FORM A
STATEMENT REGARDING THE ACQUISITION OF CONTROL OF
CONSECO SENIOR HEALTH INSURANCE COMPANY,
a Domestic Health Insurance Company
(the "Domestic Insurer")
by
SENIOR HEALTH CARE TRANSITION TRUST
(the "Applicant")
Filed with the Insurance Department of the Commonwealth of Pennsylvania
Date: August 11, 2008
Names, Titles, Addresses and Telephone Numbers of Individuals to Whom
Notices and Correspondence Concerning This Statement Should be Addressed:
John W. Wells
600 West Chicago Avenue
Chicago, Illinois 60610
Telephone: (312) 396-6724
Fax: (312) 396-5922
Email: J.Wells@Banklife.com
with a copy to:
Nicholas F. Potter, Esq.
Debevoise & Plimpton LLP
919 Third Avenue
New York, New York 10022
Telephone: (212) 909-6459
Fax: (212) 521-7459
Email: nfpotter@debevoise.com
and
Heidi B. Hamman Shakely
Eckert, Seamans, Cherin & Mellot, LLC
213 Market Street, 8th Floor
Harrisburg, PA 17101
Telephone: (717) 237-6035
Fax: (717) 237-6019
Email: hshakely@eckertseamans.com
This Application (this "Application") seeks the approval of the
Insurance Commissioner of the Commonwealth of Pennsylvania (the "Commissioner")
pursuant to the requirements of Section 1402 of the Insurance Company Law of
1921, as amended, 40 P.S. ss. 991.1402 ("Insurance Holding Company Act" or
"Act") for the acquisition of control of the Domestic Insurer by the Applicant.
This Application contains confidential and/or proprietary information,
and strategies that are not otherwise available to the public and that, if
disclosed, could cause substantial injury to the competitive position of the
Applicant. Accordingly, the Applicant respectfully requests that the five-year
financial projections provided as part of the plan of operations of the Domestic
Insurer, which is included as Exhibit N to this Application (filed under
separate cover), not be considered a "public record" within the meaning of Right
to Know Law, 65 P.S. ss 66.1 et seq. & Act 3 of 2008 (signed February 14, 2008,
Current Printer's No. 1763) (the "Right to Know Law" and "Act 3"), and be
afforded confidential treatment and be excepted from disclosure pursuant to the
Right to Know Law, Act 3 and 31 Pa. Code ss. 25.12(c), as well as all other
applicable provisions of Pennsylvania and federal law.
All such information for which confidential treatment is being
requested is being provided with the express understanding that the
confidentiality of such information will be safeguarded and the trustees of the
Applicant will be protected from any and all unwarranted invasions of personal
privacy and be afforded confidential treatment and be excepted from disclosure
pursuant to Right to Know Law, Act 3 and 31 Pa. Code ss. 25.12(c), as well as
all other applicable provisions of Pennsylvania and federal law.
Item 1. Insurer and Method of Acquisition.
This Application relates to a proposed acquisition of control (the
"Proposed Acquisition of Control") of the Domestic Insurer, Conseco Senior
Health Insurance Company, a health insurance company domiciled in the
Commonwealth of Pennsylvania, by the Applicant, Senior Health Care Transition
Trust, a business trust organized under the laws of the Commonwealth of
Pennsylvania on August 8, 2008. As a condition to the closing of the Proposed
Acquisition of Control (the "Closing"), the Applicant shall be merged with and
into another Pennsylvania business trust (the "Independent Trust"), with the
Independent Trust as the surviving entity; and immediately thereafter the
Independent Trust shall acquire 100% of the outstanding Common Shares (as
defined below) of the Domestic Insurer. The Independent Trust shall be governed
by the terms and conditions of a Trust Agreement, the form of which is attached
as Exhibit A (the "Trust Agreement"). The Domestic Insurer's NAIC Code is 76325.
(a) Domestic Insurer
The Domestic Insurer currently has 166,667 shares of common stock issued
and outstanding (the "Common Shares"), all of which are directly owned by CDOC,
Inc., a Delaware corporation and a direct wholly-owned subsidiary of Conseco
Inc., a Delaware corporation ("Conseco" and collectively with CDOC, the "Conseco
Parties").
The Domestic Insurer also currently has 5,000 shares of Series A Preferred
Stock issued and outstanding (the "Preferred Shares" and together with the
Common Shares, the "Shares"), all of which are owned by Bankers Life and
Casualty Company, an Illinois domestic insurance company and a current affiliate
of the Domestic Insurer ("BLCC"), and Conseco Insurance Company, an Illinois
domestic insurance company and a current affiliate of the Domestic Insurer
("CIC").
The Domestic Insurer's principal administrative office is located at 11825
North Pennsylvania Street, Carmel, Indiana 46032. The Domestic Insurer's current
Board of Directors and executive officers consist of the individuals listed in
Exhibit K-2.
(b) Method of Acquisition
The Applicant proposes to acquire control of the Domestic Insurer pursuant
to a Transfer Agreement dated August 11, 2008, by and among the Conseco Parties
and the Applicant, a copy of which, together with the exhibits thereto, is
attached as Exhibit B (the "Transfer Agreement"). The Transfer Agreement was
entered into pursuant to arms-length negotiations between the Applicant and the
Conseco Parties.
A. Separation
Pursuant to the terms of the Transfer Agreement, the Proposed Acquisition
of Control will be effectuated by the Applicant's acquisition of all of the
Shares of the Domestic Insurer outstanding on the Closing, thereby acquiring
direct control over the Domestic Insurer. As noted above, as a condition to
Closing the Applicant will be merged with and into the Independent
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Trust with the Independent Trust as the surviving entity; and immediately
thereafter the Independent Trust shall acquire 100% of the outstanding Common
Shares. Closing is subject to receipt of regulatory approval and satisfaction of
all other conditions. The Applicant has been advised that the Proposed
Acquisition of Control is a result of Conseco's determination that a complete
separation of the Domestic Insurer from its current holding company system (the
"Separation") is in the interests of the constituents of both Conseco and the
Domestic Insurer.
The Applicant has been advised that, after considerable evaluation, Conseco
concluded that the Separation can best be accomplished through the transfer of
100% of the issued and outstanding Shares to the Applicant. An overview of the
process followed by Conseco to reach this conclusion is set forth in the
Business Rationale Memorandum attached hereto as Exhibit O.
The Separation would be implemented in a manner intended to achieve a
policyholder-centric separation that creates long and short term benefits for
the policyholders of the Domestic Insurer. Following the Separation, Conseco
will no longer have any ownership in, or management or other control over, the
Domestic Insurer, and therefore, the Domestic Insurer will no longer be a
consolidated subsidiary of Conseco for financial statement or other purposes.
Although Conseco and the Domestic Insurer will continue to have a limited number
of ongoing contractual relationships, those relationships will be on an arms'
length basis and clearly defined in the ancillary agreements to the Transfer
Agreement (the "Ancillary Agreements").
The Transfer Agreement and the Ancillary Agreements are intended to
effectuate the Separation in a manner which seeks: (i) to have the Domestic
Insurer satisfy policyholder claims in accordance with the terms of the policies
issued by the Domestic Insurer; (ii) to preserve the assets of the Domestic
Insurer for the benefit of its policyholders and seek to ensure that the
Domestic Insurer continues to remain solvent; and (iii) to encourage the
Domestic Insurer to continue to treat its policyholders fairly and equitably in
accordance with the terms of their policies. Under the terms of the Trust
Agreement, the preceding objectives are intended to operate as principles which
will guide the actions of the Applicant and its trustees (the "Trustees").
B. Operating Principles and Guidelines
Attached as Exhibit C is a form of the Operating Principles and Guidelines
Agreement, including all exhibits thereto, that will be entered into by the
Domestic Insurer and the Independent Trust at the Closing (the "Operating
Principles and Guidelines Agreement"). These Operating Principles and Guidelines
provide the Independent Trust and, indirectly, the Pennsylvania Insurance
Department (the "Department") with certain rights to oversee the Domestic
Insurer. The oversight provided by the Operating Principles and Guidelines
Agreement will allow the Independent Trust and the Department to ensure that the
operations of the Domestic Insurer are conducted in accordance with the overall
objectives of the Independent Trust. The nature and scope of the Operating
Principles and Guidelines Agreement is described in Section D below.
The Proposed Acquisition of Control would provide for transparency and
accountability of the Domestic Insurer's run-off process by having the
Independent Trust be subject to an
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additional degree of regulatory oversight by the Department. The nature and
scope of such oversight by the Department is described in Section D below.
C. Capital Contribution to the Domestic Insurer and Initial Funding of the
Independent Trust
Conseco will cause a final capital contribution to be made to the Domestic
Insurer (the "Capital Contribution") at or prior to the Closing in order to
enhance the Domestic Insurer's financial condition at the time of the
Separation. Following the Capital Contribution, the total adjusted capital of
the Domestic Insurer (i.e., capital and surplus, plus the asset valuation
reserve, plus the Capital Contribution) is expected to be $300,000,000. Further,
Conseco will fund the Independent Trust's projected operating costs for the
first four years following the Separation (the "Initial Operating Funds"). The
aggregate value of the Capital Contribution and the Initial Operating Funds will
be $175,000,000, and will be in the form as described below.
The Capital Contribution to the Domestic Insurer will be comprised of (i)
$39,000,000, which shall consist of (A) a $35,700,000 ceding commission payable
in cash or cash equivalent to the Domestic Insurer at the Closing, in accordance
with the terms and conditions of the Assignment Agreement, and (B) the
forgiveness, extinguishment or elimination (other than by means of payment) of
accrued and unpaid dividends on the Preferred Shares in the amount of
approximately $3,300,000, and (ii) a Senior Note with a principal amount of
$125,000,000, the form of which, including all exhibits thereto, is attached as
Exhibit G (the "Senior Note").
In accordance with the terms of the Transfer Agreement, the Conseco Parties
shall cause cash or cash equivalents in an aggregate amount of $11,000,000 to be
transferred to the Independent Trust at Closing, which shall consist of (a)
$1,000,000 in cash or cash equivalents on the date of Closing (the "Closing
Date") to serve as a base level of working capital in support of the operations
of the Independent Trust and (b) $10,000,000 in cash or cash equivalents to be
used to assist the Independent Trust in meeting the operating and incidental
expenses of the Independent Trust during the four years following the Closing
(the "CNO Expense Advancement"). On the date that is four years following the
Closing Date, the Independent Trust shall cause any remaining funds from the CNO
Expense Advancement that have not been used to fund the operating and incidental
expenses of the Independent Trust incurred prior to such date to be contributed
to the Domestic Insurer.
The Domestic Insurer will be responsible under the terms of an Expense
Reimbursement Agreement between the Independent Trust and the Domestic Insurer,
a form of which, including all exhibits thereto, is attached as Exhibit H (the
"Expense Reimbursement Agreement") for all operating expenses of the Independent
Trust, except to the extent funded by the CNO Expense Advancement described
above.
Other than the Capital Contribution and the Initial Operating Funds, no
additional capital contributions or other forms of financial support transfers
are expected to be made by Conseco and its affiliates to either the Domestic
Insurer or the Independent Trust at or following the Closing. Further, if the
Proposed Acquisition of Control is, for whatever reason, not
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consummated, the Conseco Parties and their affiliates would have no obligation
or intention to provide any capital contributions or other forms of financial
support to the Domestic Insurer.
D. Regulatory Oversight of the Independent Trust
The Independent Trust will provide the Department at Closing the commitment
letter, a form of which is attached hereto as Exhibit P (the "Commitment
Letter"). The Commitment Letter provides that: (i) all contracts between the
Independent Trust and the Domestic Insurer will be subject to the prior approval
of the Department, and (ii) the Domestic Insurer's ability to pay any
shareholder dividends (ordinary or extraordinary) will be subject to the
Department's prior approval. The Commitment Letter also provides that the
Independent Trust will be subject to additional oversight by the Department in
the form of (i) agreeing not to amend (other than ministerial amendments) its
governing documents without the prior approval of the Department, (ii) agreeing
not to amend the Operating Principles and Guidelines Agreement (or any other
Ancillary Agreement) without the prior approval of the Department, (iii)
agreeing to obtain the prior approval of the Department before appointing any
new or replacement Trustees and (iv) prohibiting any distribution to any
Beneficiary (defined below), without the prior approval of the Department, and
until all policyholder obligations are satisfied and the other liabilities of
the Domestic Insurer have been paid or otherwise extinguished. The Applicant
anticipates that the terms and conditions set forth in the Commitment Letter
will be incorporated by reference in the order to be issued by the Department
approving the Proposed Acquisition of Control.
E. Independent Trust's Relationship with the Domestic Insurer
The Trustees of the Independent Trust (the "Independent Trustees") will
have the power to vote the shares of the Domestic Insurer for the election of
the Domestic Insurer's directors, as well as other matters for which a
shareholder vote is required either under the Domestic Insurer's governing
documents or Pennsylvania law. In addition to the foregoing rights, under the
terms of the Operating Principles and Guidelines Agreement, the Independent
Trust will also have approval authority over certain of the Domestic Insurer's
actions.
The Operating Principles and Guidelines Agreement contains covenants that
restrict the following actions by the Domestic Insurer without the prior consent
of the Independent Trust: (i) liquidation or dissolution of the Domestic
Insurer; (ii) entry into any contracts, agreements, arrangements or material
transactions with a director, executive officer, employee or affiliate of the
Domestic Insurer; (iii) guarantees of material payment obligations or
performance of other material obligations of third parties, except in the
ordinary course of business consistent with past practices; (iv) long-term
financial commitments exceeding $3,000,000 individually or $11,000,000 in the
aggregate (on an annual basis) which are not specified in the Domestic Insurer's
Plan of Operations attached hereto as Exhibit N; (v) appointment or removal of
the Domestic Insurer's President and Chief Executive Officer; (vi) entering into
any material transactions not contemplated by the Domestic Insurer's Plan of
Operations; (vii) entering into any new reinsurance agreement or securitization
transaction, materially amending any existing reinsurance agreements or
terminating or commuting any existing reinsurance transaction; (viii) issuance,
sale, redemption or repurchase or any agreement to issue, or sell to, or redeem
or repurchase from, any person or entity, any equity securities of the Domestic
Insurer, or any rights,
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options or warrants to acquire any such securities, or any securities
convertible into or exchangeable or exercisable for such securities; or (ix)
agreeing or otherwise committing to take any of the actions described above.
Pursuant to the Operating Principles and Guidelines Agreement, the Domestic
Insurer shall deliver to the Independent Trust, the following: (a) as soon as
available, but in any event not later than 60 days after the end of each of the
quarterly accounting periods (other than the fourth fiscal quarter of the
Domestic Insurer in each fiscal year which is governed by subsection (b) below),
a copy of each quarterly statutory statement that is filed with the Department,
together with any other financial information reasonably requested by the
Independent Trustees; (b) from and after the 2008 fiscal year, as soon as
available, but in any event no later than 70 days after the end of each fiscal
year of the Domestic Insurer, (i) a copy of the Domestic Insurer's annual
statutory statement as submitted to the Department, together with all exhibits
and supplements thereto, (ii) three-year financial projections for the Domestic
Insurer, (iii) copies of all actuarial reports prepared by or on behalf of the
Domestic Insurer since the previous report to the Independent Trust and (iv) an
update as to the progress that the Domestic Insurer has made under the Plan of
Operations; and (c) with reasonable promptness, such other information and data
with respect to the Domestic Insurer and its operations as from time to time may
be reasonably requested by the Independent Trust.
Under the terms of the Operating Principles and Guidelines Agreement, the
following actions of the Domestic Insurer that require the prior approval of the
Independent Trustees of the Applicant will also require the prior approval of
the Department: (i) material modifications to the Domestic Insurer's Plan of
Operations or investment policies; (ii) entering into or amending in any
material respect any agreement with Conseco or any of its affiliates; (iii)
declaring or making any dividend or distribution with respect to any capital
stock of the Domestic Insurer or redeeming any shares of the Domestic Insurer's
capital stock; (iv) issuing new insurance contracts, except as required by law
or contract; (v) acquiring the business, in whole or in part, of another entity,
including any asset acquisition, stock acquisition, other than a purchase of
investment securities in the ordinary course of business; (vi) amending,
repealing or restating the Articles of Incorporation or Bylaws of the Domestic
Insurer; or (vii) agreeing or otherwise committing to take any of the actions
described above.
F. Termination of Existing Affiliate Agreements
Upon Closing, all agreements between the Domestic Insurer, on one hand, and
any affiliate of the current affiliates of the Domestic Insurer, on the other
hand, will be terminated, except for the Coinsurance Agreement, effective as of
June 30, 1998, between Conseco Life Insurance Company and the Domestic Insurer,
which shall remain in place.
G. Other Ancillary Agreements
In connection with the Separation, various agreements, in addition to those
referenced above, will be entered into by and among Conseco and/or its
affiliates, on the one hand, and the
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Domestic Insurer and/or the Independent Trust, on the other. These Ancillary
Agreements are described below.
(i) Separation and Transition Matters Agreement
Pursuant to the Separation and Transition Matters Agreement, by and among
the Conseco Parties and the Domestic Insurer, a term sheet for which is attached
as Exhibit D (the "Separation and Transition Matters Agreement"), following the
Closing Date, the Conseco Parties will continue to provide, and/or will cause
their subsidiaries to continue to provide, to the Domestic Insurer all services
necessary (the "CNO Transition Services") in order to provide for the orderly
transition by the Domestic Insurer to become a stand alone company. The
Separation and Transition Matters Agreement will provide for anticipated
termination dates for most CNO Transition Services, but the Separation and
Transition Matters Agreement will also recognize that certain services will need
to be continued beyond the target termination date to a date that coincides with
the completion of the conversion services pursuant to the master services
agreement with Long Term Care Group, Inc. (or its successor agreement). To the
extent that services are required beyond the targeted termination date, they
will be continued for a reasonable period of time as requested by the Domestic
Insurer, provided that the Domestic Insurer shall have used its reasonable best
efforts to replace such services. To the extent that additional services are
requested, the Conseco Parties will have a reasonable time period to implement
any said request.
Under the terms of the Separation and Transition Matters Agreement,
following the Closing Date, the Domestic Insurer will provide to the Conseco
Parties those services set forth in accordance with the schedules to the
Separation and Transition Matters Agreement. Such schedules will also describe
the anticipated termination date for such services.
Except as otherwise provided in the Separation and Transition Matters
Agreement or the Transfer Agreements or the Ancillary Agreements, the provision
of all services by the Conseco Parties to the Domestic Insurer and by the
Domestic Insurer to the Conseco Parties will cease on and as of the Closing
Date.
(ii) Assignment Agreement
Effective as of the Closing, the Domestic Insurer will enter into an
assignment agreement with CIC, pursuant to which the assets and liabilities
pertaining to the Domestic Insurer's non-long-term care business will be
assigned to and assumed by CIC, and CIC will have the right and the obligation
to administer, manage and oversee all aspects of the non-long-term care business
of the Domestic Insurer (the "Assignment Agreement"). A form of the Assignment
Agreement, including all exhibits thereto, which will be executed by the parties
at the Closing, is attached as Exhibit E.
The obligations of CIC under the Assignment Agreement will be
collateralized, with such collateral to be held pursuant to the Collateral Trust
Agreement attached as an exhibit thereto.
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The transfer of the non-LTC business of the Domestic Insurer to CIC under
the Assignment Agreement is intended to allow the Domestic Insurer to focus
purely on LTC business by enabling CIC to become primarily liable for the
obligations under the non-LTC policies issued by the Domestic Insurer.
(iii) Administrative Services Agreements for "Closed Block" LTC
Business
Effective as of the Closing, the Domestic Insurer will enter into an
Administrative Services Agreement with each of Washington National Insurance
Company, an Illinois domestic insurer ("WNIC"), Conseco Health Insurance
Company, an Arizona domestic insurer ("CHIC"), and Bankers Conseco Life
Insurance Company of New York, a New York domestic insurer ("BCLIC" and
collectively with WNIC and CHIC, the "Conseco Insurers"), under which the
Domestic Insurer will administer the "closed block" LTC business of such
insurers in exchange for being paid fees equal to the fair market value of such
services (the "LTC Administrative Services Agreements"). A form of the LTC
Administrative Services Agreements, which will be executed by the parties at the
Closing, is attached hereto as Exhibit F.
The Applicant has been advised that the "closed block" LTC policies of the
Conseco Insurers comprise a relatively small portion of each of the Conseco
Insurers' businesses. The LTC Administrative Services Agreements are, therefore,
intended to achieve efficiency by consolidating all of the closed block LTC
business to be administered by the Domestic Insurer, which would have
capabilities to administer such business, post Closing. Any "open block" LTC
business of the Conseco Insurers would continue to be administered by the
insurer which initially wrote such policies.
(iv) Employee Matters Agreement
Effective as of the Closing, the Domestic Insurer will enter into an
Employee Matters Agreement with the Conseco Parties and Conseco Services LLC, an
Indiana limited liability company (the "Employee Matters Agreement"). The term
sheet for the Employee Matters Agreement, which will be entered into at Closing,
is attached hereto as Exhibit Q. The Employee Matters Agreement will govern the
allocation of employees to the Domestic Insurer post-Separation, as well as
matters relating to compensation and benefits for such employees.
(v) Tax Matters Agreement
Effective as of the Closing, the Domestic Insurer will enter into a Tax
Matters Agreement with the Conseco Parties and the Independent Trust (the "Tax
Matters Agreement"). A form of the Tax Matters Agreement, which will be executed
by the parties at the Closing, is attached hereto as Exhibit R. The Conseco
Parties, the Domestic Insurer and certain other affiliates of Conseco have been
members of an affiliated group of corporations of which Conseco is the common
parent (the "CNO Affiliated Group") within the meaning of Section 1504(a) of the
Internal Revenue Code (the "Code"), and the members of the CNO Affiliated Group
will have, prior to the Closing, filed United States federal income tax returns
on a consolidated basis pursuant to Section 1501 of the Code. In addition, the
Conseco Parties, the Domestic Insurer and certain other affiliates of Conseco
have joined in the filing of certain combined, unitary,
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consolidated, or other similar United States state, local, or other governmental
or foreign income or franchise tax returns (each group filing such a return, a
"CNO Combined Group"). Since, as a consequence of the Separation, the Domestic
Insurer will no longer be part of the CNO Affiliated Group or be a member of a
CNO Combined Group, the parties to the Tax Matters Agreement make certain
covenants with respect to tax matters and agree to an allocation of the
liability for certain taxes that may be owed or assessed from and after the
Closing.
H. Additional Post Separation Support
To enable the Domestic Insurer to operate as a stand-alone insurance
company post-Separation, Conseco will, in addition to the agreements described
above: (i) assist the Domestic Insurer in implementing the policies and
procedures necessary for the Domestic Insurer to comply with the Regulatory
Settlement Agreement dated March 30, 2008; (ii) sublease, pursuant to sublease
agreements, office space to the Domestic Insurer for a period of time following
the Closing in order to enable it to locate and transfer to new office space;
(iii) ensure that the Domestic Insurer has a capable management team in place at
the time of the Separation; (iv) segregate, in accordance with the terms and
conditions of the Assignment Agreement, from the Domestic Insurer its non-LTC
business; and (v) seek regulatory approval to change the Domestic Insurer's name
at or promptly after the Closing to "Senior Health Insurance Company of
Pennsylvania."
I. Benefits of the Proposed Acquisition of Control
The Proposed Acquisition of Control has a number of advantages for
policyholders of the Domestic Insurer.
First, the Independent Trust's structure as a special purpose business
trust enables it to have a unique mandate, namely, to assure that the Domestic
Insurer will meet its policy obligations. Unlike a corporation that seeks to
generate a return on capital invested by shareholders, the Independent Trust has
no investors and will have as its single focus the protection of policyholder
interests.
Second, the Independent Trustees are well qualified to serve on the Board
of Trustees of the Independent Trust and to oversee the operations of the
Domestic Insurer. The Independent Trustees have numerous years of experience in
serving the public in the insurance and healthcare industries. More detail
regarding the qualifications of the individual Independent Trustees is provided
in Item 3(b) below.
Third, at least three Independent Trustees will serve on the Board of
Directors of the Domestic Insurer and will have the authority to set
compensation levels for the officers of the Domestic Insurer. Further, such
Independent Trustees will have control over the compensation of the officers of
the Domestic Insurer. In exercising their authority over such compensation, the
Independent Trustees will have the ability to align the incentives of the
officers of the Domestic Insurer with the overall objectives of the Independent
Trust.
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Fourth, the Separation provides for a significant final capital
contribution by Conseco, which Conseco would otherwise be under no obligation to
provide.
Fifth, the agreements described above with the Conseco Parties will provide
the ongoing support necessary to allow the Domestic Insurer to migrate to its
own independent systems and operations in a measured and orderly manner.
Further, the Separation is structured to streamline the operations of the
Domestic Insurer by transferring its non-core business. In addition, by
administering the LTC policies of WNIC, BCLIC and CHIC, the Domestic Insurer
will gain additional economies of scale to effectively administer LTC policies,
while both receiving fair market value for the services provided to WNIC, BCLIC
and CHIC and not bearing any exposure to the claims obligations under such
policies.
Sixth, following the satisfaction of all policy obligations of the Domestic
Insurer, the Independent Trust will cause the Domestic Insurer to be sold or
liquidated and all proceeds from such sale or liquidation will ultimately be
distributed to one or more charities, that is/are focused, in whole or in part,
on senior health or related issues.
The Applicant is providing a complete copy of this Application and all
exhibits attached hereto to the Domestic Insurer under letter dated the date
hereof.
Item 2. Identity and Background of the Applicant.
(a) Name and Business Address of the Applicant.
Senior Health Care Transition Trust
c/o John W. Wells
600 West Chicago Avenue
Chicago, Illinois 60610
(b) Nature of the Business Operations of the Applicant.
The Applicant is a newly formed Pennsylvania business trust, organized
under 15 Pa. C.S.A. Sections 9501 et seq.. The Applicant has a sole Trustee,
John W. Wells, the President and Chief Executive Officer of the Domestic
Insurer; and the following four individuals (in addition to Mr. Wells) are
expected to be the Independent Trustees of the Independent Trust: Julianne M.
Bowler, Gregory V. Serio, Dr. C. Everett Koop, M.D. and Cecil D. Bykerk. With
the exception of John Wells, each Trustee and Independent Trustee is currently
independent of Conseco and its affiliates, and, following the Closing, every
Independent Trustee will continue to be independent of Conseco and its
affiliates. Each Trustee and Independent Trustee is a very accomplished
individual in the healthcare or insurance fields, who will bring a deep level of
expertise to the Independent Trust and to the oversight of the Domestic Insurer.
Of the five Independent Trustees, three will serve as independent directors of
the Domestic Insurer immediately following the Closing. Additional information
regarding the Trustees and Independent Trustees is provided below in Item 3(b).
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(i) Management of the Domestic Insurer
The Domestic Insurer's management team will be independent of Conseco and
its affiliates and will consist of individuals knowledgeable about the
operations and exposures of the Domestic Insurer and possessing the skills
necessary to manage the Domestic Insurer as a run-off operation. The Domestic
Insurer's Board of Directors and executive officers after the Closing will
consist of the individuals listed in Exhibit K-3.
President and Chief Executive Officer
Mr. John W. Wells will be the Domestic Insurer's President and Chief
Executive Officer effective as of the Closing Date. He has over twenty-five (25)
years of diversified experience as a professional in the insurance industry. Mr.
Wells has developed and implemented a "Best in Class" service strategy through
the use of technology and process, quality, measurement and organizational
changes. He is a strong leader with excellent interpersonal and customer skills
and a focus on teamwork and results.
Mr. Wells has been employed by Conseco since 2004. Since 2007, he served as
Senior Vice President and senior operating officer of Conseco's LTC business.
From 2004 through 2006, Mr. Wells served as Senior Vice President - Operations
of Bankers Life and Casualty Company, a subsidiary of Conseco and an affiliate
of the Domestic Insurer, where he was responsible for new business,
underwriting, customer service, administration, claims and support. During such
time, he established metric based performance management and reduced unit cost
by 20% through process re-design and selective outsourcing of non-core
functions.
Before Mr. Wells joined Conseco, he served as Senior Vice President, Chief
Operating Officer of Mutual of Omaha Insurance Company and managed 1,600
employees. He was responsible for underwriting, new business, medical, customer
service, administration, information technology, claims, consumer relations,
sales center, corporate support and Medicare programs. During his tenure at
Mutual of Omaha, Mr. Wells led the development of service capabilities that
ranked in the top quartile of the insurance industry in terms of customer
satisfaction, as measured by a third party.
