyer
as soon as practicable; (ii) cooperate with Buyer in any reasonable and lawful
arrangements designed to provide the benefits of such Restricted Transfer
Contracts to Buyer so long as Buyer fully cooperates with the Rehabilitator
and KCL in such arrangements (without cost to Buyer); and (iii) enforce, at
the request and direction of Buyer if agreed by the Rehabilitator and KCL and
at the expense of KCL any rights of KCL arising from such Restricted Transfer
Contracts against such issuer thereof or the other party or parties thereto
(including the right to elect to terminate any such Restricted Transfer
Contract in accordance with the terms thereof upon the advice of Buyer and
consent of Rehabilitator and KCL). Nothing herein shall relieve the
Rehabilitator and KCL of their obligation to provide for the transfer and
conveyance of the Restricted Transfer Contracts or to secure the rights and
benefits thereof to Buyer.
2.4.5 Schedule 2.4.5 is a list of all the permits and
licenses held or used by KCL which are applicable to the Buyer's Transferred
Assets or the Buyer's Transferred Liabilities. Subsequent to the Closing, to
the extent permitted by law, KCL shall have the right to cancel any permits or
licenses or any bonds, guarantees or undertakings by KCL applicable to the
Buyer's Transferred Assets or the Buyer's Transferred Liabilities to the
extent KCL cannot, after the exercise of its reasonable efforts, obtain the
consents necessary for the assignment and transfer thereof to Buyer pursuant
to this Section 2.4. KCL in any event agrees to maintain, at Buyer's
reasonable request, any such permits, licenses, bonds, guarantees or
undertakings for up to six months after the Closing or until expired,
whichever occurs first. All costs associated with the assignment or transfer
of permits and licenses shall be paid pursuant to the terms of the Life and
Health Agreement.
2.5 Liabilities Assumed by Buyer. At the Closing, Buyer shall
assume the Buyer's Transferred Liabilities pursuant to the Life and Health
Agreement and the Reinsurance Agreement. Except as expressly provided in the
Life and Health Agreement and the Reinsurance Agreement, Buyer does not and
shall not assume, pay or be liable for any risks, liabilities, undertakings,
debts, covenants, commitments or other obligations either express or implied
of the Rehabilitator, KCL or any affiliate of KCL.
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3. Closing
3.1 Closing. Subject to and following the satisfaction or
waiver of all conditions set forth in Section 6 of this Agreement, the closing
of the purchase and sale of the Buyer's Transferred Assets (the "Closing")
shall occur on the Closing Date.
3.2 Items to be Delivered by the Rehabilitator and KCL. At the
Closing, the Rehabilitator and KCL, as the case may be, shall execute and
deliver to Buyer the following:
(a) such duly executed bills of sale with covenants of warranty,
endorsements, assignments and other good and sufficient
instruments of transfer as may be reasonably necessary or
appropriate to convey, transfer and assign to, and vest in,
Buyer good, clear and valid title to the Buyer's Transferred
Assets, in the form of Exhibit B attached hereto;
(b) documents evidencing the assignment of the contracts,
permits and licensees referred to in Section 2.4;
(c) the Reinsurance Agreement and the documents described in
Section 2.3.1;
(d) documents relating to Transferred Securities Assets
contemplated by Section 2.3.2 hereof, and (i) in the case of
Registered Securities with respect to which Buyer has
instructed KCL to deliver to the Buyer's Nominee, written
confirmation that the Buyer's Nominee has received those
Registered Securities, and (ii) in the case of Miscellaneous
Instruments with respect to which Buyer has instructed KCL
shall be delivered to the Buyer's Nominee, written
confirmation that the Buyer's Nominee has received the
Miscellaneous Instruments, duly endorsed, bearing all
requisite signature guaranties and otherwise in deliverable
form;
(e) a certificate of KCL in the form of Exhibit C attached
hereto certifying as to the accuracy of KCL's
representations and warranties at and as of the Closing Date
and that KCL has performed and complied with all agreements
and conditions to be performed and complied with by it at
the Closing; and
(f) such other closing documents as Buyer or its counsel may
reasonably request.
3.3 Items to be Delivered by Buyer. At the Closing, Buyer will
execute and deliver to KCL the following:
(a) the Reinsurance Agreement;
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(b) any representations or warranties as requested by the
Rehabilitator or KCL to transfer KCL's assets to the Buyer
as contemplated by this Agreement and pursuant to Section
2.3.3.1 herein.
(c) any other documents reasonably required by the Rehabilitator
to evidence the assumption of the assignable contracts,
permits and licenses referred to in Section 2.4;
(d) a certificate of Buyer in the form of Exhibit D attached
hereto certifying as to the accuracy of Buyer's
representations and warranties at and as of the Closing Date
and that Buyer has performed and complied with all of the
terms, provisions and conditions to be performed and
complied with by it at the Closing;
(e) an incumbency certificate for Buyer dated the Closing Date,
including specimen signatures; and
(f) such other closing documents as the Rehabilitator or its
counsel may reasonably request.
4. Purchase and Sale of Subsequent Assets
4.1 Transfer of Subsequent Assets. In the event that additional
assets of KCL become distributable to Buyer pursuant to Section 4.4.3.2 of the
Life and Health Agreement (the "Subsequent Transferred Assets"), then the
Rehabilitator and KCL shall, on the date or dates on which such assets become
distributable (the "Subsequent Closing Dates"), sell, assign, transfer, convey
and deliver to Buyer, and Buyer shall purchase, acquire and accept from KCL,
all right, title and interest in and to the Subsequent Transferred Assets
(including any securities, commercial paper or interests in partnerships that
are included as part of the Subsequent Transferred Assets (the "Subsequent
Transferred Securities Assets")). On each Subsequent Closing Date, the
Rehabilitator and KCL shall deliver to Buyer, or at the election of Buyer, the
Buyer's Nominee, and Buyer shall deliver to the Rehabilitator and KCL such
instruments of transfer or other documents and Rehabilitator, KCL and Buyer
shall take such other actions to effect the transfer to Buyer or the Buyer's
Nominee of the Subsequent Transferred Assets as would be required under
Section 2 of this Agreement if such assets were Buyer's Transferred Assets.
