Exhibit 10.31
UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF CALIFORNIA
WESTERN DIVISION
IN RE CONSECO LIFE INSURANCE ) MDL NO. 04-1610-AHM
COMPANY COST OF INSURANCE ) Hon. A. Howard Matz
LITIGATION )
STIPULATION OF SETTLEMENT
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TABLE OF CONTENTS
Page No.
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I. BACKGROUND.................................................................................................1
II. DEFINITIONS................................................................................................5
III. SETTLEMENT RELIEF.........................................................................................15
A. Relief For In-Force Class Members with Policies Projected to Terminate Prior to Age 100.............15
B. Relief For In-Force Class Members with Policies Projected to Terminate At Age 100 or Later..........17
C. Relief For Class Members With Terminated Policies...................................................18
D. General Settlement Relief Requirements and Implementation...........................................21
IV. IMPLEMENTATION OF SETTLEMENT RELIEF.......................................................................23
V. RELEASE AND WAIVER........................................................................................25
VI. ATTORNEYS' FEES AND EXPENSES AND INCENTIVE AWARDS.........................................................28
VII. USE OF SETTLEMENT SHARE PROCEEDS..........................................................................29
VIII. INTEREST..................................................................................................32
IX. NOTICE TO THE CLASS AND SETTLEMENT ADMINISTRATION.........................................................33
A. Overview -- Class Notice Package......................................................................33
B. Class Notice..........................................................................................34
C. Election Form.........................................................................................35
E. Publication of Summary Settlement Notice..............................................................36
F. Remailing, Additional Notice and Follow-Up With Class Members.........................................36
G. Use of Settlement Administrator.......................................................................37
X. OBJECTIONS TO SETTLEMENT..................................................................................38
XI. PRELIMINARY APPROVAL AND RELATED ORDERS...................................................................39
XII. FINAL APPROVAL AND FINAL ORDER AND JUDGMENT...............................................................40
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Page No.
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XIII. RIGHT OF COMMUNICATION WITH CLASS MEMBERS AND THE PUBLIC..................................................40
A. Communications with Class Members.....................................................................40
B. Public Communications.................................................................................41
XIV. MODIFICATION OR TERMINATION OF THE AGREEMENT..............................................................42
XV. GENERAL MATTERS...........................................................................................45
A. Confidentiality.......................................................................................45
B. Document Destruction..................................................................................46
C. Plaintiffs' Representations...........................................................................46
D. Defendants' Representations...........................................................................47
E. Regulatory Approvals..................................................................................47
F. Sole Agreement........................................................................................47
G. Jurisdiction..........................................................................................47
H. Notice under Agreement................................................................................47
I. Time Calculation......................................................................................48
J. Drafter of Agreement..................................................................................49
K. No Evidence Provision.................................................................................49
L. No Policy Modification/Novation.......................................................................50
M. Mergers and Successor Liability.......................................................................50
N. No Tax Opinion........................................................................................50
O. Waiver................................................................................................51
P. Notice of Breach......................................................................................51
Q. Full Cooperation......................................................................................51
R. Signed in Counterparts................................................................................51
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TABLE OF EXHIBITS
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Exhibit Tab
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Consolidated Amended Complaint dated September 23, 2004...........................................A
Bankruptcy Court Claim Allowance Motion (with all exhibits).......................................B
List of Timely Exclusions from Class..............................................................C
Class Notice......................................................................................D
Statements of Eligibility and Election Forms......................................................E
[Proposed] Preliminary Approval Order.............................................................F
Summary Class Notice (for publication)............................................................G
Sixty Day Termination Notice......................................................................H
In-Force Illustrations............................................................................I
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TABLE OF SCHEDULES
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Number
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In-Force Death Benefit Extensions and Cash Contributions...........................................1
Terminated Cash Payments and Reinstated Death Benefit Extensions...................................2
Schedule of Lifestyle and Lifetime Policies in Class...............................................3
In-Force Policies Projected to Continue Until Insured is 100 years or Older........................4
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IT IS HEREBY STIPULATED AND AGREED, by, between and among plaintiffs Murray
Gomer and Edward Jacob Garn, and defendants Conseco Life Insurance Company
("Conseco Life"), and Conseco, Inc., through their duly-authorized counsel, that
the matters raised by Plaintiffs individually and on behalf of the nationwide
and California classes certified in the above-captioned action are settled,
compromised, and dismissed on the merits, and with prejudice, on the terms and
conditions set forth in this Settlement Agreement and the Release set forth
herein, subject to the approval of the Court.
I. BACKGROUND
A. This action arises from a change Conseco Life made in how it computed
cost of insurance charges for certain universal life insurance policies marketed
under the "Lifestyle" or "Lifetime" product name. Prior to this change, Conseco
Life computed these charges using an actuarial variable (called the R-Factor)
that had the effect of reducing the cost of insurance charges based on the
amount in the policyholder's accumulation account. Effective October 1, 2003,
for certain Lifestyle policies, and May 1, 2004, for certain Lifetime policies,
Conseco Life eliminated the use of the R-Factor and this change increased cost
of insurance charges for many policyholders.
B. Starting in late 2003, Plaintiffs and other policyholders filed class
action lawsuits against Conseco Life challenging its decision to eliminate the
use of the R-Factor in calculating cost of insurance charges and increase in the
cost of insurance charges. The Judicial Panel on Multi-District Litigation
consolidated the lawsuits pending in federal court and transferred them to the
United States District Court for the Central District of California for
proceedings before The Honorable A. Howard Matz.
C. In September 2004,
Plaintiffs filed a Consolidated Amended Class Action Complaint ("the Complaint")
in the Central District of California against Conseco Life and Conseco, Inc.,
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its ultimate parent. A copy of this Complaint is attached at Exhibit A. Among
other things, Plaintiffs allege that Conseco Life, at the direction of Conseco,
Inc., unlawfully increased the cost of insurance charges for the Policies by
materially changing the formula used to calculate cost of insurance charges.
Plaintiffs further allege that Conseco, Inc., based, in part, on the actions of
its pre-bankruptcy predecessor holding company and affiliates, including CIHC,
Incorporated, exercised such dominion and control over the affairs and actions
of Conseco Life that these companies had no separate existence and, therefore,
Conseco, Inc., is the alter ego of Conseco Life and is liable for the actions of
Conseco Life with respect to the increases in the cost of insurance charges.
D. The Complaint asserts seven causes of action relating to the sale,
marketing, use, alleged nondisclosure, and elimination of the R-Factor, and the
increase in the cost of insurance charge for the Policies: (1) breach of
contract; (2) insurance bad faith; (3) fraud and intentional misrepresentation;
(4) fraudulent concealment; (5) injunctive and restitutionary relief pursuant to
California Business & Professions Code, section 17200, et seq.; (6) violations
of Consumer Protection and Unfair Business Practices Statutes; and (7)
declaratory relief.
E. Conseco Life and Conseco, Inc., deny any wrongdoing and deny any alter
ego theories that would purport to ascribe liability in the action to Conseco,
Inc. Conseco Life and Conseco, Inc., maintain that the Policies did not require
or guarantee application of the R-Factor and that its use allowed policyholders
to pay less than what they would otherwise have been required to pay under the
terms of the Policies. Conseco Life and Conseco, Inc., assert a variety of
defenses to Plaintiffs' claims, including that any alter ego liability, of which
Conseco, Inc., asserts there is none, was discharged pursuant to section 1141 of
the Bankruptcy Code.
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F. On April 26, 2005, the Court certified a nationwide class under Rule
23(b)(2) as to causes of action one (breach of contract) and seven (declaratory
relief) in the Complaint. The Court defined the nationwide class as follows:
All persons who owned a Lifestyle or Lifetime insurance policy
issued by Massachusetts General Life Insurance Company,
Philadelphia Life Insurance Company or Conseco Life Insurance Company
as to which [Conseco Life] eliminated use of the `R
Factor' in October 2003 or May 2004.
G. On April 27, 2005, the Court certified a statewide class under Rule
23(b)(2) of California policyholders as to causes of action two (insurance bad
faith) and five (injunctive and restitutionary relief pursuant to California
Business & Professions Code, section 17200, et seq.) in the Complaint. The Court
defined the statewide class as follows:
All California residents who owned a Lifestyle or Lifetime
insurance policy issued by Massachusetts General Life
Insurance Company, Philadelphia Life Insurance Company or
Conseco Life Insurance Company as to which [Conseco Life]
eliminated use of the `R Factor' in October 2003 or May 2004.
H. On June 28, 2005, the Court approved a Notice of Class Action that was
sent to each potential Class Member. Among other things, the Notice provided
information about (i) the background of the dispute, (ii) the Class definition,
and (iii) the participation in or exclusion from the Class. The Notice afforded
potential Class Members the opportunity to exclude themselves from the Class,
described the procedure for doing so, and advised that any Class Member who did
not exclude himself from the Class would be bound by the ultimate resolution of
the action.
I. The Parties participated in extensive mediations before two
highly-respected private mediators. After those mediations failed to produce a
settlement, the Honorable A. Howard Matz agreed to serve as the settlement
judge. Subsequently, on February 9, 2006, and May 11, 2006, the Court presided
over two full-day mediation sessions and under the direction of Judge
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Matz, the parties continued with negotiations subsequent to those mediation
sessions. Under the guidance and supervision of Judge Matz, as Settlement Judge,
the parties have been able to reach the settlement embodied in this Agreement.
J. Class Counsel, working with their actuarial experts, accountants, and
other consultants and attorneys, have conducted a thorough investigation and
evaluation of the relevant law and facts, both to assess the strength and
weaknesses of Plaintiffs' claims and Defendants' defenses and to determine how
best to serve the interests of Plaintiffs and the Class. In doing so, Class
Counsel have had the benefit of extensive discovery, which included the
production and analysis of over two million pages of documents and at least 27
depositions, including the depositions of current or former officers, employees,
and consultants of defendants and various third parties.
K. Based upon their investigation and evaluation of the facts and law
relating to the matters alleged in the pleadings, Plaintiffs and Class Counsel
have agreed to settle the action pursuant to the provisions of this Agreement,
after considering, among other things: (1) the substantial benefits this
Agreement provides Plaintiffs and the Class; (2) the risks, costs and
uncertainty of protracted litigation, especially in complex actions such as
this, as well as the difficulties and delays inherent in such litigation; and
(3) the desirability of consummating this Agreement promptly, in order to
provide relief to Plaintiffs and the Class.