Mr. Wells is a CPA and holds a Bachelor of Science degree in Business
Administration from Auburn University. In addition, he holds the CLU, FLMI and
ACS industry designations.
Chief Operating Officer
Mr. Brian C. Wegner will be the Chief Operating Officer of the Domestic
Insurer effective as of the Closing Date. Mr. Wegner is a multi-disciplined
senior executive and a leader in the business and information technology sector
in the financial services industry. He is experienced in designing and
implementing successful strategic plans and initiatives in Fortune 500
companies. His proven leadership is driven by integrity and creative solutions
to reduce expenses, enhance growth and profitability, improve customer service
and effectively meet short-term needs while developing and implementing
innovative long-term strategies. Mr. Wegner is skilled in leading multi-site
diverse organizations and managing external
10
relationships with a reputation for improving productivity and mentoring staff
in order to develop future business leaders.
Mr. Wegner has been serving as Vice President for Conseco's LTC operations
since July of 2006. He is responsible for Conseco's operations associated with
its closed block of LTC and major medical business encompassing approximately
230,000 total insured individuals. Mr. Wegner developed and led the execution of
a strategic improvement plan for the closed block of LTC business that resulted
in reductions in operating expenses and substantial improvements in operational
performance, claims management, staff morale and customer service quality.
Prior to joining Conseco, Mr. Wegner was the founder and President of
Business Strategy Group Consulting, Inc. for over seven years. In such capacity,
Mr. Wegner provided executive management consulting services to medium to large
insurance companies in connection with strategic planning and implementation in
the areas of business, information technology and e-business.
Prior to founding Business Strategy Group Consulting, Inc., Mr. Wegner was
employed by Fortis, Inc. in its health division for approximately 15 years.
During his tenure at Fortis, Mr. Wegner served in various capacities, including
as Vice President of operations, product, marketing and group underwriting and
also as Chief Information Officer. Mr. Wegner was responsible for managing the
health insurance product lines for Fortis Benefits Insurance Company and for
planning and implementing strategic initiatives to establish and attain growth
and other product objectives. He was also responsible for the management of the
underwriting, claims, networks and service operations of Fortis Benefits
Insurance Company and the small group underwriting operations of Fortis
Insurance Company. As Chief Information Officer, Mr. Wegner was responsible for
the development and support of health application systems encompassing seven
product divisions of Fortis Health information technology division.
Mr. Wegner holds a Bachelor of Science degree in business administration
from the University of Wisconsin.
Chief Financial Officer
Mr. Dean G. Sarantos will be the Chief Financial Officer of the Domestic
Insurer effective as of the Closing Date. Mr. Sarantos is a seasoned leader, who
thrives in dynamic and fluid environments, with a proven record of driving
positive changes in the areas of manufacturing, consumer products and financial
services. He is results-oriented and has the ability to go significantly beyond
a traditional financial role. Mr. Sarantos has an outstanding record of
achievement in identifying and capturing cost reductions, profit and loss
management and partnering with operational business functions. His key strengths
include financial analysis and modeling, cost management, mentoring and
coaching, strategic and tactical business planning, change management and
project management.
Mr. Sarantos joined Conseco in 2004 and currently serves as Senior
Director, Strategic Planning of Conseco's LTC business and served as Assistant
Vice President, Financial Planning
11
and Operations prior thereto. For the LTC business, Mr. Sarantos works closely
with Conseco's executive management to drive execution strategy, tighten
integration, improve communication and increase accountability for extended team
members. These efforts have improved and stabilized the financial results of a
significantly underperforming business unit. In his role as Assistant Vice
President, Financial Planning and Operations, Mr. Sarantos' responsibilities
included expense planning management, investment cost-benefit analysis and
project management.
Prior to joining Conseco, Mr. Sarantos worked for Kraft Foods, Inc. for
eight years and provided centralized cost accounting for Eastern region
manufacturing plants and cost system support for the entire U.S. region and
managed the financial planning for the flagship division, including establishing
earnings targets and identifying portfolio risks and opportunities.
Mr. Sarantos earned his M.B.A. from Case Western Reserve University.
(ii) Board of Directors of the Domestic Insurer
The board of directors of the Domestic Insurer will consist of the members
of the management team of the Domestic Insurer described above, as well as the
following Independent Trustees, whose backgrounds are described below in Item
3(b): Julianne M. Bowler, Gregory V. Serio and Cecil D. Bykerk.
At the Domestic Insurer's Board level, the Audit, Nomination and
Compensation Committee (the "Committee") shall consist of three directors of the
Domestic Insurer, all of whom will be Independent Trustees who are then
currently serving as independent directors of the Domestic Insurer. In addition,
the President and Chief Executive Officer of the Domestic Insurer will serve as
an ex officio, non-voting member of the Committee. As a committee whose voting
members are not officers or employees of the Domestic Insurer or an affiliate of
the Domestic Insurer in accordance with the requirements of 40 P.S. ss.
991.1405, the Committee will have the responsibility to: (i) recommend the
selection of independent certified public accountants; (ii) review the Domestic
Insurer's financial condition and results of operation; (iii) review the scope
and results of independent audit and any internal audit; (iv) nominate
candidates for director election by the Independent Trust; and (v) evaluate the
performance and compensation of officers of the Domestic Insurer. The Committee
shall have sole authority over the payment of incentive based compensation to
officers of the Domestic Insurer.
No changes to the Domestic Insurer's Charter and By-Laws are proposed or
contemplated (other than to effect the change in corporate name described
above).
(iii) The Beneficiary of the Applicant and the Independent Trust
The beneficiary of the Applicant and of the Independent Trust will be an
irrevocable Pennsylvania common law trust (the "Beneficiary"), to be governed by
the terms and conditions of a Trust Agreement, a copy of which is attached as
Exhibit I. The Beneficiary will be formed for the purposes of being the sole
beneficiary of the Applicant and the Independent Trust, and will, upon the
dissolution of the Independent Trust, receive any remaining property of the
12
Independent Trust and distribute such proceeds to one or more tax-exempt
organizations described in Section 501(c)(3) of the Internal Revenue Code of
1986, as amended (the "Code"), contributions to which are deductible under
Section 170(c) of the Code, and whose charitable objectives and purposes
include, either in whole or in substantial part, a focus on senior health or
related issues (the "Charities"). The Charities do not have to be selected until
it is determined that there will be residual property of the Independent Trust
to be distributed to the Beneficiary, and will be selected in consultation with
the Department.
From and after the Closing, the Board of Trustees of the Beneficiary will
consist of two Independent Trustees. Under the terms of the Trust Agreement, the
Beneficiary has no control rights over the management of the Applicant, the
Independent Trust or the Domestic Insurer. Rather, its rights are limited to a
residual economic interest in the Applicant.
(c) Organizational Chart. Attached to this Application as Exhibit J-1 and
Exhibit J-2 are two charts presenting the identities and interrelationships
among the Applicant and all affiliates of the Applicant before and after the
Proposed Acquisition of Control. Such charts indicate the percentage of voting
securities of each person, which is owned or controlled by the Applicant (and
the aggregate voting power represented by such shares), and the type of
organization and the jurisdiction of domicile of each person specified therein.
No court proceedings involving a reorganization or liquidation are pending with
respect to any person listed on the chart.
Item 3. Identity and Background of Individuals Associated with the Applicant.
(a) Names and Business Addresses. A list setting forth the names and
business addresses of the sole Trustee of the Applicant and the other
Independent Trustees is attached hereto as Exhibit K-1.
(b) Present Principal Business Activity, Occupations, Positions, Offices or
Employment. The present material occupations, positions, offices or employment
with respect to the persons named in Exhibit K-1 hereto are set forth in the
biographical affidavits for such persons, which are to be provided
supplementally. A brief biographical narrative of each of the sole Trustee of
the Applicant and the other Independent Trustees is provided below.
(i) John W. Wells
Description of Mr. Wells' background and qualification is provided in
Item 2(b) above.
(ii) Julianne M. Bowler
Ms. Bowler is the former Commissioner of the Massachusetts Division of
Insurance. She stepped down as Commissioner in January of 2007. Ms. Bowler was
originally appointed Commissioner on April 2, 2002 and reappointed on March 3,
2003. After joining the Massachusetts Division of Insurance in August of 1998,
her responsibilities and achievements have focused primarily on directing the
regulatory review of financial transactions; oversight of
13
financially impaired insurance companies; design and implementation of a
corporate governance program; and coordination and oversight of a national
market conduct examination of a disability income insurance company. Prior to
her appointment as Commissioner, Ms. Bowler served for four years as First
Deputy Commissioner and NAIC liaison for the Massachusetts Division of
Insurance.
Before joining the regulatory agency, Ms. Bowler consulted for the
Massachusetts Division of Medical Assistance. As a consultant, she assisted in
the design and implementation of health insurance premium assistance plans for
small businesses and children of low-income families. Ms. Bowler also worked as
a health policy analyst for Blue Cross and Blue Shield of Massachusetts.
Ms. Bowler holds a masters degree from the University of Dallas and earned
her M.B.A. from the University of Massachusetts/Boston. In addition, she was a
doctoral candidate in biomedical ethics at Georgetown University.
(iii) Gregory V. Serio
Mr. Serio is currently managing director of the New York City-based Park
Strategies, LLC and leader of its risk and insurance management practice group.
Park Strategies is a diversified management and government relations consulting
firm providing strategic and organizational advice to Fortune 500 businesses,
non-profit associations and government enterprises.
Prior to joining Park Strategies in January of 2005, Mr. Serio served as
the 39th Superintendent of Insurance for the State of New York. As
Superintendent of Insurance, to which he was nominated by Governor George E.
Pataki and confirmed by the New York Senate in May of 2001, Mr. Serio led an
agency of more than 1,000 employees with a budget of greater than $125 million.
During his tenure, the State of New York saw substantial declines in the cost of
automobile insurance, the success of a nationally-recognized health insurance
program for the working uninsured, the growth of captive insurance companies as
a meaningful alternative to the traditional insurance programs, and the
commencement of wide-ranging investigations into insurance carrier and broker
activities.
(iv) Dr. C. Everett Koop, M.D.
An internationally respected pediatric surgeon, Dr. Koop became
Surgeon-in-Chief of the Children's Hospital of Philadelphia in 1948 and served
in that capacity until he left the academic world in 1981. He was the
Editor-in-Chief of the Journal of Pediatric Surgery from 1964 to 1976. Dr. Koop
was appointed Deputy Assistant Secretary for Health, U.S. Public Health Service
in March of 1981 and was sworn in as the U.S. Surgeon General on November 17,
1981. He was also appointed Director of the Office of International Health in
May of 1982. As Surgeon General, Dr. Koop oversaw the activities of the Medal of
the Legion of Honor by the government of France in 1980, was inducted into the
Royal College of Surgeons of England in 1982 as well as the Royal College of
Physicians and Surgeons of Glasgow in 1987. In May of 1983, Dr. Koop was awarded
the Public Health Service Distinguished Service Medal in recognition of
14
his extraordinary leadership of the U.S. Public Health Service. After his
retirement, he was presented with the Surgeon General's Exemplary Service Medal
and the Surgeon General's Medallion. In September of 1995, President Clinton
presented him with the Presidential Medal of Freedom, the nation's highest
civilian award.
(v) Cecil D. Bykerk
Mr. Bykerk currently serves as President of CDBykerk Consulting L.L.C.
where he provides actuarial consulting. He was Executive Vice President and
Chief Actuary at Mutual of Omaha Insurance Company prior to starting his
consulting career in 2004. During his 25-year tenure at Mutual of Omaha, he
served in various life and health actuarial positions, serving his last thirteen
years as Chief Actuary. He also served on the Boards of several affiliate
companies of Mutual of Omaha. Prior to working for Mutual of Omaha, he was
Director of the Actuarial Science Program at the University of Nebraska from
1975 to 1979. He began his professional career at Metropolitan Life in 1970
receiving his FSA while working there. During his career, Mr. Bykerk has been
actively involved regarding Genetic Testing and Major Medical insurance, having
made presentations to various professional, academic and regulatory bodies,
including Congressional testimony, in addition to writing articles and white
papers. In addition, he currently serves on the Board of Directors of a Nebraska
domiciled life insurance company.
Mr. Bykerk is also executive director of three high risk pools in Alaska,
Iowa and Montana serving medically uninsurable individuals. In addition, he
currently serves on the Board of Directors of a Nebraska domiciled life
insurance company. Mr. Bykerk has been a fellow of the Society of Actuaries
since 1973 and has been elected to serve as its President for the 2008-2009
term. He is also a member of the American Academy of Actuaries.
Mr. Bykerk holds a masters degree in mathematics from the University of
Nebraska.
(c) Material Occupations, Positions, Offices or Employment. The material
occupations, positions, offices or employment during the last five years,
including the starting and ending dates of each and the name, principal business
and address of any business corporation or other organization in which each such
occupation, position, office or employment was carried on, as well as any
licensing or registrations related to such positions and the current status of
such licenses or registrations, with respect to the persons named in Exhibit K-1
hereto will be set forth in the biographical affidavits for such persons, which
are to be provided supplementally.
(d) Criminal Proceedings. Except as otherwise indicated in the biographical
affidavits, which are to be attached hereto as Exhibit L, to the best knowledge,
information and belief of the Applicant, no person listed in Exhibit K-1 has
been convicted in a criminal proceeding (excluding minor traffic violations)
during the last ten years.
15
Item 4. Nature, Source and Amount of Consideration.
(a) Nature, Source and Amount of Funds or Other Consideration. As described
in the Transfer Agreement, no consideration will be paid by the Applicant to the
Conseco Parties in connection with the Proposed Acquisition of Control.
(b) Criteria Used in Determining the Nature and Amount of Consideration.
The Applicant has been advised that the lack of consideration to be paid by the
Applicant and the amount of the Capital Contribution and Initial Operating Funds
to be contributed by the Conseco Parties was determined by Conseco after
considerable deliberation. Conseco has indicated to the Applicant that, while it
has for many years made significant capital contributions to support the
obligations of the Domestic Insurer, neither Conseco, nor any of its affiliates,
has any legal obligation to provide any additional contributions or financial
support to the Domestic Insurer. Further, Conseco indicated that, in light of
its obligations to its other constituents, including the policyholders of
Conseco's other insurance subsidiaries (whose dividends have been used in part
to fund these past contributions), Conseco would have tremendous difficulty
justifying continuing to provide such capital contributions to the Domestic
Insurer going forward, which is why Conseco chose to pursue the Separation.
Conseco has indicated that the Separation would allow Conseco to justify one
final set of contributions to the Domestic Insurer in light of the benefits of
finality that is achieved for Conseco and its affiliates as a result of the
Separation. Greater detail regarding this deliberative process has been provided
by Conseco in the Business Rationale Memorandum attached hereto as Exhibit O.
The amount of the Capital Contribution was determined by Conseco to be the
appropriate amount of the final contribution in light of a number of
considerations, which include the projected capital needs of the Domestic
Insurer to protect its policyholders, Conseco's ability to fund such
contribution and Conseco's obligations to its other constituents. The amount of
the Capital Contribution also reflects the amount that both the Applicant and
Conseco believe, when taken together with the Domestic Insurer's current
financial state, will place the Domestic Insurer in a position to be separated
from Conseco in a manner that is both fair and equitable to the policyholders of
the Domestic Insurer.
The amount of the Initial Operating Funds was determined by the Conseco
Parties in light of the anticipated operating expenses of the Independent Trust,
including compensation and incidental expenses of the Trustees, day-to-day
operating expenses, compensation for outside advisors, including auditors,
accounts, counsel, and premiums for directors and officers liability insurance.
The Applicant and Conseco believe that the amount of the Initial Operating Funds
would provide the Independent Trust with sufficient funds to pay for such
expenses for a period of at least four years following the Closing Date.
(c) Confidentiality of Lender's Information in the Ordinary Course of
Business. Because no consideration will be paid by the Applicant to the Conseco
Parties in connection with the Proposed Acquisition of Control, there will not
be any loan involving a lender.
Item 5. Future Plans of Insurer.
The Independent Trust intends to cause the Domestic Insurer to continue
conducting its run-off operations substantially as presently conducted, with a
focus exclusively on the LTC
16
business. The Independent Trust has no present plans or proposals to cause the
Domestic Insurer to declare an extraordinary dividend, to liquidate, to sell its
assets or merge with any person, or except as described herein, the Transfer
Agreement or the Ancillary Agreements, to make any other material changes in its
business operations or corporate structure or management.
After the Closing, the Independent Trust will exercise all voting rights
with respect to the Shares, including the right to elect members of the Board of
Directors of the Domestic Insurer, take part in or consent to any corporate or
shareholder's action of any kind, and approve, disapprove or not object to any
action which requires the approval or non-objection of the Independent Trust
pursuant to the Operating Principles and Guidelines Agreement, in each case in
accordance with the following objectives:
o so long as the Domestic Insurer continues to have any policyholder
obligations outstanding, the Independent Trust and the Independent
Trustees shall perform their respective rights and duties under the
Trust Agreement in such a way as to serve the following objectives:
(i) to have the Domestic Insurer pay policyholder claims in accordance
with the terms of the policies issued by the Domestic Insurer; (ii) to
preserve the assets of the Domestic Insurer for the benefit of its
policyholders and seek to ensure that the Domestic Insurer continues
to remain solvent; and (iii) to seek to have the Domestic Insurer
continue to treat its policyholders fairly and equitably in accordance
with the terms of their policies. The objectives stated herein are
intended to operate as principles which shall guide the actions of the
Independent Trust and Independent Trustees; and
o at such time as the policyholder obligations of the Domestic Insurer
have been satisfied or at such earlier time as the Board of Trustees
and the Department shall approve, the Independent Trust and the
Independent Trustees shall perform their respective rights and duties
under the Trust Agreement in such a way as to serve the following
objectives: (i) to convert any remaining property of the Independent
Trust into cash or other liquid investments, by means of a sale of the
Shares, dissolution of the Domestic Insurer or otherwise, and (ii)
following the conversion of any remaining property of the Independent
Trust to cash or other liquid investments, to liquidate the
Independent Trust and distribute the property of the Independent
Trust, if any, following the satisfaction of any liabilities of the
Independent Trust in accordance with the terms of the Trust Agreement.
For additional information on the Independent Trust's future plans for the
Domestic Insurer, please refer to the Plan of Operations attached hereto as
Exhibit N.
Item 6. Voting Securities to be Acquired.
CDOC currently owns 166,667 Common Shares of the Domestic Insurer,
constituting 100% of the outstanding voting securities of the Domestic Insurer.
Upon Closing of the Proposed Acquisition of Control, the Independent Trust will
become the direct controlling person of the Domestic Insurer by acquiring 100%
of its outstanding voting securities. Except as set forth above, none of the
Applicant, its affiliates or the Trustees listed in Exhibit K-1 currently
17
intends to acquire any voting securities issued by the Domestic Insurer or any
of its controlling persons.
The Domestic Insurer currently also has 5,000 Preferred Shares issued and
outstanding, which are owned by BLCC and CIC. Simultaneously with the Closing,
Conseco will cause all Preferred Shares to be transferred to the Independent
Trust by CDOC or one of its affiliates at the Closing.
The terms and conditions of the transactions described in the first
paragraph of this Item 6 are set forth in the Transfer Agreement attached hereto
as Exhibit B and are discussed in Items 1 and 4 above.
Item 7. Ownership of Voting Securities.
CDOC currently owns 100% of the outstanding voting securities of the
Domestic Insurer. None of the Applicant, its affiliates or the persons listed in
Exhibit K-1 currently beneficially owns any voting securities issued by the
Domestic Insurer or any of its controlling persons. Except for rights to acquire
voting securities of the Domestic Insurer provided for or referenced in the
Transfer Agreement, none of the Applicant, its affiliates or the persons listed
in Exhibit K-1 has any right to acquire beneficial ownership of any voting
security issued by the Domestic Insurer or any of its controlling persons.
Item 8. Contracts, Arrangements or Understandings with Respect to Voting
Securities of the Insurer.
Other than the transactions described herein, the Transfer Agreement or the
Ancillary Agreements, there are no contracts, arrangements or understandings
between the Applicant, its affiliates or the persons listed in Exhibit K-1 and
any other person with respect to any securities of the Domestic Insurer or any
of its controlling persons.
Item 9. Recent Purchases of Voting Securities.
During the last twelve calendar months preceding the filing of this
Application, none of the Applicant, its affiliates or the persons listed in
Exhibit K-1 has affected transactions in any voting securities of the Domestic
Insurer or any of its controlling persons.
Item 10. Recent Recommendations to Purchase.
None of the Applicant, its affiliates or the persons listed in Exhibit K-1,
and no one based upon interviews or at the suggestion of the Applicant, its
affiliates or any person listed in Exhibit K-1 has made any recommendations to
acquire any voting securities of the Domestic Insurer or any of its controlling
persons during the twelve calendar months preceding the filing of this
Application.
18
Item 11. Agreements with Broker-Dealers.
None of the Applicant, its affiliates or the persons listed in Exhibit K-1
has or will have any agreement, contract or understanding with any broker as to
solicitation for tender of any voting securities issued by the Domestic Insurer
or any of its controlling persons.
Item 12. Financial Statements and Exhibits.
Opening balance sheet of the Independent Trust, giving effect to the
Closing of the Proposed Acquisition of Control, is attached hereto as Exhibit M.
The following is a list of the financial statements and exhibits required
to be filed with this Application and attached hereto:
Exhibit Description
- ------- -----------
A Form of Trust Agreement for Independent Trust.
B Transfer Agreement dated August 11, 2008, by and among the
Conseco Parties and the Applicant and all exhibits thereto.
C Form of Operating Principles and Guidelines Agreement
between Independent Trust and the Domestic Insurer.
D Separation and Transition Matters Term Sheet for agreement
by and among the Conseco Parties and the Domestic Insurer.
E Form of Assignment Agreement by and between Conseco
Insurance Company and the Domestic Insurer and all exhibits
thereto.
F Form of Administrative Services Agreements with the
Domestic Insurer and each of Washington National Insurance
Company, Conseco Health Insurance Company and Bankers
Conseco Life Insurance Company of New York and all exhibits
thereto.
G Form of Senior Note to be issued by Conseco to the Domestic
Insurer.
H Form of Expense Reimbursement Agreement between the
Independent Trust and the Domestic Insurer.
I Trust Agreement for the Beneficiary.
J-1 Organizational Chart of the Applicant Before the
Acquisition.
J-2 Organizational Chart of the Independent Trust After the
Acquisition of Control of the Domestic Insurer.
19
Exhibit Description
- ------- -----------
K-1 List of the Trustees of the Applicant and the Independent
Trust.
K-2 List of the Current Directors and Executive Officers of the
Domestic Insurer.
K-3 List of the Directors and Executive Officers of the
Domestic Insurer After the Proposed Acquisition of Control.
L Biographical Affidavits of the Independent Trustees
[Confidential and to be Filed Supplementally].
M Opening Balance Sheet of the Independent Trust.
N Plan of Operations of the Domestic Insurer Including Five
(5) Year Financial Projections. [Confidential and Provided
under Separate Cover]
O Business Rationale Memorandum.
P Form of Commitment Letter of the Independent Trust to the
Pennsylvania Insurance Department.
Q Employee Matters Agreement Term Sheet for agreement by and
among the Conseco Parties, Conseco Services LLC and the
Domestic Insurer.
R Form of Tax Matters Agreement among the Conseco Parties,
the Domestic Insurer and the Independent Trust
20
Item 13. Signature and Certification.
Signature and certifications required as follows:
Pursuant to the requirements of Section 1402 of the Act, Senior Health Care
Transition Trust has caused this Application to be duly signed on its behalf in
the City of Chicago and the State of Illinois on the __ day of August 2008.
(SEAL) Senior Health Care Transition Trust
By:/s/ John W. Wells
------------------------------------
Name: John W. Wells
Title: Sole Trustee
Attest:
/s/ Dean G. Sarantos
- ----------------------------
Name: Dean G. Sarantos
Title: Authorized Officer
CERTIFICATION
-------------
The undersigned deposes and says that he had duly executed the attached
Application dated August __, 2008, for and on behalf of the Applicant Senior
Health Care Transition Trust, that he is the sole Trustee of such entity; and
that he is authorized to execute and file such instrument. Deponent further says
that he is familiar with such instrument and the contents thereof, and that the
facts therein set forth are true to the best of his knowledge, information and
belief.
By: /s/ John W. Wells
-----------------------------------
Name: John W. Wells
Title: Sole Trustee
Subscribed and sworn to me this 7th day of August 2008.
Notary Public /s/ Sherry Kremer
My commission expires on 2/24/2011.
21
Exhibit A
SENIOR HEALTH CARE OVERSIGHT TRUST
TRUST AGREEMENT
Dated as of [ ], 2008
TABLE OF CONTENTS
ARTICLE I
TRUST
1.01 Name............................................................................................1
1.02 Registered Office...............................................................................1
1.03 Purpose.........................................................................................1
1.04 Objectives......................................................................................2
1.05 Authority.......................................................................................2
1.06 Title to Trust Property.........................................................................2
1.07 Management of Trust.............................................................................2
1.08 Powers of the Board of Trustees.................................................................3
1.09 Investment Company..............................................................................5
1.10 No Reversion....................................................................................5
1.11 Prohibited Acts of the Trust and Board of Trustees..............................................5
1.12 Duration of Trust...............................................................................5
1.13 Revocability....................................................................................5
1.14 Certain Definitions.............................................................................5
ARTICLE II
TRUSTEES
2.01 Number of Trustees..............................................................................6
2.02 Qualification of Trustees.......................................................................6
2.03 Selection of Trustees...........................................................................6
2.04 Resignation or Removal of Trustees..............................................................7
2.05 Meetings of the Board of Trustees...............................................................8
2.06 Action without a Meeting........................................................................8
2.07 Delegation of Power.............................................................................8
2.08 Committees of the Board of Trustees.............................................................8
2.09 Compensation of Trustees; Reimbursement of Expenses.............................................9
2.10 Bylaws..........................................................................................9
2.11 Fiduciary Duties................................................................................9
2.12 Capacity of Trustees............................................................................9
2.13 Additional Service of Trustees..................................................................9
ARTICLE III
BENEFICIARY
3.01 Beneficiary.....................................................................................10
3.02 Register of Beneficiaries.......................................................................10
3.03 Certificates....................................................................................10
3.04 Expenses of Beneficiary.........................................................................10
3.05 Rights of Beneficiary...........................................................................10
3.06 Meetings........................................................................................10
3.07 Transfer of Beneficial Interest.................................................................10
ARTICLE IV
LIMITATIONS ON LIABILITY; INDEMNIFICATION
4.01 Liability of Trustees...........................................................................11
4.02 Liability of Beneficiaries......................................................................11
4.03 Reliance on Records/Reports.....................................................................11
4.04 Indemnification.................................................................................11
4.05 Outside Business................................................................................12
ARTICLE V
MISCELLANEOUS
5.01 Filing..........................................................................................12
5.02 Partial Enforcability...........................................................................12
5.03 Governing Law...................................................................................12
5.04 Jurisdiction....................................................................................12
5.05 Third Party Beneficiaries.......................................................................13
5.06 Amendment.......................................................................................13
5.07 Headings........................................................................................13
5.08 Interpretation..................................................................................13
5.09 Counterparts....................................................................................13
ii
SENIOR HEALTH CARE OVERSIGHT TRUST
----------------------------------
TRUST AGREEMENT
---------------
This Trust Agreement (this "Agreement") is made as of the [ ] day of [ ],
2008, by the Trustees and acknowledged and accepted by the Beneficiary hereunder
(each, as defined below).
WHEREAS, the Trustees hereby establish this Trust (as defined below) under
Chapter 95 of Title 15 of the Pennsylvania Consolidated Statutes, 15 Pa. C.S.A.
Section 9501, et seq. (the "Business Trust Statute") for the purposes of (i)
consummating the transactions contemplated by the Transfer Agreement, dated
August 11, 2008, by and among CDOC, Inc., Conseco, Inc. and Senior Health Care
Transition Trust (the "Transfer Agreement") and (ii) carrying on business as set
forth hereinafter; and
WHEREAS, the parties hereto intend that the Trust shall constitute a
business trust under the Business Trust Statute, and that this Agreement shall
constitute the governing instrument of such business trust.
NOW, THEREFORE, the Trustees hereby declare that they will hold all assets,
including the Shares (as defined below), which they may from time to time
acquire in any manner as Trustees (the "Trust Property") hereunder IN TRUST to
manage and dispose of the same upon the following terms and conditions for the
benefit of the Beneficiary of this Trust as hereinafter set forth.
ARTICLE I
TRUST
1.01 Name. This Trust shall be known as the "Senior Health Care Oversight
Trust," in which name the Trustees may engage in the lawful transactions
contemplated hereby.