4.2 Items to be Delivered by the Rehabilitator and KCL at a
Subsequent Closing. At each closing of the transfer of the Subsequent
Transferred Assets (a "Subsequent Closing"), the Rehabilitator and KCL, as the
case may be, shall execute and deliver to Buyer the following:
(a) such duly executed bills of sale with covenants of warranty,
endorsements, assignment and other good and sufficient
instruments of transfer as may be reasonably necessary or
appropriate to convey, transfer and assign to, and vest in,
Buyer good, clear and valid title to the Subsequent
Transferred Assets, in the form of Exhibit B attached
hereto;
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(b) a certificate of KCL in the form of Exhibit C attached
hereto certifying as to the accuracy of KCL's
representations and warranties, required by section 5.1.1 of
this Agreement, at and as of the Subsequent Closing Date and
that KCL has performed and complied with all agreements and
conditions to be performed and complied with by it at the
Subsequent Closing; and
(c) such other closing documents as the Rehabilitator or his
counsel may reasonably request.
4.3 Items to be Delivered by Buyer at a Subsequent Closing. At
each Subsequent Closing, Buyer will execute and deliver to KCL the following:
(a) a certificate of Buyer in the form of Exhibit D attached
hereto certifying as to the accuracy of Buyer's
representations and warranties at and as of the Subsequent
Closing Date and that Buyer has performed and complied with
all of the terms, provisions and conditions to be performed
and complied with by Buyer at the Subsequent Closing; and
(b) any representations or warranties as requested by the
Rehabilitator or KCL to transfer KCL's assets to the Buyer
as contemplated by this Agreement and pursuant to Section
2.3.3 herein.
(c) such other closing documents as the Rehabilitator or his
counsel may reasonably request.
4.4 Conditions Precedent With Respect to a Subsequent Closing.
4.4.1 All obligations of Buyer under this Agreement at a
Subsequent Closing are subject to the fulfillment or satisfaction of each of
the following conditions precedent:
(a) All conditions precedent of Buyer set forth in Section
7 hereof shall have been satisfied or waived in
writing by Buyer.
(b) The Rehabilitator and KCL shall have performed and
complied in all material respects with all agreements
and covenants required by this Agreement to be
performed or complied with by it at the Subsequent
Closing. Without limiting the generality of the
foregoing, the Rehabilitator and KCL shall have taken
all action to ensure Transfer Pre-Clearance with
respect to the Subsequent Transferred Securities
Assets, and the Subsequent Transferred Securities
Assets shall have been transferred in accordance with
this Agreement and the Working Procedure.
(c) The representations and warranties of KCL contained
herein shall be true and correct on the Subsequent
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Closing Date with the same effect as though made on and as
of such Subsequent Closing Date.
4.4.2 All obligations of the Rehabilitator and KCL under
this Agreement at a Subsequent Closing shall be subject to the fulfillment or
satisfaction of the following conditions precedent:
(a) All conditions precedent of the Rehabilitator and KCL
set forth in Section 7 hereof shall have been
satisfied in all material respects or waived in
writing by KCL; and
(b) The Buyer shall have performed and complied in all
material respects with all agreements and covenants
required by this Agreement to be performed or complied
with by it at the Subsequent Closing. Without
limiting the generality of the foregoing, the Buyer
shall have taken all action to ensure Transfer
Pre-Clearance with respect to the Subsequent
Transferred Securities Assets, and the Subsequent
Transferred Securities Assets shall have been
transferred in accordance with this Agreement and the
Working Procedure.
(c) the representations and warranties of Buyer contained
herein shall be true and correct on the Subsequent
Closing Date with the same effect as though made on
the Subsequent Closing Date.
(d) Each condition precedent, whether for the benefit of
the Rehabilitator, KCL, Buyer or all of the parties,
shall be deemed satisfied as of a Subsequent Closing
or, if earlier, upon written notice of such
satisfaction by the performing party to the other
parties, unless the party for whose benefit each such
condition exists shall provide written notice to the
other of the failure of one or more particular
conditions precedent to be satisfied.
5. Representations and Warranties
5.1 Representations and Warranties of KCL.
Notwithstanding any independent investigation or verification undertaken by
Buyer, in order to induce Buyer to enter into this Agreement and to cause
Buyer to consummate the transactions contemplated hereby, KCL, acting by and
through the Rehabilitator, represents and warrants to Buyer as of the date
hereof and as of the Closing Date, as follows:
5.1.1 Incorporation by Reference. Subject to the
limitation set forth in Section 8.3 of the Life and Health Agreement, the
representations and warranties of KCL set forth in Section 8.1 of the Life and
Health Agreement are incorporated by reference herein in their entirety, as of
Closing, as though fully set forth.
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5.1.2 Representations at Subsequent Closing. In
accordance with the provisions of the Life and Health Agreement, the
representations and warranties set forth in the Life and Health Agreement do
not survive Closing. For purposes of this Agreement, if KCL transfers at a
Subsequent Closing Cash, Treasury Securities, or other securities which are
frequently traded on securities markets, the only representations and
warranties that KCL must make at a Subsequent Closing are (i) KCL is the owner
of the asset and has the ability to transfer title to the Buyer, (ii) that
there are no liens, restrictions or encumbrances against the asset, and (iii)
that KCL has satisfied or otherwise made reasonable allowance for the payment
of all applicable priority claims or Indemnity Losses against the assets. If
KCL desires to transfer at the Subsequent Closing any other assets other than
those identified above, KCL shall update to the Subsequent Closing, and
demonstrate compliance with, such representations and warranties from the Life
and Health Agreement as are reasonably necessary.
