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EXHIBIT 10.16
SPLIT-DOLLAR LIFE INSURANCE AGREEMENT
THIS AGREEMENT is entered into as of July 1, 1998, by and between
MATRIA HEALTHCARE, INC., a Delaware corporation (the "Company"), and ROBERTA L.
MCCAW (the "Employee"), in reference to the following facts:
1. The Employee is a valued employee of the Company.
2. The Company has simultaneously with the execution of this Agreement
caused Aetna Life Insurance and Annuity Company (the "Insurance
Company") to issue and deliver to the Employee Policy Number
I0003335 (the "Policy") on the life of the Employee. The first
annual premium has been paid by the Company as of the date of this
Agreement.
NOW, THEREFORE, in consideration of the facts set forth above and the
various promises and covenants set forth below, the parties to this Agreement
agree as follows:
1. Ownership of the Policy.
The Company acknowledges that the Employee is the owner of the
Policy and that Employee is entitled to exercise all of his or her
rights granted by the terms of the Policy, except to the extent that
the power of the Employee to exercise those rights is specifically
limited by this Agreement and the Collateral Security Assignment
Agreement of even date in the form attached hereto as Exhibit A (the
"Collateral Assignment") executed by the Employee with respect to the
Policy. Except as so limited, it is the expressed intention of the
parties to reserve to the Employee all rights in and to the Policy
granted to its owner by the terms thereof, including, but not limited
to, the right to change the beneficiary of that portion of the proceeds
to which the Employee is entitled under Section 3(d) of this Agreement
and the right to exercise settlement options.
2. Premium Payments.
In addition to the first annual premium on the Policy, which
has been paid by the Company as of the date of this Agreement, unless
and until the Employee's employment with the Company is terminated for
reasons other than Employee's Disability (as defined in this Section 2)
prior to the Employee's completion of ten (10) Years of Service (as
defined in this Section 2) if such termination occurs prior to a Change
in Control (as defined in Section 6 below) or due to the Employee's
Disability prior to the Employee's completion of five (5) Years of
Service, the Company agrees to make an annual premium payment on each
of the first six (6) anniversary dates of the Policy in the amount of
$99,240. The Company shall transmit all premium payments required
hereunder directly to the
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Insurance Company. During the period of time that this Agreement is in
effect, the Employee irrevocably agrees that all dividends paid on the
Policy shall be applied to purchase from the Insurance Company
additional paid-up life insurance on the life of the Employee. For
purposes of this Agreement, "Disability" shall mean disability under
the Company's long-term disability plan then in effect (or if no plan
is then in effect, on the date hereof) and a "Year of Service" shall
mean each twelve (12) month period during the Employee's employment
with the Company in which the Employee completes at least one thousand
(1,000) hours of employment with the Company plus, in the event of a
Change in Control of the Company, three (3) years. Employment with any
entity in which the Company, directly or indirectly, owns in excess of
fifty percent (50%) of the voting interests therein shall, for all
purposes of this Agreement, constitute employment with the Company.
3. Repayment Obligation.
(a)(i) Subject to the last sentence of Sections 3(b) and 3(d)
below, upon the first to occur of (w) the twenty-third (23rd)
anniversary date of the Policy, (x) the Employee's death, (y)
termination of the Employee's employment with the Company
(other than by reason of the Employee's death or Disability)
prior to completion of ten (10) Years of Service if such
termination occurs prior to a Change in Control or (z)
termination of the Employee's employment with the Company by
reason of the Employee's Disability prior to completion of
five (5) Years of Service, the Company shall have the right to
be paid the amount of its Premium Advances (as hereinafter
defined), plus, except in the case of the death of the
Employee while employed by the Company, the amount by which
the Net Policy Value (as hereinafter defined) exceeds the
Employee's Vested Life Insurance Plan Benefit (as hereinafter
defined).
(ii) For purposes of this section, the term "Premium Advances"
shall mean the total amount of premiums paid by the Company
hereunder (including any premiums paid on the Policy by the
Trustee under a trust established pursuant to Section 6(a)
below) and the term "Net Policy Value" shall mean the amount
by which the then cash surrender value of the Policy or, in
the event the payment obligation arises pursuant to Section
3(a)(i)(x) above, the death benefit payable under the Policy,
exceeds the amount of the Premium Advances. In the case of a
termination of the Employee's employment described in Section
3(a)(i)(y) or Section 3(a)(i)(z) above, the Employee's Vested
Life Insurance Plan Benefit shall be zero (0). In all other
cases, the Employee's Vested Life Insurance Plan Benefit shall
be the lesser of (x) the Net Policy Value and (y) the amount
calculated by multiplying the greater of (i) $1,844,207 and
(ii) the Net Policy Value by a percentage based on the
Employee's age at termination of employment, Years of Service
and other factors as set forth below:
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PERCENTAGE
------------------------------------------------------------------------
Termination of Employment prior to Termination of Employment
a Change in Control for reasons other due to Disability or after a
than Disability Change in Control
----------------------------------------- ----------------------------
Years of Age at Termination Age at Termination
Service < 55 55 or more
- -------- ------------------------------------------
< 5 - 0 - - 0 - - 0 -
5 - 0 - - 0 - 33%
6 - 0 - - 0 - 40%
7 - 0 - - 0 - 47%
8 - 0 - - 0 - 53%
9 - 0 - - 0 - 60%
10 30% 50% 67%
11 36% 60% 73%
12 42% 70% 80%
13 48% 80% 87%
14 54% 90% 93%
15 or more 60%* 100% 100%
* 100% in the event the Employee's employment is terminated without cause after
attaining 15 Years of Service and 52 years of age. "Cause" shall mean the
Company's termination of the Employee's employment on the basis of criminal or
civil fraud on the part of the Employee involving a material amount of funds of
the Company. Notwithstanding the foregoing, the Employee shall not be deemed to
have been terminated for Cause unless and until there shall have been delivered
to the Employee a copy of a resolution duly adopted by the affirmative vote of
not less than three-quarters (3/4) of the entire membership of the Company's
Board of Directors at a meeting of the Board called and held for such purpose
(after reasonable notice to the Employee and an opportunity for the Employee,
together with the Employee's counsel, to be heard before the Board) finding that
in the good faith opinion of the Board, the Employee was guilty of conduct set
forth in the second sentence of this footnote and specifying the particulars
thereof in detail. For purposes of this Agreement only, the preparation and
filing of fictitious, false or misleading claims in connection with any federal,
state or other third-party medical reimbursement program, or any other violation
of any rule or regulation in respect of any federal, state or other third-party
medical reimbursement program by the Company or any subsidiary of the Company
shall not be deemed to constitute "criminal fraud" or "civil fraud."