1.02 Registered Office. The commercial registered office of the Trust shall be:
Corporation Service Company
2704 Commerce Drive
Harrisburg, PA 17110
1.03 Purpose. The Trust shall be a special purpose entity whose purpose and
function is to (a) consummate the transactions contemplated by the Transfer
Agreement, pursuant to which the Trust, as surviving entity of the Merger (as
defined below), will receive 100% of the issued and outstanding shares of
capital stock (the "Shares") of Conseco Senior Health Insurance Company, an
insurance company domiciled in the Commonwealth of Pennsylvania ("CSHI") to be
renamed the Senior Health Care Insurance Company of Pennsylvania ("SHIP"), and
to perform its obligations thereunder, (b) to approve, execute and deliver any
agreements related to or provided for by the Transfer Agreement and to perform
its obligations thereunder, (c) receive and own the Shares, (d) exercise all
voting rights with respect to the Shares, including the right to elect members
of the board of directors of CSHI/SHIP, (e) approve or disapprove any action
which requires the approval of the Trust pursuant to the Operating Principles
and Guidelines
1
Agreement to be entered into between the Trust and CSHI/SHIP (the "Operating
Principles"), (f) at all such time as the policyholder obligations of CSHI/SHIP
have been satisfied or at such earlier time as the Board of Trustees and the
Pennsylvania Insurance Department shall approve, convert any remaining Trust
Property into cash or other liquid investments, by means of a sale of the
Shares, dissolution of CSHI/SHIP or otherwise, (g) following the conversion of
any remaining Trust Property to cash or other liquid investments, to liquidate
the Trust and distribute the Trust Property, if any, following the satisfaction
of any liabilities of the Trust in accordance with the terms of this Agreement,
(h) engage in those other activities necessary or incidental to any of the
foregoing, in each case in accordance with the objectives set forth in Section
1.04, and (i) engage in any such other activities as may be approved in writing
by the Pennsylvania Insurance Department.
1.04 Objectives.
(a) So long as CSHI/SHIP continues to have any policyholder
obligations outstanding, the Trust and Trustees shall perform their respective
rights and duties under this Agreement taking the following objectives into
account: (1) to have CSHI/SHIP satisfy policyholder claims in accordance with
the terms of the policies issued by CSHI/SHIP; (2) to preserve the assets of
CSHI/SHIP for the benefit of CSHI/SHIP's policyholders and seek to ensure that
CSHI/SHIP continues to remain solvent; and (3) to encourage CSHI/SHIP to
continue to treat its policyholders fairly and equitably in accordance with the
terms of their policies. The objectives stated within this paragraph are
intended to operate as principles which shall guide the actions of the Trust and
Trustees.
(b) At such time as all the policyholder obligations of CSHI/SHIP have
been satisfied or at such earlier time as the Board of Trustees and the
Pennsylvania Insurance Department shall approve, the Trust and Trustees shall
perform their respective rights and duties under this Agreement taking the
following objectives into account: (1) to convert any remaining Trust Property
into cash or other liquid investments, by means of a sale of the Shares,
dissolution of CSHI/SHIP or otherwise and (2) following the conversion of any
remaining Trust Property to cash or other liquid investments, to liquidate the
Trust and distribute the Trust Property, if any, following the satisfaction of
any liabilities of the Trust, to the Beneficiary in accordance with the terms of
this Agreement.
1.05 Authority. Subject to the limitations provided in this Agreement, the Board
of Trustees shall have exclusive and complete authority to carry out the
purposes of the Trust. Any action taken by the Board of Trustees in accordance
with their powers shall constitute the act of and serve to bind the Trust.
Persons dealing with the Trust are entitled to rely conclusively on the power
and authority of the Board of Trustees as set forth in this Agreement. Persons
dealing with the Trust may rely on any instrument or agreement signed by two
Trustees.
1.06 Title to Trust Property. Legal title to all Trust Property shall be vested
in the Trust. The Beneficiary shall not have legal title to any part of the
Trust Property, but shall have an undivided beneficial interest in all Trust
Property.
1.07 Management of Trust. The Trust shall be managed exclusively by the Board of
Trustees, which shall consist of all Trustees (the "Board of Trustees").
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1.08 Powers of the Board of Trustees.
(a) Prior to the time that the Trust acquires the Shares,
the Board of Trustees shall have the power to:
(i) Approve and, if the Trust is a party thereto,
execute and deliver any agreements related to or provided for by
the Transfer Agreement;
(ii) Perform the Trust's obligations under the Transfer
Agreement and any agreements related to or provided for by the
Transfer Agreement;
(iii) Engage in any merger transaction contemplated by
the Transfer Agreement (the "Merger") and execute and deliver any
agreements related thereto;
(iv) Prepare and submit any regulatory filings or
submissions to be made in connection with the Transfer Agreement
or the transactions contemplated thereby;
(v) Consent to any conditions or requirements that the
Pennsylvania Insurance Department may impose in connection with
its approval of the regulatory filings to be made by the Trust or
the transactions contemplated thereby; and
(vi) Enter into any contracts, including contracts for
the purpose of obtaining the advice of third party advisors, or
amend or terminate any contract in effect and do any other
actions necessary or appropriate for purposes of carrying out the
foregoing powers. A determination in good faith by the Board of
Trustees as to what actions are necessary or appropriate shall be
conclusive.
(b) At and following the time that the Trust acquires the
Shares, the Board of Trustees shall have the power to:
(i) Perform the Trust's obligations under the Transfer
Agreement and any agreements related to or provided for by the
Transfer Agreement;
(ii) Exercise all voting rights with respect to the
Shares, including the right to elect the board of directors of
CSHI/SHIP, take part in or consent to any corporate or
shareholder's action of any kind, and approve or disapprove any
action which requires the approval of the Trust pursuant to the
Operating Principles, in each case in accordance with Section
1.04. A determination in good faith by the Board of Trustees as
to what actions are in accordance with Section 1.04 shall be
conclusive;
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(iii) Incur and pay out of the assets or income of the
Trust any expenses which in the judgment of the Board of Trustees
are necessary or incidental to carry out any of the purposes or
powers of the Trust, and to pay reasonable compensation from the
funds of the Trust to Trustees;
(iv) Open bank accounts in the name and for the benefit
of the Trust and deposit and withdraw funds of the Trust;
(v) Receive all dividends paid on the Shares;
(vi) Collect all property due to the Trust and pay all
claims due from the Trust, including taxes;
(vii) Prosecute, defend, compromise or abandon any
claims relating to Trust Property or the Trust;
(viii) Take all actions necessary or appropriate to
cause all applicable tax returns and other tax reports which are
required to be filed by the Trust to be duly prepared and filed;
(ix) Enter into any contracts, including contracts for
purposes of obtaining the advice of third party advisors, or
amend or terminate any contract in effect and do any other
actions necessary or appropriate for purposes of carrying out the
powers of the Trust. A determination in good faith by the Board
of Trustees as to what actions are necessary or appropriate shall
be conclusive;
(x) Obtain insurance for the purpose of insuring the
Trustees, the officers and directors of CSHI/SHIP and, to the
extent appropriate, the Beneficiary or the trustees thereof
against all claims arising by reason of holding any such position
or by reason of any action taken or omitted by any such person in
such capacity, whether or not the Trust would have the power to
indemnify such persons against such liability;
(xi) Keep books and records regarding the business of
the Trust and make periodic reports or other filings as may be
required by the Pennsylvania Insurance Department or by any other
regulatory authority;
(xii) Comply with any conditions or requirements
imposed by the Pennsylvania Insurance Department or by any other
regulatory authority;
(xiii) At such time when CSHI/SHIP no longer has any
policyholder obligations outstanding or at such earlier time as
may be approved in writing by the Pennsylvania Insurance
Department, negotiate, enter into and perform any contract for
purposing of selling the Shares, merging CSHI/SHIP with any
entity or liquidating the assets of CSHI/SHIP;
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(xiv) At such time as the property of the Trust
consists solely of cash or other liquid investments, dissolve the
Trust, pay all liabilities of the Trust out of the assets of the
Trust and distribute remaining assets of the Trust, if any, to
the Beneficiary; and
(xv) Enter into any other transactions or do any other
acts necessary or appropriate for purposes of exercising the
foregoing powers, including all acts necessary or appropriate to
preserve and continue the Trust's valid existence, rights,
franchises and privileges. A determination in good faith by the
Board of Trustees as to what actions are necessary or appropriate
shall be conclusive.
(c) The powers of the Board of Trustees set forth in this
Section 1.08 must be exercised in a manner that is not inconsistent with the
purpose and objectives of the Trust set forth in Sections 1.03 and 1.04.
1.09 Investment Company. The Trust shall take such action as necessary to ensure
that the Trust will not be required to register as an investment company under
the Investment Company Act of 1940.
1.10 No Reversion. In no event will any Trust Property, nor any beneficial
interest in the Trust, revert to or be distributed to Conseco, Inc., a Delaware
corporation, or any of its successors or affiliates (collectively "Conseco").
1.11 Prohibited Acts of the Trust and Board of Trustees. Neither the Trust nor
the Board of Trustees shall engage in any activity other than as required or
authorized by this Agreement without the prior written approval of the
Pennsylvania Insurance Department. In particular, neither the Trust nor the
Board of Trustees shall engage in any business other than business incidental to
owning the Shares without the prior written approval of the Pennsylvania
Insurance Department. In addition, other than as required or authorized by this
Agreement, the Trust may not pledge the Shares in anyway, nor may the Trust
merge or consolidate with any other entity, without the prior written approval
of the Pennsylvania Insurance Department.
1.12 Duration of Trust. Unless earlier terminated in accordance with the terms
of this Agreement, the Trust shall have a perpetual duration.
1.13 Revocability. The Trust is expressly declared irrevocable, and may only be
terminated by the dissolution or liquidation of the Trust in accordance with the
terms of this Agreement.
1.14 Certain Definitions. Unless the context otherwise requires, capitalized
terms used in this Agreement but not otherwise defined herein shall have the
respective meaning assigned to them in this Section 1.14:
"Independent Trustee" shall mean a Trustee that is not an officer or employee of
CSHI/SHIP.
"Person" shall mean any individual, corporation, partnership, firm, joint
venture, association, limited liability company, limited liability partnership,
joint-stock company, trust, unincorporated organization, governmental entity,
business unit, division or other entity.
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"Trust" shall mean the trust established by this Agreement, as amended from time
to time, inclusive of each such amendment.
"Trustees" shall mean the Initial Trustees and any new or successor Trustees
then in office.
ARTICLE II
TRUSTEES
--------
2.01 Number of Trustees. The number of Trustees initially shall be five. The
Board of Trustees shall, at all times, include a majority of Independent
Trustees. Upon the removal, death, disability or resignation of any Trustee, the
number of Trustees may be reduced accordingly (but not to less than three),
unless and until a replacement Trustee is appointed in accordance with the terms
of this Agreement. With the prior written approval of the Pennsylvania Insurance
Department, the number of Trustees may be increased to a number approved by the
affirmative vote of 75% of the members of the Board of Trustees. Each Trustee
shall hold office until the removal, death, disability or resignation of such
Trustee.
2.02 Qualification of Trustees.
(a) Each Trustee shall be a natural person who is at least
21 years of age. Other than the initial Trustees, each new or successor Trustee
must submit a biographical affidavit, in the form required by the Pennsylvania
Insurance Department, to the Pennsylvania Insurance Department.
(b) Following the date upon which Trust acquires the Shares,
each Trustee shall be independent of Conseco; provided, however, that the
continued employment of Mr. Wells by Conseco until January 1, 2009 shall not be
deemed to disqualify Mr. Wells from serving as a Trustee. If at any time a
Trustee is no longer independent of Conseco, such Trustee shall promptly resign
upon losing such independence. In determining the independence of a Trustee from
Conseco, such independence shall be determined by reference to Section 2-01(b)
of Regulation S-X promulgated by the Securities and Exchange Commission and such
releases and correspondence interpreting such section; provided, however, that
the following circumstances shall not affect the determination of the
independence of a Trustee: (i) any direct or indirect ownership by a Trustee of
any debt or equity securities of Conseco in an amount which is not material to
the net worth of such Trustee, (ii) employment of a Trustee by a firm which acts
as an underwriter or promoter of Conseco or a provider of other services to
Conseco provided the fees paid to such firm by Conseco are not material to the
net income of such firm, or (iii) any prior employment relationship with Conseco
or any participation in or the exercising of any rights under any benefit plan
in connection with such employment. If any one or more of the Trustees requires
guidance as to whether a Trustee is independent of Conseco hereunder, the
Trustees may consult with a nationally recognized accounting or law firm to
determine such independence. The determination of such firm shall be conclusive.
2.03 Selection of Trustees.
(a) The initial Trustees shall be:
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John W. Wells
130 North Garland Court
Unit 901
Chicago, IL 60602
Julianne M. Bowler
37 M St. #2
South Boston, MA 02127
Gregory V. Serio
130 Pollock Road
Latham, NY 12110
Dr. C. Everett Koop, M.D.
3 Ivy Pointe Way
Hanover, NH 03755
Cecil D. Bykerk
9643 Oak Circle
Omaha, Nebraska 68124
(b) In the event of the removal, death, disability or
resignation of any Trustee or in the event the number of Trustees is increased
for any reason, the Trustees then in office may by majority vote of the
remaining Trustees (whether or not constituting a quorum) choose a new or
successor Trustee meeting the requirements set forth herein.
(c) The Board of Trustees shall elect one Trustee to serve
as the Chairperson of the Board of Trustees, who shall serve until a new
Chairperson of the Board of Trustees is duly elected. [ ] shall serve as the
initial Chairperson of the Board of Trustees. The Chairperson of the Board of
Trustees shall be responsible for presiding over meetings of the Board of
Trustees, provided, however, that, in the absence of the Chairperson of the
Board of Trustees, another Trustee may preside over such meetings. The
Chairperson shall serve as the "lead" Trustee, unless such person is an employee
or officer of CSHI/SHIP. In such an event, another Trustee shall be appointed to
serve as "lead" Trustee.
2.04 Resignation or Removal of Trustees.
(a) Any Trustee may resign upon 30 days written notice to
each of the other Trustees and the Pennsylvania Insurance Department. Any
Trustee may be removed for cause by the majority vote of the Board of Trustees.
The Trust shall provide advanced written notice to the Pennsylvania Insurance
Department of its intent to remove any Trustees.
(b) No vacancy caused by the removal, death, disability or
resignation of one or more Trustees shall operate to annul this Agreement or to
revoke any existing agency created pursuant to the terms of this Agreement.
Whenever a vacancy in the number of Trustees shall occur, until such vacancy is
filled as provided herein, the Board of Trustees, consisting of all Trustees
then in office, regardless of their number, shall have all the powers granted to
the
7
Board of Trustees and shall discharge all the duties imposed upon the Board
of Trustees by this Agreement.
2.05 Meetings of the Board of Trustees.
(a) Meetings of the Board of Trustees shall occur at such
time and place (within or without the Commonwealth of Pennsylvania) as are
determined by the Trustees and may occur by means of a conference call or by use
of other communications equipment by means of which all persons participating in
the meeting can hear each other. A meeting of the Board of Trustees may be
called by any two Trustees or by the Chairperson of the Board of Trustees
providing prior notice to the other Trustees at least 24 hours in advance of
such meeting; provided, however, that notice may be waived in writing by any
Trustee either before or after a meeting. The attendance of any Trustee at a
meeting, whether by means of communications equipment or otherwise, shall
constitute a waiver of notice, except for when a Trustee attends such a meeting
for the express purpose of objecting to the transaction of any business on the
grounds that the meeting has not been properly called or convened.
(b) A quorum for all meetings of the Board of Trustees shall
be the majority of Independent Trustees then in office.
(c) Unless otherwise provided by this Agreement or as
otherwise required by law, the Board of Trustees may act by the majority vote of
the Trustees present at a meeting of the Board of Trustees or without a meeting
by the written consent of a majority of the Independent Trustees then in office,
provided that all Trustees are provided notice of the proposed action.
2.06 Action without a Meeting. Any action which may be taken by the Board of
Trustees by vote may be taken without a meeting if that number of Trustees,
including, if required, Independent Trustees, or members of a committee, as the
case may be, required for approval of such action at a meeting of the Board of
Trustees or such committee of the Board of Trustees (assuming all Trustees or
members are in attendance) consent to the action in writing and the written
consents are filed with the records of the meetings of the Board of Trustees.
Such consents shall be treated for all purposes as a vote taken at a meeting of
the Board of Trustees or a committee of the Board of Trustees, as the case may
be.
2.07 Delegation of Power. The Board of Trustees shall have the power, consistent
with its continuing exclusive authority over the management of the Trust and the
Trust Property, to delegate from time to time to such Trustees or to agents of
the Trust the doing of such things, including any matters set forth in this
Agreement, and the execution of such instruments either in the name of the Trust
or the names of Trustees. Except as otherwise provided in the foregoing
sentence, all instruments executed in the name of the Trust shall be executed by
at least two Trustees.
2.08 Committees of the Board of Trustees.
(a) The Board of Trustees may designate such committees of
Trustees as the Board of Trustees shall determine from time to time, which shall
have all or such lesser
8
portion of the authority of the entire Board of Trustees as the Board of
Trustees may expressly delegate to any such committee, except as otherwise
required by law.
(b) Unless otherwise set by the Board of Trustees, the
quorum for each such committee shall be the majority of the members of such a
committee and the committees shall act by the majority vote of the members
present at any such meeting.
2.09 Compensation of Trustees; Reimbursement of Expenses.
(a) Each Trustee that is not also an officer or employee of
CSHI/SHIP will be paid an annual stipend of $100,000, which may be adjusted
upward in accordance with Section 2.09(b). A Trustee that is also an officer or
employee of CSHI/SHIP shall not receive separate compensation from Trust for
their service as Trustee. The Trustee fee shall be paid in four equal
installments, on the last business day of each fiscal quarter.
(b) Each year the Board of Trustees shall have the power to
increase the compensation to be paid to Trustees in light of inflation and cost
of living increases. The Board of Trustees may also increase the amount of
compensation to be paid to Trustees in light of the need to retain qualified
Trustees; provided, however, that no such increases shall become effective until
approved in writing by the Pennsylvania Insurance Department.
(c) The Trust shall reimburse each Trustee for all
reasonable and necessary out of pocket expenses incurred by such Trustee in
connection with the performance of Trustee's duties under this Agreement.
2.10 Bylaws. The Board of Trustees may, if the Board of Trustees deems
appropriate, adopt bylaws to govern the internal affairs of the Trust to the
extent that such bylaws do not conflict with the terms of this Agreement.
2.11 Fiduciary Duties. The Trustees shall owe the same fiduciary duties to the
Trust as a director of a for profit business corporation organized under the
laws of Pennsylvania would owe to a corporation; provided, however, that the
Trustees shall not be deemed to owe any fiduciary duties, directly or
indirectly, to the Beneficiary.
2.12 Capacity of Trustees. Except as expressly provided herein, all actions
performed by any Trustee pursuant to this Agreement are performed in his/her
capacity as Trustee and not in his/her individual capacity. All Persons having
any claim against any Trustee by reason of the transactions contemplated by this
Agreement shall look only to the Trust Property for the payment or satisfaction
thereof.
2.13 Additional Service of Trustees. It is contemplated that two of the Trustees
will also serve as trustees of Senior Health Care Oversight Beneficiary Trust.
In addition, following the date upon which the Trust acquires the Shares, it is
contemplated that at least three of the Trustees shall serve as members of the
board of directors of CSHI/SHIP. The Trustees while serving in such capacities
are entitled to the same rights of indemnification and reimbursement of expenses
as are provided to the Trustees in their capacity as such under this Agreement.
Indemnification by the Trust is not exclusive of any Trustee's right to
indemnification from CSHI/SHIP by virtue of such Trustee's service as a
CSHI/SHIP director.
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ARTICLE III
BENEFICIARY
-----------
3.01 Beneficiary. The initial owner of 100% of the beneficial interest in the
Trust shall be Senior Health Care Oversight Beneficiary Trust, a common law
trust organized under the laws of Pennsylvania (together with any subsequent
owner of beneficial interests, the "Beneficiary").
3.02 Register of Beneficiaries. The Trust shall maintain a register listing the
names and addresses of all Beneficiaries. The register shall be conclusive as to
who is a Beneficiary. Any and all required communication to Beneficiaries shall
be deemed duly served or given if mailed, postage prepaid, addressed to any
Beneficiary of record at their last known address as recorded on the register of
the Trust.
3.03 Certificates. It is not contemplated that certificates will be issued
representing the beneficial interests in the Trust; however, the Trustees, in
their discretion, may authorize the issuance of such certificates and promulgate
rules and regulations as to their use.
3.04 Expenses of Beneficiary. The Trust shall promptly reimburse Senior Health
Care Oversight Beneficiary Trust for all actual and incidental expenses incurred
by it relating to periods of time during which it is a Beneficiary. The Trust
shall also, upon request, advance funds to Senior Health Care Oversight
Beneficiary Trust for the payment of any expenses that are otherwise
reimbursable hereunder.
3.05 Rights of Beneficiary. Except as may be required by law, the Beneficiary
shall not have any voting or control rights over the Trust or the Board of
Trustees other than the right to receive any remaining property of the Trust
upon the liquidation or dissolution of the Trust and, in the case of Senior
Health Care Oversight Beneficiary Trust, the right to the reimbursement of
expenses pursuant to Section 3.04.
3.06 Meetings. In the event that any action of the Trust requires the mandatory
approval of the Beneficiaries of the Trust under Pennsylvania law and such
approval may not be eliminated in the governing document of a business trust,
the Board of Trustees may call a meeting of the Beneficiaries. Written notice of
such a meeting shall be provided by the Trust to all Beneficiaries of record not
less than 10 days prior to such a meeting or at such earlier time as may be
required by law. Beneficiaries representing the majority of the beneficial
interests in the Trust shall constitute a quorum at any meeting of the
Beneficiaries. Unless otherwise required by law, a vote of the Beneficiaries
representing a majority of the beneficial interests in the Trust present at such
meeting shall constitute an act of the Beneficiaries. Any matter which requires
a vote of the Beneficiaries may also be taken without a meeting if the
Beneficiaries representing the proportion of the beneficial interests required
for approval of such an action at a meeting (assuming all Beneficiaries are
present) consent to the action in writing and the written consent are filed with
records of the meeting of Beneficiaries.
3.07 Transfer of Beneficial Interest. No beneficial interest in the Trust may be
transferred without the prior written approval of the Board of Trustees and the
Pennsylvania Insurance Department, and any purported transfer or other
disposition, except as aforesaid, shall be null
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and void. A transfer shall become effective only when the Beneficiary of record
or its agent delivers to the Trust a duly executed instrument of transfer,
together with such evidence of the genuineness of each such execution and
authorization or other matters (including compliance with any securities laws
and contractual restrictions) as may be required. Upon such delivery the Trust
shall record such transfer on the register of the Trust.
ARTICLE IV
LIMITATIONS ON LIABILITY; INDEMNIFICATION
-----------------------------------------
4.01 Liability of Trustees.
(a) To the fullest extent permitted by law, no Trustee shall
be subject to any personal liability whatsoever to any Person (including,
without limitation, the Trust and the beneficiary) for monetary damages for any
action or omission unless such Trustee has breached or failed to perform the
duties of his/her office and the breach or failure to perform constitutes
self-dealing, willful misconduct or recklessness.
(b) In no event will any Trustee be personally liable for
the acts, omissions or obligations of the Trust or another Trustee.
4.02 Liability of Beneficiaries. To the fullest extent permitted by law, no
Beneficiary shall be subject in such capacity to any personal liability
whatsoever to any Person in connection with the Trust Property or the acts,
obligations or affairs of the Trust. The Beneficiary shall have the same
limitation of personal liability as is extended to stockholders of a business
corporation incorporated under Pennsylvania law.
4.03 Reliance on Records/Reports(a) . A Trustee or Beneficiary shall be fully
protected in relying in good faith upon the records of the Trust and upon
information, opinions, reports or statements presented by another Trustee or by
any other Person as to matters such Trustee or Beneficiary reasonably believes
are within such other Person's professional or expert competence, including
information, opinions, reports or statements as to the value and amount of the
assets, liabilities, profits or losses of the Trust, or the value and amount of
assets or reserves or contracts, agreements or other undertakings that would be
sufficient to pay claims and obligations of the Trust or to make reasonable
provision to pay such claims and obligations, or any other facts pertinent to
the existence and amount of assets from which distributions to the Beneficiary
or creditors might properly be paid.
4.04 Indemnification.
(a) The Trust shall indemnify, to the fullest extent
permitted by law, any present or former Trustee who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that (s)he is or was a Trustee, or is or was serving at the request
of the Trust as a representative of another domestic or foreign corporation,
partnership, joint venture, trust or other enterprise (including any such
service as a trustee of Beneficiary or a director of CSHI/SHIP), against
expenses (including attorneys' fees), judgments, fines and
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amounts paid in settlement actually and reasonably incurred by him/her in
connection with the action or proceeding.
(b) Expenses incurred by any current or former Trustee in
defending any action or proceeding of the type referred to in Section 4.04(a)
shall be paid by the Trust in advance of the final disposition of such action or
proceeding upon receipt of an undertaking by or on behalf of such person to
repay such amount if it shall ultimately be determined that (s)he is not
entitled to be indemnified by the Trust as authorized by this Section 4.04.
(c) Any amendment to this Agreement which limits or
restricts the indemnification provided by this Section 4.04 shall not adversely
affect any right or protection of any current or former Trustee with respect to
any acts or omissions of such Trustee occurring prior to such amendment.
4.05 Outside Business. Any Trustee or Beneficiary may engage in or possess an
interest in other business ventures of any nature or description, independently
or with others, similar or dissimilar to the business of the Trust or CSHI/SHIP,
and the Trust and the Beneficiary shall have no rights by virtue of this
Agreement or the Trust created hereby in or to such independent ventures or the
income or profits derived therefrom, and the pursuit of any such venture, even
if competitive with the business of the Trust or CSHI/SHIP, shall not be deemed
wrongful or improper. No Trustee or Beneficiary shall be obligated to present
any particular opportunity to the Trust even if such opportunity is of a
character that could be taken by the Trust, and any Trustee or Beneficiary shall
have the right to take for its own account or to recommend to others any such
opportunity.
ARTICLE V
MISCELLANEOUS
-------------
5.01 Filing. The Trustees are authorized and directed to file this Agreement and
all other necessary documents with the Department of State of the Commonwealth
of Pennsylvania in accordance with the Business Trust Statute.
5.02 Partial Enforceability. If any provision of this Agreement, or the
application of such provision to any Person or circumstances, shall be held
invalid, the remainder of this Agreement, or application of such provision to
persons or circumstances other than those to which it is held invalid, shall not
be affected thereby.
5.03 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania, without giving
effect to the principles of conflicts of law thereof.
5.04 Jurisdiction. Each party hereby irrevocably and unconditionally consents to
submit to the non-exclusive jurisdiction of any court of the United States or
any state court which in either case is located in the City of Philadelphia for
any actions, suits or proceedings arising out of or relating to this Agreement.
Each party hereby irrevocably and unconditionally waives any objection to the
laying of venue of any action, suit or proceeding arising out of this Agreement
in any such court, and hereby further irrevocably and unconditionally waives and
agrees not to
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plead or claim in any such court that any such action, suit or proceeding
brought in any such court has been brought in an inconvenient forum.
5.05 Third Party Beneficiaries. Nothing in this Agreement is intended to give
any person, other than the Trust, Trustees and the Beneficiary, their successor
and permitted assigns, and the Pennsylvania Insurance Department (to the extent
expressly set forth herein), any legal or equitable right remedy or claim under
or in respect of this Agreement or any provision contained therein.
5.06 Amendment. The Trust may, with the prior written approval of the
Pennsylvania Insurance Department, amend this Agreement by a majority vote of
the Board of Trustees. Ministerial amendments may be made without the prior
approval of the Pennsylvania Insurance Department. Trustees or their designee
are authorized to undertake all acts necessary or appropriate to effectuate such
amendments.
5.07 Headings. The headings in this Agreement are for reference only, and shall
not affect the interpretation of this Agreement.
5.08 Interpretation. For purposes of this Agreement, the words "hereof",
"herein", "hereby" and other words of similar import refer to this Agreement as
a whole unless otherwise indicated. Whenever the words "include", "includes", or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation". Whenever the singular is used herein, the same
shall include the plural, and whenever the plural is used herein, the same shall
include the singular, where appropriate.
5.09 Counterparts. This Agreement may be executed by the parties hereto in
separate counterparts, each of which when so executed and delivered shall be an
original, but all such counterparts shall together constitute one and the same
instrument.