5.1.3 Disclosure. Under the Life and Health
Agreement, the Transferred Asset Value of the Transferred Securities Assets
shall be determined based on the fair market value of the Transferred
Securities and Short Term Investments transferred to Buyer as of the Closing.
KCL acknowledges that (i) Buyer may be in possession of material, nonpublic
information regarding the issuers of the Transferred Securities Assets or the
Subsequent Transferred Securities Assets, their financial condition, results
of operations, businesses, properties, assets, liabilities, management,
projections, appraisals, plans and prospects, as well as information regarding
the claims of creditors of such issuers; (ii) such information may be
materially adverse to the interests of KCL; and (iii) if KCL were in
possession of some or all of such information KCL might not sell or deliver
any or all of the Transferred Securities Assets or the Subsequent Transferred
Securities Assets pursuant to this Agreement. KCL also acknowledges and
agrees that Buyer shall have no obligation to disclose to KCL or the
Rehabilitator any of the information referred to in the preceding sentence.
KCL further acknowledges that it has conducted its own investigation, to the
extent that it has determined necessary or desirable, regarding the
information described in the first sentence of this subparagraph 5.1.3.
5.2 Representations and Warranties of Buyer.
Notwithstanding any independent investigation or verification undertaken by
the Rehabilitator, in order to induce the Rehabilitator to enter into this
Agreement and to cause the Rehabilitator to consummate the transactions
contemplated hereby, Buyer represents and warrants to the Rehabilitator and
KCL as of the date hereof and as of the Closing Date, as follows:
5.2.1 Incorporation by Reference. Subject to the
limitation set forth in Section 8.3 of the Life and Health Agreement, the
representations and warranties of Buyer set forth in Section 8.2 of the Life
and Health Agreement are incorporated by reference herein in their entirety,
as of Closing, as though fully set forth.
5.2.2 Disclosure. Under the Life and Health
Agreement, the Transferred Asset Value of the Transferred Securities Assets
shall be determined based on the fair market value of the Transferred
Securities and Short Term Investments transferred to Buyer as of the Closing.
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Buyer acknowledges that (i) KCL may be in possession of material, nonpublic
information regarding the issuers of the Transferred Securities Assets or the
Subsequent Transferred Securities Assets, their financial condition, results
of operations, businesses, properties, assets, liabilities, management,
projections, appraisals, plans and prospects, as well as information regarding
the claims of creditors of such issuers; (ii) such information may be
materially adverse to the interests of Buyer; and (iii) if Buyer were in
possession of some or all of such information Buyer might not purchase or
accept any or all of the Transferred Securities Assets or the Subsequent
Transferred Securities Assets pursuant to this Agreement. Buyer also
acknowledges and agrees that KCL shall have no obligation to disclose to Buyer
any of the information referred to in the preceding sentence. Buyer further
acknowledges that it has conducted its own investigation, to the extent that
it has determined necessary or desirable, regarding the information described
in the first sentence of this subparagraph 5.2.2.
5.2.3 Investment Representations. Buyer represents
and warrants to the Rehabilitator and KCL that: (a) Buyer is knowledgeable,
sophisticated and experienced in business and financial matters and fully
understands the risks associated with Buyer's investment in the Transferred
Securities Assets and the Subsequent Transferred Securities Assets; (b) Buyer
is able to bear the economic risk of its investment in the Transferred
Securities Assets and the Subsequent Transferred Securities Assets and is
presently able to afford the complete loss of such investment; and (c) Buyer
is not purchasing the Transferred Securities Assets or the Subsequent
Transferred Securities Assets with a view to, or for offer or sale in
connection with, any distribution (within the meaning of the Securities Act of
1933, as amended) of the Transferred Securities Assets or the Subsequent
Transferred Securities Assets or any portion thereof in any transaction that
would be in violation of the securities laws of the United States of America
or any State thereof.
5.3 Base Case Assumptions. The Rehabilitator and KCL
acknowledge that Buyer has entered into this Agreement in reliance on certain
data and assumptions which are set forth as Base Case Assumptions on Schedule
8.1.13 of the Life and Health Agreement. Base Case Assumptions 3, 5(iv) and 6
set forth on Schedule 8.1.13 of the Life and Health Agreement are incorporated
by reference herein in their entireties as though fully set forth.
6. Covenants. The covenants of KCL and Buyer in respect of the
Buyer's Transferred Assets and Buyer's Transferred Liabilities set forth in
the Life and Health Agreement are incorporated by reference herein in their
entirety as though fully set forth.
6.1 Proprietary Information. KCL acknowledges that certain
information of KCL comprising a portion of the Buyer's Transferred Assets is
confidential, and that all information relating to the Buyer's Transferred
Assets, will on the Closing Date, be the exclusive property of Buyer. KCL
agrees that it will not, for any reason except as required by law, disclose or
use at any time, other than for the benefit of the business of Buyer, any
confidential information of KCL sold to Buyer as part of the Buyer's
Transferred Assets, or use the information directly or indirectly to the
detriment of Buyer or any of its affiliates in any way. KCL hereby
acknowledges that the restrictions set forth in this Section 6.1 are
reasonable in terms of both scope and time period, and are special, unique and
of extraordinary character.