L. Counsel for Conseco Life and Conseco, Inc., working with their own
actuarial experts and other consultants, have conducted their own investigation
and evaluation of the relevant law and facts to assess the strength and
weaknesses of Plaintiffs' claims. Although Conseco Life and Conseco, Inc.,
believe their defenses have substantial merit, they, too, consider it desirable
to settle this action in accordance with this Agreement, because doing so will
put Plaintiffs' claims
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and the underlying matters to rest and avoid the substantial expense, burdens,
and uncertainties associated with the continued litigation of those claims.
II. DEFINITIONS
A. As used in this Agreement and the attached exhibits and related
schedules referred to herein (which are an integral part of this Agreement and
are incorporated in their entirety by reference), the following terms have the
following meanings, unless this Agreement specifically provides otherwise:
1. "Action" means the above-captioned class action lawsuit in which
Plaintiffs filed the Consolidated Amended Class Action Complaint on September
23, 2004.
2. "Agreement" or "the Agreement" means this Settlement Agreement and
the exhibits and related schedules attached hereto or incorporated herein,
including any subsequent amendments and any exhibits to such amendments.
3. "Attorneys' Fees and Expenses" means such amounts as may be awarded
by the Court to Class Counsel to compensate and reimburse them (and any other
attorneys for Plaintiffs and the Class in the Action) for their attorneys' fees
and expenses, as described in Section VI.
4. "Bankruptcy Court Claim Allowance Motion" means a motion,
supporting memorandum and other submissions to be filed with the Bankruptcy
Court seeking allowance of the Bankruptcy Claims. A copy of the Bankruptcy Claim
Allowance Motion with all exhibits is attached as Exhibit B.
5. "Bankruptcy Court Claim Allowance Order" means an order of the
Bankruptcy Court allowing the Bankruptcy Claims in their full amount against Old
Conseco and Old CIHC as set forth in Section VII.
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6. "Bankruptcy Claims" means the Old Conseco Claim and the Old CIHC
Claim.
7. "Bankruptcy Code" means title I of the Bankruptcy Reform Act of
1978, as amended from time to time, as set forth in sections 101 et seq. of
title 11 of the United States Code, and applicable portions of titles 18 and 28
of the United States Code.
8. "Bankruptcy Court" means the United States Bankruptcy Court for the
Northern District of Illinois, presiding over the Chapter 11 Cases.
9. "Bankruptcy Plan" means the plan of reorganization for Old Conseco
and Old CIHC, confirmed by order of the Bankruptcy Court dated September 9,
2003.
10. "Broker" means a duly authorized and licensed stock broker
selected by Defendants and Class Counsel for the purpose of liquidating the
Settlement Shares in a commercially reasonable manner, as set forth in Section
VII.
11. "Cash Contribution" means the option, available to any Class
Member whose In-Force Policy is projected to terminate prior to age 100 due to
the elimination of the R-Factor, to elect to receive a cash contribution to the
Policy's accumulation account. The Cash Contribution amount available for each
In-Force Policy, exclusive of interest, is set forth in Schedule 1.
12. "Cash Payment" means the cash payment available to any Terminated
Class Member who does not elect Reinstatement for a Terminated Policy. Subject
to a minimum of $87.50, the Cash Payment amount available for each Terminated
Policy, exclusive of interest, is set forth in Schedule 2.
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13. "Chapter 11 Cases" means the chapter 11 bankruptcy proceedings
filed by the Old Conseco, Old CIHC and various of their affiliates on December
17, 2002, with case numbers 02-49671 through 02-49674.
14. "Class" or "Class Members" shall mean and include:
All persons who own or owned a Lifestyle Policy or a Lifetime
Policy excluding: (i) those Lifestyle Policies or Lifetime
Policies listed in Exhibit C that were timely excluded from
the classes certified by the Court on April 26 and 27, 2005,
in accordance with the procedures established by the Court;
(ii) those persons who own or owned a Lifestyle Policy or a
Lifetime Policy that terminated on or before the Eligibility
Date for which the insured has died; and (iii) each person who
is or was a Director, officer or employee of Defendant(s).
15. "Class Counsel" means Andrew S. Friedman of the law firm Bonnett,
Fairbourn, Friedman & Balint, P.C., and Timothy P. Dillon of the Law Offices of
Timothy P. Dillon.
16. "Class Notice" means the form attached hereto as Exhibit D and may
also be referred to as the Notice of Class Action Settlement.
17. "Class Notice Package" means the notice package, agreed to in form
and content by Plaintiffs and Defendants and approved by the Court, to be
provided to Class Members pursuant to Section IX. The Class Notice Package shall
include (a) the Class Notice; (b) the Election Form stating the Class Member's
name and address, the policy number of each Policy that makes the Class Member a
member of the Class, the specific relief the Class Member is eligible to receive
for each such Policy, the identity of any co-owners of the Policies as reflected
in Conseco Life's records and any choice of relief for a Class Member, in the
form of Exhibit E; (c) the Illustration for In-Force Class Members; (d) a Change
of Address Form; and (e) any other information agreed to by the Parties.
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18. "Conseco Life" means: (a) Conseco Life Insurance Company, which
formerly did business under the name Massachusetts General Life Insurance
Company; (b) Philadelphia Life Insurance Company, with which Conseco Life
merged; and (c) each of their past, present, and future parents (including
intermediate and ultimate parents), predecessors, successors, subsidiaries,
affiliates, and assigns (including, without limitation, Old Conseco and Old
CIHC), and each of their respective past, present and future members, attorneys,
officers, directors, and employees.
19. "Conseco, Inc." means Conseco, Inc., and each of its past,
present, and future parents (including intermediate and ultimate parents),
predecessors (including Old Conseco and Old CIHC), successors, subsidiaries,
affiliates, and assigns, and each of their respective past, present and future
members, attorneys, officers, directors, and employees.
20. "Court" means the United States District Court for the Central
District of California.
21. "Defendants" means Conseco Life Insurance Company and Conseco,
Inc.
22. "Defendants' Counsel" means the law firm of Kirkland & Ellis LLP.
23. "Election Deadline" means the date by which Class Members must
return the signed Election Form to the Settlement Administrator. The Election
Deadline, which shall be indicated on the Election Form, will be 50 days after
the date the Class Notice Package is first mailed to Class Members.
24. "Election Form" means the Statement of Eligibility or the
Statement of Eligibility and Election Form stating the Class Member's name and
address, the policy number of each Policy that makes the Class Member a member
of the Class, the specific relief the Class Member is eligible to receive for
each such Policy, the identity of any co-owners of the Policies as reflected in
Conseco Life's records, any choice of relief for a Class Member, particularly
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described in Section III, in Schedules 1 and 2 and in Exhibit E. Each Election
Form shall be signed by the Class Member or by a Person authorized to act on
behalf of the Class Member.
25. "Eligibility Date" means March 2, 2006.
26. "Execution Date" means the first date on which the Agreement,
including exhibits, has been executed by Class Counsel and Conseco Life and
Conseco, Inc.
27. "Fairness Hearing" means the hearing at or after which the Court
shall make a final decision whether to approve the Agreement as fair,
reasonable, and adequate.
28. "Final Bankruptcy Order" means an order of judgment of the
Bankruptcy Court, or other court of competent jurisdiction allowing the
Bankruptcy Claims, which has not been reversed, stayed, modified or amended, and
as to which to the time to appeal or seek certiorari has expired and no appeal
or petition for certiorari has been timely taken, or as to which any appeal that
has been taken or any petition for certiorari that has been filed has been
resolved by the highest court to which the order or judgment was appealed or
from which certiorari was sought, provided, however, that if the lower court
order is not stayed, then the lower court order shall be deemed a Final
Bankruptcy Order.
29. "Final Order and Judgment" means the Court's order(s) approving
the settlement and this Settlement Agreement, and the judgment entered pursuant
to the Court's order(s), as outlined in Section XII.
30. "Final Settlement Date" means the date on which the Final Order
and Judgment approving the Agreement becomes final. For purposes of this
Agreement:
a. if no appeal has been taken from the Final Order and Judgment,
Final Settlement Date means the date on which the time to appeal therefrom has
expired; or
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b. if any appeal has been taken from the Final Order and
Judgment, for any reason other than an appeal challenging the amount of the
Attorneys' Fees and Expenses Final Settlement Date means the date on which all
appeals, including petitions for rehearing or reargument, petitions for
rehearing en banc and petitions for certiorari or any other form of review, have
been finally disposed of in a manner that affirms the Final Order and Judgment;
or
c. if the Parties agree in writing, Final Settlement Date can
occur on any other agreed date.
31. "Implementation Date" means the date on which Conseco Life and
Conseco, Inc., must begin to implement the terms of the Agreement. The
Implementation Date shall be the later of (i) 30 days after the Final Settlement
Date or (ii) January 8, 2007. Defendants may elect to declare an earlier
Implementation Date by providing 10 days advance written notice to Class
Counsel.
32. "In-Force," when describing a Policy, means a Policy that was not
surrendered, was not lapsed, or was not otherwise terminated as of the
Eligibility Date.
33. "In-Force Class Member" means a Class Member who owns an In-Force
Policy.
34. "In-Force Death Benefit Extension" means the time period during
which insurance coverage for the Policy Face Amount of an In-Force Policy
otherwise projected to Terminate prior to age 100 due to the elimination of the
R-Factor will be extended and remain in force after the otherwise applicable
Termination Date with no cost of insurance or other policy charge to the Class
Member. The In-Force Death Benefit Extension available for each In-Force Policy
is set forth in Schedule 1.
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35. "Lapse" means the termination of a Policy in accordance with its
terms because there are insufficient funds in the accumulation account to pay
applicable policy charges.
36. "Lifestyle Policy" or "Lifestyle Policies" means the life
insurance policies issued by Massachusetts General Life Insurance Company,
Philadelphia Life Insurance Company, or Conseco Life described in Schedule 3 and
which were encompassed by the orders of Judge Matz, dated April 26 and 27, 2005.
37. "Lifetime Policy" or "Lifetime Policies" means the life insurance
policies issued by Massachusetts General Life Insurance Company, Philadelphia
Life Insurance Company or Conseco Life described in Schedule 3 and which were
encompassed by the orders of Judge Matz, dated April 26 and 27, 2005.
38. "Notice Plan" means the plan for dissemination of the Class Notice
Package to the Class prepared by the Notice Administrator.
39. "Old CIHC" means CIHC Incorporated, in its capacity as a debtor in
the Chapter 11 Cases.
40. "Old CIHC Claim" means a general unsecured claim in the amount of
$20,000,000 to be filed in the Chapter 11 Cases against the estate of Old CIHC
as a Class 6B claim under the Bankruptcy Plan, in substantially the form
attached as part of Exhibit B.