The amount that the Company is entitled to be paid under this
Section 3 is hereinafter referred to as the "Repayment
Obligation."
(b) In the case of a termination of the Employee's employment
described in Section 3(a)(i)(y) or Section 3(a)(i)(z) above,
the Employee shall cause, either by withdrawing from or
borrowing against the Policy, on a non-recourse basis, to be
transferred to the Company, an amount equal to the maximum
amount that may then be obtained under the Policy. In no event
shall the amount payable to the Company under this Section
3(b) exceed the amount described in the preceding sentence.
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(c) If the Employee survives until the twenty-third (23rd)
anniversary date of the Policy, then, on such date, the
Employee, either by withdrawing from or borrowing against the
Policy, on a non-recourse basis, shall cause to be transferred
to the Company an amount equal to the Repayment Obligation.
The Employee agrees to execute any notice prepared by the
Company requesting a withdrawal or non-recourse loan as
provided in the preceding sentence.
(d) Unless the Repayment Obligation has been previously satisfied
pursuant to Section 3(b) or Section 3(c) above, upon the death
of the Employee, the Company shall have the right to receive a
portion of the death benefit payable under the Policy equal to
the Repayment Obligation. The balance of the death benefit
provided under the Policy, if any, shall be paid directly to
the beneficiary or beneficiaries designated by the Employee,
in the manner and in the amount or amounts provided in the
beneficiary designation provision of he Policy. No amount
shall be paid from such death benefit to the beneficiary or
beneficiaries designated by the Employee until the full amount
due the Company hereunder has been paid. The parties hereto
agree that the beneficiary designation provision of the Policy
shall conform to the provisions hereof. In no event shall the
amount payable to the Company under this Section 3(d) exceed
the Policy proceeds payable at the death of the Employee.
(e) The Employee agrees that, during the period of this Agreement,
the Employee will obtain and provide to the Company and/or the
Insurance Company the written consent of the spouse of the
Employee, in the form attached hereto as Exhibit B, to any
designation by the Employee of anyone other than the
Employee's spouse as the beneficiary to receive the benefits
under Section 3(d).
(f) Upon payment to the Company of the Repayment Obligation as
hereinabove provided, this Agreement shall thereupon
terminate. Such termination shall have no effect upon the
Employee's ownership rights in and to the Policy.
(g) Any payments under the Policy to the Company in connection
with the rights granted to the Company in the Collateral
Assignment shall be made from Policy cash value attributable
to the paid-up additional life insurance purchased by Policy
dividends. The Employee shall have no interest in the paid-up
additional life insurance protection except to the extent the
death benefit or cash value thereof exceeds the amount of the
Repayment Obligation.
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4. The Company's Security Interest.
To secure the payment of the Repayment Obligation, the
Employee has, contemporaneously herewith, assigned the Policy to the
Company as collateral pursuant to the Collateral Assignment. The
Collateral Assignment shall not be terminated, altered or amended by
the Employee without the express written consent of the Company. The
Company's security interest in the Policy is conditioned upon its
satisfactorily performing all of the covenants under this Agreement.
The Company shall not have nor exercise any right in and to the Policy
which could, in any way, endanger, defeat, or impair any of the rights
of the Employee in the Policy, including, by way of illustration, any
right to collect the proceeds of the Policy in excess of the amount due
the Company, as provided in this Agreement and in the Policy. The only
rights in and to the Policy granted to the Company in this Agreement
shall be limited to the Company's security interest in the Policy to
secure the repayment of the Repayment Obligation (the "Security
Interest"). The Company shall not assign its Security Interest in the
Policy.
5. Limitation on the Employee's Rights.
In order to protect the Company's Security Interest and
notwithstanding any other provisions of this Agreement, the Employee
agrees that, except through borrowing or withdrawals permitted under
this section, the Employee will not modify the death benefit under the
Policy or direct the investment of the cash surrender value of the
Policy. The Employee agrees that, prior to attaining age fifty-five
(55) and completion of fifteen (15) Years of Service, he or she shall
not borrow against the Policy or withdraw any portion of the cash value
of the Policy. The Employee further agrees that, after attaining age
fifty-five (55) and completion of fifteen (15) Years of Service, he or
she shall not withdraw any portion of the cash value of the Policy or
borrow against the Policy if, after such borrowing, the cash value of
the Policy would be reduced to an amount less than the amount of the
Repayment Obligation. Notwithstanding the preceding sentences, the
Employee may borrow or withdraw from the Policy, so long as the
borrowing or withdrawal request is submitted to the Insurance Company
along with a directive that the borrowed or withdrawn amount be
transferred directly to the Company in accordance with Section 3(c).
Prior to the release of the Company's Security Interest in the Policy,
the Employee and the Company agree that the Company shall from time to
time appoint one (1) or more individuals (the "Designee"), who may be
officers of the Company, who shall be entitled to direct the
investments under the Policy; provided, however, that the Designee may
only direct the investments under the Policy in funds offered by the
Insurance Company under the Policy.
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6. Change in Control.
(a) If a "Change in Control" of the Company shall occur, the
Employee, in his discretion, at any time thereafter may
require the Company to place in a grantor trust of the type
and with the terms and conditions of the Trust attached as
Exhibit C hereto an amount of money which is equal to the
premiums payable under Section 2 hereof. A delay by the
Employee in the making of a request for a trust shall in no
way compromise or invalidate the Employee's rights with
respect thereto and the Company shall promptly honor such
request when made.
(b) For purposes of this Agreement, "Change in Control" shall mean
changes in the ownership of a corporation, changes in the
effective control of a corporation, changes in ownership of a
substantial portion of a corporation's assets and the
disposition of a substantial portion of the corporation's
assets all as defined below:
(i) A change in the ownership of a corporation occurs on
the date that any one person, or more than one person
acting as a group, acquires ownership of stock of
that corporation which, together with stock held by
such person or group, represents more than fifty
percent (50%) of the total fair market value or total
voting power of the stock of such corporation. An
increase in the percentage of stock owned by any one
person, or persons acting as a group, as a result of
a transaction in which the corporation acquires its
stock in exchange for property will be treated as an
acquisition of stock.