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IN WITNESS WHEREOF, the parties hereto have caused these presents to be executed
as of the day and year first above written.
-------------------------
John W. Wells
Trustee
-------------------------
Julianne M. Bowler
Trustee
-------------------------
Gregory V. Serio
Trustee
-------------------------
C. Everett Koop, M.D.
Trustee
-------------------------
Cecil D. Bykerk
Trustee
Acknowledged to and accepted by:
SENIOR HEALTH CARE OVERSIGHT
BENEFICIARY TRUST
By:
--------------------------
Name:
Title:
Exhibit B
===============================================================================
TRANSFER AGREEMENT
by and among
CDOC, INC.,
CONSECO, INC.
and
SENIOR HEALTH CARE TRANSITION TRUST
Dated as of August 11, 2008
===============================================================================
TABLE OF CONTENTS
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TRANSFER AGREEMENT
ARTICLE I
DEFINITIONS
Section 1.01 Definitions.....................................................................................1
ARTICLE II
TRANSFER
Section 2.01 Acquisition of Shares...........................................................................8
Section 2.02 Contributions and Transfers by the Conseco Parties..............................................8
Section 2.03 Place and Date of Closing.......................................................................9
Section 2.04 Ancillary Documents to be Executed at the Closing...............................................9
Section 2.05 Nonassignability of Certain Assets.............................................................10
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE CONSECO PARTIES
Section 3.01 Organization, Standing and Authority...........................................................10
Section 3.02 Capitalization.................................................................................10
Section 3.03 Authorization..................................................................................11
Section 3.04 Non-Contravention..............................................................................12
Section 3.05 Consents and Approvals.........................................................................12
Section 3.06 Statutory Financial Statements.................................................................13
Section 3.07 [Intentionally Omitted]........................................................................13
Section 3.08 Sufficiency of Assets..........................................................................13
Section 3.09 Intercompany Agreements........................................................................14
Section 3.10 No Undisclosed Material Liabilities............................................................14
Section 3.11 Absence of Changes.............................................................................14
Section 3.12 Insurance Matters..............................................................................14
Section 3.13 Brokers or Finders.............................................................................16
Section 3.14 Environmental Matters..........................................................................16
Section 3.15 Litigation.....................................................................................16
Section 3.16 Compliance with Laws...........................................................................16
Section 3.17 Intellectual Property..........................................................................17
Section 3.18 Material Contracts.............................................................................18
Section 3.19 Employees, Labor Matters, etc..................................................................18
Section 3.20 Employee Plans and Related Matters; ERISA......................................................19
Section 3.21 Tax Matters....................................................................................20
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE CONSECO PARTIES
Section 3.22 Information Supplied...........................................................................22
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF TRUST
Section 4.01 Organization, Standing and Authority...........................................................22
Section 4.02 Authorization..................................................................................22
Section 4.03 Consents and Approvals.........................................................................23
Section 4.04 Investment Intent..............................................................................23
Section 4.05 Brokers or Finders.............................................................................23
ARTICLE V
COVENANTS
Section 5.01 Conduct of Business............................................................................24
Section 5.02 Access to Information; Confidentiality.........................................................26
Section 5.03 Reasonable Best Efforts........................................................................27
Section 5.04 Consents, Approvals, Filings and Costs.........................................................27
Section 5.05 Notification...................................................................................28
Section 5.06 Further Assurances.............................................................................28
Section 5.07 Expenses.......................................................................................29
Section 5.08 Senior Note....................................................................................29
Section 5.09 Releases.......................................................................................29
Section 5.10 Confidentiality................................................................................29
Section 5.11 Separation Transactions........................................................................31
Section 5.12 Insurance Coverage.............................................................................31
Section 5.13 Bank Accounts..................................................................................34
Section 5.14 Termination of Intercompany Agreements.........................................................34
Section 5.15 Intercompany Accounts..........................................................................34
Section 5.16 Books and Records..............................................................................34
Section 5.17 Pre-Closing Transfers..........................................................................35
Section 5.18 Merger Transaction.............................................................................35
Section 5.19 Transfers to the Trust.........................................................................35
Section 5.20 Regulatory Settlement Agreement................................................................35
Section 5.21 Investment Assets..............................................................................36
Section 5.22 Solicitation...................................................................................36
Section 5.23 Separation and Transition Matters Agreement....................................................36
Section 5.24 Employee Matters Agreement.....................................................................36
Section 5.25 Intellectual Property Licenses.................................................................36
Section 5.26 Subleases......................................................................................37
Section 5.27 Schedules......................................................................................37
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ARTICLE VI
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF TRUST
Section 6.01 Representations and Covenants..................................................................38
Section 6.02 Payment Obligations............................................................................38
Section 6.03 Other Agreements...............................................................................38
Section 6.04 Assignment Agreement...........................................................................38
Section 6.05 Governmental and Regulatory Consents and Approvals.............................................38
Section 6.06 Third Party Consents...........................................................................39
Section 6.07 No Injunctions or Restraints...................................................................39
Section 6.08 Resignation of Officers and Directors..........................................................39
Section 6.09 Viability......................................................................................39
Section 6.10 Separation Transactions........................................................................39
ARTICLE VII
CONDITIONS PRECEDENT TO THE OBLIGATIONS
OF THE CONSECO PARTIES
Section 7.01 Representations and Covenants..................................................................39
Section 7.02 Other Agreements...............................................................................40
Section 7.03 Governmental and Regulatory Consents and Approvals.............................................40
Section 7.04 Third Party Consents...........................................................................40
Section 7.05 No Injunctions or Restraints...................................................................40
Section 7.06 Separation Transactions........................................................................40
Section 7.07 Merger Agreement...............................................................................40
ARTICLE VIII
FURTHER AGREEMENTS
Section 8.01 Access to Books and Records....................................................................40
Section 8.02 Production of Witnesses........................................................................41
Section 8.03 No Other Representations.......................................................................42
Section 8.04 Use of Names...................................................................................42
Section 8.05 Existing Litigation............................................................................43
ARTICLE IX
SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS
Section 9.01 Survival of Representations, Warranties and Covenants..........................................43
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ARTICLE X
INDEMNIFICATION
Section 10.01 Obligation to Indemnify........................................................................44
Section 10.02 Indemnification Procedures.....................................................................45
Section 10.03 Tax Matters....................................................................................47
ARTICLE XI
TERMINATION PRIOR TO CLOSING
Section 11.01 Termination of Agreement.......................................................................47
Section 11.02 Survival.......................................................................................48
ARTICLE XII
GENERAL PROVISIONS
Section 12.01 Publicity......................................................................................48
Section 12.02 Dollar References..............................................................................48
Section 12.03 Notices........................................................................................48
Section 12.04 Entire Agreement...............................................................................49
Section 12.05 Waivers and Amendments; Non-Contractual Remedies; Preservation of Remedies.....................49
Section 12.06 Governing Law..................................................................................50
Section 12.07 Jurisdiction...................................................................................50
Section 12.08 Binding Effect; Assignment.....................................................................50
Section 12.09 Interpretation.................................................................................50
Section 12.11 No Third Party Beneficiaries...................................................................51
Section 12.11 Counterparts...................................................................................51
Section 12.12 Exhibits and Schedules.........................................................................51
Section 12.13 Headings.......................................................................................51
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TABLE OF SCHEDULES
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Schedule 1.01(a)(i) Assigned Contracts
Schedule 1.01(a)(ii) Excluded Contracts
Schedule 1.01(b) Conseco Shared Intellectual Property
Schedule 1.01(c)(i) Contributed Assets
Schedule 1.01(c)(ii) Excluded Assets
Schedule 1.01(d) CSHI Shared Intellectual Property
Schedule 1.01(e) Knowledge of the Conseco Parties
Schedule 1.01(f) Knowledge of Trust
Schedule 3.02 Capitalization
Schedule 3.04 Non-Contravention
Schedule 3.05(a) Governmental Consents
Schedule 3.06 Statutory Financial Statements
Schedule 3.08 Sufficiency of Assets
Schedule 3.09 Intercompany Agreements
Schedule 3.11 Absence of Certain Changes
Schedule 3.12(a) CSHI Reinsurance Agreements
Schedule 3.15 Litigation
Schedule 3.16(a) Compliance with Law
Schedule 3.16(b) Permits
Schedule 3.18 Material Agreements
Schedule 3.20(a) Employee Plans
Schedule 3.21 Tax Matters
Schedule 4.03(a) Governmental Consents
Schedule 4.03(b) Third Party Consents
Schedule 5.01 Conduct of Business
Schedule 5.09 Joint and Several Commitments
Schedule 5.14 Termination of Intercompany Agreements
Schedule 5.15(a) Intercompany Accounts
Schedule 5.15(b) Trade Payables
Schedule 5.21 Investment Assets
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TABLE OF EXHIBITS
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Exhibit A Separation Transactions
Exhibit B Form of Assignment Agreement
Exhibit C Form of BCLIC LTC Administrative Services Agreement
Exhibit D Form of CHIC LTC Administrative Services Agreement
Exhibit E Form of Expense Reimbursement Agreement
Exhibit F Form of Operating Principles and Guidelines Agreement
Exhibit G Form of Senior Note
Exhibit H Separation and Transition Matters Agreement Term Sheet
Exhibit I Form of Tax Matters Agreement
Exhibit J Form of WNIC LTC Administrative Services Agreement
Exhibit K Employee Matters Agreement Term Sheet
Exhibit L Senior Health Care Oversight Trust Trustees
Exhibit M Form of Trust Agreement
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TRANSFER AGREEMENT
This TRANSFER AGREEMENT (together with the schedules, annexes and
exhibits hereto, this "Agreement"), dated as of August 11, 2008, is entered into
by and among CDOC, Inc., a Delaware corporation ("CDOC"), Conseco, Inc., a
Delaware corporation ("CNO," and together with CDOC, the "Conseco Parties"), and
Senior Health Care Transition Trust, a Pennsylvania business trust ("Trust").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Conseco Parties or their Affiliates own all of
the issued and outstanding shares of capital stock of Conseco Senior Health
Insurance Company, an insurance company domiciled in the Commonwealth of
Pennsylvania ("CSHI"); and
WHEREAS, upon the terms and subject to the conditions set
forth in this Agreement, the Conseco Parties and their Affiliates desire to
transfer to Trust, and Trust desires to accept from the Conseco Parties and
their Affiliates, all of the Shares (as defined below).
NOW THEREFORE, in consideration of the foregoing and the
respective representations and warranties, covenants, agreements and conditions
set forth herein, the parties hereto, intending to be legally bound, agree as
follows:
ARTICLE I
DEFINITIONS
Section 1.01 Definitions. The following terms shall have the
respective meanings set forth below throughout this Agreement:
"Actions" shall have the meaning set forth in Section 3.15.
"Affiliate" means, with respect to any Person, at the time in
question, any other Person controlling, controlled by or under common control
with such Person. For purposes of the foregoing, "control", including the terms
"controlling", "controlled by" and "under common control with", means the
possession, direct or indirect, of the power to direct or cause the direction of
the management and policies of an institution, whether through the ownership of
voting securities, by contract or otherwise.
"Agreement" shall have the meaning set forth in the introductory
paragraph hereof.
"Ancillary Agreements" means the Assignment Agreement, the LTC
Administrative Services Agreements, the Expense Reimbursement Agreement, the
Operating Principles and Guidelines Agreement, the Senior Note, the Separation
and Transition Matters Agreement, the Tax Matters Agreement, the Transfer
Documents, the Employee Matters Agreement and the Subleases.
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"Applicable SAP" means, with respect to CSHI, the statutory
accounting practices prescribed or permitted by the Commissioner (or equivalent
title) of the Commonwealth of Pennsylvania.
"Assigned Contracts" means all Contracts that are (i) in the name
of the Conseco Parties or their Affiliates (other than CSHI), as of the date
hereof and are (ii) primarily related to, used or held for use in connection
with (x) the Long-Term Care Business, or (y) the administration of the policies
to be administered by CSHI pursuant to the LTC Administrative Services
Agreements, including, without limitation, those Contracts listed on Schedule
1.01(a)(i), in each case, other than those Contracts that have terminated by
their terms prior to the Closing in accordance with the terms of this Agreement,
but excluding those Contracts listed on Schedule 1.01(a)(ii). Notwithstanding
the foregoing, Assigned Contracts shall not include any Contracts relating to
Intellectual Property, information technology or software products or services,
except to the extent specifically listed in Schedule 1.01(a)(i).
"Assignment Agreement" means an Assignment Agreement
substantially in the form of Exhibit B with such changes as shall have been
approved by the parties executing such agreement.
"Base Amount of Working Capital" shall have the meaning set forth
in Section 5.19.
"BCLIC LTC Administrative Services Agreement" means an
Administrative Services Agreement substantially in the form of Exhibit C with
such changes as shall have been approved by the parties executing such
agreement.
"Books and Records" means the originals or copies of all of the
books, records, data and information in the possession or control of the Conseco
Parties or any of their Affiliates relating to the assets, properties, business,
conduct and operations of CSHI, including but not limited to all licenses held
by CSHI, and all such items relating to CSHI's legal existence, stock ownership,
corporate management or other such corporate records, except for such books,
records, data and information relating solely to that portion of CSHI's business
to be transferred to Conseco Insurance Company pursuant to the Assignment
Agreement.
"Business Day" means any day other than a Saturday, Sunday, a day
on which banking institutions in the Commonwealth of Pennsylvania are permitted
or obligated by Law to be closed or a day on which the New York Stock Exchange
is closed for trading.
"CDOC" shall have the meaning set forth in the introductory
paragraph hereof.
"CHIC LTC Administrative Services Agreement" means an
Administrative Services Agreement substantially in the form of Exhibit D with
such changes as shall have been approved by the parties executing such
agreement.
"Claims Administration" means the processing of claims made under
Policies, including the reporting of claims to the insurance carrier, management
and defense of claims, and providing for appropriate releases upon settlement of
claims.
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"Claims Made Policies" shall have the meaning set forth in
Section 5.12(c).
"Closing" means the closing of the transactions contemplated by
this Agreement.
"Closing Date" means the date that is three Business Days
following the date upon which the last of the conditions to Closing set forth in
this Agreement (other than those conditions that by their nature are to be
satisfied on the Closing Date but subject to the satisfaction or waiver of such
conditions) is satisfied or waived in writing; provided, further, that the
Closing may occur on such other day as the parties may agree in writing.
"CNO" shall have the meaning set forth in the introductory
paragraph hereof.
"CNO Expense Advancement" shall have the meaning set forth in
Section 5.19.
"Code" shall have the meaning set forth in Section 3.20(b).
"Company Plan" means any Employee Plan sponsored or maintained by
CSHI.
"Conseco Parties" shall have the meaning set forth in the
introductory paragraph hereof.
"Conseco Shared Intellectual Property" means all Intellectual
Property (except Trademarks) owned by any of the Conseco Parties and used in the
Long Term Care Business, in each case as of the Closing Date, including without
limitation, the Intellectual Property set forth on Schedule 1.01(b).
"Contract" means any written or oral agreement, contract, lease,
sublease, license, sublicense, undertaking, indenture, evidence of indebtedness,
guaranty, loan, or mortgage, but excluding insurance and reinsurance policies
and contracts.
"Contributed Assets" means all assets that are (i) owned by, or
in the name of, the Conseco Parties or their Affiliates (other than CSHI), as of
the date hereof and are (ii) primarily related to, used or held for use in
connection with (x) the Long-Term Care Business, or (y) the administration of
the policies to be administered by CSHI pursuant to the LTC Administrative
Services Agreements, including, without limitation, those assets listed on
Schedule 1.01(c)(i), but excluding those assets listed on Schedule 1.01(c)(ii).
Notwithstanding the foregoing, Contributed Assets shall not include any
Intellectual Property, information technology or software assets, except to the
extent specifically listed in Schedule 1.01(c)(i).
"CSHI" shall have the meaning set forth in the recitals hereof.
"CSHI Actuarial Analysis" shall have the meaning set forth in
Section 3.12(c).
"CSHI Reinsurance Agreements" shall have the meaning set forth in
Section 3.12(a).
"CSHI Producers" shall have the meaning set forth in Section
3.12(e).
3
"CSHI Securities" shall have the meaning set forth in Section
3.02.
"CSHI Shared Intellectual Property" means all Intellectual
Property (except Trademarks) owned by CSHI (after giving effect to the
transactions provided for by this Agreement) and used by any of the Conseco
Parties, in each case as of the Closing Date, including, without limitation, the
Intellectual Property set forth on Schedule 1.01(d).
"Employee" means any individual who is an employee of the Conseco
Parties or their Affiliates as of the date hereof and who will become an
employee of CSHI following the Closing Date in accordance with the terms of the
Employee Matters Agreement.
"Employee Matters Agreement" means an Employee Matters Agreement
in the form agreed upon by the parties in good faith in accordance with Section
5.24.
"Employee Plans" means all "employee benefit plans" within the
meaning ascribed to such term by Section 3(3) of ERISA and all other employee
benefit arrangements, including, but not limited to, each employment agreement,
termination or severance agreement or plan, deferred compensation plan,
incentive compensation plan, equity compensation plan, severance pay, sick
leave, vacation pay, salary continuation for disability, hospitalization,
medical insurance, life insurance, scholarship program, stock option or
restricted stock plan sponsored or maintained by the Conseco Parties or any
ERISA Affiliate that provide benefits or compensation to or on behalf of the
Employees (whether formal or informal, whether for the benefit of a single
individual or for more than one individual and whether for the benefit of
current or former employees or their beneficiaries).
"Environmental Law" means any United States or foreign, federal,
state or local law, treaty, statute, rule, regulation, order, ordinance, decree,
injunction, judgment, governmental restriction or any other requirement of law
(including common law) regulating or relating to the protection of human health
from exposure to any hazardous substance, natural resource damages or the
protection of the environment, including laws relating to the protection of
wetlands, pollution, contamination or the use, generation, management, handling,
transport, treatment, disposal, storage, release or threatened release of
hazardous substances.
"Existing Litigation" shall have the meaning set forth in Section
3.15.
"Expense Reimbursement Agreement" means an Expense Reimbursement
Agreement substantially in the form of Exhibit E with such changes as shall have
been approved by the parties executing such agreement.
"Form A" means the Statement Regarding the Acquisition of Control
of CSHI by Trust to be filed by Trust with the Pennsylvania Insurance Department
pursuant to Section 5.04(a).
"GAAP" means United States generally accepted accounting
principles.
"Governmental Entity" means any United States federal, state,
local, foreign, international or multinational agency, commission, court, entity
or authority exercising executive, legislative, judicial, regulatory,
administrative or taxing functions of or pertaining to government
4
or any non-governmental United States or foreign self-regulatory agency,
commission or authority or any arbitral tribunal.
"Indemnified Party" shall have the meaning set forth in Section
10.02(a).
"Indemnifying Party" shall have the meaning set forth in Section
10.02(a).
"Insurance Laws" means all applicable Laws regulating the
business of insurance.
"Intellectual Property" means intellectual property, including
(i) Trademarks, (ii) patents, (iii) copyrights, (iv) trade secrets, and (v) all
registrations and applications for registration of any of the foregoing.
"Joint and Several Commitments" shall have the meaning set forth
in Section 5.09.
"Knowledge" means, (a) as to Conseco Parties, the actual
knowledge of any of the persons listed on Schedule 1.01(e), and (b) as to Trust,
the actual knowledge of any of the persons listed on Schedule 1.01(f).
"Law" means any constitution, law, ordinance, rule, principle of
common law, regulation, statute, treaty, order, judgment, decree, administrative
interpretation or other requirement of any Governmental Entity or any order,
writ, injunction, directive, judgment or decree of any Governmental Entity
applicable to a Person or such Person's business, property or assets.
"Lien" means any pledge, claim, lien, charge, mortgage, security
interest or encumbrance of any kind.
"Long-Term Care Business" means the business and operations of
CSHI, as conducted on the date hereof and (subject to the limitations set forth
herein) at any time between the date hereof and the Closing, other than that
portion of its business to be transferred to Conseco Insurance Company pursuant
to the Assignment Agreement.
"Losses" shall have the meaning set forth in Section 10.01(a).
"LTC Administrative Services Agreements" means the BCLIC LTC
Administrative Services Agreement, the CHIC LTC Administrative Services
Agreement and the WNIC LTC Administrative Services Agreement.
"Material Contract" shall have the meaning set forth in Section
3.18(a).
"Merger" shall have the meaning set forth in Section 5.18.
"Negative Condition" shall have the meaning set forth in Section
5.04(d).
"Occurrence Based Policies" shall have the meaning set forth in
Section 5.12(c).
5
"Operating Principles and Guidelines Agreement" means an
Operating Principles and Guidelines Agreement substantially in the form of
Exhibit F with such changes as shall have been approved by the parties executing
such agreement.
"Order" means any order, writ, injunction, decree, judgment or
stipulation issued, promulgated or entered into by or with any Governmental
Entity.
"Organizational Documents" means the certificate of incorporation
and bylaws (or comparable organizational documents) of an entity.
"Pennsylvania Insurance Department" means the Insurance
Department of the Commonwealth of Pennsylvania.
"Permit" means all permits and insurance and other licenses,
franchises, approvals, authorizations, exemptions, classifications,
certificates, registrations and similar documents.
"Permitted Liens" means, as to any asset, (a) any Liens for Taxes
by Governmental Entities that (i) are not yet due or delinquent or (ii) have
been accrued or otherwise reflected on the Statutory Financial Statements for
the quarter ended March 31, 2008 (in accordance with Applicable SAP), and (b)
Liens arising by operation of law or other Liens that do not, individually or in
the aggregate, materially detract from the value or materially interfere with
the present use of such asset by CSHI.
"Person" means any individual, corporation, partnership, firm,
joint venture, association, limited liability company, limited liability
partnership, joint-stock company, trust, unincorporated organization,
Governmental Entity, business unit, division or other entity.
"Plan of Operations" means the Plan of Operations of CSHI dated
August, 2008 in the form attached as Exhibit N to the Form A.
"Policies" means all insurance policies, insurance contracts and
claim administration contracts of any kind under which any of the Conseco
Parties, their Affiliates and their respective predecessors are or were insured
and which were or are in effect at any time at or prior to the Closing (other
than insurance policies, insurance contracts and claim administration contracts
established in contemplation of the Closing to cover only CSHI after the Closing
or cover only the Conseco Parties or their Affiliates other than CSHI),
including without limitation primary, excess and umbrella, commercial general
liability, fiduciary liability, product liability, automobile, aircraft,
property and casualty, business interruption, directors and officers liability,
employment practices liability, workers' compensation, crime, errors and
omissions, special accident, cargo and employee dishonesty insurance policies
and captive insurance company arrangements, together with all rights, benefits
and privileges thereunder.
"Reference Statutory Financial Statement" means the statutory
financial statements of CSHI as filed with Pennsylvania Insurance Department for
the quarter ended March 31, 2008, together with all exhibits and schedules
thereto.
"Regulatory Related Disclosures" shall have the meaning set forth
in Section 3.16(c).
6
"Regulatory Settlement Agreement" means the Regulatory Settlement
Agreement, dated as of March 30, 2008, by and among CSHI, Bankers Life and
Casualty Company and the signatory regulators thereto.
"Release" shall have the meaning set forth in Section 5.09.
"Senior Note" means a Senior Note substantially in the form of
Exhibit G with such changes as shall have been approved by the parties hereto.
"Separation and Transition Matters Agreement" means a Separation
and Transition Matters Agreement in the form agreed upon by the parties in good
faith in accordance with Section 5.23.
"Separation Transactions" shall have the meaning set forth in
Section 5.11.
"Shared Policies" means all Policies that include CSHI within the
definition of the named insured.
"Shares" means all of the issued and outstanding shares of
capital stock or other voting or equity interests of CSHI as of the respective
date.
"SSAP" means a statement of the Applicable SAP.
"Statutory Financial Statements" shall have the meaning set forth
in Section 3.06.
"Subleases" shall have the meaning set forth in Section 5.26.
"Subsidiary" of any Person means another Person of which (or in
which), directly or indirectly, more than 50% of (a) the issued and outstanding
capital stock having ordinary voting power to elect a majority of the board of
directors of such corporation (irrespective of whether at the time capital stock
of any other class or classes of such corporation shall or might have voting
power upon the occurrence of any contingency), (b) the interest in the capital
or profits of such partnership, joint venture or limited liability company or
other Person or (c) the beneficial interest in such trust or estate, is at the
time owned by such first Person, or by such first Person and one or more of its
other Subsidiaries or by one or more of such Person's other Subsidiaries.
"Tax" or "Taxes" means all taxes, charges, fees, levies or other
assessments, including, without limitation, any income, net income, franchise
tax or any tax based on income, any alternative or add-on minimum taxes, any
gross income, gross receipts, estimated, retaliatory, commercial activity,
margin, single business, business, premium, sales, use, ad valorem, value added,
transfer, profits, license, payroll, employment, withholding, excise, severance,
stamp, occupation, property, environmental or windfall profit tax, assessments
or similar charges in connection with guaranty fund or risk pool participation,
custom duty or other tax, governmental fee or other like assessment including
all interest, penalties and additions imposed with respect thereto.
7
"Tax Matters Agreement" means a Tax Matters Agreement
substantially in the form of Exhibit I with such changes as shall have been
approved by the parties executing such agreement.
"Tax Return" means any return, report or similar statement
required to be filed with respect to any Taxes (including any attached
schedules), including any information return, claim for refund, amended return
or declaration of estimated Tax.
"Third Party Claim" shall have the meaning set forth in Section
10.02(a).
"Trade Payables" means all payables of CSHI incurred in the
ordinary course of business consistent with past practice for purchases of goods
or services from any of the Conseco Parties or their Affiliates (other than
CSHI).
"Trademarks" means trademarks, service marks and domain names and
all goodwill associated therewith.
"Transfer Documents" means the documents and instruments
effectuating the transfer or assignment of any Contributed Assets or Assigned
Contracts to CSHI.
"Trust" shall have the meaning set forth in the introductory
paragraph hereof and Section 5.18.
"Trust Agreement" shall have the meaning set forth in Section
5.18.
"United States" means the United States of America.
"WNIC LTC Administrative Services Agreement" means an
Administrative Services Agreement substantially in the form of Exhibit J with
such changes as shall have been approved by the parties executing such
agreement.
ARTICLE II
TRANSFER
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Section 2.01 Acquisition of Shares. Upon the terms and subject to
the conditions of this Agreement, on the Closing Date, the Conseco Parties
shall, or shall cause their Affiliates to, as applicable, assign and transfer
the Shares free and clear of all Liens to Trust, and Trust shall receive and
accept the Shares. At the Closing, the Conseco Parties shall deliver
certificates representing the Shares duly executed in blank or accompanied by
stock powers duly executed in blank, in the proper form for transfer to the
Trust, and bearing or accompanied by all requisite stock transfer stamps.
Section 2.02 Contributions and Transfers by the Conseco Parties.
Upon the terms and subject to the conditions of this Agreement, the Conseco
Parties shall cause assets to be transferred to CSHI or the Trust (as specified
below) in the aggregate amount of one hundred and seventy-five million dollars
($175,000,000), which assets shall consist of:
8
(i) a capital contribution in an amount of thirty-nine
million dollars ($39,000,000) to CSHI on the Closing Date,
including for these purposes (A) a ceding commission payable in
cash or cash equivalents to CSHI on the Closing Date, in
accordance with the terms and conditions of the Assignment
Agreement, and (B) the forgiveness, extinguishment or elimination
(other than by means of payment) of accrued and unpaid dividends
on the Series A Preferred Shares of CSHI (in an amount not to
exceed three million two hundred and ninety-two thousand nine
hundred and seventeen dollars ($3,292,917) as reflected in a
written agreement with the holders of the Series A Preferred
Shares of CSHI in a form reasonably satisfactory to Trust);
(ii) a capital contribution in the form of a duly
executed Senior Note with a principal amount of one hundred and
twenty-five million dollars ($125,000,000) to CSHI on the Closing
Date; and
(iii) a transfer of cash or cash equivalents of eleven
million dollars ($11,000,000), to be paid to Trust on the Closing
Date in accordance with Section 5.19.
Section 2.03 Place and Date of Closing. The Closing shall take
place at the offices of Skadden, Arps, Slate, Meagher & Flom LLP, Four Times
Square, New York, New York, at 10:00 a.m. New York time on the Closing Date or
at such other time or place as the parties may mutually agree.
Section 2.04 Ancillary Documents to be Executed at the Closing.