41. "Old Conseco" means Conseco, Inc., in its capacity as a debtor in
the Chapter 11 Cases.
42. "Old Conseco Claim" means a general unsecured claim in the amount
of $20,000,000 to be filed in the Chapter 11 Cases against the estate of Old
Conseco as a Class 8A claim, in substantially the form attached as part of
Exhibit B.
43. "Parties" means Plaintiffs, Conseco Life, and Conseco, Inc.,
collectively.
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44. "Plaintiffs" means Murray Gomer and Edward Jacob Garn in their
individual and representative capacities.
45. "Policy" or "Policies" means the Lifestyle Policies and Lifetime
Policies.
46. "Policy Face Amount" means the face amount of the base Policy,
excluding any riders, as of September 30, 2003, for Lifestyle Policies and, as
of April 30, 2004, for Lifetime Policies.
47. "Preliminary Approval Order" means the order to be entered by the
Court preliminarily approving the settlement as outlined in Section XI and which
is attached as Exhibit F.
48. "Producer" means any agent who presented, illustrated, sold, or
serviced the Class Member's Policy.
49. "R-Factor" means an actuarial variable applied by Conseco Life to
the cost of insurance calculation on the Policies until it was eliminated by
Conseco Life beginning on September 30, 2003, for Lifestyle Policies and
beginning on April 30, 2004, for Lifetime Policies.
50. "Reinstated Death Benefit Extension" means the time period during
which insurance coverage under a Terminated Policy for which a Class Member
elects the Reinstatement Option will be extended and remain in force after the
otherwise applicable Termination Date with no cost of insurance or other policy
charge to the Class Member. The Reinstated Death Benefit Extension available for
each Terminated Policy is set forth in Schedule 2.
51. "Reinstatement" or "Reinstated," means the option, available to a
Terminated Class Member, to elect to reinstate the Terminated Policy and receive
a Reinstated Death Benefit Extension in accordance with Section III.C.
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52. "Reinstatement Payment Deadline" means the date by which a
Terminated Class Member electing Reinstatement must make the repayments set
forth in Section III.C.3.b. Conseco Life will send an invoice to the Terminated
Class Member when the requested reinstatement is approved setting forth the
reinstatement payment amount and the deadline for payment of that amount, which
shall be not less than 40 days after the date the invoice is mailed. Other than
as set forth in section III.C.3.c., no reinstatement will be effective until all
required payments are received and the reinstated Policy is issued to the
policyholder. Conseco Life shall use its best efforts to complete any required
underwriting within 20 business days after receiving all necessary information.
53. "Releasees" means Conseco Life Insurance Company and Conseco,
Inc., and each of their past, present, and future parents (including
intermediate and ultimate parents), predecessors, successors, subsidiaries,
affiliates and assigns, and each of their respective past, present, and future
shareholders, officers, directors, employees, Producers, general agencies,
attorneys, representatives, or agents acting in their capacity as such or others
acting on their behalf, predecessors, successors, and assigns, or any of them.
54. "Settlement Administrator" means the Court-appointed third-party
agent or administrator agreed to by the Parties, which Conseco Life shall retain
at its expense to implement the Notice Plan, establish and staff a toll-free
telephone number to respond to inquiries by Class Members, receive and process
all Election Forms, report to Defendants and Class Counsel, process and pay Cash
Payments to Terminated Class Members and perform such other services as are
necessary or appropriate to implement other terms of the Agreement.
55. "Settlement Shares" means the shares of Conseco, Inc., common
stock to be released pursuant to the Bankruptcy Plan in satisfaction of the
Bankruptcy Claims, provided,
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however, that the total number of Settlement Shares to be distributed on account
of the Bankruptcy Claims shall be no less than 1,000,000 shares. Upon entry of
the Final Bankruptcy Order, the Class shall be deemed to waive any additional
recovery on account of the Bankruptcy Claims beyond the Settlement Share
Proceeds.
56. "Settlement Share Proceeds" means the cash proceeds to be derived
from the sale of the Settlement Shares pursuant to Section VII.E., less
reasonable administrative fees and expenses charged by the Broker.
57. "Stock Transfer Agent" means American Stock Transfer and Trust
Company.
58. "Summary Settlement Notice" means the published summary of the
Class Notice (including notice of the proposed settlement, the Fairness Hearing
and Class Members' objection and appeal rights), as attached as Exhibit G.
59. "Surrender" means the cancellation by a Class Member of his or her
Policy in accordance with its terms and such cancellation occurred at a time
when there were funds in the accumulation account of the Policy.
60. "Surrender Value" means the amount paid to the Terminated Class
Member from the Policy's accumulation account upon Surrender of the Policy.
61. "Terminated" or "Terminate" when describing a Policy means a
Policy that has lapsed, been surrendered or has otherwise terminated for a
reason other than the death of the insured and has not been reinstated as of the
Eligibility Date.
62. "Terminated Class Member" means a Class Member who owned a
Terminated Policy (in relation to Termination Date).
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63. "Termination Date" means the date when a Policy Terminates and the
grace period would otherwise expire in accordance with the Policy terms absent
the In-Force Benefit Extension.
B. Other capitalized terms used in this Agreement but not defined in this
Section II shall have the meanings ascribed to them elsewhere in this Agreement.
C. The terms "he or she" and "his or her" include "it" or "its" where
applicable.
III. SETTLEMENT RELIEF
Conseco Life and Conseco, Inc., will provide the following relief to Class
Members on the Implementation Date.
A. Relief For In-Force Class Members with Policies Projected to Terminate
Prior to Age 100.
1. In-Force Class Members whose Policies are projected to terminate
prior to age 100 due to the elimination of the R-Factor shall have the option of
receiving: (a) the In-Force Death Benefit Extension or (b) the Cash
Contribution.
2. The In-Force Death Benefit Extension operates to extend the
insurance coverage on the In-Force Policy for a specified period after the
otherwise applicable Termination Date, at no cost to the Class Member, to
mitigate the impact of the elimination of the R-Factor. The In-Force Death
Benefit Extension for each In-Force Policy represents 55% of the difference
between the number of years coverage was expected to remain in force had the
R-Factor not been eliminated and the number of years coverage is expected to
remain in force after elimination of the R-Factor. The minimum In-Force Death
Benefit Extension is six months after the Termination Date of the Policy.
3. The Cash Contribution Option permits an In-Force Class Member to
elect to receive a cash contribution to the accumulation account of the In-Force
Policy in lieu of the In-
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Force Death Benefit Extensions. The Cash Contribution is equivalent to 50% of
the actuarially estimated cost of the corresponding In-Force Death Benefit
Extension as reflected on Schedule 1.
4. To elect the Cash Contribution, the In-Force Class Member must sign
and submit to the Settlement Administrator an Election Form electing such relief
postmarked on or before the Election Deadline. Any In-Force Class Member who
does not timely elect the Cash Contribution for an In-Force Policy shall receive
the In-Force Death Benefit Extension applicable to each such In-Force Policy.
5. The In-Force Death Benefit Extension will begin to provide extended
insurance coverage on the Termination Date of each In-Force Policy. When the
In-Force Death Benefit Extension period commences, Conseco Life shall
discontinue billing the Class Member for additional premiums. The In-Force
Policy shall terminate upon the expiration of the applicable In-Force Death
Benefit Extension. The In-Force Death Benefit Extension period shall remain the
same regardless of any future premium payments made or not made with respect to
the In-Force Policy; however, any premiums paid on an annual basis that exceed
the premium that was paid during calendar year 2005 will operate to defer the
date when the In-Force Death Benefit Extension will begin to provide the
extended insurance coverage, thereby lengthening the period of coverage under
the Policy. The Class Notice will so inform Class Members. As soon as
practicable after the Implementation Date, In-Force Class Members receiving the
In-Force Death Benefit Extension will receive a certificate of benefits, which
clearly discloses, among other things, that the In-Force Death Benefit Extension
is part of the existing in-force policy and is not a separate policy.
6. Sixty days prior to the projected commencement of the In-Force
Death Benefit Extension period, Conseco Life shall send a notice to the In-Force
Class Member advising
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him of his right to make additional premium payments before the In-Force Death
Benefit Extension period commences and that such additional premium payments
will defer the commencement of the In-Force Death Benefit Extension period,
thereby lengthening the period of coverage under the Policy. Conseco Life shall
combine this notice with its customary notice informing the policy owner that
the Policy will terminate in sixty days. Such notice will be substantially in
the same form and content as the notice attached as Exhibit H.
7. Once the In-Force Death Benefit Extension period commences, it
shall continue uninterrupted until it expires. Upon expiration of the In-Force
Death Benefit Extension period, Conseco Life shall have no further obligation
under this Agreement.
8. In-Force Class Members receiving the In-Force Death Benefit
Extension may withdraw amounts from the Policy's accumulation account in
accordance with the terms of the Policy. The otherwise applicable In-Force Death
Benefit Extension period will be reduced by the following formula:
Reduced In-Force Death Benefit Extension= Original In-Force Death Benefit
Extension x [1-
(amount withdrawn from accumulation account / accumulation account)]
For example, if a policyholder with an original In-Force Death Benefit of 10
years has an accumulation account value of $10,000 and withdraws $4,000, the
In-Force Extension period will be reduced to 6 years. An In-Force Class Member
who withdraws an amount from his accumulation account may not restore or extend
the reduced In-Force Extension Period by repaying into the account some or all
of the withdrawn amount.
B. Relief For In-Force Class Members with Policies Projected to Terminate
At Age 100 or Later.
1. Any Class Member owning an In-Force Policy that is projected to
Terminate when the insured is at least 100 years old notwithstanding elimination
of the R-Factor shall receive a two-step increase in the applicable Policy Face
Amount. These In-Force Policies are set
17
forth in Schedule 4. As of the Eligibility Date, the Policy Face Amount of each
such In-Force Policy shall be increased by five percent. On the seventh
anniversary of the Eligibility Date, the Policy Face Amount of each such
In-Force Policy shall be increased by an additional four percent of the Policy
Face Amount (i.e., for a total increase of nine percent of the Policy Face
Amount).
C. Relief For Class Members With Terminated Policies.
1. Terminated Class Members shall have the option of receiving: (i)
Reinstatement; or (ii) the Cash Payment.