(ii) A change in the effective control of a corporation
occurs on the date that either: any one person, or
more than one person acting as a group becomes the
beneficial owner of stock of the corporation and
possessing twenty percent (20%) or more of the total
voting power of the stock of such corporation; or a
majority of members of the corporation's board of
directors is replaced during any twenty-four (24)
month period by directors whose appointment or
election is not endorsed by at least two-thirds (2/3)
of the members of the corporation's board of
directors who were directors prior to the date of the
appointment or election of the first of such new
directors.
(iii) A change in the ownership of a substantial portion of
a corporation's assets occurs on the date that any
one person, or more than one person acting as a
group, acquires (or has acquired during the twelve
(12) month period ending on the date of the most
recent acquisition by such person or persons) assets
from the corporation that have a total fair market
value equal to or more than one-half (1/2) of the
total fair market value of all of the assets
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of the corporation immediately prior to such
acquisition or acquisitions. The transfer of assets
by a corporation is not treated as a change in the
ownership of such assets if the assets are
transferred: to a shareholder of the corporation
(immediately before the asset transfer) in exchange
for such shareholder's capital stock of the
corporation having a fair market value approximately
equal to the fair market value of such assets; or to
an entity, fifty percent (50%) or more of the total
value or voting power of which is owned, directly or
indirectly, by the corporation.
(iv) A disposition of a substantial portion of a
corporation's assets occurs on the date that the
corporation transfers assets by sale, distribution to
shareholders, assignment to creditors, foreclosure or
otherwise, in a transaction or transactions not in
the ordinary course of the corporation's business (or
has made such transfers during the twelve (12) month
period ending on the date of the most recent transfer
of assets) that have a total fair market value equal
to or more than one-half (1/2) of the total fair
market value of all of the assets of the corporation
as of the date immediately prior to the first such
transfer or transfers. The transfer of assets by a
corporation is not treated as a disposition of a
substantial portion of the corporation's assets if
the assets are transferred to an entity, fifty
percent (50%) or more of the total value or voting
power of which is owned, directly or indirectly, by
the corporation.
For purposes of the provisions of this Agreement defining "Change in
Control," (i) references to the Company in this Agreement include the Delaware
corporation known as Matria Healthcare, Inc. as of the date of execution of this
Agreement, and any corporation which is the legal successor to such corporation
by virtue of merger or share exchange; and (ii) the terms "person," "acting as a
group" and "ownership" shall have the meanings prescribed in Sections 3(a)(9)
and 13(d)(3) of the Securities Exchange Act of 1934, as amended, and Rule 13d-3
promulgated thereunder; provided, however, that in any merger, consolidation or
share exchange in which less than fifty percent (50%) of the outstanding voting
securities of the Company or its successor corporation are held by the former
shareholders of the Company, the shareholders of the other parties to the
transaction shall be deemed to have acted as a group that acquired ownership of
more than fifty percent (50%) of the outstanding voting securities of the
Company, resulting in a change in ownership under (i) above.
7. Disputes.
(a) A committee, the members of which shall be the Chief Executive
Officer, the Chief Financial Officer, and the General Counsel
of the Company (collectively, the "Administrator"), shall
administer this Agreement. The Administrator (either directly
or through its designees) will have power and authority to
interpret, construe, and administer this Agreement (for the
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purpose of this section, the Agreement shall include the
Collateral Assignment), provided that the Administrator's
authority to interpret this Agreement shall not cause the
Administrator's decisions in this regard to be entitled to a
deferential standard of review in the event that the Employee
or his or her beneficiary seeks review of the Administrator's
decision, as described below.
(b) Neither the Administrator, its designee, nor its advisors
shall be liable to any person for any action taken or omitted
in good faith in connection with the interpretation and
administration of this Agreement.
(c)
(i) A person who believes that he or she is being denied
a benefit to which he or she is entitled under this
Agreement (hereinafter referred to as a "Claimant")
may file a written request for such benefit with the
Administrator, setting forth his or her claim. The
request must be addressed to the Administrator, in
care of the Company at its then principal place of
business.
(ii) Upon receipt of a claim, the Administrator shall
advise the Claimant that a reply will be forthcoming
within ninety (90) days and shall deliver such reply
within such period.
(iii) If the claim is denied in whole or in part, the
Administrator shall adopt a written opinion, using
language calculated to be understood by the Claimant,
setting forth: (a) the specific reason or reasons for
such denial; (b) the specific reference to pertinent
provisions of this Agreement on which such denial is
based; (c) a description of any additional material
or information necessary for the Claimant to perfect
his or her claim and an explanation why such material
or such information is necessary; (d) appropriate
information as to the steps to be taken if the
Claimant wishes to submit the claim for review; and
(e) the time limits for requesting a review of the
claim.
(iv) Within sixty (60) days after the Claimant's receipt
of the written opinion described above, the Claimant
may request in writing a review of the denial. Such
request must be addressed to the Administrator, in
care of the Company at its then principal place of
business. The Claimant or his or her duly authorized
representative may, but need not, review the
pertinent documents and submit issues and comments in
writing for consideration by the Administrator.
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(v) Within sixty (60) days after the Administrator's
receipt of a request for review, the Administrator
will review its determination. After considering all
materials presented by the Claimant, the
Administrator will render a written opinion, using
language calculated to be understood by the Claimant,
setting forth the specific reasons for the decision
and containing specific references to the pertinent
provisions of this Agreement on which the decision is
based.
(d)
(i) Because it is agreed that time will be of the essence
in determining whether any payments are due a
Claimant under this Agreement, following receipt of
the Administrator's denial of a claim (in whole or in
part) pursuant to Section 7(c)(ii) above, the
Claimant may, if he or she desires, submit any claim
for payment under this Agreement or dispute regarding
the interpretation of this Agreement to arbitration.
This right to select arbitration shall be solely that
of the Claimant, and the Claimant may decide whether
or not to arbitrate in his or her discretion. The
"right to select arbitration" is not mandatory on the
Claimant, and the Claimant may choose in lieu thereof
to bring an action in an appropriate civil court.
Once an arbitration is commenced, however, it may not
be discontinued without the mutual consent of both
parties to the arbitration. During the lifetime of
the Employee, only he or she can use the arbitration
procedure set forth in this section.