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6.2 Disclosure. Without limiting any rights of Buyer under the
Life and Health Agreement, from the period commencing on the date hereof
through the Closing Date, the Rehabilitator shall cause KCL to permit
representatives of Buyer, as well as those independent actuaries, consultants,
attorneys and accountants retained by Buyer, such access during normal
business hours to the Buyer's Transferred Assets and the Buyer's Transferred
Liabilities, as well as those properties, books and records of KCL as they may
reasonably require, and such access to KCL employees to discuss the assets and
liabilities of KCL which are anticipated to become Buyer's Transferred Assets
and the Buyer's Transferred Liabilities and any proposed actions with respect
thereto, and shall cooperate with and cause KCL and the actuaries,
consultants, advisors and counsel retained by the Rehabilitator and KCL to
cooperate with and provide those representatives, actuaries, consultants,
attorneys and accountants of Buyer all such information pertaining to KCL and
its affairs, operation and management as it may reasonably request for
purposes relating to this Agreement, including procuring information from
issuers of securities. Upon request by Buyer, the Rehabilitator shall cause
KCL to exercise its rights to obtain information from the issuers of
securities KCL owns.
6.3 Further Assurances. The Rehabilitator and KCL from time to
time after the Closing, at Buyer's request, will execute and deliver such
other documents, certifications and further assurances: (i) as Buyer may
request in order to vest more effectively in Buyer, or to put Buyer more fully
in possession of, any of the Buyer's Transferred Assets; (ii) as otherwise may
be required to better enable Buyer to complete, perform or discharge any of
the Buyer's Transferred Liabilities; or (iii) as may be reasonably required or
necessary to effectuate the intent and purpose of this Agreement.
7. Conditions Precedent to Closing. All obligations of the
Rehabilitator, KCL, and the Buyer are subject to the fulfillment or
satisfaction, at the Closing, of all Conditions Precedent to Closing set forth
in Article 9 of the Life and Health Agreement, which provisions are
incorporated by reference herein in their entirety as though fully set forth.
8. Indemnification. The parties shall have indemnification rights
and obligations with respect to this Agreement in accordance with the
provisions of Article 10 of the Life and Health Agreement. Article 10 of the
Life and Health Agreement is incorporated by reference herein in its entirety
as though fully set forth.
9. General Provisions. The General Provisions of Article 14 of the
Life and Health Agreement are incorporated by reference herein inn their
entirety as though fully set forth.
9.1 Relationship to Life and Health Agreement. The parties to
this Agreement are entitled to all rights and benefits, and are subject to all
obligations specified on their part under the Life and Health Agreement
pertaining to the subject matter of this Agreement, and all provisions of the
Life and Health Agreement referenced herein are incorporated by reference
herein and made a part hereof. In the event of any conflict between the
provisions of this Agreement and the Life and Health Agreement, the provisions
of the Life and Health Agreement shall control.
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9.2 Binding Effect. All of the terms and provisions of this
Agreement shall be binding upon and inure to the benefit of and be enforceable
by the successors and assigns of KCL and the Buyer.
9.3 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Kentucky, without
giving effect to the principles of conflicts of law thereof.
9.4 Dispute Resolution. Disputes arising under this Agreement
with respect to Calculation Matters shall be resolved in accordance with
Section 13.1 of the Life and Health Agreement.
9.5 Counterparts. This Agreement may be executed in any number
of counterparts, each of which when executed and delivered shall be deemed to
be an original and all of which counterparts taken together shall constitute
but one and the same instrument.
9.6 Notices. Any notice request, demand, waiver, consent,
approval or other communication required or permitted to be made hereunder
shall be made in accordance with the notice provisions of Section 14.13 of the
Life and Health Agreement.
9.7 Liability of the Rehabilitator. The Rehabilitator is a
party to this Agreement only in his representative capacity as Rehabilitator
of KCL, and no individually, and the parties hereto agree and acknowledge that
the Rehabilitator shall not have any personal liability for any matters or
obligations hereunder and further acknowledge that the Commonwealth of
Kentucky is not a party and shall have no liability with respect hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
KENTUCKY CENTRAL LIFE
INSURANCE COMPANY
By:
Don W. Stephens, Insurance
Commissioner for the Commonwealth
of Kentucky in his capacity as
Rehabilitator and not individually
JEFFERSON-PILOT LIFE INSURANCE COMPANY
By:
David Stonecipher
Chief Executive Officer
155
EXHIBIT 2.2
ASSUMPTION REINSURANCE AGREEMENT
between
KENTUCKY CENTRAL LIFE INSURANCE COMPANY
(In Rehabilitation)
Lexington, Kentucky
and
JEFFERSON-PILOT LIFE INSURANCE COMPANY
Greensboro, North Carolina
156
THIS AGREEMENT, dated as of the _____ day of ___________, 1993
(this "Agreement") has been made and entered into by and between KENTUCKY
CENTRAL LIFE INSURANCE COMPANY, a Kentucky corporation ("KCL"), acting by and
through Don W. Stephens, Insurance Commissioner of the Commonwealth of
Kentucky, the rehabilitator of KCL ("Rehabilitator") and JEFFERSON-PILOT LIFE
INSURANCE COMPANY, a North Carolina corporation (the "Reinsurer").
RECITALS
A. KCL and the Reinsurer have entered into a Life and Health
Agreement in connection with the Rehabilitation of Kentucky Central Life
Insurance Company, dated as of ________________, 1993.
B. Pursuant to Article 2 of the Life and Health Agreement, the
Reinsurer agreed to reinsure and assume the KCL Restructured Contracts in
consideration of the transfer, sale, assignment and conveyance to the
Reinsurer of the Buyer's Transferred Assets, all as defined and described at
greater length in the Life and Health Agreement.
C. This is the Assumption Reinsurance Agreement described in
Section 2.2 of the Life and Health Agreement. Pursuant to Article 2 of the
Life and Health Agreement, the Rehabilitator has agreed to cause KCL to cede
to the Reinsurer, and the Reinsurer has agreed to reinsure and assume from
KCL, the KCL Restructured Contracts on the terms and conditions contained in
the Life and Health Agreement, and as set forth in this Agreement and in that
certain Transfer and Assignment Agreement among the parties hereto of even
date herewith (the "Transfer and Assignment Agreement").