2. Defendants shall pay the total amount of $70,000,000, and any
accrued interest in accordance with Section VIII, which amount shall be used for
Cash Payments and the actuarial cost of providing the Reinstated Death Benefit
Extensions as shown on Schedule 2, to Terminated Class Members, and other cash
payments in accordance with Section III.C.3.e. below. Terminated Class Members
who elect Reinstatement in lieu of the Cash Payment will receive a reinstated
Policy, subject to the limitations and conditions set forth in Section III.C.3.,
enhanced by a Reinstated Death Benefit Extension extending the insurance
coverage for a specified period beyond the Termination Date. Any Terminated
Class Member who does not elect Reinstatement of the Terminated Policy will
receive the Cash Payment. Each Terminated Class Member will receive a Cash
Payment(or cash payment under Section III.C.3.e.) or a Reinstated Death Benefit
Extension in an amount reflecting an allocation of Defendants' $70,000,000 cash
payment commitment and any accrued interest among Terminated Class Members in
relation to the difference between the number of years coverage would remain in
force had the R-Factor not been eliminated and the number of years coverage
would have remained in force after elimination of the R-Factor.
3. Policy Reinstatement.
18
a. A Terminated Class Member may elect Reinstatement of any
Terminated Policy, up to the face amount of the original policy, or to $100,000,
whichever is less, with no underwriting. A Terminated Class Member who owned a
Policy with a Policy Face Amount greater than $100,000 can reinstate the Policy
to a face amount greater than $100,000 and up to the Policy Face Amount only by
satisfying Conseco Life's standard underwriting process and guidelines for
policy reinstatement in Conseco Life's Swiss Re Life Guide (or any other
applicable original underwriting manual, if available), and Conseco Life's
Underwriting Guidelines Relating to Reinstatement. In no case may a terminated
class member elect to reinstate a Class Policy in an amount greater than the
original Policy Face Amount.
b. A Terminated Class Member who elects Reinstatement shall
repay into the Policy's accumulation account an amount equal to the Surrender
Value multiplied by a fraction having the reinstated face amount as the
numerator and the Policy Face Amount as the denominator. In addition, each
Terminated Class Member who elects Reinstatement of any Policy for which Conseco
Life waived otherwise applicable surrender charges and obtained a release in
exchange for the waiver shall repay into the Policy's accumulation account an
amount equal to the waived surrender charges, plus interest at the annual rate
of three percent computed from the Surrender Date multiplied by a fraction
having the reinstated face amount as the numerator and the Police Face Amount as
the denominator. The payments by Class Members described in this section shall
be deposited into the applicable Policy's accumulation account without any
charge or reduction by Conseco Life.
c. To elect Reinstatement, the Terminated Class Member shall
sign and submit to the Settlement Administrator an Election Form electing such
relief postmarked on or before the Election Deadline. The Election Form shall
indicate: (i) the amount necessary to
19
reinstate the Terminated Policy in the Policy Face Amount;
and (ii) the amount necessary to reinstate the Terminated Policy in a face
amount of $100,000, unless the terminated Policy Face Amount was less than
$100,000. For Class Members who elect coverage of $100,000 or less, the Election
Form shall also advise that an additional amount is necessary to pay for
coverage from the Election Deadline. The Class Notice and Election Form shall
notify the Class Members to contact the Settlement Administrator for information
concerning the amount necessary to reinstate the Terminated Policy in a face
amount less than the original Policy Face Amount. For those terminated Class
Members who elect to reinstate coverage up to the amount of $100,000,
reinstatement will be effective as of the Election Deadline, provided that the
Terminated Class Member makes all payments due under Section III.C.3.b.,
including all policy premiums reflecting monthly cost of insurance and expense
charges beginning from the Election Deadline, on or before the Reinstatement
Payment Deadline. No interest will be credited or earned for the time period
prior to the issuance of the reinstated Policy on these amounts paid to
reinstate Terminated Policies with face amounts of $100,000 or less. For those
terminated Class Members who elect to reinstate coverage greater than $100,000,
reinstatement will not be effective retroactive to the Election Deadline, but
will be effective upon and as of the date of issuance of the Reinstated Policy,
pursuant to the requirements of Section III.C.3.b. and Section II.52, regardless
of the face amount of the Policy ultimately issued.
d. In the event that a Terminated Class Member elects
Reinstatement but fails to make the payments required by Section III.C.3.b. on
or before the Reinstatement Payment Date, the Class Member shall receive the
applicable Cash Payment rather than Reinstatement. In the event that a
Terminated Class Member elects Reinstatement of a Policy with a Policy Face
Amount greater than $100,000 but fails to satisfy the underwriting
20
requirements, such Terminated Class Member will receive a reinstated Policy in
the face amount of $100,000 plus a cash payment computed in accordance with
Section III.C.3.e.
e. Any Terminated Class Member who elects Reinstatement and
receives a reinstated policy with a face amount less than the Policy Face Amount
of the Terminated Policy will also receive a cash payment equal to the Cash
Payment amount set forth in Schedule 2 multiplied by [1 - (reinstated policy
face amount / Policy Face Amount)]. Conseco Life will compute these amounts
subject to confirmation and audit in accordance with Section IV.E.
f. Upon Reinstatement, the Policy will receive the
applicable Reinstated Death Benefit Extension or increase in face amount of the
reinstated Policy computed in accordance with Section III.B., which will be
subject to the same conditions as set forth in Section III.A. Upon
Reinstatement, the original rating, suicide and incontestability period (from
date of original issuance) will apply. For a period of one year after the date
of Reinstatement, Conseco Life may contest and challenge a death claim for any
Terminated Class Member who Conseco Life reasonably believes has materially
misrepresented medical information in connection with the underwriting process
for any Policy Reinstated under this Agreement. If Conseco denies any such death
claim, under this Agreement the Class Member shall receive a Cash Payment in the
amount set forth in Schedule 2, without interest.
4. Terminated Class Members who do not timely elect Reinstatement will
receive the applicable Cash Payment.
D. General Settlement Relief Requirements and Implementation.
1. The relief available to Class Members under this Agreement shall be
based on the status of each Policy as In-Force or Terminated on the Eligibility
Date. Each Policy that is In-Force on the Eligibility Date but thereafter
Terminates for reasons other than Surrender on or
21
before the Implementation Date will receive the applicable In-Force Death
Benefit Extension commencing on Termination Date of the Policy. Each Policy that
is In-Force on the Eligibility Date but thereafter is Surrendered on or before
the Election Deadline will receive a cash payment equal to the applicable Cash
Contribution Option. The Policy Face Value of any "Option B" Policy that is
In-Force on the Eligibility Date for which the insured dies on or before the
Election Deadline will be increased by an amount equal to the applicable Cash
Contribution Option. The Settlement Notice shall advise Class Members of the
terms of this section.
2. On the Implementation Date, the face amount of any In-Force Policy
that was reduced after elimination of the R-Factor shall be increased
automatically to the Policy Face Amount, unless the Class Member requests a
reduced face amount.
3. All cash payments due under the Agreement shall be made to the
original owner(s) of the Policy rather than to any assignee of the Policy
pursuant to an assignment effected as part of an Internal Revenue Code ss. 1035
exchange.
4. Notwithstanding any other provision of this Agreement, where more
than one person has a current or prior ownership interest or right in a Policy
(co-owners), all Class Members having an interest in such Policy shall be
presumed to be acting jointly in participating in this Agreement. In the event
co-owners elect different settlement options, no settlement benefits shall be
provided until and unless all co-owners agree on the same settlement option.
5. This Agreement and a Class Member's right to obtain relief
hereunder shall not alter any of the terms set forth in the Class Member's
Policy.
6. Each Class Member's right to receive relief under this Agreement is
governed solely by the terms of this Agreement and not by the terms of the Class
Member's Policy.
22
IV. IMPLEMENTATION OF SETTLEMENT RELIEF
A. Within 20 business days after the Election Deadline, the Settlement
Administrator shall promptly provide Defendants, Class Counsel and Lewis & Ellis
with a list identifying: (i) all In-Force Class Members who timely elect the
Cash Contribution; (ii) all In-Force Class Members who elect or will otherwise
receive the In-Force Death Benefit Extension; (iii) all Terminated Class Members
who timely elect Reinstatement and the face amount for which each such
Terminated Class Member has sought Reinstatement; and (iv) all Terminated Class
Members who elect or will otherwise receive the Cash Payment.
B. Within 40 business days after the Implementation Date, Defendants shall
contribute to the accumulation account of each In-Force Policy for which the
Cash Contribution has been elected the amount of any Cash Contribution due under
the Agreement computed in accordance with Sections III.A.3, VII, and Schedule 1.
C. Within 30 business days after the Implementation Date, Defendant shall
pay to the Settlement Administrator an amount equal to $70,000,000, together
with any accrued interest, less (1) the amount of any Settlement Share Proceeds
deposited with the Settlement Administrator for payment to class members; and
(2) less for those Terminated Class Members who Reinstated their Policies the
allocated amount under Section III.C.2, plus the cash payments required under
Section III.C.3.e. However, in no event shall the total amount allocated and
paid to Terminated Policyholders for all relief provided exceed $70,000,000,
together with any accrued interest. The Settlement Administrator thereafter
shall promptly process and mail checks to all Terminated Policyholders entitled
to receive Cash Payments in accordance with Section III.C.2., or cash payments
in accordance with Section III.C.3.e., together with any interest payable
pursuant to Section VIII. The Settlement Administrator shall utilize the updated
addresses compiled in accordance with Section IX.F. After using reasonable
efforts to locate
23
Terminated Class Members whose checks are returned, the Settlement Administrator
shall pay to Conseco Life the amounts of any checks to Terminated Class Members
that are returned or otherwise not negotiated. Conseco Life shall treat all such
amounts in accordance with the laws applicable to unclaimed property.
D. Within 60 business days after the Implementation Date, Defendants shall
implement all changes to the Conseco Life policy administration system that are
necessary to automatically implement the provisions of the Agreement, including,
without limitation, administration of the Cash Contributions, increased face
amounts, In-Force Death Benefit Extensions and the Reinstated Death Benefit
Extensions.
E. Within 120 business days after the Implementation Date, Defendants and
the Settlement Administrator shall provide to Class Counsel and Lewis & Ellis
all information that is reasonably necessary for Lewis & Ellis to audit and
confirm compliance with the terms of the Agreement.
F. Defendants shall pay within 30 business days after the Implementation
Date any valid death claims submitted prior to the Implementation Date for which
coverage is provided by (i) an In-Force Death Benefit Extension pursuant to
Section III.D.1. (for Policies that were In-Force as of the Eligibility Date but
terminated for reasons other than surrender on or before the Implementation
Date) or (ii) a Reinstated Death Benefit Extension for a Class Member who
elected to reinstate the Policy with face amounts of $100,000 or less, and who
pay all amounts necessary to reinstate by the Reinstatement Payment Deadline (in
accordance with all applicable provisions of this Agreement, including Section
III.C.3.c.). Respecting In-Force Death Benefit Extensions and Reinstated Death
Benefit Extensions described in the preceding sentence, for valid death claims
submitted after the Implementation Date, Defendants shall pay those death
24
claims in the normal course of business. In no event shall any Reinstatement be
required to be processed or implemented until after the Implementation Date.