(a) At the Closing, the Conseco Parties shall, and shall
cause their Affiliates, as applicable, to execute and deliver to Trust or CSHI,
as applicable: (i) the WNIC LTC Administrative Services Agreement; (ii) the CHIC
LTC Administrative Services Agreement; (iii) the BCLIC LTC Administrative
Services Agreement; (iv) the Assignment Agreement; (v) the Tax Matters
Agreement; (vi) the Senior Note; (vii) the Separation and Transition Matters
Agreement; (viii) the Transfer Documents; (ix) the Subleases; (x) the Employee
Matters Agreement and (xi) such other agreements, instruments and documents as
are required by this Agreement or any of the foregoing agreements to be
delivered by the Conseco Parties or their Affiliates at the Closing.
(b) At the Closing, Trust shall execute and deliver to the
Conseco Parties or CSHI, as applicable: (i) the Expense Reimbursement Agreement;
(ii) the Operating Principles and Guidelines Agreement; (iii) such other
agreements, instruments and documents as are required by this Agreement or any
of the foregoing agreements to be delivered by Trust at the Closing.
(c) At the Closing, the parties shall take appropriate steps
to have CSHI execute and deliver to the Conseco Parties or their Affiliates or
Trust, as applicable: (i) the WNIC LTC Administrative Services Agreement; (ii)
the CHIC LTC Administrative Services Agreement; (iii) the BCLIC LTC
Administrative Services Agreement; (iv) the Assignment Agreement; (v) the Tax
Matters Agreement; (vi) the Separation and Transition Matters
9
Agreement; (vii) the Expense Reimbursement Agreement; (viii) the Operating
Principles and Guidelines Agreement; (ix) the Transfer Documents; (x) the
Subleases; (xi) the Employee Matters Agreement and (xii) such other agreements,
instruments and documents as are required by this Agreement or any of the
foregoing agreements to be delivered by CSHI at the Closing.
Section 2.05 Nonassignability of Certain Assets. Notwithstanding
anything to the contrary contained in this Agreement, to the extent that the
assignment or transfer or attempted assignment or transfer to CSHI of any
Contributed Asset or Assigned Contract or any benefit arising thereunder or
resulting therefrom would require any third party consents or waivers and such
consents or waivers shall not have been obtained prior to the Closing, neither
this Agreement nor any Ancillary Agreement or other agreement or instrument
entered into in connection with this Agreement shall constitute an assignment or
transfer, or an attempted assignment or transfer thereof. Following the Closing,
the parties shall continue to cooperate fully with each other and use reasonable
best efforts to obtain promptly such consents or waivers. Pending receipt of
such consent or waiver, the parties shall cooperate with each other to effect
mutually agreeable, reasonable and lawful arrangements, pursuant to the
Separation and Transition Matters Agreement or otherwise, designed to provide
CSHI with the full rights and benefits of any such Contributed Asset or Assigned
Contract. Once consent or waiver for the assignment or transfer of any such
Contributed Asset or Assigned Contract not assigned or transferred at the
Closing is obtained, the Conseco Parties or their Affiliates, as applicable,
shall assign or transfer such Contributed Asset or Assigned Contract to CSHI at
no additional cost to CSHI.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE CONSECO PARTIES
-----------------------------------------------------
Except as set forth on the corresponding numbered Schedules to
this Agreement (it being understood, however, that matters disclosed in the
Schedules to this Agreement under one section will be deemed to be disclosed
with respect to each other section, to the extent that the significance and
magnitude of the matter disclosed and its relationship to the particular
provision of this Agreement corresponding to such other section is reasonably
apparent), Conseco Parties hereby represent and warrant to Trust as follows:
Section 3.01 Organization, Standing and Authority. Each of CSHI
and the Conseco Parties are duly organized, validly existing and in good
standing under the Law of their respective jurisdictions of incorporation. CSHI
has the requisite corporate power and authority to carry on its business as now
being conducted and as contemplated by the Plan of Operations to be conducted
following the Closing. CSHI is duly qualified to do business and is in good
standing in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties make such qualification necessary. The
Conseco Parties have delivered or made available to Trust complete and correct
copies of the Organizational Documents of CSHI. CSHI is not in material default
under or in material violation of any provision of its Organizational Documents
and the Organizational Documents are in full force and effect.
Section 3.02 Capitalization. Schedule 3.02 accurately sets forth
as of the date hereof, with respect to CSHI, (i) the number of and designation
of all authorized shares of capital
10
stock and (ii) the number of issued and outstanding shares of capital stock by
class, the names of the holders thereof and the number of shares held by each
such holder. The Shares have been duly authorized, validly issued and are fully
paid and non-assessable and have been issued in compliance with all foreign,
federal and state securities laws. Except as set forth on Schedule 3.02, the
Shares represent 100% of the issued and outstanding equity or voting interests
in CSHI, and CDOC and/or one or more of its Affiliates are the record and
beneficial owner and holder of good and valid title to 100% of the issued and
outstanding Shares, free and clear of all Liens. Except as listed on Schedule
3.02, no legend or other reference to any purported encumbrance appears on any
certificate representing any of such Shares and there are no contractual
obligations or commitments of any character restricting the transfer of, or
requiring the registration for sale of, any Shares. Upon delivery of the Shares
as herein provided, Trust will acquire good and valid title to the Shares, free
and clear of all Liens, other than any Liens arising from acts of Trust, and
shall be the record and beneficial owner of all of the Shares. There are no
outstanding (i) shares of capital stock of or other voting or equity interests
in CSHI (other than the Shares), (ii) securities of CSHI convertible into or
exercisable or exchangeable for shares of capital stock of or voting or equity
interests in CSHI or (iii) except for this Agreement, options, warrants, calls,
preemptive or similar rights, commitments or agreements of any kind to which the
Conseco Parties or any of their Affiliates are a party, or by which the Conseco
Parties or any of their Affiliates are bound, relating to the sale, issuance or
voting of, or the granting of rights to acquire, all or any portion of the
outstanding shares of capital stock of CSHI, or any securities convertible or
exchangeable into or evidencing the right to purchase all or a portion of such
shares (the items in clauses (i), (ii) and (iii) being referred to collectively
as the "CSHI Securities"). There are no outstanding stock appreciation, phantom
stock, profit participation, or similar rights with respect to CSHI. There are
no voting trusts, proxies or other agreements or understandings to which the
Conseco Parties or any of their Affiliates are a party or are bound with respect
to the voting of any of the Shares.
Section 3.03 Authorization.
(a) Each of the Conseco Parties and, if applicable, their
Affiliates has the requisite corporate or comparable power and authority to
execute, deliver and perform its obligations under this Agreement, each of the
Ancillary Agreements to be executed by it and the other agreements, documents
and instruments to be executed and delivered in connection with this Agreement
or the Ancillary Agreements and to consummate the transactions contemplated
hereby and thereby. The execution and delivery by the Conseco Parties and, if
applicable, their Affiliates of this Agreement, the Ancillary Agreements and the
other agreements, documents and instruments to be executed and delivered in
connection with this Agreement or the Ancillary Agreements by the Conseco
Parties and, if applicable, their Affiliates, the performance by the Conseco
Parties and, if applicable, their Affiliates of their respective obligations
hereunder and thereunder and the consummation of the transactions contemplated
hereby and thereby have been duly authorized by all necessary corporate action
on the part of the Conseco Parties and, if applicable, their Affiliates. This
Agreement has been duly executed and delivered by the Conseco Parties and,
subject to the due execution and delivery hereof by Trust, this Agreement is a
valid and binding obligation of the Conseco Parties, enforceable against the
Conseco Parties in accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium and other similar
laws relating to or affecting creditors' rights
11
generally and by general equitable principles (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
(b) Each Ancillary Agreement and each other agreement, document
and instrument to be executed and delivered in connection with this Agreement or
the Ancillary Agreements, when executed and delivered by the Conseco Parties
and, if applicable, their Affiliates, will be duly executed and delivered by the
Conseco Parties and their Affiliates, as applicable, and, subject to the due
execution and delivery of such agreements, documents and instruments by the
other parties thereto, each Ancillary Agreement and each other agreement,
document and instrument to be delivered in connection with this Agreement or the
Ancillary Agreements executed by the Conseco Parties or their Affiliates will be
a valid and binding obligation of the Conseco Parties or their Affiliates, as
applicable, enforceable against the Conseco Parties or their Affiliates, as
appropriate, in accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency, reorganization, moratorium and other similar
laws relating to or affecting creditors' rights generally and by general
equitable principles (regardless of whether such enforceability is considered in
a proceeding in equity or at law).
Section 3.04 Non-Contravention. Except as disclosed in Schedules 3.04
and 3.05, the execution and delivery by the Conseco Parties and their
Affiliates, as applicable, of this Agreement and of the Ancillary Agreements to
which it is a party do not, and the consummation by the Conseco Parties and
their Affiliates, as applicable, of the transactions contemplated by this
Agreement and by such Ancillary Agreements and compliance with the provisions
hereof and thereof will not, (i) conflict with or result in a violation or
breach of any of the provisions of the Organizational Documents of the Conseco
Parties or any of their Affiliates, as applicable, (ii) conflict with, result in
a breach of or default (with or without notice or lapse of, time, or both)
under, give rise to a right of termination, cancellation or acceleration of any
obligation or loss of a benefit under or result in the creation of any Lien
(other than Permitted Liens) on any property or asset of the Conseco Parties or
any of their Affiliates (including, without limitation, CSHI), as applicable,
under, any indenture or other agreement, permit, franchise, license or other
instrument or undertaking to which the Conseco Parties or any of their
Affiliates, as applicable, is a party or by which the Conseco Parties or any of
their Affiliates, as applicable, or any of their respective properties or assets
is bound or affected, or (iii) contravene any statute, law, ordinance, rule,
regulation, order, judgment, injunction, decree, determination or award
applicable to the Conseco Parties or any of their Affiliates (including, without
limitation, CSHI), as applicable, or any of their respective properties or
assets except, with respect to (ii), as would not, individually or in the
aggregate, reasonably be expected to have a material adverse effect on CSHI
following the Closing or on the ability of the Conseco Parties to consummate the
transactions contemplated hereby.
Section 3.05 Consents and Approvals.
(a) There is no requirement applicable to the Conseco Parties or
any of their Affiliates (including, without limitation, CSHI) to make any
registration, declaration or filing with, or to obtain any Permit from or
authorization, consent, waiver, order or approval of, any Governmental Entity in
connection with the implementation of the transactions contemplated by this
Agreement and the Ancillary Agreements, except for the registrations,
12
declarations, filings, Permits, authorizations, consents, waivers, orders or
approvals set forth in Schedule 3.05(a).
(b) There is no requirement applicable to the Conseco Parties or
any of their Affiliates (including, without limitation, CSHI) to obtain any
consent or approval from or give any notice to any Person (excluding any
Governmental Entity and any Affiliates of the Conseco Parties) in connection
with the execution or consummation of the transactions contemplated by this
Agreement and the Ancillary Agreements, except for the consents, approvals or
notices previously disclosed in writing by the Conseco Parties to Trust and such
other consents, approvals or notices the failure to obtain or make which would
not reasonably be expected to be, individually or in the aggregate, materially
adverse to CSHI following the Closing or to materially impair or delay the
ability of the Conseco Parties to consummate the transactions contemplated by
this Agreement and the Ancillary Agreements.
Section 3.06 Statutory Financial Statements. The Conseco Parties have
made available to Trust true, complete and correct copies of the statutory
financial statements of CSHI as filed with Pennsylvania Insurance Department for
the year ended December 31, 2007 and for each subsequent quarterly or annual
period filed prior to the date of this Agreement (or in the case of such
statements filed after the date hereof, will promptly make such statements
available to Trust after the filing thereof), together with all exhibits and
schedules thereto (collectively, the "Statutory Financial Statements"). CSHI has
timely filed or submitted all Statutory Financial Statements required to be
filed with or submitted to the Pennsylvania Insurance Department in a manner
that complies with all applicable requirements of the Pennsylvania Department of
Insurance, except for such failures to file or submit which would not,
individually or in the aggregate, reasonably be expected to have a material
adverse effect on CSHI following the Closing. The Statutory Financial Statements
present (or, when filed, will present) fairly, in all material respects, the
statutory financial condition of CSHI at the respective dates thereof, and the
statutory results of operations for the respective periods then ended in
accordance with Applicable SAP applied on a consistent basis throughout the
period indicated, except as otherwise noted therein. Except as set forth in
Schedule 3.06, no material deficiency has been asserted in writing with respect
to any Statutory Financial Statement by the Pennsylvania Insurance Department
that has not been remedied. The annual statutory balance sheets and income
statements included in the Statutory Financial Statements have been, where
required by applicable insurance Law, audited by an independent accounting firm
in good standing with the American Institute of Certified Public Accountants.
The aggregate reserves of CSHI as recorded in the Statutory Financial Statements
have been determined in accordance with presently accepted actuarial standards
consistently applied and are fairly stated in accordance with sound actuarial
principles and meet the requirements of the Pennsylvania Insurance Department in
all material respects. Except for those matters identified in the Statutory
Financial Statement for the year ended December 31, 2007, no material weaknesses
have been identified in CSHI's internal controls over financial reporting that
have not been remedied prior to the date of this Agreement.
Section 3.07 [Intentionally Omitted]
Section 3.08 Sufficiency of Assets. Except as set forth in Schedule
3.08, after giving effect to the transactions provided for under this Agreement,
including the rights granted to CSHI under the Ancillary Agreements, CSHI will
own, possess, license, lease or, through an
13
enforceable contractual obligation, have access to, or the benefit of, all
assets and contractual rights necessary for (i) the conduct of the Long-Term
Care Business, immediately following the Closing in all material respects as
contemplated to be conducted by the Plan of Operations, (ii) the administration
of the policies to be administered by CSHI pursuant to the LTC Administrative
Services Agreements immediately following the Closing in all material respects
in accordance with the terms of the LTC Administrative Services Agreements, and
(iii) the conduct of the Long-Term Care Business, and the administration of the
policies to be administered by CSHI pursuant to the LTC Administrative Services
Agreements immediately following the Closing in compliance with the terms of the
Regulatory Settlement Agreement.
Section 3.09 Intercompany Agreements. Schedule 3.09 lists (a) all
Contracts or other arrangements binding any properties or assets of CSHI,
between or among CSHI, on the one hand, and any of the Conseco Parties or any of
their Affiliates (other than CSHI), on the other hand and (b) any Contracts or
other arrangements between or among any of the Conseco Parties or any of their
Affiliates and any third parties under which CSHI receives benefits that are
material to the Long-Term Care Business. Since March 31, 2008, there has not
been any accrual of any material liability by CSHI to any of the Conseco Parties
or any of their Affiliates (other than CSHI) or other transaction between CSHI
and any of the Conseco Parties or any of their Affiliates (other than CSHI),
except in the ordinary course of business of CSHI consistent with past practice
or in accordance with the terms of this Agreement.
Section 3.10 No Undisclosed Material Liabilities. To the Knowledge of
the Conseco Parties, there are no liabilities of CSHI, whether absolute,
accrued, contingent or otherwise and whether due or to become due, except (a)
liabilities disclosed or reserved against in the Reference Statutory Financial
Statement or specifically disclosed in the notes thereto; (b) insurance claims
or related litigation or arbitration arising in the ordinary course of business
since March 31, 2008; (c) litigation or disputes referenced in Schedule 3.15,
(d) liabilities arising or incurred in connection with the transactions
contemplated by this Agreement and the Ancillary Agreements; (e) liabilities
that were incurred after March 31, 2008 in the ordinary course of business
consistent with past practice; (f) liabilities under the Regulatory Settlement
Agreement; and (g) liabilities that, individually and in the aggregate, are not
and would not reasonably be expected to be materially adverse to CSHI after the
Closing.
Section 3.11 Absence of Changes. Except as set forth on Schedule 3.11,
since March 31, 2008 and, except with respect to subsection (a) below, prior to
the date of this Agreement, CSHI has conducted its business only in the ordinary
course consistent with past practice, and:
(a) there has not been any material adverse effect or any change,
event or development, facts, circumstances, effects or occurrences that,
individually or in the aggregate, have had or would reasonably be expected to
have a material adverse effect on CSHI after the Closing; and
(b) there has not been any action or event that, if taken on or
after the date of this Agreement without Trust's consent, would violate the
provisions of Section 5.01.
Section 3.12 Insurance Matters.
14
(a) To the Knowledge of the Conseco Parties, as of the date
hereof, all ceded reinsurance treaties or agreements to which CSHI is a party or
under which CSHI has any existing material rights, obligations or liabilities
relating to Long-Term Care Business (the "CSHI Reinsurance Agreements"), as well
as those which do not relate to Long-Term Care Business, are listed and
described in Schedule 3.12(a) and are in full force and effect in accordance
with their terms. CSHI is not in material default as to any material provision
thereof. Since January 1, 2005, CSHI has not received any written notice to the
effect that (i) the financial condition of any reinsurer party to any such
agreement is materially impaired with the result that a default thereunder may
reasonably be anticipated or (ii) there is a material dispute with respect to
any material amounts recoverable by CSHI pursuant to any CSHI Reinsurance
Agreement.
(b) With respect to any CSHI Reinsurance Agreement for which CSHI
has taken credit for reinsurance ceded on its Statutory Financial Statements,
(i) there has been no separate written or oral agreements between CSHI and the
assuming reinsurer that would under any circumstances reduce, limit, mitigate or
otherwise affect any actual or potential loss to the parties under any such CSHI
Reinsurance Agreement, other than inuring contracts that are explicitly defined
in any such CSHI Reinsurance Agreement, (ii) for each such CSHI Reinsurance
Agreement for which risk transfer is not reasonably considered to be
self-evident, documentation concerning the economic intent of the transaction
and the risk transfer analysis evidencing the proper accounting treatment, as
required by SSAP No. 61, is available for review by the Pennsylvania Insurance
Department, (iii) CSHI complies and has complied in all material respects with
all of the requirements set forth in SSAP No. 61 and (iv) CSHI has and has had
appropriate controls in place to monitor the use of reinsurance and comply with
the provisions of SSAP No. 61.
(c) The Conseco Parties have made available to Trust a true and
complete copy of all material actuarial reports of the Long-Term Care Business
prepared by actuaries, independent or otherwise, with respect to CSHI since
January 1, 2006, and all material attachments, addenda, supplements and
modifications thereto (the "CSHI Actuarial Analyses"). To the Knowledge of the
Conseco Parties, each CSHI Actuarial Analysis was based upon, in all material
respects, an accurate inventory of policies in force for CSHI at the relevant
time of preparation and was prepared in conformity with generally accepted
actuarial principles in effect at such time, consistently applied.
(d) Except for regular periodic assessments in the ordinary
course of business or assessments based on developments that are generally known
within the insurance industry, no material claim or material assessment is
pending or, to the Knowledge of the Conseco Parties, threatened in writing
against CSHI by any state insurance guaranty association in connection with such
association's fund relating to insolvent insurers.
(e) Since January 1, 2005, to the Knowledge of the Conseco
Parties, (i) salaried employees of CSHI and each other person, who, in each of
the foregoing cases, is performing the duties of insurance producer, agency,
agent or managing general agent for CSHI (collectively, "CSHI Producers"), at
the time such CSHI Producer wrote, sold, or produced business for or on behalf
of CSHI that requires a Permit, was duly licensed and appointed as required by
applicable Law, in the particular jurisdiction in which such CSHI Producer
wrote,
15
sold or produced business and (ii) each of the agency agreements and
appointments between the CSHI Producers, including as subagents under the CSHI's
affiliated insurance agency, and CSHI, is valid and binding and in full force
and effect in accordance with its terms, except in the case of clause (i) or
(ii), as would not, individually or in the aggregate, reasonably be expected to
have a material adverse effect on CSHI following the Closing. To the Knowledge
of the Conseco Parties, no CSHI Producer has violated any term or provision of
any Law applicable to the writing, sale or production of insurance or other
business for CSHI, except for such violations that would not, individually or in
the aggregate, reasonably be expected to have a material adverse effect on CSHI
following the Closing.
Section 3.13 Brokers or Finders. Other than Morgan Stanley & Co.
Incorporated whose fees and expenses will be paid solely by the Conseco Parties,
no agent, broker, investment banker, finder, financial advisor or other
intermediary or Person is or will be entitled to any broker's or finder's fee or
any other similar commission or fee in connection with the transactions
contemplated by this Agreement or any of the Ancillary Agreements based upon
arrangements made by or on behalf of any of the Conseco Parties or any of their
Affiliates.
Section 3.14 Environmental Matters. Except as would not, individually
or in the aggregate, reasonably be expected to have a material adverse effect on
CSHI following the Closing, (a) CSHI has not received any written notice,
demand, request for information, citation, summons or order, and no complaint
has been filed, no penalty has been assessed, and no investigation, action,
written claim, suit or proceeding is pending or, to the Knowledge of the Conseco
Parties, is threatened in writing by any Governmental Entity or other Person
with respect to or arising out of any applicable Environmental Law and (b) to
the Knowledge of the Conseco Parties, no "release" of a "hazardous substance"
(as those terms are defined in the Comprehensive Environmental Response,
Compensation, and Liability Act, 42 U.S.C. ss. 9601 et seq.) has occurred at,
on, above, under or from any Owned Real Property or Leased Real Property that is
likely to result in any material cost, liability or obligation of CSHI under any
applicable Environmental Law.
Section 3.15 Litigation. Except as set forth in Schedule 3.15, there
is no action, suit, investigation, complaint, demand, summons, cease and desist
letter, subpoena, injunction, notice of violation or other proceeding
("Actions") pending against, or, to the Knowledge of Conseco Parties, threatened
in writing against CSHI, or, to the Knowledge of the Conseco Parties, pending
against or threatened in writing against any present or former officer or
director of CSHI in connection with which CSHI has an indemnification obligation
pursuant to its Organizational Documents or a written agreement, before any
Governmental Entity (other than insurance claims litigation or arbitration
arising in the ordinary course of business), which, if determined or resolved
adversely in accordance with the plaintiff's or claimant's demands, would,
individually or in the aggregate, reasonably be expected to have a material
adverse effect on CSHI after the Closing. The Actions listed on Schedule 3.15
are collectively referred to in this Agreement as the "Existing Litigation."
Except as set forth in the Regulatory Related Disclosures, as of the date of
this Agreement, there is no Order outstanding against CSHI which would,
individually or in the aggregate, reasonably be expected to have a material
adverse effect on CSHI after the Closing.
Section 3.16 Compliance with Laws.
16
(a) Except as set forth in Schedule 3.16(a), since January 1,
2006, the business and operations of CSHI have been conducted in compliance with
all applicable Law (including Insurance Laws), except where the failure to so
conduct such business and operations would not, individually or in the
aggregate, reasonably be expected to have a material adverse effect on CSHI
after the Closing.
(b) Except as set forth in Schedule 3.16(b) and except for
restrictions relating to the writing of new business, all of CSHI's Permits are
in full force and effect in accordance with their terms and there is no
proceeding or investigation to which CSHI is subject before a Governmental
Entity that is pending or, to the Knowledge of the Conseco Parties, threatened
in writing that would reasonably be expected to result in the revocation,
failure to renew or suspension of, or placement of a restriction on, any such
Permits, except where the failure to be in full force and effect in accordance
with their terms, revocation, failure to renew, suspension or restriction would
not, individually or in the aggregate, reasonably be expected to have a material
adverse effect on the Long-Term Care Business.
(c) Except as previously disclosed in writing by the Conseco
Parties to Trust (such disclosures referred to herein as the "Regulatory Related
Disclosures"), to the Knowledge of the Conseco Parties, there is no proceeding
to which CSHI is subject before any Governmental Entity pending or threatened in
writing regarding whether CSHI has violated any applicable Insurance Laws, nor
any investigation by any Governmental Entity pending or threatened in writing
with respect to possible violations of any applicable Insurance Laws, except for
proceedings or investigations relating to violations or possible violations
which would not, individually or in the aggregate, reasonably be expected to
have a material adverse effect on the Long-Term Care Business. CSHI has filed
all material reports required to be filed by it with the Pennsylvania Insurance
Department, or such failure to file has been remedied in a manner satisfactory
to the Pennsylvania Insurance Department. Except as set forth in the Regulatory
Related Disclosures and as required by applicable Law and the Permits maintained
by CSHI, there are no written agreements, memoranda of understanding, commitment
letters or similar undertakings binding on CSHI to which CSHI is a party, on the
one hand, and any Governmental Entity is a party or addressee, on the other
hand, or Orders specifically with respect to CSHI, that (i) limit in any
material respect the ability of CSHI to conduct the Long-Term Care Business in
the manner contemplated by the Plan of Operations, (ii) impose any requirements
on CSHI in respect of risk-based capital requirements that materially increase
or modify the risk-based capital requirements imposed under applicable Insurance
Laws, or (iii) are reasonably likely to have a material adverse effect on CSHI
after the Closing.
Section 3.17 Intellectual Property.
(a) Except as would not, individually or in the aggregate,
reasonably be expected to have a material adverse effect on CSHI following the
Closing, to the Knowledge of the Conseco Parties, all registrations for
trademarks, service marks and copyrights owned by CSHI are valid and subsisting.
(b) Except as would not, individually or in the aggregate,
reasonably be expected to have a material adverse effect on CSHI following the
Closing, (i) there are no claims pending or, to the Knowledge of the Conseco
Parties, threatened in writing by any Person
17
alleging that CSHI or the Long-Term Care Business infringes the Intellectual
Property of any Person and (ii) to the knowledge of the Company, no Person is
infringing the Intellectual Property owned by (or after giving effect to the
transactions contemplated by this Agreement and the Ancillary Agreements, that
will be owned by) CSHI.
Section 3.18 Material Contracts.
(a) The Conseco Parties have made available to Trust a true and
complete copy of each Assigned Contract, each Contract by which any of the
Contributed Assets are bound as of the date of this Agreement and each Contract
to which CSHI is a party as of the date of this Agreement or by which CSHI or
any of its respective properties or assets is bound as of the date of this
Agreement, which: (i) is material, individually or in the aggregate, to the
business, operations, results of operations, condition (financial or otherwise),
properties, prospects or assets of CSHI; (ii) imposes material obligations
(whether or not monetary) on CSHI; (iii) contains covenants of CSHI not to
compete or engage in any line of business or compete with any Person in any
geographic area, in each case, in a manner that is material to the Long-Term
Care Business, or would otherwise bind Trust after the Closing; and (iv)
pursuant to which CSHI has entered into a partnership or joint venture with any
other Person that is material to CSHI. Each instrument of the type described in
clauses (i) through (iv) of this Section 3.18 is referred to herein as a
"Material Contract."
(b) Each Material Contract is (assuming due power and authority
of, and due execution and delivery by, the other party or parties thereto) a
valid and binding obligation of CSHI, the Conseco Parties or their Affiliates
party thereto, except (i) as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium and other similar laws relating to or
affecting creditors' rights generally and by general equitable principles
(regardless of whether such enforceability is considered in a proceeding in
equity or at law), (ii) to the extent they have previously expired or terminated
in accordance with their terms and (iii) for any failures to be valid and
binding which would not, individually or in the aggregate, reasonably be
expected to have a material adverse effect on CSHI following the Closing.
Neither CSHI nor, to the Knowledge of the Conseco Parties, any other party is in
breach of or in default under any Material Contract, and no event has occurred
that, with the lapse of time or the giving of notice or both, would constitute a
default thereunder by any party thereto, except for such breaches and defaults
which would not, individually or in the aggregate, reasonably be expected to
have a material adverse effect on CSHI following the Closing.
Section 3.19 Employees, Labor Matters, etc.
(a) No Employee is covered by a collective bargaining agreement,
and, to the Knowledge of the Conseco Parties, there are no labor unions or other
organizations representing, purporting to represent or attempting to represent
any Employees.
(b) Since January 1, 2005, there has not occurred or, to the
Knowledge of the Conseco Parties, been threatened in writing any material
strike, slowdown, work stoppage, concerted refusal to work overtime or other
similar labor activity or union organizing campaign with respect to any
Employees. There are no labor disputes subject to any formal grievance
procedure, arbitration or litigation and there is no representation petition
pending or, to the
18
Knowledge of the Conseco Parties, threatened in writing with respect to any
Employee, in each case, which would reasonably be expected to have, individually
or in the aggregate, a material adverse effect on the Long-Term Care Business or
CSHI.
Section 3.20 Employee Plans and Related Matters; ERISA.
(a) Employee Plans. Schedule 3.20(a) sets forth a true and
complete list of each Company Plan and each other material Employee Plan. With
respect to each such Company Plan and each material Employee Plan, the Conseco
Parties have provided Trust complete and correct copies of all written plans and
descriptions of all unwritten plans. With respect to each Company Plan, the
Conseco Parties have provided Trust complete and correct copies of all trust
agreements, insurance contracts or other funding arrangements; the two most
recent actuarial and trust reports; the two most recent Forms 5500 and all
schedules thereto; the most recent IRS determination letter; current summary
plan descriptions; all material communications received from or sent to the IRS,
the Pension Benefit Guaranty Corporation or the Department of Labor; statements
or other written communications regarding withdrawal or other multiemployer plan
liabilities, if any; and all amendments and modifications to any such document.