(ii) Any claim for arbitration may be submitted as
follows: If the Claimant disagrees with the
Administrator regarding the interpretation of this
Agreement and the claim is finally denied by the
Administrator in whole or in part, such claim may be
filed in writing with an arbitrator of the Claimant's
choice, who is selected by the method described in
the next four (4) sentences. The first step of the
selection shall consist of the Claimant submitting a
list of three (3) potential arbitrators to the
Administrator. Each of the three (3) arbitrators must
be either (1) a member of the National Academy of
Arbitrators located in the State of Georgia, or (2) a
retired Georgia Superior Court, Court of Appeals, or
Supreme Court judge. Within two (2) weeks after
receipt of the list, the Administrator shall select
one (1) of the three (3) arbitrators as the
arbitrator for the dispute in question. If the
Administrator fails to select an arbitrator in a
timely manner, the Claimant shall then designate one
(1) of the three (3) arbitrators as the arbitrator
for the dispute in question.
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(iii) The arbitration hearing shall be held within seven
(7) days (or as soon thereafter as possible) after
the picking of the arbitrator. No continuance of said
hearing shall be allowed without the mutual consent
of the Claimant and the Administrator. Absence from
or non-participation at the hearing by either party
shall not prevent the issuance of an award. Hearing
procedures which will expedite the hearing may be
ordered at the arbitrator's discretion, and the
arbitrator may close the hearing in his or her sole
discretion when he or she decides he or she has heard
sufficient evidence to satisfy issuance of an award.
(iv) The arbitrator's award shall be rendered as
expeditiously as possible and in no event later than
one (1) week after the close of the hearing. In the
event the arbitrator finds that the Company has
breached this Agreement, he or she shall order the
Company to immediately take the necessary steps to
remedy the breach. The award of the arbitrator shall
be final and binding upon the parties. The award may
be enforced in any appropriate court as soon as
possible after its rendition. If an action is brought
to confirm the award, both the Company and the
Employee (on his or her own behalf and on behalf of
all other Claimants) agree that no appeal shall be
taken by either party from any decision rendered in
such action.
(v) Solely for purposes of determining the allocation of
the costs described in this subsection, the
Administrator will be considered the prevailing party
in a dispute if the arbitrator determines that (1)
the Company has not breached this Agreement, and (2)
the claim by the Claimant was not made in good faith.
Otherwise, the Claimant will be considered the
prevailing party. In the event that the Company is
the prevailing party, the fee of the arbitrator and
all necessary expenses of the hearing (excluding any
attorney's fees incurred by the Company), including
the fees of a stenographic reporter, if employed,
shall be paid by the Claimant. In the event that the
Claimant is the prevailing party, the fee of the
arbitrator and all necessary expenses of the hearing
(including any attorney's fees incurred by the
Claimant in pursuing his claim), including the fees
of a stenographic reporter, if employed, shall be
paid by the Company.
8. The Employee's Beneficiary Rights and Security Interest.
(a) The Company and the Employee intend that in no event shall the
Company have any power or interest related to the Policy or
its proceeds, except as provided herein and in the Collateral
Assignment. In the event that the Company ever receives or may
be deemed to have received any
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right or interest in the Policy or its proceeds beyond the
limited rights described herein and in the Collateral
Assignment, such right or interest shall be held in trust for
the benefit of the Employee and shall be held separate from
the property of the Company. The Company hereby agrees to act
as trustee for the benefit of the Employee and his beneficiary
concerning any right to the Policy or its proceeds, except to
the extent expressly provided otherwise in this Agreement.
(b) In order to further protect the rights of the Employee, the
Company agrees that its rights to the Policy and proceeds
thereof shall serve as security for the Company's obligations
as provided in this Agreement to the Employee. The Company
grants to the Employee a security interest in and collaterally
assigns to the Employee any and all rights the Company has in
the Policy and products and proceeds thereof, whether now
existing or hereafter arising pursuant to the provisions of
the Policy, this Agreement, the Collateral Assignment, or
otherwise, to secure any and all obligations owed by the
Company to the Employee under this Agreement. In no event
shall this provision be interpreted to reduce the Employee's
rights to the Policy or expand in any way the rights or
benefits of the Company under this Agreement, the Policy, or
the Collateral Assignment.
9. Amendment of Agreement.
Except as provided in a written instrument signed by the
Company and the Employee, this Agreement may not be canceled, amended,
altered, or modified.
10. Notice under Agreement.
Any notice, consent, or demand required or permitted to be
given under the provisions of this Agreement by one party to another
shall be in writing, signed by the party giving or making it, and may
be given either by delivering it to such other party personally or by
mailing it, by United States Certified Mail, postage prepaid, to such
party, addressed to its last known address, as shown on the records of
the Company. The date of such mailing shall be deemed the date of such
mailed notice, consent, or demand. In the case of notice to the
Company, notice shall be addressed to the attention of the General
Counsel.
11. Binding Agreement.
This Agreement shall bind the parties hereto and their
respective successors, heirs, executor, administrators, and
transferees, and any Policy beneficiary.
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12. Controlling Law and Characterization of Agreement.
(a) To the extent not governed by federal law, this Agreement and
the rights of the parties hereunder shall be controlled by the
laws of the State of Georgia.
(b) If this Agreement is considered a "plan" under the Employee
Retirement Income Security Act of 1974 ("ERISA"), both the
Company and the Employee acknowledge and agree that, for all
purposes, the Agreement shall be treated as a "welfare plan"
within the meaning of Section 3(1) of ERISA, so that only
those provisions of ERISA applicable to welfare plans shall
apply to the Agreement, and that any rights that might arise
under ERISA if this Agreement were treated as a "pension plan"
within the meaning of Section 3(2) of ERISA are hereby
expressly waived. Consistent with the preceding sentence, the
Employee further acknowledges that his or her rights to the
Policy and the release of the Company's Security Interest are
strictly limited to those rights set forth in this Agreement.