V. RELEASE AND WAIVER
A. The Parties agree to the following releases and waivers, which shall
take effect on the Implementation Date.
B. As of the Implementation Date, Plaintiffs and the Class, for themselves
and for all of their respective heirs, representatives, predecessors,
successors, and assigns, shall release and forever discharge the Releasees from
any and all claims, actions, suits, obligations, demands, promises, liabilities,
cost, expenses, and attorneys' fees whatsoever (whether class or individual in
nature), whether based on any federal or state law or a right of action, in law
or in equity or otherwise, which the Plaintiffs and the Class Members or any of
them ever had, now have or could have, have, or can have, or shall or may
hereafter have relating in any way, directly or indirectly to the subject matter
of the Action (the "Released Transactions"), including, but not limited to:
1. any claims arising out of or based on any acts, failures to act,
omissions, representations, facts, events, transactions, or occurrences set
forth or alleged in the Consolidated Amended Complaint or related in any way,
directly or indirectly, to the subject matter raised in and thus could have been
alleged in the Consolidated Amended Complaint;
2. any claims arising out of, based on, or relating in any way,
directly or indirectly, to the R-Factor with respect to the Policies;
3. any claims alleging Conseco, Inc., is liable for the actions of
Conseco Life for any claims arising out of, based on, or relating in any way,
directly or indirectly, to the R-Factor with respect to the Policies;
25
4. any and all acts, omissions, facts, matters, transaction,
occurrences, or statements or representations made or allegedly made in
connection with or directly or indirectly relating to the Agreement or the
settlement of the Action, except nothing in this Release shall preclude any
action to enforce the terms of the Agreement; and
5. any and all claims for attorneys' fees, costs, or disbursements
incurred by Class Counsel for Plaintiffs, Plaintiffs, or the Class Members, or
any of them, in connection with the Action, the settlement of the Action, or the
administration of such settlement, except to the extent otherwise specified in
this Agreement.
C. As of the Implementation Date, Conseco, Inc., and Conseco Life, for
themselves and for all of their respective heirs, representatives, agents,
consultants, predecessors, successors, and assigns, shall release and forever
discharge Plaintiffs and Class Counsel and each of their predecessors,
successors, partners, employees, expert consultants, assigns, agents, attorneys,
co-counsel, representatives and all those acting with them or on their behalf
from any and all claims, actions, suits, obligations, demands, promises,
liabilities, cost, expenses, and attorneys' fees whatsoever (whether class or
individual in nature), whether based on any federal or state law or a right of
action, in law or in equity or otherwise, which or any of them ever had, now
have, or can have, or shall or may hereafter have relating in any way, directly
or indirectly, to the Released Transactions or the Action, with the exception
that this Release does not apply to any claims arising from or relating to any
claims for attorneys' fees and expenses as provided under Section VI.C.3. or
violation of Section XIII.B.2.
D. Plaintiffs, the Class Members, Conseco Life and Conseco, Inc., expressly
understand that Section 1542 of the California Civil Code provides that:
A general release does not extend to claims which a creditor
does not know or suspect to exist in his favor at the time of
executing
26
the release, which if known by him must have
materially affected his settlement with the debtor.
Plaintiffs, the Class Members, Conseco, Inc., and Conseco Life hereby agree (i)
that the provisions of Section 1542 are hereby knowingly and voluntarily waived
and relinquished as they relate to the Released Transactions, and (ii) that the
provisions of all similar federal or state laws, rights, rules, or legal
principles of any other jurisdiction, to the extent that they are found to be
applicable herein, are also hereby knowingly and voluntarily waived and
relinquished.
E. In connection with this Release, Plaintiffs, the Class Members, Conseco
Life and Conseco, Inc., acknowledge that they are aware that they may hereafter
discover claims presently unknown or unsuspected or facts in addition to or
different from those which they now know or believe to be true with respect to
the Released Transactions. Nevertheless, in executing this Release, Plaintiffs
and the Class Members intend to fully, finally, and forever settle and release
all such matters as they relate to the Released Transactions, and all claims
relating thereto, which exist, hereafter may exist, or might have existed
(whether or not previously or currently asserted in any action).
F. Except for the terms of the Release discussed herein, nothing in this
Release shall be deemed to: (i) alter a Class Member's contractual rights
(except to the extent that such rights are altered or affected by the award of
benefits under the Agreement) to make a claim for benefits provided by the
Policy that are payable now or will become payable in the future pursuant to the
express written terms of the Policy; and (ii) release a Class Member's right to
assert any claims that independently arise from or are based on acts, facts, or
circumstances arising after the Implementation Date.
27
G. Plaintiffs, all Class Members, Conseco Life, and Conseco, Inc., agree
that this Release will be, and may be raised as, a complete defense to, and will
preclude any action or proceeding encompassed by, the Release.
H. Nothing in this Release shall preclude any action to enforce the terms
of the Agreement, including without limitation: (i) any party's participation in
any of the processes detailed herein or (ii) any party's rights under the
indemnification provisions of the Agreement.
I. The provisions of this Release constitute an essential and material term
of the Agreement and shall be included in any Final Order and Judgment entered
by the Court.
VI. ATTORNEYS' FEES AND EXPENSES AND INCENTIVE AWARDS.
A. Conseco, Inc., and Conseco Life shall pay to Class Counsel the entire
amount of Attorneys' Fees and Expenses awarded by the Court as set forth in this
section. Conseco, Inc., and Conseco Life shall be jointly and severally liable
to pay the entire amount of Attorneys' Fees and Expenses and awarded by the
Court.
B. The amount of Attorneys' Fees and Expenses shall be in addition to the
settlement benefits provided to Class Members as set forth in this Agreement and
shall not reduce the benefits provided to Class Members.
C. Determination of the Amount of Attorneys' Fees And Expenses.
1. The Parties and their counsel shall negotiate the amount of
Attorneys' Fees and Expenses to be paid to Class Counsel by Conseco Life and
Conseco, Inc. Conseco, Inc., and Conseco Life shall pay the Attorneys Fees and
Expenses on or before the date agreed to by the Parties or as determined by
Judge Matz and on such terms as are agreed by the Parties or determined by Judge
Matz.
2. In the event the parties are unable to agree on the amount of
Attorneys' Fees and Expenses, the parties shall enter into mediation before the
Honorable A. Howard Matz as
28
directed by Judge Matz . If such mediation is unsuccessful, the parties shall
enter into binding arbitration also before the Honorable A. Howard Matz using
the format and procedures selected by Judge Matz in his sole and absolute
discretion. Any Attorneys' Fees and Expenses awarded by Judge Matz shall be
final and binding and not subject to appeal, opposition or objection by Class
Counsel or Defendants. The Parties agree to support the amount of Attorneys'
Fees and Expenses awarded by Judge Matz in all further proceedings before the
Court and in any appeal.
3. Class Counsel, in their sole discretion, shall allocate and
distribute this award of Attorneys' Fees and Expenses among all of the counsel
who have made a substantial contribution on behalf of the Class in the Action.
Defendants shall not be liable for or obliged to pay any other attorneys' fees
or expenses to counsel representing Plaintiffs or the Class in this Action in
connection with the Action, other than the amount or amounts expressly provided
for in this Agreement.
D. Incentive Awards.
1. Conseco, Inc., and Conseco Life agree not to oppose an application
by Mr. Gomer and Senator Garn for incentive awards in the total amount of
$25,000 for each of them to be paid by Defendants. The purpose of such awards
shall be to compensate Mr. Gomer and Senator Garn for their efforts and risks
taken by them on behalf of Class Members.
VII. USE OF SETTLEMENT SHARE PROCEEDS.
A. The parties contemplate that the Settlement Share Proceeds will be used
as part of a global resolution of the parties' dispute. The parties contemplate
that the Settlement Share Proceeds will be used to fund a portion of Defendants'
obligations under the Agreement, subject to Defendants' representations,
warranties and indemnification set forth in Section VII.G. The parties further
agree that Defendants may, in their discretion, designate shares of Conseco,
Inc., common stock in addition to the Settlement Shares to be released pursuant
to the Bankruptcy
29
Plan in satisfaction of the Bankruptcy Plan that may become available for
distribution to allowed claims under the Bankruptcy Plan, provided that the
proceeds of such shares shall be transferred to the Broker and sold in
accordance with the provisions of this Section VII.E. and that all proceeds from
the sale of such additional shares shall be paid to the Settlement Administrator
and used to fund a portion of Defendant's obligations under the Agreement.
B. Within five days of the Execution Date, Plaintiffs shall file the
Bankruptcy Claims with the Bankruptcy Court.
C. Within five days of the filing of the Bankruptcy Claims with the
Bankruptcy Court, Conseco, Inc., at its own expense, shall file the Bankruptcy
Court Claim Allowance Motion, subject to prior approval by Class Counsel.
Defendants shall support the Bankruptcy Court Claim Allowance Motion before the
Bankruptcy Court and shall use their best efforts to prevail on the Bankruptcy
Court to grant the motion and enter the Bankruptcy Court Claim Allowance Order
and otherwise take all steps to secure the Bankruptcy Court Claim Allowance
Order.
D. On the Implementation Date, the Stock Transfer Agent shall register and
distribute the Settlement Shares on account of the Bankruptcy Claims to the
Broker.
E. The Broker shall be authorized and directed to sell the Settlement
Shares in a commercially reasonable manner over up to a three-week period, and
to distribute the Settlement Share Proceeds to the Settlement Administrator, who
shall distribute the proceeds as directed by the Parties to implement the terms
of the Settlement.
F. Defendants shall pay all costs of retaining and compensating the Stock
Transfer Agent and the Broker.
G. Defendants represent and warrant that: (i) the Settlement Shares are
held in reserve as part of the bankruptcy for the payment of allowed claims
under the Bankruptcy Plan; (ii)
30
Defendants will support the Bankruptcy Court Claim Allowance Motion and will at
their own expense prepare all documents and submissions required to obtain the
Bankruptcy Court Claim Allowance Order and the Final Bankruptcy Order; (iii)
Defendants have full authority to enter into the Agreement; (iv) upon the entry
of the Bankruptcy Court Claims Allowance Order, Defendants shall have full
authority to use the Settlement Shares to satisfy the Bankruptcy Claims; (v)
Conseco, Inc., shall have the authority to determine the disposition of the
Settlement Shares in its sole discretion without creating any liability for the
recipients; and (vi) that there are presently no less than 1,000,000 shares of
Conseco, Inc., common stock available in reserve established pursuant to the
Bankruptcy Plan that will be available to satisfy the Bankruptcy Claims without
creating any liability for the recipients.