(b) Qualification. Each Employee Plan intended to be qualified
under section 401(a) of the Internal Revenue Code of 1986, as amended (the
"Code"), and the trust (if any) forming a part thereof, has received a favorable
determination letter from the IRS as to its qualification under the Code and to
the effect that each such trust is exempt from taxation under section 501(a) of
the Code, and nothing has occurred since the date of such determination letter
that could adversely affect such qualification or tax-exempt status.
(c) Compliance; Liability.
(i) No Employee Plan is subject to section 412 of the Code or
section 302 or Title IV of ERISA.
(ii) Each of the Employee Plans has been operated and
administered in all material respects in compliance with all
applicable Laws respecting labor, employment, fair employment
practices, terms and conditions of employment, workers' compensation,
occupational safety and health requirements, plant closings, wages and
hours, withholding of taxes, employment discrimination, disability
rights or benefits, equal opportunity, affirmative action, labor
relations, employee leave issues and unemployment insurance and
related matters, except for any failure so to comply that,
individually or together with all other such failures, has not and
will not result in a material liability or obligation on the part of
CSHI following the Closing.
(iii) No Employee Plan is a "multiemployer plan" within the
meaning of Section 4001(a)(3) of ERISA or is a "multiple employer
plan" within the meaning of section 4063 or 4064 of ERISA.
(iv) No Employee is or may become entitled to post-employment
death or medical benefits (whether or not insured) by reason of
19
employment in the Long-Term Care Business other than coverage mandated
by section 4980B of the Code. The consummation of the transactions
contemplated by this Agreement, will not result in an increase in the
amount of compensation or benefits or the acceleration of the vesting
or timing of payment of any compensation or benefits payable to or in
respect of any Employee.
(v) Other than routine claims for benefits, there are no
pending, or to the Knowledge of the Conseco Parties, threatened or
anticipated material claims by or on behalf of any Employee Plan, by
any Employee relating to his or her employment, termination of
employment, compensation or employee benefits.
Section 3.21 Tax Matters.
(a) All tax returns and reports required to be filed by or with
respect to CSHI on or prior to the Closing Date have been timely filed,
including all valid extensions, (or will have been timely filed, including all
valid extensions, prior to the Closing Date) with the appropriate Governmental
Entity in accordance with applicable law and (as they pertain to CSHI) were (or
will be) true, correct and complete, except to the extent that failure with
respect to the foregoing is not and would not reasonably be expected to be
materially adverse to CSHI after the Closing.
(b) Except for (i) Taxes disclosed or reserved against in CSHI's
Quarterly Statutory Financial Statement dated as of March 31, 2008 or
specifically disclosed in the notes thereto or (ii) Taxes the payment of which,
or failure of which to be paid, are not and would not, individually or in the
aggregate, reasonably be expected to be materially adverse to CSHI after the
Closing, all Taxes due and payable by or with respect to CSHI prior to the
Closing Date have (or by the Closing Date will have) been timely paid in full to
the appropriate Governmental Entity.
(c) All employment and withholding Taxes required to have been
withheld or paid by CSHI in connection with amounts paid or owed to any
employee, independent contractor, creditor, policyholder or any other third
party prior to the Closing Date have (or by the Closing Date will have) been
timely paid in full to the appropriate Governmental Entity or properly set aside
in accounts for such purpose, and CSHI has complied with all material reporting
and record keeping requirements with respect thereto, except to the extent that
the failure to so pay or set aside any such employment or withholding Taxes or
to so comply is not and would not, individually or in the aggregate, reasonably
be expected to be materially adverse to CSHI after the Closing.
(d) No claim, which has not been resolved favorably, has been
made in writing by any Governmental Entity in any jurisdiction where CSHI does
not file tax returns or pay Taxes to the effect that CSHI is or may be liable
for Taxes in that jurisdiction, and, to the Knowledge of the Conseco Parties,
there is no basis for any such claim.
(e) Except for agreements, documents and powers of attorney that
have expired, no written agreement or other document extending, or having the
effect of extending, the period of assessment or collection of any Taxes for
which CSHI may be held
20
liable following the Closing, and no power of attorney with respect to any such
Taxes, has been executed or filed with the IRS or any other taxing authority. No
closing agreements or similar agreements and no private letter rulings,
technical advice memoranda or similar rulings relating to Taxes that would be
binding on CSHI following the Closing have been applied for from, entered into
with or issued by any Governmental Entity.
(f) No Governmental Entity is, as of the date of this Agreement,
asserting in writing any deficiency or claim for additional Taxes or any
adjustment of Taxes for which CSHI could be held liable, except for Taxes or
adjustments the payment of which, or failure of which to be paid, are not and
would not, individually or in the aggregate, reasonably be expected to be
materially adverse to CSHI after the Closing. Neither Conseco nor any affiliate
of Conseco has been informed in writing of the commencement of any Tax audit or
any post-audit governmental or judicial proceeding relating to Taxes for which
CSHI could be held liable, in either case that would occur or continue after the
date of this Agreement.
(g) There are no tax sharing, tax allocation or tax indemnity
agreements or arrangements in force to which CSHI will be a party, or under
which CSHI may otherwise be required to pay any amount, following the Closing.
CSHI is not liable for Taxes of any person (other than a current member of the
consolidated federal income tax group of which Conseco is the common parent) as
a result of being a member of an affiliated, combined consolidated or unitary
group that includes or has included such person as a member.
(h) CSHI has not entered into any transaction that is a "listed
transaction" as defined in Treasury Regulation ss.1.6011-4(b)(2).
(i) CSHI is not required to include any amounts in income
pursuant to Section 481(a) or Section 807(f) of the Code (or any predecessor
provision) or any similar provision of law by reason of any change in any
accounting or reserving methods that will be binding on CSHI after the Closing
Date, and there is no application pending with any Governmental Entity
requesting permission for any changes in any accounting or reserving methods for
Tax purposes that would result in any such adjustment, except to the extent that
such adjustment (i) is disclosed or reserved against in CSHI's Quarterly
Statutory Financial Statement dated as of March 31, 2008 or specifically
disclosed in the notes thereto or (ii) is not and would not, individually or in
the aggregate, reasonably be expected to be materially adverse to CSHI after the
Closing. No Governmental Authority has proposed in writing any such adjustment
or change in accounting method.
(j) CSHI will not be required to include any amount in taxable
income or exclude any item of deduction or loss from taxable income for any
taxable period (or portion thereof) ending after the Closing Date as a result of
(i) any installment sale or open transaction disposition made on or prior to the
Closing Date or (ii) any prepaid amount received on or prior to the Closing
Date, in each case other than (1) amounts disclosed or reserved against in the
Reference Statutory Financial Statement or specifically disclosed in the notes
thereto or (2) amounts that are not and would not, individually or in the
aggregate, reasonably be expected to be materially adverse to CSHI after the
Closing.
21
(k) To the Knowledge of the Conseco Parties, each policy issued
by CSHI or otherwise included in the Long-Term Care Business has at all times
since its issuance met all requirements of the Code and all applicable Treasury
Regulations, Revenue Rulings and Revenue Procedures that must be met so that the
federal tax treatment of the policy is and at all times has been no less
favorable to the purchaser, policyholder or intended beneficiaries thereof than
the federal tax treatment that was (i) represented would be received by the
purchaser, policyholder or any beneficiary thereof in any materials provided to
the purchaser or policyholder at or prior to the time the policy was issued,
renewed, modified or exchanged or (ii) was customary for that type of policy at
the time it was issued, renewed, modified or exchanged. There is no pending
claim by any Governmental Entity or any pending application for a private letter
ruling, technical advice memoranda or similar ruling that, if sustained or
issued, would be inconsistent with the foregoing.
Section 3.22 Information Supplied. The information provided or to be
provided by the Conseco Parties in writing specifically for inclusion in the
Form A is true and correct in all material respects, and does not omit any
information required to be stated in order to make the statements made in the
Form A not misleading. For the avoidance of doubt, all forward looking
statements that have been provided to the Trust is information from CSHI and its
management and not the Conseco Parties.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF TRUST
---------------------------------------
Except as set forth on the corresponding numbered Schedules to this
Agreement (it being understood, however, that matters disclosed in the Schedules
to this Agreement under one section will be deemed to be disclosed with respect
to each other section, to the extent that the significance and magnitude of the
matter disclosed and its relationship to the particular provision of this
Agreement corresponding to such other section is reasonably apparent), Trust
hereby represents and warrants to the Conseco Parties as follows:
Section 4.01 Organization, Standing and Authority. Trust is duly
organized, validly existing and in good standing under the Law of Pennsylvania.
Section 4.02 Authorization.
(a) Trust has the requisite trust power and authority to execute,
deliver and perform its obligations under this Agreement, each of the Ancillary
Agreements to be executed by it and the other agreements, documents and
instruments to be executed and delivered in connection with this Agreement or
the Ancillary Agreements. The execution and delivery by Trust of this Agreement,
the Ancillary Agreements to be executed by it and the other agreements,
documents and instruments to be executed and delivered in connection with this
Agreement or the Ancillary Agreements, and the performance by Trust of its
obligations hereunder and thereunder, have been duly authorized by all necessary
trust action on the part of Trust. This Agreement has been duly executed and
delivered by Trust and, subject to the due execution and delivery hereof by the
Conseco Parties, this Agreement is a valid and binding obligation of Trust
enforceable against Trust in accordance with its terms, except as
22
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and other similar laws relating to or affecting creditors' rights
generally and by general equitable principles (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
(b) Each Ancillary Agreement and each other agreement, document
and instrument to be executed and delivered in connection with this Agreement or
the Ancillary Agreements, when executed and delivered by Trust will be duly
executed and delivered by Trust and, subject to the due execution and delivery
of such agreements, documents and instruments by the other parties thereto, each
Ancillary Agreement and each other agreement, document and instrument to be
delivered in connection with this Agreement or the Ancillary Agreements executed
by Trust will be a valid and binding obligation of Trust enforceable against
Trust in accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium and other similar laws
relating to or affecting creditors' rights generally and by general equitable
principles (regardless of whether such enforceability is considered in a
proceeding in equity or at law).
Section 4.03 Consents and Approvals.
(a) There is no requirement applicable to Trust to make any
registration, declaration or filing with, or to obtain any Permit from or
authorization, consent, waiver, order or approval of, any Governmental Entity in
connection with the consummation of the transactions contemplated by this
Agreement and the Ancillary Agreements, except for the filings, permits,
authorizations, consents or approvals set forth in Schedule 4.03(a).
(b) There is no requirement applicable to Trust to obtain any
consent, approval from or give any notice to any third party (excluding any
Governmental Entity) in connection with the execution or consummation of the
transactions contemplated by this Agreement and the Ancillary Agreements, except
for the consents, approvals or notices set forth in Schedule 4.03(b) and such
other consents, approvals or notices the failure to obtain or make which would
not be, individually or in the aggregate, materially adverse to Trust, or
materially impair or delay the ability of Trust to consummate the transactions
contemplated by this Agreement and the Ancillary Agreements.
Section 4.04 Investment Intent. The Shares will be acquired by Trust
for its own account and not with a view to, or for sale in connection with, any
distribution thereof. Trust will refrain from transferring or otherwise
disposing of any of the Shares, or any interest therein, in such manner as to
violate any registration provision of any applicable federal or state securities
law regulating the disposition thereof.
Section 4.05 Brokers or Finders. No agent, broker, investment banker,
finder, financial advisor or other intermediary or Person is or will be entitled
to any broker's or finder's fee or any other similar commission or fee in
connection with the transactions contemplated by this Agreement or any of the
Ancillary Agreements based upon arrangements made by or on behalf of any of
Trust.
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ARTICLE V
COVENANTS
---------
Section 5.01 Conduct of Business.
(a) Except as set forth on Schedule 5.01, as otherwise
contemplated by this Agreement, as may be required by Law or as may be consented
to by Trust (which consent shall not be unreasonably withheld or delayed),
during the period from the date of this Agreement to the Closing, Conseco
Parties shall (in respect of the Assigned Contracts and the Contributed Assets),
and shall cause CSHI to (i) carry on its business only in the ordinary course of
business consistent with past practice, (ii) use its reasonable best efforts to
preserve intact their respective present business organizations and operations
and to preserve their respective relationships with Governmental Entities,
customers and others having business relationships with them and (iii) maintain
in effect all existing governmental Permits that are required for the continued
operation of its business in all material respects as it is currently conducted.
Without limiting the generality of the foregoing, from the date of this
Agreement to the Closing, Conseco Parties shall not (in respect of the Assigned
Contracts and the Contributed Assets), and shall not permit CSHI to, except as
set forth on Schedule 5.01, as required by Law or as contemplated by this
Agreement, without the prior consent of Trust, which consent shall not be
unreasonably withheld, conditioned or delayed:
(i) amend or propose to amend Organizational Documents of
CSHI;
(ii) issue, sell, grant, repurchase or redeem, or enter into
any arrangement or contract with respect to the issuance, sale, grant,
repurchase or redemption of, any CSHI Securities or any rights,
warrants or options to acquire any CSHI Securities;
(iii) propose to, declare, set aside or pay any dividends
on, or make any other distributions (whether in cash, stock or
property or any combination thereof) in respect of any of the Shares;
(iv) (A) acquire or agree to acquire by merger or
consolidation, or by purchasing an equity interest in a portion of the
assets of, or any other manner, in a single transaction or series of
related transactions, any business or any corporation, partnership,
limited liability entity, joint venture, association or other business
organization or division thereof or (B) otherwise acquire or agree to
acquire any assets that are material, individually or in the
aggregate, to CSHI, in each case, other than purchases of investment
assets in the ordinary course of business consistent with past
practice;
(v) (A) incur any indebtedness for borrowed money or
guarantee or otherwise become responsible for any such indebtedness of
another Person, (B) make any loans, advances or capital contributions
to, or investments in, any other person, other than purchases of
investment assets in the ordinary
24
course of business consistent with past practice or (C) forgive,
cancel or compromise any debt or claim, or waive or release any right
of material value, outside of the ordinary course of business
consistent with past practice;
(vi) (A) enter into, assume, amend or terminate any Material
Contract or agreement that would be a Material Contract if entered
into prior to the date hereof, other than in the ordinary course of
business consistent with past practice or (B) enter into any agreement
containing any provision or covenant limiting in any material respect
its ability to engage in any line of business or obtain products or
services from any Person or limiting the ability of any Person to
provide products or services to it;
(vii) (A) issue any new insurance policies, except as may be
required by law or any Contract entered into prior to the date hereof,
or (B) alter its reserving practices or policies in respect of
insurance liabilities other than to comply with changes in applicable
Law, Applicable SAP or GAAP;
(viii) terminate, cancel, amend, modify or allow to lapse or
expire any Policies naming CSHI as a beneficiary or a loss payee or
covering any of the Contributed Assets which is not replaced by a
comparable amount of insurance coverage, except to the extent coverage
is comparably reduced for the Conseco Parties or their Affiliates;
(ix) adopt a plan or agreement of complete or partial
liquidation, merger, consolidation, restructuring, recapitalization or
other reorganization;
(x) make any change in any existing underwriting, claim
handling, loss control, investment, actuarial, financial reporting,
Tax or accounting methods, practices, guidelines, principles or
policies (including compliance policies) or any material assumption
underlying an actuarial practice or policy, except as may be required
by (or, in the reasonable good faith judgment of the Conseco Parties,
advisable under) GAAP or Applicable SAP, or as may be required by Law
or any Governmental Entity;
(xi) enter into, commute or amend any material reinsurance
transaction as cedent or assuming company;
(xii) commit to any capital expenditures that would
reasonably be expected to be incurred after the Closing Date or incur
any obligations or liabilities in connection with any capital
expenditures that would reasonably be expected to be incurred after
the Closing Date, in each case other than any capital expenditure
involving commitments of less than $50,000 in the aggregate;
(xiii) fail to pay or satisfy when due any material
liability (other than any such liability that is being contested in
good faith);
(xiv) in a single transaction or a series of related
transactions, sell (including sale-leaseback), lease, license or
otherwise encumber or subject to
25
any Lien or otherwise dispose of to any Person, or agree to sell (or
engage in a sale-leaseback), lease, license or otherwise encumber or
subject to any Lien or otherwise dispose of to any Person, any
material assets, other than in the ordinary course of business
consistent with past practice;
(xv) except as set forth in Exhibit K, (A) increase the
compensation payable to those employees of the Long-Term Care Business
(whose names are set forth on the schedule previously provided by CNO
to CSHI), other than increases in the ordinary course of business for
such employees who are not directors or officers, (B) materially
increase the benefits of such employees under any Employee Plan, or
(C) establish, adopt or amend any Company Plan;
(xvi) compromise, settle or agree to settle, release,
dismiss or otherwise dispose of any material suit, action,
investigation, arbitration or proceeding (including any Action
relating to this Agreement or the transactions contemplated hereby,
but excluding any Action relating to claims for benefits pursuant to
insurance policies in the ordinary course of business consistent with
past practice), or consent to the same;
(xvii) settle any audit or assessment by a Governmental
Entity with respect to Taxes attributable to the Long-Term Care
Business, or any administrative or judicial proceeding with respect
thereto or make any written filing with a Governmental Entity
reporting any Tax matter in a manner inconsistent with past practices,
but only to the extent that any such action is or would reasonably be
expected to be materially adverse to CSHI for any period or portion
thereof beginning after the Closing; or
(xviii) commit or agree to take any of the foregoing
actions.
(b) For the avoidance of doubt and notwithstanding anything to
the contrary herein, except as specifically provided in Section 2.02 and
contingent on the consummation of the Closing, prior to the Closing, the Conseco
Parties and their Affiliates shall have no obligation pursuant to this Agreement
to make any capital contribution, or otherwise provide any funding or any form
of balance sheet support, to CSHI.
Section 5.02 Access to Information; Confidentiality. The Conseco
Parties shall, upon reasonable notice, afford to Trust and to the trustees,
counsel, financial advisors, accountants, actuaries and other representatives of
Trust reasonable access during normal business hours during the period prior to
the Closing Date to the Books and Records (subject to applicable Law and
excluding records subject to attorney client privilege) and employees and
representatives of CSHI and, during such period, shall furnish as promptly as
practicable to Trust such information concerning CSHI as Trust may from time to
time reasonably request. Trust agrees that it will hold, and will cause each of
its trustees, counsel, financial advisors, accountants, actuaries and other
representatives to hold, any information so obtained in confidence in accordance
with the terms hereof.
26
Section 5.03 Reasonable Best Efforts. Upon the terms and subject to
the conditions and other agreements set forth in this Agreement, each of the
Conseco Parties and Trust agrees to, and the Conseco Parties agree to cause each
of their Affiliates to, use its reasonable best efforts to take, or cause to be
taken, all actions, and to do, or cause to be done, and to assist and cooperate
with the other parties in doing, all things necessary, proper or advisable to
consummate and make effective, as promptly as practicable (subject to Section
5.04(d)), the transactions contemplated by this Agreement or any Ancillary
Agreement.
Section 5.04 Consents, Approvals, Filings and Costs.
(a) As appropriate, the Conseco Parties and Trust will prepare
and file, and the Conseco Parties will cause their respective Affiliates to
prepare and file, as soon as practicable, all documentation that may be required
in order to effect all necessary filings (including the Form A and any other
filings required under state insurance Law), and to seek all necessary consents,
waivers, clearances, approvals, permits, authorizations or orders, with and from
all Governmental Entities, in order to facilitate prompt consummation of the
transactions contemplated by this Agreement or any Ancillary Agreement. In
addition, the Conseco Parties and Trust will cooperate fully with each other,
and the Conseco Parties shall cause their respective Affiliates to cooperate
fully, to obtain as promptly as practicable all necessary consents, waivers,
clearances, approvals, permits, authorizations or orders of Governmental
Entities and consents or waivers of all third parties necessary or advisable for
the consummation of the transactions contemplated by this Agreement or any
Ancillary Agreement. Subject to and in accordance with Section 5.04(b), each of
the Conseco Parties and Trust shall promptly provide, and the Conseco Parties
shall cause their respective Affiliates promptly to provide, such information
and communications to Governmental Entities as any of such Governmental Entities
may reasonably request.
(b) Further, and without limiting the generality of Section 5.03
and Section 5.04(a), to the extent permissible under applicable Law, each of the
Conseco Parties and Trust shall use its reasonable best efforts to (i) cooperate
in all material respects with the other parties in connection with any filing or
submission and in connection with any investigation or other inquiry, (ii)
furnish to the other parties such necessary information and reasonable
assistance as the other parties may reasonably request in connection with the
foregoing, (iii) keep the other parties advised of the status of all filings and
applications to, communications with and proceedings before Governmental
Entities in connection with the transactions contemplated by this Agreement and
the Ancillary Agreements and (iv) furnish to the other parties copies of all
formal filings and any other material information supplied by it or any of its
Affiliates to a Governmental Entity and copies of all material correspondence
between it (and its advisors), or any of its Affiliates (and such Affiliate's
advisors), and a Governmental Entity in connection with the transactions
contemplated by this Agreement and the Ancillary Agreements. Each of the Conseco
Parties and Trust agrees not to, and the Conseco Parties agree to cause their
Affiliates not to, (x) make any filing or application or provide any other
material information to a Governmental Entity, or to engage in any material
written correspondence with a Governmental Entity, in connection with the
transactions contemplated by this Agreement and the Ancillary Agreements,
unless, in each case, it provides the other party with notice and a reasonable
opportunity to review and comment thereon in advance and gives due consideration
to inclusion of the such party's comments therein or (y) participate in any
substantive meeting or discussion,
27
either in person or by telephone, with any Governmental Entity in connection
with the transactions contemplated by this Agreement and the Ancillary
Agreements unless, to the extent practicable, it consults with the other parties
(or their representatives) in advance and, to the extent not prohibited by such
Governmental Entity, gives the other parties (or their representatives) notice
and a reasonable opportunity to attend and participate.
(c) The parties agree that any costs and expenses payable to
third parties in connection with the procurement of any consents or waivers of
third parties necessary or advisable for the consummation of the transactions
contemplated by this Agreement or any Ancillary Agreement shall be borne by the
Conseco Parties. In lieu of procuring any consent or waiver described in this
Section 5.04(c), the Conseco Parties, with the consent of Trust (such consent
not to be unreasonably conditioned, withheld or delayed) and in cooperation with
Trust, may obtain for CSHI a substantially equivalent replacement for the
license, contract, lease or other right whose assignment requires such consent
or waiver, and the cost of such replacement shall be borne by the Conseco
Parties.
(d) Notwithstanding anything herein to the contrary, no party
shall be obligated to take or refrain from taking or to agree to its or its
Affiliates taking or refraining from any action or to suffer to exist any
restriction or requirement which (i) would, individually or together with all
other such actions, restrictions or requirements, reasonably be expected to
result in a material negative effect on the benefits, taken as a whole, which
such party could otherwise reasonably expect to derive from the consummation of
the transactions contemplated hereby had such party not been obligated to take
or refrain from or to agree to the taking or refraining from such action or
suffer to exist such restriction or (ii) would require one or more capital
contributions or other forms of financial support to be made to or provided to
CSHI other than in the form and amount set forth in Sections 2.02 and 5.19
hereof (each, a "Negative Condition").
Section 5.05 Notification. From the date hereof through the
Closing Date, each of the Conseco Parties and Trust shall promptly notify the
other parties of and keep them advised as to (a) any notice or other
communication from any Person alleging that the consent of such Person is or may
be required in connection with the transactions contemplated by this Agreement
and the Ancillary Agreements, except for communications relating to consents
that are or may be required in connection with the transactions contemplated by
the Separation and Transition Matters Agreement, (b) any matter (including a
breach of any representation, warranty, covenant or agreement contained in this
Agreement) that would reasonably be expected to lead to the failure to satisfy
any of the conditions to the Closing in Article VII and (c) any claim, action,
suit, investigation or other proceeding commenced by any Governmental Entity or
other Person or other litigation or administrative proceeding pending and known
to it or, to its Knowledge, threatened in writing which challenges or seeks to
restrain or enjoin the consummation of any of the transactions contemplated by
this Agreement or the Ancillary Agreements.
Section 5.06 Further Assurances. On and after the Closing Date, each
of the Conseco Parties and Trust shall, and the Conseco Parties shall cause
their Affiliates to, take all appropriate action and execute any additional
documents, instruments or conveyances of any kind which are not inconsistent
with the terms of this Agreement and which are reasonably necessary to carry out
any of the provisions of this Agreement or consummate any of the transactions
contemplated by this Agreement.
28
Section 5.07 Expenses. Except as otherwise specifically provided in
this Agreement, all out of pocket expenses, including all fees and expenses of
insurance regulators, agents, representatives, counsel, financial advisors,
actuaries and accountants, incurred by any party to this Agreement or any of the
Ancillary Agreements prior to or on the Closing Date in connection with the
preparation or execution of this Agreement or the Ancillary Agreements and the
consummation of the transactions contemplated hereby or thereby shall be borne
by the Conseco Parties. Except as otherwise specifically provided in this
Agreement or any of the Ancillary Agreements, the parties to this Agreement
shall each bear their respective expenses incurred from and after the Closing
Date in connection with performance of this Agreement and the Ancillary
Agreements and consummation of the transactions contemplated hereby and thereby.
For the avoidance of doubt, with respect to fees for services provided, the date
on which a fee is "incurred" shall be the date on which the relevant service is
provided or contracted to be provided, and not the date on which the invoice for
such service is rendered.
Section 5.08 Senior Note. In the event that the Pennsylvania Insurance
Department makes a determination prior to the Closing that the Senior Note, in
its proposed form, would not be able to be carried at face value on CSHI's
statutory financial statements once contributed, CNO shall adjust the interest
rate on the Senior Note to the extent needed to allow CSHI to carry the Senior
Note on its statutory financial statements at face value once the Senior Note is
contributed to it.
Section 5.09 Releases. From and after the Closing Date, each of
Conseco Parties and Trust, at the request of the other party, will use its
respective commercially reasonable efforts to obtain, or to cause to be
obtained, any consent, release, substitution or amendment (a "Release") required
to novate or assign all obligations under those Contracts, licenses and other
obligations or liabilities set forth on Schedule 5.09 (the "Joint and Several
Commitments") for which Conseco Parties or their respective Affiliates, on one
hand, and CSHI, on the other hand, are jointly or severally liable so that the
appropriate party shall be solely responsible for such liabilities or
obligations. From and after the Closing Date, (a) the Conseco Parties shall
indemnify and hold harmless Trust and its Affiliates from and against, and pay
or reimburse, as the case may be, Trust and its Affiliates for Losses, as
incurred, suffered by Trust or its Affiliates based upon, arising out of or
resulting from the Joint and Several Commitments for which Trust has requested a
Release pursuant to this Section 5.09 and (b) Trust shall cause CSHI to
indemnify and hold harmless the Conseco Parties and their Affiliates from and
against, and pay or reimburse, as the case may be, the Conseco Parties and their
Affiliates for Losses, as incurred, suffered by the Conseco Parties or their
Affiliates based upon, arising out of or resulting from the Joint and Several
Commitments for which any of the Conseco Parties have requested a Release
pursuant to this Section 5.09; provided, however, that no party shall be
entitled to indemnification for Losses incurred by it to the extent that such
Losses result from action taken by the party seeking indemnification.
Section 5.10 Confidentiality.
(a) Conseco Parties shall not, and Conseco Parties shall cause
their Affiliates and their respective controlled agents and representatives not
to, at any time from and after the Closing Date, directly or indirectly,
disclose or use any confidential or proprietary information involving or
relating to the Long Term Care Business of CSHI; provided, however,
29
that disclosure and use of any such information shall be permitted (i) with the
prior written consent of Trust (which consent shall not be unreasonably
withheld), (ii) as, and to the extent, expressly permitted by this Agreement or
any of the Ancillary Agreements, (iii) as, and solely to the extent, necessary
or required for the performance by the Conseco Parties or any of their
Affiliates of any of their respective obligations under this Agreement or any of
the Ancillary Agreements, (iv) to the extent such information is generally
available to, or known by, the public or otherwise has entered the public domain
(other than as a result of disclosure in violation of this Section 5.10(a) by
the Conseco Parties or any of their Affiliates), (v) as, and to the extent,
necessary or required by any applicable Law, accounting regulation or
Governmental Entity or any disclosure obligation promulgated thereunder or
thereby, subject to Section 5.10(d), and (vi) as, and to the extent, necessary
or required or reasonably appropriate in connection with the enforcement of any
right or remedy against Trust or CSHI relating to this Agreement or any of the
Ancillary Agreements.