In consideration of the promises, covenants and conditions
contained herein, the parties hereto, intending to be legally bound, hereby
agree as follows:
ARTICLE 1. DEFINITIONS
The capitalized terms used herein and not otherwise defined shall have
the meanings given to such terms in the Life and Health Agreement and the
other Definitive Agreements (such Definitive Agreements being defined in the
Life and Health Agreement), all of which are incorporated herein by reference.
Additional capitalized terms used in this Agreement shall have the meanings
set forth below.
1.1 "Benefits" means those insurance benefits and payments to be
provided under the KCL Restructured Contracts as described in Article 1 of the
Life and Health Agreement, including but not limited to, death benefits,
policy loans, annuity benefits, periodic payments and cash surrender benefits.
1.2 "Effective Date" means 12:01 a.m., Eastern time, on the
Closing Date.
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1.3 "Liabilities in Excess of Policy Limits" means any loss
under a KCL Contract in excess of the contractual limit of said contract, such
excess loss having been caused by reasons that include but are not limited to
the failure by KCL to settle within the contract limit or by reason of alleged
or actual negligence, fraud or bad faith in rejecting an offer of settlement
or in the preparation of the defense or in the trial of any action against its
insured or in the preparation or prosecution of an appeal consequent upon such
action.
1.4 "Net Policy Loans" means gross policy loans as of the next
contract anniversary, plus accrued policy loan interest in respect of the
Reinsured Contracts.
1.5 "Net Policy Reserves" means the statutory reserves, held by
KCL on its books (but not less than the reserves required to be held by the
laws of the Commonwealth of Kentucky), plus any other policy reserves required
by the Department of Insurance (the "Department"), the laws of the
Commonwealth of Kentucky.
1.6 "Reinsured Contracts" means and includes only those KCL
Restructured Contracts which are in force at the Effective Date, did not Opt
Out, and were not Retained Liabilities (including without limitation
liabilities arising under KCL Contracts), all as identified in Section 2.6 of
this Agreement and as adjusted by Section 3.5 of the Life and Health
Agreement.
ARTICLE 2. ASSUMPTION
2.1 Reinsurance and Assumption. Effective as of the Effective
Date, KCL, acting by and through the Rehabilitator, hereby sells, assigns,
cedes to and reinsures with the Reinsurer the Reinsured Contracts, together
with all rights, privileges, duties and obligations of KCL thereunder (except
as otherwise excluded, limited or provided by the terms hereof), and the
Reinsurer hereby accepts such assignment, reinsures such Reinsured Contracts
and assumes all the rights, privileges, duties and obligations of KCL
thereunder (except as otherwise excluded, limited or provided by the terms
hereof) effective as of the Effective Date, all as provided in the Life and
Health Agreement.
2.2 Closing Claims and Expenses. The Reinsurer shall be liable
for the payment of Benefits due on claims and Loss Adjustment Expenses
(defined below) incurred under the Reinsured Contracts on and after the
Effective Date. KCL shall remain liable and solely responsible for the
payment of all expenses ("Loss Adjustment Expenses") incurred in connection
with, and all Benefits due on, claims incurred under the Reinsured Contracts
prior to the Effective Date ("Pre-Closing Claims"). For purposes of this
Section 2.2, (i) Pre-Closing Claims include, without limitation, reported
claims in the course of processing and adjustment, incurred but not reported
claims, claims for unearned premium, and contested claims, and (ii) Loss
Adjustment Expenses include, without limitation, any and all costs and
expenses associated with, or otherwise relating, to the processing and
158
adjustment of the applicable Claims. If a claim for death Benefits under a
Reinsured Contract (i) relates to a death which occurred prior to the
Effective Date and therefore qualifies as a Preclosing Claim, and (ii) if such
claim is not reported to KCL until after tho Effective Date, (x) KCL shall be
liable and solely responsible for the payment of the claim, and (y) the
Reinsurer shall pay to KCL an amount equal to the KCL Restructured Account
Value of the Reinsured Contract promptly following notice of the claim and the
date such was incurred.
2.3 Premiums; Premium Taxes, Reserves.
2.3.1 Premiums. Premiums paid on the Reinsured Contracts
on and after the Effective Date and any loan repayments (and interest payments
thereon) made on the Reinsured Contracts on or after the Effective Date shall
be the sole property of the Reinsurer. From and after the Effective Date, all
KCL Contract Holders under the Reinsured Contracts hereunder shall pay all
premiums and make any loan repayments (and interest payments thereon) on the
Reinsured Contracts directly to the Reinsurer. All monies, checks, drafts,
orders, postal notes or other instruments received by the Rehabilitator or KCL
after the Effective Date for such premiums shall be forthwith transferred and
delivered to the Reinsurer, and any such instruments when so delivered shall
bear all endorsements required to effect such transfer and delivery. From and
after the Effective Date, the Reinsurer shall be authorized, and hereby is
authorized, to endorse for payment any such instruments payable to, or to the
order of, the Rehabilitator or KCL and received by the Reinsurer for premiums
on the Reinsured Contracts hereunder.
2.3.2 Premium Taxes. The Reinsurer shall pay all premium
taxes as may be required by law on premiums received with respect to the
Reinsured Contracts on or after the Effective Date; provided, however, that
the Reinsurer shall not be obligated to pay any premium taxes with respect to
any premiums received under the Reinsured Contracts prior to the Effective
Date.
2.3.3 Reserves. As of the Effective Date, the
Rehabilitator and KCL hereby transfer and irrevocably assign to the Reinsurer,
and the Reinsurer hereby accepts, the total Net Policy Reserves for the
Reinsured Contracts.