In furtherance of this acknowledgement and in consideration of
the Company's payment of the initial premiums for this Policy,
the Employee voluntarily and irrevocably relinquishes and
waives any additional rights in the Policy or any different
restrictions on the release of the Company's Security Interest
that he or she might otherwise argue to exist under either
federal, state, or local law. The Employee further agrees that
he or she will not argue that any such additional rights or
different restrictions exist in any judicial or arbitration
proceeding. Similarly, the Company acknowledges that its
Security Interest is strictly limited as set forth in this
Agreement and voluntarily and irrevocably relinquishes and
waives any additional interests or different interests or
advantages that the Company would have or enjoy if the
Agreement were not treated as a "welfare plan" within the
meaning of Section 3(1) of ERISA. The Company is hereby
designated as the named fiduciary under this Agreement.
13. Execution of Documents.
The Company and the Employee agree to execute any and all
documents necessary to effectuate the terms of this Agreement.
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IN WITNESS WHEREOF, the Employee and the Company have executed this
Agreement as of the day and year first above written.
MATRIA HEALTHCARE, INC.
By: /s/ Donald R. Millard
----------------------------
Its: President
----------------------------
EMPLOYEE
/s/ Roberta L. McCaw
----------------------------------
ROBERTA L. McCAW
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EXHIBIT A
COLLATERAL SECURITY ASSIGNMENT AGREEMENT
THIS COLLATERAL SECURITY ASSIGNMENT is made and entered into effective
as of July 1, 1998, by the undersigned as the owner (the "Owner") of Life
Insurance Policy Number I0003335 (the "Policy") issued by Aetna Life Insurance
and Annuity Company (the "Insurer") upon the life of Owner and by Matria
Healthcare, Inc., a Delaware corporation (the "Assignee").
WHEREAS, the Owner is a valued employee of or consultant to Assignee
and the Assignee wishes to retain him or her in that capacity; and
WHEREAS, as an inducement to the Owner's continued participation with
the Assignee, the Assignee wishes to pay premiums on the Policy, as more
specifically provided for in that certain Split-Dollar Life Insurance Agreement
dated as of July 1, 1998, and entered into between the Owner and the Assignee,
as such Agreement may be hereafter amended or modified (the "Agreement") (unless
otherwise indicated, the terms herein shall have the definitions ascribed
thereto in the Agreement); and
WHEREAS, in consideration of the Assignee agreeing to make the premium
payments, the Owner agrees to grant the Assignee a security interest in the
Policy as collateral security; and
WHEREAS, the Owner and the Assignee intend that the Assignee have no
greater interest in the Policy than that prescribed herein and in the Agreement;
NOW, THEREFORE, the Owner hereby assigns, transfers and sets over to
the Assignee for security the following specific rights in the Policy, subject
to the following terms, agreements and conditions:
1. This Collateral Security Assignment is made, and the Policy is to be
held, as collateral security for all liabilities of the Owner to the
Assignee, pursuant to the terms of the Agreement, whether now existing
or hereafter arising (the "Secured Obligations").
2. The Owner hereby grants to the Assignee a security interest in and
collaterally assigns to the Assignee the Policy to secure the Secured
Obligations. However, the Assignee's interest in the Policy shall be
strictly limited to the right to receive an amount equal to the Secured
Obligations (which right may be realized by the Assignee's receiving a
portion of the death benefit under the Policy or by the Owner's causing
such amount to be transferred to the Assignee (through withdrawing from
or borrowing against the Policy) in accordance with the terms of the
Agreement).
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3. (a) The Owner shall retain all incidents of ownership in the Policy,
and may exercise such incidents of ownership except as otherwise
limited by the Agreement and hereunder. The Insurer is only authorized
to recognize (and is fully protected in recognizing) the exercise of
any ownership rights by the Owner if the Insurer determines that the
Assignee has been given notice of the Owner's purported exercise of
ownership rights in compliance with the provisions of Section 3(b)
hereof and as of the date thirty (30) days after such notice is given,
the Insurer has not received written notification from the Assignee of
the Assignee's objection to such exercise; provided that the
designation of the beneficiary to receive the death benefits not
otherwise payable to the Assignee pursuant to Section 3 of the
Agreement may be changed by the Owner without prior notification of the
Assignee. The Insurer shall not be responsible to ensure that the
actions of the Owner conform to the Agreement.
(b) The Assignee hereby acknowledges that for purposes of this
Collateral Security Assignment, the Assignee shall be conclusively
deemed to have been properly notified of the Owner's purported exercise
of his or her ownership rights as of the third (3rd) business day
following either of the following events: (1) the Owner mails written
notice of such exercise to the Assignee by United States Certified
Mail, postage paid, at the address below and provides the Insurer with
a copy of such notice and a copy of the certified mail receipt, or (2)
the Insurer mails written notice of such exercise to the Assignee by
regular United States Mail, postage paid, at the address set forth
below:
Matria Healthcare, Inc.
1850 Parkway Place, 12th Floor
Marietta, Georgia 30067
Attention: General Counsel
The foregoing address shall be the appropriate address for such notices
to be sent, unless and until the receipt by both the Owner and the
Insurer of a written notice from the Assignee of a change in such
address.
(c) Notwithstanding the foregoing, the Owner and the Assignee hereby
agree that until the Assignee's security interest in the Policy is
released, the Assignee shall from time to time designate one (1) or
more individuals (the "Designee"), who may be officers of the Assignee,
to direct the investments under the Policy; provided, however, that the
Designee may only direct the investments under the Policy in funds
offered by the Insurer under the Policy. The Assignee shall notify the
Insurer in writing of the identity of the Designee and any changes in
the identity of the Designee. Until the Assignee's security interest in
the Policy is released, no other party may direct the investments under
the Policy without the consent of the Assignee and the Owner.
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4. If the Policy is in the possession of the Assignee, the Assignee
shall, upon request, forward the Policy to the Insurer without
unreasonable delay for endorsement of any designation or change of
beneficiary or the exercise of any other right reserved by the Owner.
5. (a) The Assignee shall be entitled to exercise its rights under the
Agreement by delivering a written notice to Insurer, executed by the
Assignee and the Owner or the Owner's beneficiary, requesting either
(1) a withdrawal or non-recourse policy loan equal to the amount to
which the Assignee is entitled under Section 3(b) or 3(c) of the
Agreement and transfer of such withdrawn or borrowed amount to the
Assignee, or (2) the payment to the Assignee of that portion of the
death benefit under the Policy to which the Assignee is entitled under
Section 3(d) of the Agreement. So long as the notice is also signed by
the Owner or his beneficiary, the Insurer shall pay or loan the
specified amounts to the Assignee without the need for any additional
documentation.