(b) Trust shall not, and Trust shall cause its Affiliates
(including CSHI following the Closing) and their respective controlled agents
and representatives not to, at any time from and after the date of this
Agreement, directly or indirectly, disclose or use any confidential or
proprietary information involving or relating to the Conseco Parties or any of
their Affiliates (excluding CSHI) obtained by Trust or any of its Affiliates in
connection with the transactions contemplated under this Agreement; provided,
however, that disclosure and use of any such information shall be permitted (i)
with the prior written consent of the Conseco Parties or any of their
Affiliates, as applicable (which consent shall not be unreasonably withheld),
(ii) as, and to the extent, expressly permitted by this Agreement or any of the
Ancillary Agreements, (iii) as, and solely to the extent, necessary or required
for the performance by Trust or any of its Affiliates of any of their respective
obligations under this Agreement or any of the Ancillary Agreements, (iv) to the
extent such information is generally available to, or known by, the public or
otherwise has entered the public domain (other than as a result of disclosure in
violation of this Section 5.10(b) by Trust or its Affiliates), (v) as, and to
the extent, necessary or required by any applicable Law, accounting regulation
or Governmental Entity or any disclosure obligation promulgated thereunder or
thereby, subject to Section 5.10(d), and (vi) as, and to the extent, necessary
or required or reasonably appropriate in connection with the enforcement of any
right or remedy relating to this Agreement or any of the Ancillary Agreements.
(c) Each party shall implement policies and procedures that are
reasonably designed to ensure compliance by each such party's trustees,
directors, officers, employees, agents and representatives with the requirements
of this Section 5.10.
(d) In the event that a party is required by any applicable Law
or Governmental Entity to disclose any confidential or proprietary information
of another party hereto that is subject to the restrictions under this Section
5.10 (other than to meet any disclosure requirements imposed by securities or
insurance Laws or accounting regulations), such party shall (i) notify such
other party in writing as soon as possible, unless it is otherwise affirmatively
prohibited by such applicable Law or Governmental Entity, (ii) cooperate with
such other party so that the other party may seek a protective order or other
appropriate remedy or, if such protective order or other remedy is not sought or
obtained, to preserve the confidentiality of such confidential or proprietary
information consistent with the requirements of such applicable Law or
Governmental Entity and (iii) use its reasonable best efforts to limit any
disclosure to the
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minimum disclosure necessary or required to comply with such applicable Law or
Governmental Entity, in each case, at the cost and expense of such other party.
(e) Nothing in this Section 5.10 shall prohibit a party from
keeping or maintaining any copies of any records, documents or other information
that may contain information that is otherwise subject to the requirements of
this Section 5.10, subject to its compliance with this Section 5.10.
(f) Each party shall be responsible for any breach or violation
of the requirements of this Section 5.10, as it applies to such party, by any of
its controlled agents or representatives.
Section 5.11 Separation Transactions. Prior to the Closing Date,
Conseco Parties shall, and shall cause CSHI and its other Affiliates, as
applicable, to, use commercially reasonable efforts to enter into those
separation transactions set forth in Exhibit A hereto (the "Separation
Transactions").
Section 5.12 Insurance Coverage.
(a) Until the Closing Date, the Conseco Parties shall (i) cause
CSHI to continue to participate in an insurance program which is not materially
less favorable to CSHI, in the aggregate, than the insurance program that CSHI
participates in as of the date hereof, except to the extent that such changes
are applicable to the Conseco Parties and their Affiliates generally, and (ii)
will permit CSHI to submit claims (other than claims relating to that portion of
CSHI's business to be assigned pursuant to the Assignment Agreement) arising
from or relating to facts, circumstances, events or matters that occurred at or
prior to the Closing to the extent permitted under such Policies.
(b) Subject to the provisions of this Section 5.12, coverage of
CSHI under all Policies shall cease as of the Closing. From and after the
Closing, CSHI will be responsible for obtaining and maintaining all insurance
coverages in its own right. The Conseco Parties agree to use their reasonable
best efforts to assist and cooperate with CSHI to obtain replacement insurance
coverage for CSHI on an independent basis as of the Closing Date; provided,
however, that the costs of any such replacement insurance coverage shall be
borne by CSHI or Trust. All Policies will be retained by the Conseco Parties and
their Affiliates, together with all rights, benefits and privileges thereunder
(including the right to receive any and all return premiums with respect
thereto), except that CSHI will have the rights in respect of the Policies to
the extent set forth in Section 5.12(c).
(c) From and after the Closing, (i) CSHI will have the right to
assert claims (and the Conseco Parties will, and will cause their Affiliates to,
use reasonable best efforts to assist CSHI in asserting claims if so requested)
for any loss, liability or damage with respect to the Long-Term Care Business
under Shared Policies with third party insurers that are "occurrence basis"
insurance policies ("Occurrence Basis Policies") arising out of insured
incidents occurring from the date coverage thereunder first commenced until the
Closing to the extent that the terms and conditions of any such Occurrence Basis
Policies and agreements relating thereto so allow; (ii) CSHI will have the right
to continue to prosecute claims with
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respect to the Business properly asserted with the insurer prior to the Closing
(and the Conseco Parties will, and will cause their Affiliates to, use
reasonable best efforts to assist CSHI in connection therewith if so requested)
under Shared Policies with third party insurers that are insurance policies
written on a "claims made" basis ("Claims Made Policies") arising out of insured
incidents occurring from the date coverage thereunder first commenced until the
Closing to the extent that the terms and conditions of any such Claims Made
Policies and agreements relating thereto so allow; (iii) with respect to Shared
Policies, the Conseco Parties shall request that the underwriters or claims
administrators under such policies provide CSHI with detailed loss information
with respect to the Long-Term Care Business to the extent required to complete
future renewal negotiations and actuarial reviews of CSHI, in the case of each
of clause (i) and (ii), at no greater cost to CSHI than that charged to the
Conseco Parties for comparable services; and (iv) to the extent that any of the
Conseco Parties are able to keep CSHI as named insureds under Claims Made
Policies at no expense or other cost (financial or otherwise) to any of the
Conseco Parties or any of their respective Affiliates, which the Conseco Parties
shall use their reasonable best efforts to do, and to the extent permitted by
such Claims Made Policies, CSHI may prosecute claims with respect to the
Long-Term Care Business under such Claims Made Policy arising out of insured
incidents occurring from the date of coverage thereunder first commenced until
the Closing to the extent that the terms and conditions of any such Claims Made
Policies and agreements relating thereto so allow; provided, that in the case of
clauses (i) through (iv) , (A) the Conseco Parties' and their Affiliates'
reasonable costs and expenses incurred in connection with the foregoing are
promptly paid by CSHI or Trust, (B) the Conseco Parties may, at any time,
without liability or obligation to CSHI or Trust (other than as set forth in
Section 5.12(d)) , amend, commute, terminate, buy-out, extinguish liability
under or otherwise modify any Occurrence Basis Policies or Claims Made Policies
(and such claims shall be subject to any such amendments, commutations,
terminations, buy-outs, extinguishments and modifications), (C) such claims will
be subject to (and recovery thereon will be reduced by the amount of) any
applicable deductibles, retentions or self-insurance provisions, (D) such claims
will be subject to (and recovery thereon will be reduced by the amount of) any
payment or reimbursement obligations of the Conseco Parties, or any Affiliate of
the Conseco Parties in respect thereof and (E) such claims will be subject to
exhaustion of existing sublimits and aggregate limits. The Conseco Parties'
obligation to use reasonable best efforts to assist CSHI in asserting claims
under applicable Shared Policies will include using reasonable best efforts in
assisting CSHI to establish their right to coverage under such Shared Policies
(so long as all of Conseco Parties' reasonable out-of-pocket costs and expenses
in connection therewith are promptly paid by CSHI or Trust). None of the Conseco
Parties or the Affiliates of the Conseco Parties will bear any Liability for the
failure of an insurer to pay any claim under any Shared Policy. It is understood
that except to the extent the Conseco Parties are able to keep CSHI as named
insureds under Claims Made Policies as provided in, and subject to the terms and
conditions of, clause (iv) , any Claims Made Policies will not provide any
coverage to CSHI for incidents occurring prior to the Closing but that are
asserted with the insurance carrier after the Closing.
(d) In the event that after the Closing the Conseco Parties or
any of their Affiliates propose to amend, commute, terminate, buy-out,
extinguish liability under or otherwise modify any Shared Policies under which
CSHI has or may in the future have rights to assert claims pursuant to Section
5.12(c) in a manner that would adversely affect any such rights of CSHI, (i) the
Conseco Parties will give CSHI at least 30 days' prior notice thereof and will
32
consult with CSHI with respect to such action (it being understood that the
decision to take any such action will be in the sole discretion of the Conseco
Parties or their Affiliates, as applicable) and (ii) the Conseco Parties will
pay to CSHI their equitable share (which shall be mutually agreed upon by the
Conseco Parties and CSHI, acting reasonably, based on the amount of premiums
paid by or allocated to the Business in respect of the applicable Shared
Policy), if any, of any net proceeds actually received by the Conseco Parties or
their Affiliates from the insurer under the applicable Shared Policy as a result
of such action (after deducting the Conseco Parties' reasonable costs and
expenses incurred in connection with such action).
(e) From and after the Closing:
(i) the Conseco Parties or one of their Affiliates, as
appropriate, will be responsible for the Claims Administration with
respect to claims of the Conseco Parties and their Affiliates under
Shared Policies; and
(ii) CSHI will be responsible for the Claims Administration
with respect to claims of CSHI under Shared Policies.
(f) From and after the Closing, the Conseco Parties will pay all
premiums, taxes, assessments or similar charges (retrospectively-rated or
otherwise) as required under the terms and conditions of the respective Shared
Policies in respect of periods prior to the Closing, whereupon CSHI will upon
the request of the Conseco Parties, promptly reimburse the Conseco Parties for
that portion of such premiums and other payments paid by the Conseco Parties
attributable to CSHI.
(g) In the event that a Shared Policy provides coverage for both
the Conseco Parties and/or one of their Affiliates, on the one hand, and CSHI,
on the other hand, relating to the same occurrence, the Conseco Parties agrees
and Trust agrees to cause CSHI to defend jointly and to waive any conflict of
interest necessary to the conduct of that joint defense.
(h) To the extent that any of the Conseco Parties or their
Affiliates or Trust is responsible for Claims Administration for any claims
under any Shared Policies after the Closing, it shall use its (or cause such
Affiliate to use its, as applicable) reasonable best efforts to mitigate the
amount of any settlements of such claims.
(i) From and after the Closing, to the extent that any directors
and officers liability insurance policies are maintained by the Conseco Parties
or their Affiliates, the Conseco Parties shall not, and shall cause their
respective Affiliates not to, take any action on their own initiative which
would limit the coverage of the individuals who acted as directors and officers
of CSHI during the period in which it was an Affiliate of the Conseco Parties
under any directors and officers liability insurance policies maintained by the
Conseco Parties or their Affiliates in a manner which limits or otherwise
materially adversely affects their coverage under such policies
disproportionately to the treatment of other former directors and officers of
the Conseco Parties and their Affiliates under such policies. The Conseco
Parties shall, and shall cause their respective Affiliates to, reasonably
cooperate with the individuals who acted as directors and officers of CSHI
during the period in which it was an Affiliate of the Conseco Parties in their
pursuit of any coverage claims under such policies which could inure to the
33
benefit of such individuals. The Conseco Parties shall and shall cause their
respective Affiliates to allow CSHI and its agents and representatives, upon
reasonable prior notice and during regular business hours, to examine and make
copies of the relevant directors and officers liability insurance policies
maintained by the Conseco Parties or their Affiliates pursuant to this Section
5.12(i); it being understood that such access shall be subject to Section 5.10
and that the Conseco Parties shall be permitted to redact the financial terms
(including premium rates) and any other provisions of such policies that are
clearly inapplicable to the individuals who acted as directors and officers of
CSHI during the period in which it was an Affiliate of the Conseco Parties prior
to providing them, or causing them to be provided to, CSHI or its agents or
representatives.
Section 5.13 Bank Accounts.
(a) Prior to the Closing Date or as promptly as practicable
thereafter, the Conseco Parties shall, and shall cause their Affiliates to,
change, effective as of the Closing, the individuals authorized to draw on or
having access to the bank, savings, deposit or custodial accounts and safe
deposit boxes maintained in the name of CSHI, other than those accounts to be
maintained by Conseco Insurance Company pursuant to the Assignment Agreement, to
the individuals designated in writing by Trust at least ten (10) Business Day
prior to the Closing Date.
(b) The Conseco Parties shall, and shall cause their Affiliates
to, take all actions necessary to amend all contracts governing each bank or
brokerage account owned by CSHI so that such accounts if currently linked
(whether by automatic withdrawal, automatic deposit, or pursuant to any other
authorization to transfer funds from or to another account) to any bank or
brokerage account owned by the Conseco Parties or their Affiliates (other than
CSHI) is de-linked from such accounts as of the Closing.
Section 5.14 Termination of Intercompany Agreements. Except as set
forth in Schedule 5.14 and except for this Agreement and the Ancillary
Agreements, Conseco Parties will cause all contracts or agreements set forth in
Schedule 3.08 to be terminated effective as of the Closing.
Section 5.15 Intercompany Accounts. Except (a) as set forth in
Schedule 5.15(a), (b) the receivables or payables arising under the Transfer
Agreement and the Ancillary Agreements or the transactions contemplated hereby
or thereby and (c) the Trade Payables, Conseco Parties will cause all
intercompany receivables, payables and loans between CSHI, on one hand, and
Conseco Parties or one of their Affiliates, on the other hand, to be settled in
full or otherwise satisfied as of the Closing, including the complete settlement
of all agent commissions due to American Life and Casualty Marketing Division
Co. Except as set forth in Schedule 5.15(b), all Trade Payables shall be
promptly paid when due without alteration by reason of the transactions
contemplated by this Agreement.
Section 5.16 Books and Records. Conseco Parties shall cause all Books
and Records that are not already owned by or in the control of CSHI to be
transferred to CSHI at the Closing and shall cause the Books and Records to be
owned by CSHI as of the Closing. From and after the Closing, all Books and
Records shall be the property of CSHI. For the avoidance of
34
doubt, Conseco Parties and their Affiliates shall be entitled to retain copies
of the Books and Records subject to the to the terms of this Agreement.
Section 5.17 Pre-Closing Transfers. Subject to the receipt of any
required third party consents or approvals, Conseco Parties shall, or shall
cause their Affiliates to, transfer or assign for no consideration all
Contributed Assets and Assigned Contracts owned by, or in the name of, such
Person to CSHI at, or prior to, the Closing and shall cause such Contributed
Assets or Assigned Contracts to be owned by, or in the name of, CSHI as of the
Closing. In the event that any third party consents or approvals required in
order to transfer or assign the Contributed Assets or Assigned Contracts is not
received prior to the Closing, such Contributed Assets or Assigned Contracts
shall be subject to Section 2.05. To the extent that the Conseco Parties and
Trust agree in good faith that it would be appropriate to transfer or assign any
asset currently owned by CSHI to the Conseco Parties or their Affiliates at or
prior to the Closing, the Conseco Parties shall cause CSHI to transfer or assign
such assets to the Conseco Parties or their Affiliates, in exchange for the fair
market value of such assets, as to be agreed upon in good faith by the Conseco
Parties and Trust.
Section 5.18 Merger Transaction. Following receipt of any required
approval of the transactions contemplated hereby by the Pennsylvania Insurance
Department, but prior to the Closing, the Trust shall engage in a merger
transaction (the "Merger") with another business trust formed solely for the
purpose of effecting the Merger and, assuming approval of the Pennsylvania
Insurance Department, engaging in the transactions contemplated by this
Agreement. Following the Merger, all references to the Trust herein or in any of
the Ancillary Agreements shall be deemed to refer to the entity surviving the
Merger. As a result of the Merger, as of the Closing, (i) the sole trustees of
the Trust shall be those persons identified in Exhibit L hereto, or, if those
persons are unwilling to serve for any reason, such other persons as shall be
mutually acceptable to the Pennsylvania Insurance Department and the Conseco
Parties, (ii) the name of the Trust shall be Senior Health Care Oversight Trust,
(iii) the agreement governing the Trust shall be substantially as set forth in
the Trust Agreement attached as Exhibit M hereto (the "Trust Agreement") and
(iv) the sole beneficiary of the Trust shall remain unchanged as a result of the
Merger.
Section 5.19 Transfers to the Trust. The Conseco Parties shall cause
cash or cash equivalents in an aggregate amount of eleven million dollars
($11,000,000) to be transferred to Trust, which shall consist of (a) one million
dollars ($1,000,000) in cash or cash equivalents on the Closing Date to serve as
a base level of working capital in support of the operations of the Trust (the
"Base Amount of Working Capital") and (b) ten million dollars ($10,000,000) in
cash or cash equivalents to be used to assist Trust in meeting the operating and
incidental expenses of the Trust (the "CNO Expense Advancement"), which shall be
transferred to Trust on the Closing Date. On the date that is four years
following the Closing Date, Trust shall cause any remaining funds from the CNO
Expense Advancement that have not been used to fund the operating and incidental
expenses of Trust incurred prior to such date to be contributed to CSHI.
Section 5.20 Regulatory Settlement Agreement. Until such time as the
policies and procedures necessary for CSHI to comply with the Regulatory
Settlement Agreement have been implemented, the Conseco Parties shall, at the
request of CSHI, use their reasonable best
35
efforts to assist CSHI in implementing such policies or procedures. All costs
and expenses associated with such assistance and implementation shall be borne
by CSHI.
Section 5.21 Investment Assets. The Conseco Parties shall cause the
investment assets owned by CSHI as of the Closing Date to consist of investment
assets that comply with the investment guidelines set forth in Schedule 5.21.
Section 5.22 Solicitation. Except as provided for in the Employee
Matters Agreement, for a period of three years after the Closing Date, neither
the Conseco Parties or their Affiliates nor Trust or its Affiliate shall,
without the prior written consent of the other parties to this Agreement,
directly or indirectly induce any current or former employees of any such other
party to leave their employment relationship with such other party; provided,
however, that this Section 5.22 shall not preclude the parties or their
respective Affiliates from hiring such an employee who, at the time of such
hiring, has not been employed by such other party for a period of at least six
months.
Section 5.23 Separation and Transition Matters Agreement. Prior to the
Closing, the Conseco Parties and Trust shall cooperate with each other in
preparing and finalizing the terms and conditions of the Separation and
Transition Matters Agreement (and any schedules or exhibits thereto). At the
Closing, the Conseco Parties and CSHI shall execute a Separation and Transition
Matters Agreement incorporating the terms and conditions set forth in Exhibit H,
with such changes thereto as the parties may mutually agree.
Section 5.24 Employee Matters Agreement. Prior to the Closing, the
Conseco Parties and Trust shall cooperate with each other in preparing and
finalizing the terms and conditions of the Employee Matters Agreement (and any
schedules or exhibits thereto). At the Closing, the Conseco Parties and CSHI
shall execute and deliver an Employee Matters Agreement incorporating the terms
and conditions set forth in Exhibit K, with such changes thereto as the parties
may mutually agree.
Section 5.25 Intellectual Property Licenses.
(a) Effective as of the Closing Date, the Conseco Parties hereby
grant to CSHI a perpetual, non-exclusive, fully paid-up, non-transferable,
non-sublicensable (except as set forth herein), limited license to use,
reproduce, perform, display, create derivative works of, the Conseco Shared
Intellectual Property in connection with the Long Term Care Business. Such
license shall be "as is" "where is" without any representation or warranty of
any kind by the Conseco Parties, whether express or implied, including, without
limitation, the implied warranties of fitness for a particular purpose,
completeness, title, non-infringement or merchantability. Notwithstanding the
foregoing, nothing in this Section 5.25 shall be deemed to limit or expand the
representations and warranties in Section 3.17 of this Agreement. The Conseco
Shared Intellectual Property shall be deemed confidential information under
Section 5.10 of this Agreement. Upon CSHI's written request, to the extent that
any such Conseco Shared Intellectual Property is not in CSHI's possession as of
the Closing Date, the Conseco Parties shall deliver copies of the Conseco Shared
Intellectual Property to CSHI, provided that the Conseco Parties shall not be
obligated to alter the format or content of any such Conseco Shared Intellectual
Property or to create any supporting documentation therefor.
36
CSHI may not lease, loan, resell, sublicense, give or otherwise distribute the
Conseco Shared Intellectual Property to any other Person except (i) to CSHI's
Affiliates in connection with an internal reorganization of CSHI, (b) in
connection with a sale by CSHI of all or substantially all of the assets
pertaining to the Long Term Care Business (provided that such Persons agree to
the conditions set forth in this Section 5.25), or (c) to employees and
contractors of CSHI who are using such Conseco Shared Intellectual Property to
provide services to or on behalf of CSHI, provided that such employees and
contractors are bound by obligations of confidentiality that are no less
protective of the Conseco Parties' rights as set forth in this Agreement.
(b) Effective as of the Closing Date, CSHI hereby grants to the
Conseco Parties a perpetual, non-exclusive, fully paid-up, non-transferable,
non-sublicensable (except as set forth herein), limited license to use,
reproduce, perform, display, create derivative works of, the CSHI Shared
Intellectual Property in connection with the business of the Conseco Parties.
Such license shall be "as is" "where is" without any representation or warranty
of any kind by CSHI, whether express or implied, including, without limitation,
the implied warranties of fitness for a particular purpose, completeness, title,
non-infringement or merchantability. The CSHI Shared Intellectual Property shall
be deemed confidential information under Section 5.10 of this Agreement. Upon
the Conseco Parties' written request, to the extent that any such CSHI Shared
Intellectual Property is not in the Conseco Parties' possession as of the
Closing Date, the CSHI shall deliver copies of the CSHI Shared Intellectual
Property to the Conseco Parties, provided that CSHI shall not be obligated to
alter the format or content of any such CSHI Shared Intellectual Property or to
create any supporting documentation therefor. The Conseco Parties may not lease,
loan, resell, sublicense, give or otherwise distribute the CSHI Shared
Intellectual Property to any other Person except (i) to the Conseco Parties'
Affiliates in connection with an internal reorganization of any Conseco Party,
(b) in connection with a sale by any Conseco Party of all or substantially all
of the assets of such Conseco Party (provided that such Persons agree to the
conditions set forth in this Section 5.25), or (c) to employees and contractors
of the Conseco Parties who are using such CSHI Shared Intellectual Property to
provide services to or on behalf of the Conseco Parties, provided that such
employees and contractors are bound by obligations of confidentiality that are
no less protective of CSHI's rights as set forth in this Agreement.
Section 5.26 Subleases. Prior to the Closing, the Conseco Parties and
Trust shall cooperate with each other in preparing and finalizing the terms and
conditions of two subleases (and any schedules or exhibits thereto) (the
"Subleases"), which shall provide for the sublease of an amount of office space
to be agreed upon among the parties to CSHI for a period of time not to exceed
six months from the Closing Date at each of the following locations: (a) 11825K
N. Pennsylvania Street, Carmel, IN 46032; and (b) 600 West Chicago Avenue,
Chicago, IL 60610. The Subleases shall provide for rent and other economic terms
that represent a proportionate pass-through of costs, as well as certain other
customary terms and conditions for a sublease in a transaction of this type.
Section 5.27 Schedules. Prior to the Closing, the Conseco Parties
shall supplement or amend the Schedules to this Agreement with respect to any
material matter hereafter discovered the failure of which to be set forth or
described in such schedule would have resulted in a breach of the relevant
representation or warranty of the Conseco Parties; provided, however, that for
purposes of the rights and obligations of Trust under Article VI, any such
37
supplemental or amended disclosure by the Conseco Parties shall not be deemed to
have been disclosed as of the date hereof, unless so agreed to in writing by
Trust.
ARTICLE VI
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF TRUST
------------------------------------------------
The obligations of Trust under this Agreement are subject to the
satisfaction on or prior to the Closing Date of the following conditions, any
one or more of which may be waived by Trust to the extent permitted by Law:
Section 6.01 Representations and Covenants.
(a) The representations and warranties of the Conseco Parties set
forth in Article III shall be true and correct in all material respects (except
those that are qualified as to materiality, which shall be true and correct in
all respects) on the date hereof and as of the Closing Date as though made on
and as of the Closing Date; provided, however, that, with respect to the
foregoing, representations and warranties that are given as of a particular date
shall be true and correct (in the manner set forth above) only as of such date.
(b) Each of the Conseco Parties shall have performed or complied
with each obligation, covenant, agreement and condition required to be performed
by it under this Agreement at or prior to the Closing that is qualified as to
materiality and shall have performed or complied in all material respects with
each other obligation, covenant, agreement and condition required to be
performed by it under this Agreement at or prior to the Closing.
(c) On the Closing Date, the Conseco Parties shall have delivered
to the Trust a certificate dated as of the Closing Date and signed by an
executive officer of each of the Conseco Parties, as to the matters set forth in
this Section 6.01.
Section 6.02 Payment Obligations. On or prior to the Closing Date, the
Conseco Parties shall have performed all actions contemplated by Sections 2.02
and 5.19 hereof, other than those actions which by their terms are to take place
following the Closing Date.
Section 6.03 Other Agreements. The Separation and Transition Matters
Agreement and the Employee Matters Agreement shall be satisfactory in form and
substance to Trust and each of the Ancillary Agreements have been duly executed
and delivered by the parties thereto other than Trust on the Closing Date and,
subject to due execution and delivery by Trust, as applicable, each of such
agreements shall be in full force and effect on the Closing Date.
Section 6.04 Assignment Agreement. The Transfer and Assumption (as
defined in the Assignment Agreement) shall have occurred in accordance with the
terms of the Assignment Agreement.
Section 6.05 Governmental and Regulatory Consents and Approvals. All
filings required to be made prior to the Closing Date with, and all consents,
approvals, Permits and authorizations required to be obtained prior to the
Closing Date from, Governmental Entities, including those set forth on Schedules
3.05(a) and 4.04(a) hereto, in connection with the
38
execution and delivery of this Agreement and the Ancillary Agreements and the
consummation of the transactions contemplated hereby and thereby, shall have
been made or obtained without the imposition of a Negative Condition.
Section 6.06 Third Party Consents. All consents or waivers of third
parties (other than Governmental Entities) to the consummation of the
transactions contemplated by this Agreement shall have been obtained, other than
with respect to those that, if not obtained, would not have a material adverse
effect on the business, financial condition or results of operations of CSHI.
Section 6.07 No Injunctions or Restraints. No temporary restraining
order, preliminary or permanent injunction or other order or decree shall be
pending, threatened or issued by any Governmental Entity nor shall any other
legal restraint or prohibition preventing, restricting or which is reasonably
likely to prevent or restrict the consummation of any of the transactions
contemplated hereby be in effect, pending or threatened in writing.
Section 6.08 Resignation of Officers and Directors. Trust shall have
received the written resignation, effective as of the Closing, of each officer
or director of CSHI who will not be an officer or director of CSHI immediately
following the Closing.
Section 6.09 Viability. Nothing shall have come to the attention of
Trust that shall cause Trust not to be satisfied, in its sole discretion, as to
the viability from a business, financial, regulatory and operational perspective
of CSHI from and after the Closing, including the ability of CSHI to satisfy all
obligations to its policyholders under a reasonable set of scenarios.
Section 6.10 Separation Transactions. Conseco Parties and/or CSHI, as
applicable, shall have entered into the Separation Transactions on terms
reasonably acceptable to Trust.
ARTICLE VII
CONDITIONS PRECEDENT TO THE OBLIGATIONS
---------------------------------------
OF THE CONSECO PARTIES
----------------------
The obligations of the Conseco Parties under this Agreement are
subject to the satisfaction on or prior to the Closing Date of the following
conditions, any one or more of which may be waived by the Conseco Parties to the
extent permitted by Law:
Section 7.01 Representations and Covenants.
(a) The representations and warranties of Trust set forth in
Article IV shall be true and correct in all material respects (except those that
are qualified as to materiality, which shall be true and correct in all
respects) on the date hereof and as of the Closing Date as though made on and as
of the Closing Date; provided, however, that, with respect to the foregoing,
representations and warranties that are given as of a particular date shall be
true and correct (in the manner set forth above) only as of such date.
39
(b) Trust shall have performed or complied with each obligation,
covenant, agreement and condition required to be performed by it under this
Agreement at or prior to the Closing that is qualified as to materiality and
shall have performed or complied in all material respects with each other
obligation, covenant, agreement and condition required to be performed by it
under this Agreement at or prior to the Closing.