2.4 Unassumed Obligations and Liabilities In Excess of Original
Policy Limits. Notwithstanding any other term or provision of this Agreement,
the Life and Health Agreement or any of the other Definitive Agreements, KCL
shall remain liable and solely responsible for any Unassumed Obligations or
Liabilities in Excess of Original Policy Limits.
2.5 The Reinsured Contracts. The following are conditions to
the Reinsurer's obligations hereunder: (i) the Reinsured Contracts shall
consist only of KCL Restructured Contracts developed and issued by KCL
(bearing the Rehabilitation Endorsement), and (ii) the KCL Restructured
Contracts are not retained or reinsured with another party except pursuant to
the terms and conditions of the Life and Health Agreement and the holders of
which have not opted out or been deemed to have opted out pursuant to Article
5 of the Life and Health Agreement.
159
2.6 Identification of Reinsured Contracts. Within sixty days
after the Opt Out Record Date, KCL shall prepare and deliver to Reinsurer a
schedule setting forth each KCL Contract Holder who has not elected to opt
out, as required by Section 3.2 of the Life and Health Agreement. Such
schedule shall consist of a printed summary and a machine readable copy of the
policy master record file that identifies the contracts that will (i) be
retained by KCL or reinsured with a third party, (ii) Opt Out or be deemed to
Opt Out, and (iii) be Reinsured Contracts. In accordance with the provisions
of Section 3.2 of the Life and Health Agreement, the schedule referred to
above will be updated as of the Closing Date, and will be provided to the
Reinsurer as soon as reasonable following Closing. The schedule of the
Reinsured Contracts, updated to Closing, and following resolution of any
objections and disputes (in accordance with Section 3.2.2 of the Life and
Health Agreement), shall, subject to the adjustments permitted in Section 3.5
of the Life and Health Agreement, be deemed the final and conclusive
identification by KCL and the Reinsurer of the KCL Restructured Contracts that
will be the Reinsured Contracts reinsured under this Agreement.
2.7 Assumption Certificate. Within 120 days following the
Closing Date, the Reinsurer will issue to each KCL Contract Holder of a
Reinsured Contract a certificate on a form approved by or filed with the
insurance regulatory authorities of the appropriate state, as required by
applicable state law, and approved by such regulatory authorities in
substantially the form shown in Exhibit A hereto confirming the Reinsurer's
assumption of KCL's liability for Benefits in respect of the Reinsured
Contracts. The certificates will be mailed to each KCL Contract Holder in care
of the address shown on the books and records of KCL.
2.8 Account Value Increments. The Reinsurer acknowledges that,
pursuant the Life and Health Agreement, it is anticipated that the
Rehabilitator or KCL may provide Account Value Increments in accordance with
and subject to the terms, conditions and limitations of the Life and Health
Agreement and the Rehabilitation Plan. Should any Account Value Increments be
paid to the Reinsurer for the account and benefit of KCL Restructured Contract
Holders in cash or otherwise in accordance with the terms of the Life and
Health Agreement and the Rehabilitation Plan, the Reinsurer shall cause such
Account Value Increment (i) to be applied to the KCL Assumed Restructured
Contracts of Persisting KCL Restructured Contracts as Account Value
Increments, and (ii) to be paid by check, mailed to the last known address, to
Non-Persisting KCL Restructured Contract Holders, as provided in the Life and
Health Agreement and the Rehabilitation Plan.
2.9 Correction of Error or Indemnification Payments. Any
payment from, or to, the Rehabilitator or KCL, as the case may be, that is
made as a Correction of Error adjustment pursuant to Section 3.5 of the Life
and Health Agreement shall be considered an increase, or decrease, in the
consideration paid in this assumption reinsurance transaction. Any payment
from the Rehabilitator or KCL for the purpose of reimbursing the Reinsurer for
an indemnity claim made pursuant to Article 10 of the Life and Health
Agreement shall be considered an adjustment or replacement of consideration
paid in this assumption reinsurance transaction.
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2.10 No Liability or Obligation for Retained Liabilities. It is
expressly understood and agreed that, under the terms of the Life and Health
Agreement and this Agreement, the Reinsurer is assuming only the express
contractual liabilities under the Reinsured Contracts, and the Reinsurer does
not assume, acquire, or agree to pay any other liabilities or obligations
whatsoever.
2.11 Other Account Value Adjustments. Notwithstanding any other
provision of this Agreement, the KCL Restructured Account Values may be
adjusted after Closing in accordance with the provisions of the Life and
Health Agreement, including without limitation the adjustments permitted by
sections 3.1.4 or 3.5.1, and Article 10 of the Life and Health Agreement.
ARTICLE 3. CONSIDERATION
In consideration of the reinsurance and assumption of the
Reinsured Contracts, KCL will sell, convey and assign the Buyer's Transferred
Assets to the Reinsurer as provided in the Life and Health Agreement and the
Transfer and Assignment Agreement.
ARTICLE 4. OPT OUT ELECTIONS
It is expressly understood and agreed that, under the terms of the Life
and Health Agreement and this Agreement, the Reinsurer shall not assume, and
shall have no liabilities or obligations with respect to, any KCL Contracts or
KCL Restructured Contracts the holders of which have elected to Opt Out or
have been deemed to Opt Out pursuant to Article 5 of the Life and Health
Agreement.
ARTICLE 5. TRANSITIONAL PROVISIONS
and agree to use best efforts to effect the transfer, on a prompt and orderly
basis, of all Business Assets reasonably necessary and appropriate for the
administration of the Reinsured Contracts.