H. To the fullest extent permitted by applicable law, Defendants, jointly
and severally, hereby agree to indemnify, defend, and hold harmless any and all
recipients of the proceeds of the Settlement Shares from and against any and all
claims, demands, liabilities, causes of action, expenses, costs, attorneys'
fees, obligations, judgments, loss or other matters resulting from or connected
in any way whatsoever with:
1. the transfer, sale, disposition or use of the Settlement Shares or
the Settlement Share Proceeds hereunder, including (without limitation) any such
liability arising in, arising under, or related to the Bankruptcy Code or the
Internal Revenue Code;
2. any tax liabilities other than those that would have resulted if
Defendants had used their own funds to satisfy their obligations under this
Agreement; rather than the Settlement Shares and the Share Proceeds, and
31
3. any breach of (or any inaccuracy in) the representations and
warranties by Defendants contained in this Agreement, or any actions, omissions,
or state of facts inconsistent with any such representation or warranty.
I. As soon as an indemnified party becomes aware of a claim or liability
covered under Paragraph VII.G,H. above, that party shall give prompt notice to
the indemnifying parties. However, the failure to give notice shall not relieve
the indemnifying party of any liability that it may have, except to the extent
the indemnifying party demonstrates that its defense against any such claim has
been prejudiced. Following notification, the indemnifying party shall assume the
defense against any covered claim and shall promptly reimburse the indemnified
party for any expenses of defense already incurred. If notice is given to an
indemnifying party of the commencement of any action and it does not, within 10
days after indemnified party's notice is given, give notice to the indemnified
party of its election to assume the defense thereof, the indemnifying party
shall be bound by any determination made in such action or any compromise or
settlement thereof effected by the indemnified party.
VIII. INTEREST
A. Interest shall be paid in accordance with Sections IV.B. and VIII.B., C.
and D. No other interest will be accrued or paid to Class Members under this
Agreement.
B. Defendants shall pay interest at the rate of 4% per annum on the amount
of any Cash Contributions to be paid into the accumulation accounts of In-Force
Policies, commencing 60 days after the date the Final Order and Judgment is
entered and accruing only until the Implementation Date.
C. Defendants shall pay interest at the rate of 4% per annum on the amount
of $70,000,000, commencing 60 days after the date the Final Order and Judgment
is entered and accruing only until the Implementation Date. Such interest shall
be paid to Terminated Class
32
Members as a pro rata increase in the amount of the Cash Payments to Terminated
Class Members or as cash payments to Terminated Class Members in accordance with
section III.C.3.e.
D. Any payments on death claims arising from the death of an insured for
which the insured died during the In-Force Death Benefit Extension or Reinstated
Death Benefit Extension and prior to the Implementation Date will include
interest at the rate provided under the Policy commencing on the date of death
and accruing until payment is made to the beneficiary.
IX. NOTICE TO THE CLASS AND SETTLEMENT ADMINISTRATION
The Class Notice, including related materials to be provided to Class
Members, shall be agreed to in form and content by Class Counsel and Conseco
Life and approved by the Court. Conseco Life will pay all costs associated with
the Class Notice including, without limitation, dissemination of the Class
Notice to Class Members.
A. Overview -- Class Notice Package.
No later than 60 days before the Fairness Hearing, and not before the
Bankruptcy Court Claim Allowance Order becomes a Final Bankruptcy Order, the
Settlement Administrator, shall send the Class Notice to, each reasonably
identifiable Class Member by first-class mail, postage prepaid, at the Class
Member's last known address. The Class Notice Package shall include:
1. the Class Notice;
2. an Election Form;
3. an illustration for In-Force Policies;
4. any other information as may be agreed upon by the Parties; and
5. a Change of Address Form.
33
B. Class Notice.
The Class Notice shall be substantially in the form attached as Exhibit D
to this Agreement. Among other things, the Class Notice shall:
1. contain a short, plain statement of the background of the Action,
the Class definition, and the proposed settlement terms;
2. state that Defendants do not admit any fault, nor has there been a
finding of any fault on their part;
3. describe in detail and on an informal basis the specific relief
available to each Class Member under the proposed settlement and a full
explanation of the settlement benefits and any choices they possess under the
settlement;
4. explain the procedures for obtaining relief under the proposed
settlement;
5. state that any relief to Class Members is limited to that provided
by the proposed settlement and is contingent on the Court's final approval of
the proposed settlement;
6. state plainly that any Policies that were surrendered prior to the
Eligibility Date and for which the insured died prior to the Eligibility Date
[or date of notice] are excluded from the Class;
7. describe the effect of the proposed settlement, if approved, on
pending and future disputes and actions, including the release of claims;
8. provide information about Attorneys' Fees and Expenses and state
that, as part of the settlement, Conseco Life and Conseco, Inc., will pay the
Attorneys' Fees and Expenses in the addition to the settlement benefits provided
to Class Members, except that individual Class Members will be responsible for
any fees and costs of any counsel they may retain to represent them individually
for any reason, including, but not limited to, counsel retained in connection
with the Fairness Hearing;
34
9. instruct Class Members who wish to make an election as to the form
of the settlement relief to return their Election Forms as to each Policy owned
by that Class Member on or before the Election Deadline; and
10. provide information about the timing of the Fairness Hearing, the
Class Member's right to object to the Agreement, and the procedures for any
objection.
C. Election Form.
The Election Form shall be substantially in the forms attached as Exhibit E
to this Agreement. A separate Election Form shall be included in the Notice
Package for each Policy. Among other things, the Election Form shall include:
1. the Class Member's name and address;
2. the policy number of the Policy in which he or she has or had an
ownership interest and making the Class Member eligible for relief;
3. the identity of any current co-owners of the Policy (or co-owner at
the time of Policy surrender) as reflected in Conseco Life's records;
4. the status of the Policy as of Eligibility Date;
5. a statement describing and quantifying each particular form of
relief available to the Class Member;
6. a statement as to the particular relief each Class Member will
receive in the event that the Class Member fails to submit a timely Election
Form; and
7. check boxes and blanks allowing the Class Member to elect the form
of relief available for the Policy.
D. Illustrations.
1. The Illustrations provided to Class Members shall be substantially
in the form attached as Exhibit I to this Agreement. An Illustration for
In-Force Policies shall be included in
35
the Notice Package for each such Policy. In-Force Class Members shall receive a
current Illustration providing the information applicable to the In-Force Policy
based on the Policy Face Amount reflecting the In-Force Death Benefit Extension.
Terminated Class Members shall be advised in the Election Form and in the Class
Notice that they may request from Conseco Life a current Illustration providing
the information applicable to a Reinstated Policy in the policy face amount
requested by the Terminated Class Members (up to the Policy Face Amount)
reflecting the applicable Reinstated Death Benefit Extension and the amount
required for Policy Reinstatement. Conseco Life shall use its best efforts to
provide the current Illustration for reinstated Policies no later than 10
business days after the request.
2. Defendants shall pay all costs to prepare and distribute the
In-Force Illustrations to Class Members.
E. Publication of Summary Settlement Notice.
In addition to mailing the Class Notice, Conseco Life shall publish the
Summary Settlement Notice - which will be a summary of the Class Notice,
including notice of the proposed settlement, the Fairness Hearing and Class
Members' exclusion and objection rights - in the national edition of USA Today,
on such date or dates as determined by Conseco Life, Conseco Inc., and Class
Counsel, and as approved by the Court. The Summary Settlement Notice will be
published no later than 40 days before the Fairness Hearing. The Form of Summary
Settlement Notice agreed upon by the parties is attached to this Agreement as
Exhibit G.
F. Remailing, Additional Notice and Follow-Up With Class Members.
For those Class Members owning In-Force Policies, the Settlement
Administrator shall, within the deadline imposed by the Court, mail the
Settlement Notice to the last known address
36
as provided by Conseco Life. For those Class Members owning Terminated Polices,
the Settlement Administrator shall run a National Change of Address (NCOA)
database search prior to the mailing of the Class Notice and, as directed by the
Court and within the deadline imposed by the Court, shall mail the Class Notice
to each such Class Member at the address provided by Conseco Life, unless an
updated address is obtained through the NCOA search, and then to such updated
address. In the event that Class Notice mailed to any Class Member is returned
by United States Postal Service as undeliverable within 30 days before the
Fairness Hearing, the Settlement Administrator shall take such steps as it deems
reasonable and appropriate under the circumstances to locate a current address
for the Class Member, and shall re-mail the Settlement Notice.
G. Use of Settlement Administrator.
1. Conseco, Inc., and Conseco Life, subject to approval of Class
Counsel, which approval shall not be unreasonably withheld, shall retain an
independent third party administrator experienced and skilled in the
administration of class action settlements to implement the terms of the
settlement as set forth below. The Court shall approve the retention of the
Settlement Administrator by Conseco, Inc., and Conseco Life.
2. The Settlement Administrator shall perform various administrative
tasks under this Settlement, including, without limitation, (a) running the NCOA
database search as set forth in Section IX.F. above, (b) mailing of the Class
Notice to Class Members, (c) arranging for publication of the Summary Settlement
Notice, (d) handling returned mail not delivered to Class Members and making any
additional mailing required under this Agreement, (e) attempting to obtain
updated address information for any Class Notices returned without a forwarding
address, (f) making any additional mailings required under the terms of this
Agreement, (g) arranging for and staffing a toll-free telephone number to
respond to inquiries from Class Members and others
37
as set forth in Section XIII.A., (h) answering written inquiries from Class
Members and/or forwarding such inquiries to Class Counsel, (i) receiving and
maintaining any Class Member correspondence, (j) handling Election Forms
returned by Class Members in response to the Class Notice, (j) preparing written
reports detailing all elections and the other information set forth in Section
IV.A. made by Class Members, (k) distributing the monetary relief to Class
Members, (l) providing verification to the parties that the tasks set forth in
this section have been timely and accurately completed and (m) otherwise
assisting Conseco Life with administration of the settlement.
3. The Settlement Administrator shall, as a condition of its
designation to serve as Settlement Administrator, agree in writing to perform
its duties as set forth in this Agreement, and to abide by the terms of the
Agreement, and in addition, shall agree to cooperate with Class Counsel and
Conseco Life and to permit the Parties to monitor its administrative activities,
including providing access to its records and data.