(b) Upon receipt of a properly executed notice complying with the
requirements of subsection (a) above, the Insurer is hereby authorized
to recognize the Assignee's claims to rights hereunder without the need
for any additional documentation and without investigating (1) the
reason for such action taken by the Assignee; (2) the validity or the
amount of any of the liabilities of the Owner to the Assignee under the
Agreement; (3) the existence of any default therein; (4) the giving of
any notice required herein; or (5) the application to be made by the
Assignee of any amounts to be paid to the Assignee. The receipt of the
Assignee for any sums received by it shall be a full discharge and
release therefor to the Insurer.
6. Upon the full payment of the Secured Obligations, the Assignee shall
execute an appropriate release of this Collateral Security Assignment.
7. The Assignee shall have the right to request of the Insurer and/or the
Owner notice of any action taken with respect to the Policy by the
Owner.
8. (a) The Assignee and the Owner intend that in no event shall the
Assignee have any power or interest related to the Policy or its
proceeds, except as provided herein and in the Agreement,
notwithstanding the provisions of any other documents, including the
Policy. In the event that the Assignee ever receives or may be deemed
to have received any right or interest beyond the limited rights
described herein and in the Agreement, such right or interest shall be
held in trust for the benefit of the Owner and be held separate from
the property of the Assignee. The Assignee hereby agrees to act as
trustee for the benefit of the Owner concerning any right to the Policy
or its proceeds, except to the extent expressly provided otherwise in
the Agreement and this Collateral Security Assignment Agreement.
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(b) In order to further protect the rights of the Owner, the Assignee
agrees that its rights to the Policy and proceeds thereof shall serve
as security for the Assignee's obligations to the Owner, as provided in
the Agreement. The Assignee hereby grants to the Owner a security
interest in and collaterally assigns to the Owner any and all rights it
has in the Policy and products and proceeds thereof, whether now
existing or hereafter arising pursuant to the provisions of the Policy,
the Agreement, this Collateral Security Assignment or otherwise, to
secure the Assignee's obligations ("Assignee Obligations") to the Owner
under the Agreement, whether now existing or hereafter arising. The
Assignee Obligations include all obligations owed by the Assignee to
the Owner under the Agreement, including, without limitation: (i) to
make the premium payments required under Section 2 of the Agreement,
and (ii) the obligation to do nothing which may, in any way, endanger,
defeat or impair any of the rights of the Owner in the Policy as
provided in the Agreement. In no event shall this provision be
interpreted to reduce the Owner's rights in the Policy or expand in any
way the rights or benefits of the Assignee under the Agreement.
9. The Assignee and the Owner agree to execute any documents necessary to
effectuate this Collateral Security Assignment pursuant to the
provisions of the Agreement. All disputes shall be settled as provided
in Section 7 of the Agreement. Th rights under this Collateral Security
Agreement may be enforced pursuant to the terms of the Agreement.
IN WITNESS WHEREOF, the Owner and the Assignee have executed this
Collateral Security Assignment effective the day and year first above written.
OWNER
/s/ Roberta L. McCaw
-----------------------------
ROBERTA L. McCAW
MATRIA HEALTHCARE, INC.
By: /s/ Donald R. Millard
-----------------------------
Title: President
-----------------------------
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EXHIBIT B
SPOUSAL CONSENT TO DESIGNATION
OF NON-SPOUSAL BENEFICIARY
My spouse is __________________. I hereby consent to the designation
made by my spouse of __________________ as the beneficiary (subject to any
rights collaterally assigned to Matria Healthcare, Inc.) under Life Insurance
Policy No. ________________, which Matria Healthcare, Inc. has purchased from
__________________ and transferred to him or her. I understand that this Consent
is valid only with respect to the naming of the beneficiary indicated above and
that the designation of any other beneficiary will not be valid unless I consent
in writing to such designation.
This Consent is being voluntarily given, and no undue influence or
coercion has been exercised in connection with my consent to the designation
made by my spouse of the beneficiary named above rather than myself as the
beneficiary under the Split-Dollar Life Insurance Policy.
------------------------------------
Spouse's Signature
------------------------------------
Print Spouse's Name
------------------------------------
Date
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EXHIBIT C
TRUST UNDER MATRIA HEALTHCARE, INC.
SPLIT-DOLLAR LIFE INSURANCE AGREEMENTS
THIS AGREEMENT made this ____ day of ____________, 19___, by and
between MATRIA HEALTHCARE, INC., a Delaware corporation (the "Company"), and
______________________________ (the "Trustee"), a commercial bank or trust
company acceptable to a majority of the Insureds (as hereinafter defined);
WHEREAS, the Company is a party to the Split-Dollar Insurance
Agreements (the "Agreements") listed in Appendix A for the benefit of the
insureds named therein (hereinafter referred to, individually, as an "Insured"
and collectively, as the "Insureds"); and
WHEREAS, the Company has incurred or expects to incur liability to pay
premiums under the terms of the Agreements (such liability being referred to
herein as "Premium Obligations"); and
WHEREAS, the Company wishes to establish a trust (hereinafter called
the "Trust") and to contribute to the Trust assets that shall be held therein,
subject to the claims of the Company's creditors in the event of the Company's
Insolvency (as hereinafter defined) until used to meet the Company's Premium
Obligations; and
WHEREAS, it is the intention of the parties that this Trust shall
constitute an unfunded arrangement and shall not affect the status of the
Agreements as unfunded welfare plans; and
WHEREAS, it is the intention of the Company to make contributions to
the Trust to provide itself with a source of funds to assist it in the meeting
of its Premium Obligations;
NOW, THEREFORE, the parties do hereby establish the Trust and agree
that the Trust shall be comprised, held and disposed of as follows:
SECTION 1. ESTABLISHMENT OF TRUST.
(a) The Company hereby deposits with the Trustee in trust
$__________, which shall become the principal of the Trust to
be held, administered and disposed of by the Trustee as
provided in this Trust Agreement.
(b) The Trust hereby established shall be irrevocable.
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(c) The Trust is intended to be a grantor trust, of which the
Company is the grantor, within the meaning of subpart E, part
I, subchapter J, chapter 1, subtitle A of the Internal Revenue
Code of 1986, as amended, and shall be construed accordingly.