5.2 Pre-Closing Claims. At the Rehabilitator's option and
subject to approval of the Rehabilitation Court should the Rehabilitator elect
to seek such approval, the Reinsurer shall provide such services as may be
reasonably required by KCL from time to time in connection with the processing
and disposition of Pre-Closing Claims or other retained liabilities of KCL
under Section 2.2 hereof. The Reinsurer's obligations under this Section 5.3
may be set forth in an Administrative Services Agreement, which may provide
for such compensation to the Reinsurer as may be agreed upon by the parties
and which shall take into account reimbursement received by the Reinsurer
under the Expense Reimbursement Agreement, if applicable. If the parties
cannot agree prior to the Closing on the form of the Administrative Services
Agreement, then the Reinsurer shall have no obligation to provide services
pursuant to this section 5.2.
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ARTICLE 6. GENERAL PROVISIONS
6.1 Liability of the Rehabilitator. The Rehabilitator is a
party to this Agreement only in his representative capacity as Rehabilitator
of KCL, and not individually, and the parties hereto agree and acknowledge
that the Rehabilitator shall not have any personal liability for any matters
or obligations hereunder and further acknowledge that the Commonwealth of
Kentucky is not a party and shall have no liability by reason of the execution
of this Agreement.
6.2 Tax Elections. Provided Buyer receives the Letter Ruling
set forth in Schedule 9.2.13(iii) of the Life and Health Agreement, KCL and
the Reinsurer shall make the appropriate elections pursuant to Section 1.848-
2(g)(8) and section 1.848-2(i)(4) of the United States Treasury Regulations
with respect to policy acquisition expenses for each taxable year during which
a transfer of assets occurs, including without limitation transfers in
connection with Account Value Increments, Post-Closing Account Value
Adjustments under Section 3.5 of the Life and Health Agreement, and Indemnity
Payments.
6.3 Further Assurances. Each party hereto shall execute and
deliver all letters, applications, certificates and other documents as
reasonably requested by any other party hereto as are necessary to effect or
carry out the provisions of this Agreement.
6.4 Entire Agreement. This Agreement, the Life and Health
Agreement, the Transfer and Assignment Agreement, the Expense and
Reimbursement Agreement, the other Definitive Agreements and the Ancillary
Agreements constitute the entire agreement among the parties with respect to
the subject matter hereof and upon execution shall supersede all prior
agreements, understandings, negotiations and discussions, whether oral or
written, of the parties, except for that certain Deposit Agreement dated as of
July 28, 1993 by and between the Rehabilitator and the Reinsurer. There are
no representations, promises, warranties, covenants or undertakings, other
than those expressly set forth or referred to in this Agreement, the Life and
Health Agreement, the Transfer and Assignment Agreement, the Expense
Reimbursement Agreement, the other Definitive Agreements and the Ancillary
Agreements.
6.5 Coordination of Agreements. The parties shall be entitled
to all the rights and benefits, and shall be subject to all the obligations
and undertakings held by, and imposed on them under the Life and Health
Agreement, the other Definitive Agreements and the Ancillary Agreements, all
of which are incorporated herein by reference and made a part hereof for all
purposes. This Agreement, the Life and Health Agreement, the Transfer and
Assignment Agreement, the other Definitive Agreements and the Ancillary
Agreements shall be construed insofar as possible in a manner that gives
effect to each of their respective terms and avoids inconsistency among them.
If any provision of this Agreement is found to be irreconcilably inconsistent
with any provision of the Life & Health Agreement, the Transfer and Assignment
Agreement or the other Definitive Agreements, the provisions of the Life and
Health Agreement shall be given precedence over all other documents.
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6.6 Amendment. This Agreement may be amended only in writing
executed by all of the parties hereto.
6.7 Waiver. Any term or provision of this Agreement may be
waived at any time by the party entitled to the benefit thereof by a written
instrument duly executed by such party. No failure or delay of any party
hereto in exercising any power or right under this Agreement shall operate as
a waiver thereof, nor shall any single or partial exercise of any such right
or power or any abandonment or discontinuance of steps to enforce such a right
or power, preclude any other or further exercise thereof or the exercise of
any other right or power. The rights and remedies of each party under this
Agreement are cumulative and are not exclusive of any rights or remedies which
it would otherwise have. No waiver of any provision of this Agreement or
consent to any departure by the other parties hereto therefrom shall in any
event be effective unless permitted in accordance with the first sentence of
this Section 6.7, and then such waiver or consent shall be affective only in
the specific instance and for the purpose for which given. No notice to or
demand on the other party hereto by a party in any case shall entitle such
other party to any other or further notice or demand in similar or other
circumstances.
6.8 Binding Effect. All of the terms and provisions of this
Agreement shall be binding upon and inure to the benefit of and be enforceable
by the successors and assigns of KCL and the Reinsurer.
6.9 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Kentucky, without
giving effect to the principles of conflicts of law thereof.
6.10 Headings and Gender. All section headings contained in this
Agreement are for convenience of reference only, do not form a part of this
Agreement and shall not affect in any way the meaning or interpretation of
this Agreement. words used herein, regardless of the number and gander
specifically used, shall be deemed and construed to include any other number,
singular or plural, and any other gander, masculine, feminine, or neuter, as
the context requires.
6.11. Notices. Any notice, request, demand, waiver, consent,
approval or other communication required or permitted to be made or given
hereunder shall be in writing and shall be deemed given only if delivered by
hand, or mailed by certified or registered mail with postage prepaid and
return receipt requested, or sent by facsimile transmission, as follows:
(a) If to KCL, to:
Kentucky Central Life Insurance Company
Kincaid Towers
Lexington, Kentucky 40506
Attention: Don W. Stephens
Telefax No.: (606) 253-5220
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with a copy to:
Ernst & Young
797 7th Avenue
New York, New York 10019
Attention: Mr. Charles Carroll
Telefax No., (212) 489-1776
and with a copy to:
Stites & Harbison
2300 Lexington Financial Center
Lexington, Kentucky 40507
Attention: Janet A. Craig, Esq.