4. Conseco Life will pay all fees, costs, and expenses of the
Settlement Administrator(s), as well as any other fees, costs, and expenses
incurred in performing all of the tasks described in this Section and in
implementing the settlement described in the Agreement.
X. OBJECTIONS TO SETTLEMENT
A. Any Class Member who wishes to object to the fairness, reasonableness,
or adequacy of this Agreement or the proposed settlement, or to the award of
Attorneys' Fees and Expenses, must deliver to one of the Class Counsel
identified in the Class Notice and to Defendants' Counsel and file with the
Court, no later than 30 days before the Fairness Hearing or as the Court
otherwise may direct, a written statement of the objections, as well as the
specific reason(s), if any, for each objection, including any legal support the
Class Member wishes to bring to the Court's attention, any evidence or other
information the Class Member wishes to introduce in
38
support of the objections and the Class Member's Policy number(s). Class Members
may do so either on their own or through an attorney retained at their own
expense.
B. Any Class Member who timely files and serves a written objection, as
described in the preceding Paragraph X.A., may appear at the Fairness Hearing,
either in person or through personal counsel hired at the Class Member's
expense, to object to the fairness, reasonableness, or adequacy of this
Agreement or the proposed settlement, or to the award of Attorneys' Fees and
Expenses. Class Members or their attorneys who intend to make an appearance at
the Fairness Hearing must deliver a notice of intention to appear to one of the
Class Counsel identified in the Class Notice and to Defendants' Counsel, and
file said notice with the Court, no later than 30 days before the Fairness
Hearing, or as the Court may otherwise direct.
C. Any Class Member who fails to strictly comply with the provisions of
Paragraphs X.A and X.B above shall waive and forfeit any and all rights he or
she may have to appear separately and/or object, and shall be bound by all the
terms of this Agreement and by all proceedings, orders and judgments, including,
but not limited to, the Release, in the Action. Without limiting the foregoing,
any objection or notice of appearance not filed and served within the time
deadlines and manner described in this Section X.C. shall be disregarded and
treated as a nullity.
XI. PRELIMINARY APPROVAL AND RELATED ORDERS
Within 7 business days after the parties have agreed upon the amount of
Attorney Fees and Expenses as set forth in Section VI.C., or the amount of
Attorneys Fees and Expenses is determined by Judge Matz as set forth in Section
VI.C, or such other date as may be acceptable to the Court, the Parties shall
submit this Agreement to the Court and seek and obtain from the Court a
Preliminary Approval Order in substantially the same form as Exhibit F to this
Agreement.
39
XII. FINAL APPROVAL AND FINAL ORDER AND JUDGMENT
After the Fairness Hearing, upon the Court's approval of this Agreement,
and after notice to Class Members, the Parties shall seek and obtain from the
Court a Final Order and Judgment.
XIII. RIGHT OF COMMUNICATION WITH CLASS MEMBERS AND THE PUBLIC
A. Communications with Class Members.
1. In order to respond to inquiries from Class Members, the Settlement
Administrator will establish and maintain a toll-free "800" information number,
with sufficient capacity to handle the anticipated call volume, which number
shall be included in Class Notice. The information number will operate based on
a menu of topics with pre-recorded outgoing messages, the scripts for which will
be prepared and mutually agreed to by Conseco Life and Class Counsel. The
information line will include an option to speak with a live operator, which
position will be staffed by the Settlement Administrator. The live operator will
respond to inquiries from Class Members using pre-approved scripts provided and
mutually agreed to by Conseco Life and Class Counsel.
2. If the Settlement Administrator receives any inquiries, either
through the information line or in writing, which the Settlement Administrators
determines, in its discretion, cannot be answered by reference to the
pre-approved scripts, the Settlement Administrator may refer the Class Member
either to Conseco Life or to Class Counsel. General inquiries related to a Class
Member's Conseco Life insurance policy, or to Conseco Life insurance policies
and not to the Settlement as described in the Agreement, shall be referred to
Conseco Life. Inquiries specifically related to the Agreement, its terms and
conditions, and the Settlement Class member's rights there under, shall be
referred to Class Counsel.
3. If Conseco Life or Class Counsel receive any inquiries from Class
Members directly, before the Class Member has called the information line
maintained by the Settlement
40
Administrator, such inquiries shall be referred in the first instance to the
Settlement Administrator and the "800" information line, such that, to the
extent practicable, Class Member questions are answered uniformly and
consistently by the pre-recorded scripts. Neither Conseco Life nor Class
Counsel, however, shall be precluded from responding to inquiries from
Settlement Class members who have called the information line and been referred
by the Settlement Administrator because they have additional questions.
B. Public Communications.
1. Class Counsel and Defendants' Counsel agree to cooperate in good
faith to ensure that any oral or written descriptions of the proposed settlement
in the media or in any other public forum are fair, accurate and consistent with
the terms of this Agreement. In addition, the parties and their counsel will
jointly agree upon talking points to be used when discussing the proposed
settlement. Following execution of this Agreement, any press release or
comparable public announcement regarding the settlement and/or its terms will be
a jointly agreed-upon statement. In addition, any public statements by the
parties or their counsel shall be based on and consistent with the jointly
agreed-upon talking points and press release.
2. Subsequent to preliminary approval, the parties or their counsel
may respond to inquiries from the media provided that their oral or written
comments and statements do not differ in any material way from the terms and
conditions of this Agreement, or from the jointly agreed-upon talking points and
press release. In connection with any such comments or statements, Class Counsel
and Plaintiffs agree and represent that they shall not disparage Defendants. If
a Party or counsel for Party responds to a media inquiry, counsel for the other
Party shall be notified orally or in writing within two business days of the
media source, the general content of any such conversation and any written
materials provided to or received from
41
that media source (copies of any such writings shall be provided to counsel for
the opposing Party upon request).
XIV. MODIFICATION OR TERMINATION OF THE AGREEMENT
A. The terms and provisions of this Agreement may be amended, modified, or
expanded only by written agreement of the Parties and approval of the Court.
After entry of the Final Order and Judgment, however, the Parties may by written
agreement effect such amendments, modifications, or expansions of this Agreement
and its implementing documents (including all exhibits hereto) without further
notice to the Class or approval by the Court if such changes are consistent with
the Court's Final Order and Judgment and do not materially limit the rights of
Class Members under this Agreement.
B. Conseco Life and Conseco, Inc., in consultation with Class Counsel and
without approval of the Court, may implement the terms of the Agreement after
entry of the Final Order and Judgment but prior to the Implementation Date, in
which case all provisions in this Agreement that specify actions to be taken on
or after the Implementation Date shall, to the extent necessary, be deemed to
provide that those actions shall be taken on or after the date on which Conseco
Life or Conseco, Inc., elects to implement the settlement.
C. This Agreement shall terminate at the sole discretion of either Conseco
Life, Conseco, Inc., or the Plaintiffs, through Class Counsel, if:
1. the Court, or any appellate court(s), rejects, modifies, or denies
approval of any portion of this Agreement or the proposed settlement that the
terminating party in its (or their) sole judgment and discretion reasonably
determine(s) is material;
2. the Court, or any appellate court(s), does not enter or completely
affirm, or alters or expands, any portion of the Final Order and Judgment, or
any of the Court's findings of
42
fact or conclusions of law, that the terminating party in its (or their) sole
judgment and discretion reasonably determine(s) is material.
D. This Agreement shall terminate at the sole discretion of Conseco Life
and Conseco, Inc., if:
1. the Court, or any appellate court(s), affords Class Members a new
opportunity to exclude themselves from the Class;
2. if (a) the Bankruptcy Court disallows the Bankruptcy Claims in
whole or in part, (b) the Bankruptcy Court Claim Allowance Order does not become
a Final Bankruptcy Order, or (c) the Stock Transfer Agent does not transfer the
Settlement Shares to the Broker;
3. any state department of insurance or other regulator, except for
the Indiana Department of Insurance, objects to or disapproves of any material
aspect or term of the Agreement within 20 days after the date that formal
objections to the settlement are due pursuant to Section X of this Agreement, or
requires any material modification to the Agreement within 20 days after the
date that formal objections to the settlement are due pursuant to Section X of
this Agreement (provided such objection is not resolved within 10 business days
despite the best efforts of Defendants to do so), including without limitation,
a material constriction or expansion of the scope of the contemplated relief;
4. the Indiana Department of Insurance objects to, or disapproves of,
or does not indicate approval of any material aspect or term of the Agreement;
or objects to, or disapproves of, or does not indicate approval of the statutory
accounting treatment assumed by Conseco Life in connection with the
implementation of the relief for the Class as provided in the Agreement prior to
December 1, 2006. At all times, Conseco Life will have a good faith and
reasonable basis, consistent with generally accepted actuarial principles, for
the statutory account treatment.
43
Conseco Life and Conseco, Inc., shall use their best efforts to obtain such
regulatory approval(s) or address any objections from the Indiana Department of
Insurance within 45 days of execution of the Agreement. Conseco Life shall
promptly notify Class Counsel once such regulatory approval(s) or any objections
have been received from the Indiana Department of Insurance; or
5. the Board of Directors for either Conseco Life or Conseco, Inc., do
not approve the Agreement within ten days of the execution of the Agreement.
E. The terminating party must exercise the option to withdraw from and
terminate this Agreement, as provided in this Section XIV.C and D, no later than
10 business days after receiving notice of the event prompting the termination.
F. If an option to withdraw from and terminate this Agreement arises under
Section XIV.C or D above, neither Conseco Life, Conseco, Inc., nor Plaintiffs
are required for any reason or under any circumstance to exercise that option
and any exercise of that option shall be in good faith.
G. If this Agreement is terminated pursuant to Sections XIV.C or D, above,
then:
1. this Agreement shall be null and void and shall have no force or
effect, and no Party to this Agreement shall be bound by any of its terms,
except as otherwise indicated in the Agreement;
2. all of the Agreement's provisions, and all negotiations,
statements, and proceedings relating to it shall be without prejudice to the
rights of Conseco Life, Conseco, Inc., Plaintiffs or any Class Member, all of
whom shall be restored to their respective positions existing immediately before
the Execution Date;
44
3. the Parties expressly and affirmatively reserve all claims,
remedies, defenses, arguments, and motions as to all claims that have been or
might later be asserted in the Action;
4. neither this Agreement, the fact of its having been made, nor the
negotiations leading to it, nor any discovery or action taken by a Party or
Class Member pursuant to this Agreement shall be admissible or entered into
evidence for any purpose whatsoever;
5. all costs incurred in connection with the settlement, including,
but not limited to, notice, publication, and customer communications, will be
borne by Conseco Life. Neither Plaintiffs nor their Class Counsel shall be
responsible for any of these costs or other settlement related costs, except as
otherwise provided for in the Agreement. Conseco Life is not responsible for any
of Class Counsel's internal costs for the settlement, including, but not limited
to, any expert, actuarial expert, or any other claims for fees or expenses; and
6. all materials produced as part of the discovery settlement process
shall be returned or destroyed within 30 days and Class Counsel shall certify in
writing that there has been no copying, reproduction, dissemination of the
materials.