(d) The principal of the Trust, and any earnings thereon, shall be
held separate and apart from other funds of the Company and
shall be used exclusively for the uses and purposes of meeting
the Company's Premium Obligations and of the Company's general
creditors, as herein set forth. The Insureds and their
beneficiaries shall have no preferred claim on, or any
beneficial ownership interest in, any assets of the Trust. Any
rights created under the Agreements and this Trust Agreement
shall be mere unsecured contractual rights of the Insureds and
their beneficiaries against the Company. Any assets held by
the Trust will be subject to the claims of the Company's
general creditors under federal and state law in the event of
Insolvency, as defined in Section 3(a) hereof.
(e) The Company, in its sole discretion, may at any time, or from
time to time, make additional deposits of cash or other
property in trust with the Trustee to augment the principal to
be held, administered and disposed of by the Trustee, as
provided in this Trust Agreement. Neither the Trustee nor any
Insured or beneficiary shall have any right to compel such
additional deposits.
(f) The Company shall, as soon as possible, but in no event later
than ninety (90) days following the establishment of this
Trust, make an irrevocable contribution to the Trust in an
amount equal to the Premium Obligations.
SECTION 2. PAYMENTS OF PREMIUM OBLIGATIONS.
(a) Attached hereto as Appendix B is a schedule (the "Payment
Schedule") that indicates the Premium Obligations payable in
respect of each Insured and the time of payment of such
amounts. Except as otherwise provided herein or in the
Agreements, the Trustee shall pay the Premium Obligations in
accordance with such Payment Schedule. In the event of the
death of an Insured, the Company shall notify the Trustee of
any resultant revisions in the Payment Schedule.
(b) The Company may make payment of Premium Obligations directly
to the applicable insurance company as they become due under
the Agreements. The Company shall notify the Trustee of its
decision to make payment of Premium Obligations directly prior
to the time amounts are payable under the Payment Schedule. In
addition, if the principal of the Trust and any earnings
thereon are not sufficient to make payments of Premium
Obligations in accordance with the terms of the Agreements,
the Company
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shall make the balance of each such payment as it
falls due. The Trustee shall notify the Company if the
principal and earnings are not sufficient.
SECTION 3. TRUSTEE RESPONSIBILITY REGARDING PAYMENT OF PREMIUM
OBLIGATIONS WHEN THE COMPANY IS INSOLVENT.
(a) The Trustee shall cease payment of Premium Obligations if the
Company is Insolvent. The Company shall be considered
"Insolvent" for purposes of this Trust Agreement if (i) the
Company is unable to pay its debts as they become due, or (ii)
the Company is subject to a pending proceeding as a debtor
under the United States Bankruptcy Code.
(b) At all times during the continuance of this Trust, as provided
in Section 1(d) hereof, the principal and income of the Trust
shall be subject to claims of general creditors of the Company
under federal and state law, as set forth below.
(1) The Board of Directors and the Chief Executive
Officer of the Company shall have the duty to inform
the Trustee in writing of the Company's Insolvency.
If a person claiming to be a creditor of the Company
alleges in writing to the Trustee that the Company
has become Insolvent, the Trustee shall determine
whether the Company is Insolvent and, pending such
determination, the Trustee shall discontinue payment
of Premium Obligations.
(2) Unless the Trustee has actual knowledge of the
Company's Insolvency, or has received notice from the
Company or a person claiming to be a creditor
alleging that the Company is Insolvent, the Trustee
shall have no duty to inquire whether the Company is
Insolvent. The Trustee may in all events rely on such
evidence concerning the Company's solvency as may be
furnished to the Trustee and that provides the
Trustee with a reasonable basis for making a
determination concerning the Company's solvency.
(3) If at any time the Trustee has determined that the
Company is Insolvent, the Trustee shall discontinue
payments of Premium Obligations and shall hold the
assets of the Trust for the benefit of the Company's
general creditors. Nothing in this Trust Agreement
shall in any way diminish any rights of the Insureds
or their beneficiaries to pursue their rights as
general creditors of the Company with respect to the
Company's obligations under the Agreements or
otherwise.
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(4) The Trustee shall resume the payment of Premium
Obligations in accordance with Section 2 of this
Trust Agreement only after the Trustee has determined
that the Company is not Insolvent (or is no longer
Insolvent).
(c) Provided that there are sufficient assets, if the Trustee
discontinues the payment of benefits from the Trust pursuant
to Section 3(b) hereof and subsequently resumes such payments,
the first payment following such discontinuance shall include
the aggregate amount of all payments due under the Payment
Schedule for the period of such discontinuance, less the
aggregate amount of any premium payments made by the Company
in lieu of the payments provided for hereunder during any such
period of discontinuance.
SECTION 4. PAYMENTS TO THE COMPANY.
Except as provided in Section 3 hereof, the Company shall have no right
or power to direct the Trustee to return to the Company or to divert to others
any of the Trust assets before all payment of Premium Obligations have been
satisfied pursuant to the terms of the Agreements.
SECTION 5. INVESTMENT AUTHORITY.
(a) In no event may the Trustee invest in securities (including
stock or rights to acquire stock) or obligations issued by the
Company, other than a de minimis amount held in common
investment vehicles in which the Trustee invests. All rights
associated with assets of the Trust shall be exercised by the
Trustee or the person designated by the Trustee, and shall in
no event be exercisable by or rest with Insureds.
(b) The Trustee and the Company shall agree to such other
investment powers of the Trustee as are necessary for the
establishment and proper administration of the Trust;
provided, however, that such investment powers are standard
among the industry and do not conflict with the terms of the
Trust, as set forth herein.
SECTION 6. DISPOSITION OF INCOME.
During the term of this Trust, all income received by the Trust, net of
expenses and taxes, shall be accumulated and reinvested.
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SECTION 7. ACCOUNTING BY THE TRUSTEE.
The Trustee shall keep accurate and detailed records of all
investments, receipts, disbursements and all other transactions required to be
made, including such specific records as shall be agreed upon in writing between
the Company and the Trustee. Within one hundred twenty (120) days following the
close of each calendar year and within thirty (30) days after the removal or
resignation of the Trustee, the Trustee shall deliver to the Company a written
account of its administration of the Trust during such year or during the period
from the close of the last preceding year to the date of such removal or
resignation, setting forth all investments, receipts, disbursements and other
transactions effected by it, including a description of all securities and
investments purchased and sold with the cost or net proceeds of such purchases
or sales (accrued interest paid or receivable being shown separately), and
showing all cash, securities and other property held in the Trust at the end of
such year or as of the date of such removal or resignation, as the case may be.