Telefax No.: (606) 253-9144
(b) If to the Reinsurer, to:
Jefferson-Pilot Life Insurance Company
P.O. Box 21008
Greensboro, North Carolina 27420
Attention: John D. Hopkins, Esq.
Telefax No.: (919) 691-3256
or to such other address or additional parties as a party may designate by
written notice to the other party hereto. Such notice, request, demand,
waiver, consent, approval or other communication will be deemed to have been
given as of the date so delivered, sent by facsimile or mailed.
6.12 Schedules and Exhibits. All Recitals, Schedules and
Exhibits referred to herein are intended to be and hereby are specifically
made a part of this Agreement.
6.13 Time. The dates and time periods met forth in this
Agreement for the occurrence, completion or performance of each of the
obligations and conditions set forth herein are of the essence. In the event
that any party hereto becomes aware of or events which create a reasonable
likelihood that any such time requirement is inadequate, such party
immediately shall provide notice thereof to the other party hereto with the
notice provisions hereof, which notice shall include a revised estimate by
such party of the time of occurrence, completion or performance of the
particular obligation. Such notice shall not excuse compliance with the
original deadline unless such be waived in writing by the party receiving the
notice.
6.14 Enforcement of Provisions. The Reinsurer is authorized to
undertake in its own name or that of KCL any defense at law or in equity to an
action or claim made under a Reinsured Contract which could have been made by
KCL had this Agreement not been executed; and, except as otherwise expressly
provided herein, in the Life and Health Agreement and in the other Definitive
Agreements, all of the provisions and limitations contained in the Reinsured
Contracts shall remain in effect and be applicable in accordance with their
terms as issued by KCL.
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6.15 Representations, Warranties, Covenants, and Remedies. The
representations, warranties, covenants, and remedies of KCL and the Reinsurer
as set forth in the Life and Health Agreement are incorporated herein by
reference.
6.16 Conditions to Closing. The Closing of this Agreement shall
be subject to the conditions precedent specified in Article 9 of the Life and
Health Agreement.
6.17 Dispute Resolution. Disputes arising under this Agreement
with respect to Calculation Matters shall be resolved in accordance with
Section 13.1 of the Life and Health Agreement.
6.18 Counterparts. This Agreement may be executed in any number
of counterparts, each of which when executed and delivered shall be deemed to
be an original and all of which counterparts taken together shall constitute
but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
KENTUCKY CENTRAL LIFE
INSURANCE COMPANY
By:
Don W. Stephens, Insurance
Commissioner for the Commonwealth
of Kentucky in his capacity as
Rehabilitator and not individually
JEFFERSON-PILOT LIFE INSURANCE COMPANY
By:
David Stonecipher
Chief Executive Officer
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Exhibit A
ASSUMPTION CERTIFICATE
This is to certify that
[policy number as restructured]
Insured through
KENTUCKY CENTRAL LIFE INSURANCE COMPANY
(In Rehabilitation)
Lexington, Kentucky
Has been assumed by
BUYER'S NAME
Buyer's Address
[Buyer's Name], a _______________ life insurance corporation, will carry out
the provisions of the insurance contract and will perform all obligations and
assume all liabilities due thereunder effective as of [EFFECTIVE DATE].
Please keep this certificate as part of your policy records.
/s/
President
IMPORTANT NOTE:
All premium payments and correspondence should be sent directly to:
BUYER'S NAME
Buyer's Address
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SCHEDULES TO LIFE AND HEALTH AGREEMENT
1. Schedule 1.4 - Guaranteed Maximum Cost of Insurance Charges.
2. Schedule 1.11 - Hardship Criteria.
3. Schedule 1.12 - Premium charges - KCL Restructured GPWL Contracts.
4. Schedule 2.1(a) - Bonds.
5. Schedule 2.1(b) - Equities.
6. Schedule 2.1(f) - Transferred Other Assets.
7. Schedule 2.1(g) - Business Assets.
8. Schedule 3.4 - Tillinghast 1975-80 select and ultimate smoker/
non-smoker mortality tables.
9. Schedule 6.3 - Renewal Commissions.
10. Schedule 8.1.5 - Compliance with Applicable Laws.
11. Schedule 8.1.6 - Taxes.
12. Schedule 8.1.7 - Litigation.
13. Schedule 8.1.8 - Compliances with Labor Laws.
14. Schedule 8.1.9 - Reinsurance.
15. Schedule 8.1.12 - Absence of Undisclosed Liabilities.
16. Schedule 8.1.13 - Base Case Assumptions.
17. Schedule 8.1.15(a) - Intellectual Property.
18. Schedule 8.1.15(b) - Computer Hardware and Software.
19. Schedule 8.1.16 - Securities Deposited.
20. Schedule 8.1.18 - Commission Agreements.
21. Schedule 8.1.19 - Litigation with Agents.
22. Schedule 8.1.20 - Environmental Conditions.
23. Schedule 8.2.3 - No Breach.
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SCHEDULES TO LIFE AND HEALTH AGREEMENT (CONTINUED)
24. Schedule 9.2.13(ii) - IRS Rulings.
25. Schedule 9.2.13(iii) - IRS Rulings.
26. Schedule 15.58 - KCL Contracts.
27. Schedule 15.60 - Credit Insurance.
28. Schedule 15.61 - Deferred Annuities.
29. Schedule 15.63 - GPWL.
30. Schedule 15.64 - Health.
31. Schedule 15.66 - Immediate Annuities.
32. Schedule 15.67 - Interest Sensitive Life.
33. Schedule 15.78 - Traditional Life.
34. Schedule 15.79 - UL.
35. Schedules 15.80 - Unallocated Group Annuities.
168