XV. GENERAL MATTERS
A. Confidentiality.
1. The Parties and their counsel agree to keep the existence and
contents of this Agreement confidential until the date of any motion seeking
preliminary approval of this Agreement; provided, however, that this Paragraph
XV.A.1 shall not prevent Conseco Life or Conseco, Inc., from disclosing such
information, prior to that date, to regulators, rating agencies, independent
accountants, actuaries, auditors, advisors, financial analysts, shareholders,
insurers, attorneys, or in any other manner required by law or regulation, nor
shall it prevent the Parties and their counsel from disclosing such information
to persons or entities (such as experts, courts, co-counsel in this Action,
and/or Settlement Administrators) to whom the Parties agree
45
disclosure must be made in order to effectuate the terms and conditions of this
Agreement, including without limitation Plaintiffs and other counsel of record
for Plaintiffs in the Action.
2. Plaintiffs and Class Counsel agree that the confidential
information made available to them through the discovery settlement process was
made available, as agreed to, on the condition that neither Plaintiffs nor Class
Counsel may disclose it to third parties (other than to counsel of record for
Plaintiffs in the Action, Plaintiffs or experts or consultants retained by
Plaintiffs in connection with this case), that it not be the subject of public
comment, that it not be used by Plaintiffs or Class Counsel in any way in this
litigation should the settlement not be achieved, or in any other proceeding,
and that it be returned or destroyed if a settlement is not concluded.
B. Document Destruction.
Within 90 days after the Final Settlement Date (unless the time is extended
by agreement of the Parties), Class Counsel, Class Members, their counsel, and
any expert or other consultant employed in such capacity or any other individual
with access to documents shall destroy or return to Defendants' Counsel all
documents in accordance with the Stipulated Order Governing Confidentiality
filed in the Action on October 4, 2004; provided, however, that Lewis & Ellis
may retain such documents as are necessary or appropriate to conduct any audit
in accordance with Section IV.D., until the audit is complete and all issues
arising therefrom are resolved.
C. Plaintiffs' Representations.
Plaintiffs represent and certify that they have performed the duties and
obligations of a representative of the Class and they shall remain and serve as
representatives of the Class until the terms of this Agreement are effectuated,
this Agreement is terminated in accordance with its terms, or the Court at any
time determines that said Plaintiffs cannot represent the Class.
46
D. Defendants' Representations.
Conseco Life and Conseco, Inc., represent and warrant that the
individual(s) executing this Agreement is authorized to enter into this
Agreement on behalf of Conseco Life and Conseco, Inc.
E. Regulatory Approvals.
Defendants shall use their continuous best efforts to expeditiously obtain
any and all necessary approvals and address any objections from the Indiana
Department of Insurance and other regulatory agencies within the applicable and
appropriate time frames set forth in this Agreement.
F. Sole Agreement.
This Agreement, complete with its exhibits, sets forth the sole and entire
agreement among the Parties with respect to its subject matter, and it may not
be altered or modified except by written instrument executed by Class Counsel
and Defendants' Counsel. The Parties expressly acknowledge that no other
agreements, arrangements, or understandings not expressed in this Agreement
exist among or between them and that in deciding to enter into this Agreement,
they rely solely upon their judgment and knowledge. This Agreement supersedes
any prior agreement, understanding, or undertaking (written or oral) by and
between the Parties regarding the subject matter of this Agreement.
G.. Jurisdiction.
Any disagreement and/or action to enforce this Agreement shall be commenced
and maintained only in the Court in which this Action is pending.
H. Notice under Agreement.
47
Whenever this Agreement requires or contemplates that one of the Parties
shall or may give notice to the other, notice shall be provided by facsimile
and/or next-day (excluding Sunday) express delivery service as follows:
1. If to Defendants, then to:
Daniel Walseth
Executive Vice President, General Counsel and Secretary
Conseco Services, LLC
222 Merchandise Mart Plaza
Floor 19
Chicago, Illinois 60654
2. If to Plaintiffs, then to:
Timothy P. Dillon
Law Offices of Timothy P. Dillon
361 Forest Avenue, Suite 205
Laguna Beach, California 92651
Andrew S. Friedman
Bonnett, Fairbourn, Friedman & Balint, P.C.
2901 North Central Avenue, Suite 1000
Phoenix, Arizona 85012
I. Time Calculation
All time periods set forth herein shall be computed in calendar days unless
otherwise expressly provided. In computing any period of time prescribed or
allowed by this Agreement or by order of the Court, the day of the act, event,
or default from which the designated period of time begins to run shall not be
included. The last day of the period so computed shall be included, unless it is
a Saturday, a Sunday or a legal holiday, or, when the act to be done is the
filing of a paper in court, a day on which weather or other conditions have made
the office of the clerk of the court inaccessible, in which event the period
shall run until the end of the next day that is not one of the aforementioned
days. "Legal holiday" includes New Year's Day, Birthday of Martin Luther King,
Jr., Presidents' Day, Memorial Day, Independence Day, Labor Day,
48
Columbus Day, Veterans Day, Patriot's Day, Thanksgiving Day, Christmas Day, and
any other day appointed as a holiday by the President or the Congress of the
United States. The Parties reserve the right, subject to the Court's approval,
to agree to any reasonable extensions of time that might be necessary to carry
out any of the provisions of this Agreement.
J. Drafter of Agreement.
Neither the Class, Plaintiffs, Class Counsel, Defendants nor Defendants'
Counsel shall be deemed to be the drafter of this Agreement or of any particular
provision, nor shall they argue that any particular provision should be
construed against its drafter or otherwise resort to the contra proferentem
canon of construction. All Parties agree that this Agreement is the product of
extensive arm's-length negotiations by counsel for the Parties. No parol or
other evidence may be offered to explain, construe, contradict, or clarify its
terms, the intent of the Parties or their counsel, or the circumstances under
which this Agreement was made or executed.
K. No Evidence Provision.
The Parties acknowledge and agree that this Agreement and its exhibits,
along with all related drafts, motions, pleadings, conversations, negotiations,
and correspondence, constitute an offer of compromise and a compromise within
the meaning of Federal Rule of Evidence 408 and any equivalent rule of evidence
in any state. In no event shall this Agreement, any of its provisions or any
negotiations, statements or court proceedings relating to its provision in any
way be construed as, offered as, received as, used as, or deemed to be evidence
of any kind in the Action, any other action, or in any judicial, administrative,
regulatory or other proceeding, except in a proceeding to enforce this Agreement
or the rights of the Parties or their counsel. Without limiting the foregoing,
neither this Agreement nor any related negotiations, statements, or court
proceedings shall be construed as, offered as, received as, used as or deemed to
be evidence or an
49
admission or concession of any liability or wrongdoing whatsoever on the part of
any person or entity, including, but not limited to, Releasees, Plaintiffs, or
the Class or as a waiver by Releasees, Plaintiffs or the Class of any applicable
privileges, claims or defenses.
L. No Policy Modification/Novation.
Except as expressly provided by this Agreement, neither this Agreement nor
any of the relief to be offered under the proposed settlement shall be
interpreted to alter in any way the contractual terms of any Policy, or to
constitute a novation of any Policy.
M. Mergers and Successor Liability.
In the event that Conseco Life is merged into or with any other company,
the surviving entity shall assume and be responsible to perform all obligation
of Conseco Life under the Agreement. Defendants shall take all steps necessary
to insure that the agreements and other documents effectuating any such merger
shall provide for the assumption of Conseco Life's obligations under the
Agreement.
N. No Tax Opinion.
No opinion concerning the tax consequences of the proposed settlement to
individual Class Members is given or will be given by Conseco Life, Conseco
Inc., counsel for Conseco Life and Conseco, Inc., Plaintiffs or Class Counsel,
nor are any representations or warranties in this regard made by virtue of this
Agreement. The Class Notice shall direct Class Members to consult their own tax
advisors regarding the tax consequences of the proposed settlement, including
any payments, or credits provided hereunder, and any tax reporting obligations
they may have with respect thereto. Each Class Member's tax obligations, and the
determination thereof, are the sole responsibility of the Class Member, and it
is understood that the tax
50
consequences may vary depending on the particular circumstances of each
individual Class Member.
O. Waiver
The waiver by one Party of any breach of this Agreement by another Party
shall not be deemed a waiver of any prior or subsequent breach of this
Agreement.
P. Notice of Breach.
If one Party to this Agreement considers another Party to be in breach of
its obligations under this Agreement, that Party must provide the breaching
Party with notice of the alleged breach and provide a reasonable opportunity to
cure the breach before taking any action to enforce any rights under this
Agreement.
Q. Full Cooperation.
The Parties, their successors and assigns, and their counsel agree to
cooperate fully with one another in seeking Court approval of this Settlement
Agreement and to use their best efforts to effect the prompt consummation of
this Agreement and the proposed settlement.
R. Signed in Counterparts.
This Agreement may be signed with a facsimile signature and in
counterparts, each of which shall constitute a duplicate original.
Agreed to on the date indicated below.
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APPROVED AND AGREED TO BY AND ON BEHALF OF THE PLAINTIFFS, IN THEIR
INDIVIDUAL AND REPRESENTATIVE CAPACITIES
BY /s/Andrew S. Friedman DATE September 27, 2006
----------------------------------- ----------------------
ANDREW S. FRIEDMAN
BONNET, FAIRBOURN, FRIEDMAN
& BALINT, P.C.
BY /s/Timothy P. Dillon DATE September 27, 2006
----------------------------------- ----------------------
TIMOTHY P. DILLON
LAW OFFICES OF TIMOTHY P. DILLON
52
APPROVED AND AGREED TO BY AND ON BEHALF OF CONSECO LIFE INSURANCE COMPANY
AND CONSECO, INC.
BY /s/James E. Hohmann DATE September 29, 2006
----------------------------------- ----------------------
JAMES E. HOHMANN
President and Chief Operating Officer
Conseco, Inc.
BY /s/Eugene M. Bullis DATE September 29, 2006
----------------------------------- ----------------------
EUGENE M. BULLIS
Executive Vice President and
Chief Financial Officer
Conseco Life Insurance Company
53