SECTION 8. RESPONSIBILITY OF THE TRUSTEE.
(a) The Trustee shall act with the care, skill, prudence and
diligence under the circumstances then prevailing that a
prudent person acting in like capacity and familiar with such
matters would use in the conduct of an enterprise of a like
character and with like aims; provided, however, that the
Trustee shall incur no liability to any person for any action
taken pursuant to a direction, request or approval given by
the Company which is contemplated by, and in conformity with,
the terms of the Agreements or this Trust and is given in
writing by the Company. In the event of a dispute between the
Company and a party, the Trustee may apply to a court of
competent jurisdiction to resolve the dispute.
(b) If the Trustee undertakes or defends any litigation arising in
connection with this Trust, the Company agrees to indemnify
the Trustee against the Trustee's costs, expenses and
liabilities (including, without limitation, attorney's fees
and expenses) relating thereto and to be primarily liable for
such payments. If the Company does not pay such costs,
expenses and liabilities in a reasonably timely manner, the
Trustee may obtain payment from the Trust.
(c) The Trustee may consult with legal counsel (who may also be
counsel for the Company generally) with respect to any of its
duties or obligations hereunder.
(d) The Trustee may hire agents, accountants, actuaries,
investment advisors, financial consultants or other
professionals to assist it in performing any of its duties or
obligations hereunder.
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(e) The Trustee shall have, without exclusion, all powers
conferred on trustees by applicable law, unless expressly
provided otherwise herein; provided, however, that if an
insurance policy is held as an asset of the Trust, the Trustee
shall have no power to name a beneficiary of the policy other
than the Trust, to assign the policy (as distinct from
conversion of the policy to a different form) other than to a
successor Trustee, or to loan to any person the proceeds of
any borrowing against such policy.
(f) Notwithstanding any powers granted to the Trustee pursuant to
this Trust Agreement or to applicable law, the Trustee shall
not have any power that could give this Trust the objective of
carrying on a business and dividing the gains therefrom,
within the meaning of Section 301.7701-2 of the Procedure and
Administrative Regulations promulgated pursuant to the
Internal Revenue Code of 1986, as amended.
SECTION 9. COMPENSATION AND EXPENSES OF THE TRUSTEE.
The Company shall pay all administrative and Trustee's fees and
expenses. If not so paid, the fees and expenses shall be paid from the Trust.
SECTION 10. RESIGNATION AND REMOVAL OF THE TRUSTEE.
(a) The Trustee may resign at any time by written notice to the
Company, which shall be effective forty-five (45) days after
receipt of such notice, unless the Company and the Trustee
agree otherwise.
(b) The Trustee may be removed by the Company on forty-five (45)
days' notice or upon shorter notice accepted by the Trustee.
(c) If the Trustee resigns or is removed within five (5) years
after this Trust is established, the Company shall apply to a
court of competent jurisdiction for the appointment of a
Successor Trustee or for instructions.
(d) Upon resignation or removal of the Trustee and appointment of
a successor Trustee, all assets shall subsequently be
transferred to the successor Trustee. The transfer shall be
completed within forty-five (45) days after receipt of notice
of resignation, removal or transfer, unless the Company
extends the time limit.
(e) If the Trustee resigns or is removed, a successor shall be
appointed, in accordance with Section 11 hereof, by the
effective date of resignation or removal under paragraphs (a)
or (b) of this section. If no such appointment has been made,
the Trustee may apply to a court of competent jurisdiction for
appointment of a successor or for instructions. All expenses
of the Trustee in connection with the proceeding shall be
allowed as administrative expenses of the Trust.
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SECTION 11. APPOINTMENT OF SUCCESSOR.
If the Trustee resigns or is removed in accordance with Section 10(a)
or (b) hereof, the Company may appoint any unaffiliated third party, such as a
bank trust department or other party that may be granted corporate trustee
powers under state law, as a successor to replace the Trustee upon resignation
or removal. The Company must obtain the prior written approval of a majority of
the then living Insureds for the appointment of the successor Trustee, unless
such appointment has been made by a court of competent jurisdiction. The
appointment shall be effective when accepted in writing by the new Trustee, who
shall have all of the rights and powers of the former Trustee (including
ownership rights in the Trust assets). The former Trustee shall execute any
instrument necessary or reasonably requested by the Company or the successor
Trustee to evidence the transfer.
SECTION 12. AMENDMENT OR TERMINATION.
(a) This Trust Agreement may be amended by a written instrument
executed by the Trustee and the Company with the prior written
approval of all of the Insureds. Notwithstanding the
foregoing, no such amendment shall conflict with the terms of
the Agreements, shall infringe on the rights of the Insureds
under the Agreements, reduce or restrict the assets that are
the subject of the Trust, other than as required by Section 3
hereof, or shall make the Trust revocable.
(b) The Trust shall not terminate until the date on which all
Premium Obligations have been paid in full. Upon termination
of the Trust, any assets remaining in the Trust shall be
returned to the Company.
(c) Upon prior written approval of all then living Insureds, the
Company may terminate this Trust prior to the time all Premium
Obligations have been satisfied. All assets in the Trust at
termination shall be returned to the Company.
SECTION 13. MISCELLANEOUS.
(a) Any provision of this Trust Agreement prohibited by law shall
be ineffective to the extent of any such prohibition, without
invalidating the remaining provisions hereof.
(b) The rights of Insureds and their beneficiaries under this
Trust Agreement may not be anticipated, assigned (either at
law or in equity), alienated, pledged, encumbered or subjected
to attachment, garnishment, levy, execution or other legal or
equitable process.
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(c) This Trust Agreement shall be governed by and construed in
accordance with the laws of the State of __________ [TO BE
DETERMINED BY THE TRUSTEE].
SECTION 14. EFFECTIVE DATE.
The effective date of this Trust Agreement shall be ____________,
19___.
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APPENDIX A
The Company is a party to a Split Dollar Insurance Agreement dated as
of July 1, 1998 with each of the following individuals: Yvonne Scoggins; Roberta
L. McCaw; Thornton A. Kuntz, Jr; James P. Reichmann, III; and Martin L. Olson.
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