Section 7.02 Other Agreements. The Separation and Transition Matters
Agreement and the Employee Matters Agreement shall be satisfactory in form and
substance to the Conseco Parties and each of the Ancillary Agreements have been
duly executed and delivered by the parties thereto other than the Conseco
Parties and their Affiliates on the Closing Date and, subject to due execution
and delivery by the Conseco Parties and their Affiliates, as applicable, each of
such agreements shall be in full force and effect on the Closing Date.
Section 7.03 Governmental and Regulatory Consents and Approvals. All
filings required to be made prior to the Closing Date with, and all consents,
approvals, Permits and authorizations required to be obtained prior to the
Closing Date from, Governmental Entities, including those set forth on Schedules
3.05(a) and 4.04(a) hereto, in connection with the execution and delivery of
this Agreement and the Ancillary Agreements and the consummation of the
transactions contemplated hereby and thereby, shall have been made or obtained
without the imposition of a Negative Condition.
Section 7.04 Third Party Consents. All consents or waivers of third
parties (other than Governmental Entities) to the consummation of the
transactions contemplated by this Agreement shall have been obtained, other than
with respect to those that, if not obtained, would not have a material adverse
effect on the business, financial condition or results of operations of the
Conseco Parties.
Section 7.05 No Injunctions or Restraints. No temporary restraining
order, preliminary or permanent injunction or other order or decree shall be
pending, threatened or issued by any Governmental Entity nor shall any other
legal restraint or prohibition preventing, restricting or which is reasonably
likely to prevent or restrict the consummation of any of the transactions
contemplated hereby be in effect, pending or threatened in writing.
Section 7.06 Separation Transactions. The Conseco Parties and/or CSHI
shall have entered into the Separation Transactions on terms reasonably
acceptable to the Conseco Parties.
Section 7.07 Merger Agreement. The Merger as contemplated by Section
5.18 shall be effective and the other provisions of such Section 5.18 shall have
been implemented.
ARTICLE VIII
FURTHER AGREEMENTS
------------------
Section 8.01 Access to Books and Records.
(a) For a period of five years following the Closing Date (and
upon reasonable request thereafter), Trust shall afford, and shall cause its
Affiliates to afford, to the
40
Conseco Parties and any of their Affiliates, their counsel and their
accountants, during normal business hours, the right (subject to applicable Law
and excluding records subject to attorney client privilege) to examine and make
copies of the Books and Records to the extent that such access may be reasonably
required by the Conseco Parties or any of their Affiliates in connection with
(i) the preparation of financial statements, (ii) responding to regulatory
inquiries or other regulatory purposes, (iii) the preparation of tax returns or
in connection with any audit, amended return, claim for refund or any proceeding
with respect thereto, (iv) the investigation, arbitration, litigation and final
disposition of any claims which may have been or may be made against the Conseco
Parties or their Affiliates or which the Conseco Parties or their Affiliates may
make (v) the administration of the Existing Litigation relating to the Long-Term
Care Business or (vi) any other reasonable business purpose. The Conseco Parties
and their Affiliates shall have the right to duplicate all Books and Records of
CSHI. Trust shall not, and shall cause its Affiliates to not, dispose of, alter
or destroy any such Books and Records and other materials other than in
accordance with CSHI's books and records retention policy as may be in effect
from time to time, but in no event will Trust dispose of, alter or destroy any
such Books and Records and other materials prior to the seventh anniversary of
the Closing (or such longer period as reasonably requested by the Conseco
Parties with respect to open tax examinations).
(b) For a period of five years following the Closing Date (and
upon reasonable request thereafter), the Conseco Parties shall afford, and shall
cause their Affiliates to afford, to Trust and any of its Affiliates, counsel
and accountants, during normal business hours, the right (subject to applicable
Law and excluding records subject to attorney client privilege) to examine and
make copies of any books and records retained by the Conseco Parties relating to
CSHI to the extent that such access may be reasonably required by Trust or any
of its Affiliates in connection with (i) the preparation of financial
statements, (ii) responding to regulatory inquiries or other regulatory
purposes, (iii) the preparation of tax returns or in connection with any audit,
amended return, claim for refund or any proceedings with respect thereto, (iv)
the investigation, arbitration, litigation and final disposition of any claims
which may have been or may be made against Trust or its Affiliates or which
Trust or its Affiliates may make or (v) any other reasonable business purpose.
Trust and its Affiliates shall have the right to duplicate any books and records
retained by the Conseco Parties relating CSHI. The Conseco Parties shall not,
and shall cause their Affiliates to not, dispose of, alter or destroy any such
books and records and other materials other than in accordance with their
respective books and records retention policy as may be in effect from time to
time, but in no event will the Conseco Parties dispose of, alter or destroy any
such books and records and other materials prior to the seventh anniversary of
the Closing (or such longer period as reasonably requested by Trust with respect
to open tax examinations).
Section 8.02 Production of Witnesses.
(a) Subject to Section 8.01, after Closing, each of the Conseco
Parties will, and will cause each of its Affiliates to, use reasonable best
efforts to make available to Trust and its Affiliates, upon written request and
at the cost and expense of Trust, its directors, officers, employees and, to the
extent reasonably practicable, agents as witnesses to the extent that any such
Person may reasonably be required (giving consideration to business demands of
such directors, officers, employees and agents) in connection with any Actions
or other proceedings in which Trust or its Affiliates may from time to time be
involved, provided that the same shall not
41
unreasonably interfere with the conduct of business of the party or the party's
Affiliate, as applicable, of which the request is made.
(b) Subject to Section 8.01, after Closing, Trust will cause CSHI
to use reasonable best efforts to make available to the Conseco Parties and
their Affiliates, upon written request and at the cost and expense of the
Conseco Parties, its directors, officers, employees and, to the extent
reasonably practicable, agents as witnesses to the extent that any such Person
may reasonably be required (giving consideration to business demands of such
directors, officers, employees and agents) in connection with any Actions or
other proceedings in which the Conseco Parties or their Affiliates may from time
to time be involved, provided that the same shall not unreasonably interfere
with the conduct of business of CSHI.
Section 8.03 No Other Representations. Trust acknowledges that none of
the Conseco Parties, their Affiliates, nor any employee, officer, director,
representative or advisor of any of them makes or has made any representation or
warranty to Trust except as specifically made in this Agreement or any Ancillary
Agreement to which it is a party. Conseco Parties acknowledge that neither
Trust, nor any of its trustees, representatives or advisors, makes or has made
any representation or warranty to the Conseco Parties except as specifically
made in this Agreement or any Ancillary Agreement to which it is a party.
Section 8.04 Use of Names.
(a) Notwithstanding any inference contained herein or prior
course of conduct to the contrary, and except as contemplated by the LTC
Administrative Services Agreements, the Assignment Agreement or the Separation
and Transition Matters Agreement, in no event shall Trust or any of its
Affiliates have any right to use any corporate name or acronym of the Conseco
Parties or any of their Affiliates (other than CSHI) in any jurisdiction, or any
registered or unregistered trademark, trade name, service mark, domain name or
URL or any application or registration therefor, owned by, licensed to or used
by the Conseco Parties or any of their Affiliates (other than CSHI) or any other
name or mark that is otherwise confusing due to its similarity to any of the
foregoing.
(b) From the date hereof through the Closing Date, the Conseco
Parties shall, and shall cause CSHI to, take all necessary and appropriate
actions, including filing appropriate documents in connection with the name
change request in the relevant states as soon as practicable following the date
hereof, to change the name of CSHI in all jurisdictions in which it does
business to "Senior Health Insurance Company of Pennsylvania" (or such other
name as may be approved by the Pennsylvania Insurance Department, provided that
such name does not contain the word "Conseco" or any variations thereof), with
such name changes to take effect from the Closing, subject to any required
consents and approvals of any Governmental Entities. To the extent that any such
consents or approvals are not received on or prior to Closing, Trust shall, and
shall cause CSHI to, take all necessary and appropriate actions, including
filing appropriate documents in connection with the name change request in any
states in which such filings have not yet been made, as soon as practicable
following the Closing Date in order to change the name of CSHI as soon as
reasonably practicable thereafter (in each case to the extent permissible under
applicable Law). The Conseco Parties will, at its own expense, fully
42
cooperate with and assist CSHI and Trust in making all such required filings in
connection with name change contemplated by this Section 8.04(b).
(c) From and after the Closing, Trust shall not, and shall cause
its Affiliates not to, in each case except to the extent any required consent or
approval of any Governmental Entity required to change such name has not yet
been received (or the use of such name has been required by any Governmental
Entity), use the term "Conseco" or any variations thereof in their corporate
names at anytime thereafter. Trust shall consult with the Conseco Parties in
connection with any limitation or condition being proposed by any Governmental
Entity in connection with the name changes contemplated by this Section 8.04.
Section 8.05 Existing Litigation . The Conseco Parties shall, or shall
cause one or more of their Affiliates, to assume all Existing Litigation related
to the Long-Term Care Business, and Trust shall cause CSHI to provide all
assistance reasonably requested by the Conseco Parties and their Affiliates in
connection with their administration of such litigation, including actions to
substitute named parties to the such litigation. As consideration for the
assumption of all Existing Litigation related to the Long-Term Care Business by
the Conseco Parties or one or more of their Affiliates, CSHI shall transfer to
the Conseco Parties at Closing cash or cash equivalents in an amount equal to
the reserves related to such litigation reflected on CSHI's Quarterly Financial
Statement dated as of June 30, 2008, with any changes to such reserve amount
prior to Closing determined in the ordinary course consistent with past
practices.
ARTICLE IX
SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS
-----------------------------------------------------
Section 9.01 Survival of Representations, Warranties and Covenants.
(a) All representations and warranties contained in this
Agreement shall not survive the Closing and shall terminate and expire as of the
Closing Date; provided that the representations and warranties contained in
Sections 3.01, 3.02 and 3.03 and Sections 4.01 and 4.02 shall survive
indefinitely or until the latest date permitted by applicable Law.
(b) All covenants and agreements made by the parties to this
Agreement that contemplate performance following the Closing Date shall survive
the Closing Date indefinitely or until the latest date permitted by applicable
Law. All other covenants and agreements shall not survive the Closing Date and
shall terminate and expire as of the Closing Date.
(c) Notwithstanding Sections 9.01(a) and 9.01(b), any
representation, warranty, covenant or agreement that survives the Closing and in
respect of which indemnity may be sought under this Agreement shall survive the
time at which it would otherwise terminate pursuant to Sections 9.01(a) or
9.01(b), if (a) notice of the inaccuracy or breach thereof giving rise to such
right of indemnity shall have been given to the party against whom such
indemnity may be sought prior to such time, stating in reasonable detail the
basis for the claim, and (b) the party seeking indemnification hereunder has
incurred a Loss or is reasonably likely to incur a Loss within the twelve months
following the time at which the representation, warranty, covenant or agreement
pursuant to which such Loss is indemnified would otherwise terminate (provided
that, in the event any such notice is given in respect of a breach or inaccuracy
for which a Loss is reasonably likely to be incurred within twelve months of the
applicable termination date, such representation, warranty,
43
covenant or agreement shall terminate at the end of such twelve month period
unless notice of the incurrence of a Loss, stating in reasonable detail the
basis for the claim, shall have been delivered). For the avoidance of doubt,
nothing herein shall permit any party to provide a notice under this Article IX
prior to the Closing.
ARTICLE X
INDEMNIFICATION
---------------
Section 10.01 Obligation to Indemnify.
(a) From and after the Closing, and subject to the limitations
set forth in this Article X, the Conseco Parties agree to indemnify and hold
harmless Trust, its Affiliates and their respective trustees, directors,
officers, employees, agents, advisors and representatives from and against all
losses, liabilities, claims, expenses (including reasonable expenses of
investigation, enforcement and collection and reasonable attorneys' fees and
expenses) and damages (including any incidental or similar damages, but
excluding any lost profits, diminution in value or any punitive, consequential,
exemplary or similar damages other than such damages arising in connection with
a Third Party Claim) whether or not involving a Third Party Claim (collectively,
"Losses") to the extent arising from or related to (i) any inaccuracy in or
breach of the representations and warranties when made or deemed made by the
Conseco Parties in or pursuant to this Agreement, which representations and
warranties survive the Closing, (ii) any failure of the Conseco Parties to
perform the covenants and agreements contained in this Agreement, which
covenants and agreements survive the Closing, (iii) any Existing Litigation
related to the Long-Term Care Business, and (iv) any Third Party Claim arising
out of or in any way connected with this Agreement or the transactions
contemplated hereby (including without limitation any such Third Party Claim
brought by shareholders or creditors of the Conseco Parties or their Affiliates,
or by beneficiaries or policyholders of insurance policies of the Long-Term Care
Business issued by CSHI, or by Governmental Entities, but excluding any Third
Party Claim brought by policyholders or beneficiaries of insurance policies of
the Long-Term Care Business issued by CSHI other than in respect of this
Agreement or the transactions contemplated hereby). The obligations of the
Conseco Parties under this Section 10.01 are in addition to their obligations
under the Ancillary Agreements, except as provided therein.
(b) From and after the Closing, and subject to the limitations
set forth in this Article X, Trust agrees to indemnify and hold harmless the
Conseco Parties, their Affiliates and their respective directors, officers,
employees, agents, advisors and representatives from and against all Losses to
the extent arising from or related to (i) any inaccuracy in or breach of the
representations and warranties when made or deemed made by Trust in or pursuant
to this Agreement, which representations and warranties survive the Closing and
(ii) any failure of Trust to perform the covenants and agreements contained in
this Agreement, which covenants and agreements survive the Closing. Trust's
obligations under this Section 10.01 are in addition to its obligations under
the Ancillary Agreements, except as provided therein.
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(c) Any indemnity payment made pursuant to this Article X in
respect of any Loss shall be net of an amount equal to (x) any insurance
proceeds actually received by an Indemnified Party in respect of such claim
minus (y) any related costs and expenses, including the aggregate cost of
pursuing any related insurance claims, plus any related increases in insurance
premiums or other chargebacks under this Article X, provided, that the
Indemnified Parties shall not have any obligation to seek to recover any
insurance proceeds as a condition to making a claim or recovering amounts in
respect of a claim. Notwithstanding the preceding sentence, the Conseco Parties
and Trust agree to use commercially reasonable efforts to pursue and collect on
any recoverable insurance proceeds and to net such recovery against any claim
for indemnification under this Article X or, if an indemnification claim has
already been resolved, against the amount paid pursuant to such resolution. If
an Indemnified Party receives any amounts under applicable insurance policies,
or from any other Person alleged to be responsible for any Losses, subsequent to
an indemnification payment by the Indemnifying Party, then such Indemnified
Party shall promptly reimburse the Indemnifying Party for any payment made or
expense incurred by such Indemnifying Party in connection with providing such
indemnification payment up to the amount received by the Indemnified Party, net
of any expenses incurred by such Indemnified Party in collecting such amount.
Section 10.02 Indemnification Procedures.
(a) In order for a party (the "Indemnified Party") to be entitled
to any indemnification provided for under this Agreement in respect of, arising
out of or involving a claim or demand made by, or an action, proceeding or
investigation instituted by, any Person neither a party to this Agreement nor an
Affiliate of such a party (a "Third Party Claim"), such Indemnified Party must
notify the party from which indemnity is sought (the "Indemnifying Party") in
writing, and in reasonable detail, of the Third Party Claim promptly following
becoming aware of such claim; provided, however, that failure to give such
notification shall not affect the indemnification provided hereunder except to
the extent that such failure results in a lack of actual notice to the
Indemnifying Party and such Indemnifying Party shall have been materially
prejudiced as a result of such failure. Thereafter, the Indemnified Party shall
deliver to the Indemnifying Party copies of all notices and documents (including
court papers) received by the Indemnified Party relating to the Third Party
Claim.
(b) If a Third Party Claim is made against an Indemnified Party,
the Indemnifying Party will be entitled to participate in the defense thereof
and, if it so chooses, to assume the defense thereof (at the expense of such
Indemnifying Party) with counsel selected by the Indemnifying Party, which shall
be reasonably satisfactory to the Indemnified Party. If the Indemnifying Party
assumes such defense, the Indemnified Party shall have the right to participate
in the defense thereof and to employ counsel, at its own expense, separate from
the counsel employed by the Indemnifying Party; provided, however, that the
Indemnifying Party shall bear the reasonable fees, costs and expenses of such
separate counsel if the (A) Indemnified Party shall have determined in good
faith and after consulting with outside counsel that an actual or potential
conflict of interest makes representation by the same counsel or the counsel
selected by the Indemnifying Party inappropriate or (B) Indemnifying Party shall
have authorized the Indemnified Party to employ separate counsel at the
Indemnifying Party's expense. If the Indemnifying Party does not promptly assume
the defense of such Third Party Claim following notice thereof, the Indemnified
Party shall be entitled to assume and control such defense
45
without prejudice to the ability of the Indemnified Party to enforce its claim
for indemnification against the Indemnifying Party hereunder. Whether or not the
Indemnifying Party shall have assumed the defense of a Third Party Claim, all of
the parties hereto shall cooperate in the defense or prosecution thereof. Such
cooperation shall include the retention and the provision of records and
information which are reasonably relevant to such Third Party Claim, and making
employees available on a mutually convenient basis to provide additional
information and explanation of any material provided hereunder. All reasonable
costs and expenses incurred in connection with the Indemnified Party's
cooperation shall be borne by the Indemnifying Party. Whether or not the
Indemnifying Party assumes the defense of a Third Party Claim, the Indemnified
Party shall not admit any liability with respect to, or settle, compromise or
discharge, such Third Party Claim without the Indemnifying Party's prior written
consent (which consent shall not be unreasonably withheld or delayed). If the
Indemnifying Party assumes the defense of a Third Party Claim, the Indemnifying
Party, in the defense of such Third Party Claim, shall not admit any liability
with respect to, or settle, compromise or discharge, such Third Party Claim
without the Indemnified Party's prior written consent (which consent shall not
be unreasonably withheld or delayed) unless (A) there is no finding or admission
of any violation of Law or any violation of the rights of any Person and no
effect on any other claims that may be made against the Indemnified Party and
(B) the sole relief provided is monetary damages that are paid in full by the
Indemnifying Party and a full, complete and irrevocable release is provided to
the Indemnified Party. If the Indemnified Party in good faith determines that
the conduct of the defense or any proposed settlement of any Third Party Claim
would reasonably be expected to have a materially adverse effect on the
Indemnified Party's ability (or the ability of any of its Affiliates) to conduct
its business, the Indemnified Party shall have the right at all times to take
over and control the defense, settlement, negotiation or litigation relating to
any such Third Party Claim at the sole cost of the Indemnifying Party, provided
that if the Indemnified Party does so take over and control, the Indemnified
Party shall not settle such Third Party Claim without the written consent of the
Indemnifying Party, such consent not to be unreasonably withheld or delayed.
(c) In the event any Indemnified Party shall have a claim against
any Indemnifying Party under Sections 10.01(a) and 10.01(b) that does not
involve a Third Party Claim being asserted against or sought to be collected
from such Indemnified Party, the Indemnified Party shall deliver notice of such
claim with reasonable promptness to the Indemnifying Party; provided, however,
that failure to give such notification shall not affect the indemnification
provided hereunder except to the extent that such failure results in a lack of
actual notice to the Indemnifying Party and such Indemnifying Party shall have
been materially prejudiced as a result of such failure. The Indemnifying Party
will have 30 days following its receipt of such notice to give notice of dispute
of the claim to the Indemnified Party.
(d) Except (i) for claims for specific performance pursuant to
Section 12.05 and (ii) for claims based on fraud, intentional misrepresentation
or omission or intentional misconduct, the indemnity provided in Sections
10.01(a) and 10.01(b) shall be the sole and exclusive remedy of the Indemnified
Party against the Indemnifying Party at law or equity for any claim arising
under this Agreement.
(e) The rights and remedies of any party in respect of any
inaccuracy or breach of any representation, warranty, covenant or agreement
shall in no way be limited by
46
the fact that the act, omission, occurrence or other state of facts or
circumstances upon which any claim of any such inaccuracy or breach is based may
also be the subject matter of any other representation, warranty, covenant or
agreement as to which there is no inaccuracy or breach. The representations,
warranties and covenants of the Conseco Parties and Trust's rights to
indemnification with respect thereto shall not be affected or deemed waived by
reason of any investigation made by or on behalf of Trust (including by any of
its advisors, consultants or representatives) or by reason of the fact that
Trust or any of such advisors, consultants or representatives knew or should
have known that any such representation or warranty is, was or might be
inaccurate or by reason of Trust's waiver of any condition set forth in Section
6.01.
Section 10.03 Tax Matters. All indemnification claims with respect to
Taxes shall be governed exclusively by the Tax Matters Agreement and not this
Article X.
ARTICLE XI
TERMINATION PRIOR TO CLOSING
----------------------------
Section 11.01 Termination of Agreement. This Agreement may be
terminated at any time prior to the Closing:
(a) by any of the Conseco Parties or Trust by providing written
notice to other parties hereto, if there shall be any order, injunction or
decree of any Governmental Entity which prohibits or restrains the Conseco
Parties or Trust from consummating the transactions contemplated hereby, and
such order, injunction or decree shall have become final and nonappealable;
(b) by any of the Conseco Parties or Trust by providing written
notice to other parties hereto, if the Closing has not occurred on or prior to
the 6 month anniversary of the date hereof;
(c) by any of the Conseco Parties if Trust shall have breached or
failed to perform any of its representations, warranties, covenants or other
agreements contained in this Agreement, which breach or failure to perform (i)
is incapable of being cured by Trust by the 6 month anniversary of the date
hereof or (ii) if capable of being cured, has not been cured by Trust within
fifteen (15) days following written notice to Trust from any of the Conseco
Parties of such breach, which, in either case, would result in the failure of
any condition set forth in Section 7.01(a) or Section 7.01(b); provided that
neither of the Conseco Parties shall have the right to terminate this Agreement
pursuant to this Section 11.01(c) if it is then in material breach of any
representation, warranty, covenant or agreement hereunder;
(d) by Trust if any of the Conseco Parties shall have breached or
failed to perform any of its representations, warranties, covenants or other
agreements contained in this Agreement, which breach or failure to perform (i)
is incapable of being cured by the Conseco Parties by the 6 month anniversary of
the date hereof or (ii) if capable of being cured, has not been cured by the
Conseco Parties within fifteen (15) days following written notice to the Conseco
Parties from Trust of such breach, which, in either case, would result in the
failure of any condition set forth in Section 6.01(a) or Section 6.01(b);
provided that Trust shall not have
47
the right to terminate this Agreement pursuant to this Section 11.01(c) if it is
then in material breach of any representation, warranty, covenant or agreement
hereunder; or
(e) at any time on or prior to the Closing Date, by mutual
written consent of the Conseco Parties and Trust, or at the sole discretion of
Trust, upon 30 days' notice, if Trust concludes that the conditions to Closing
will not be satisfied.
Section 11.02 Survival. If this Agreement is terminated for any reason
and the transactions contemplated hereby are not consummated, this Agreement
shall become null and void and of no further force and effect and no party shall
have any liability to any other party, except that the provisions of this
Agreement relating to the obligations of the parties hereto to keep confidential
and not to use certain information and data obtained from the other parties
hereto shall remain in full force and effect, and the provisions of Section
5.07, Section 5.10, this Section 11.02 and Article XII shall remain in full
force and effect.
ARTICLE XII
GENERAL PROVISIONS
------------------
Section 12.01 Publicity. Except as may otherwise be required by Law,
accounting regulation or stock exchange requirements, no press release or public
announcement concerning this Agreement or the transactions contemplated hereby
shall be made by any of the parties hereto without advance approval thereof by
the Conseco Parties and Trust (which approval shall not be unreasonably withheld
or delayed). The parties hereto shall cooperate with each other in making any
press release or public announcement.
Section 12.02 Dollar References. All dollar references in this
Agreement are to the currency of the United States.
Section 12.03 Notices. Any notice or other communication required or
permitted hereunder shall be in writing (including facsimile or similar writing)
and shall be deemed given if (i) delivered personally, (ii) sent by overnight
courier (providing proof of delivery) or (iii) sent by facsimile, to the parties
at the following address:
(i) If to Trust:
Senior Health Care Transition Trust
600 West Chicago Avenue
Chicago, Illinois 60610
Attention: John W. Wells
Trustee
Facsimile: (312) 396-5922
48
With a concurrent copy to:
Debevoise & Plimpton LLP
919 Third Avenue
New York, New York 10022
Attention: Steven M Ostner, Esq.
Nicholas F. Potter, Esq.
Facsimile: (212) 521-7459
(ii) If to the Conseco Parties:
Conseco, Inc.
11825 N. Pennsylvania Street
Carmel, IN 46032
Attention: Thomas D. Barta
SVP, Financial Planning and Analysis
Facsimile: (317) 817-5439
With a concurrent copy to:
Conseco, Inc.
11825 N. Pennsylvania Street
Carmel, IN 46032
Attention: Matthew J. Zimpfer
EVP and General Counsel
Facsimile: (317) 817-2826
and
Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square
New York, NY 10036
Attention: Robert J. Sullivan, Esq.
Facsimile: (917) 777-2930
Any party may, by notice given in accordance with this Section 12.03
to the other parties, designate another address or person for receipt of notices
hereunder; provided, that notice of such a change shall be effective upon
receipt.
Section 12.04 Entire Agreement. This Agreement (including the
Ancillary Agreements, the other agreements contemplated hereby and thereby, the
Exhibits and the Schedules hereto) contains the entire agreement among the
parties with respect to the subject matter hereof and supersedes all prior
agreements and understandings, written or oral, with respect thereto.
Section 12.05 Waivers and Amendments; Non-Contractual Remedies;
Preservation of Remedies. This Agreement may be amended, superseded, canceled,
renewed or
49
extended, and the terms hereof may be waived, only by a written instrument
signed by each of the parties or, in the case of a waiver, by the party waiving
compliance. No delay on the part of any party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof, nor shall any waiver on
the part of any party of any right, power or privilege, nor any single or
partial exercise of any such right, power or privilege, preclude any further
exercise thereof or the exercise of any other such right, power or privilege.
The rights and remedies herein provided are cumulative and are not exclusive of
any rights or remedies that any party may otherwise have at law or in equity.
The parties agree that irreparable damage would occur in the event any provision
hereof were not to be performed in accordance with its terms and that each party
shall be entitled to specific performance of the terms hereof in addition to any
other remedies at law or in equity.
Section 12.06 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA,
WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF.
Section 12.07 Jurisdiction. Each party hereby irrevocably and
unconditionally consents to submit to the non-exclusive jurisdiction of any
court of the United States or any state court which in either case is located in
the City of Philadelphia for any actions, suits or proceedings arising out of or
relating to this Agreement and the transactions contemplated hereby (and each
party agrees that service of any process, summons, notice or document by U.S.
registered mail to its address set forth above shall be effective service of
process for any action, suit or proceeding brought against it in any such
court). Each party hereby irrevocably and unconditionally waives any objection
to the laying of venue of any action, suit or proceeding arising out of this
Agreement or the transactions contemplated hereby in any such court, and hereby
further irrevocably and unconditionally waives and agrees not to plead or claim
in any such court that any such action, suit or proceeding brought in any such
court has been brought in an inconvenient forum. EACH PARTY HERETO HEREBY WAIVES
TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY ANY OF THEM
AGAINST ANOTHER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS AGREEMENT, OR
ANY OTHER AGREEMENTS EXECUTED IN CONNECTION HEREWITH OR THE ADMINISTRATION
THEREOF OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN OR THEREIN.
Section 12.08 Binding Effect; Assignment. This Agreement shall be
binding upon and inure to the benefit of the parties and their respective
successors, permitted assigns and legal representatives. Neither this Agreement,
nor any of the rights, interests or obligations hereunder, may be assigned, in
whole or in part, by any party without the prior written consent of the other
parties hereto and any such assignment that is not consented to shall be null
and void.
Section 12.09 Interpretation.
(a) Notwithstanding anything in this Agreement to the contrary,
no term or condition of this Agreement shall be construed to supersede, restrict
or otherwise limit any term or condition set forth in the Ancillary Agreements.
50
(b) The parties acknowledge and agree that they may pursue
judicial remedies at law or equity in the event of a dispute with respect to the
interpretation or construction of this Agreement. In the event that an
alternative dispute resolution procedure is provided for in any of the Ancillary
Agreements or any other agreement contemplated hereby or thereby, and there is a
dispute with respect to the construction or interpretation of such Ancillary
Agreement, the dispute resolution procedure provided for in such Ancillary
Agreement shall be the procedure that shall apply with respect to the resolution
of such dispute.
(c) For purposes of this Agreement, the words "hereof", "herein",
"hereby" and other words of similar import refer to this Agreement as a whole
unless otherwise indicated. Whenever the words "include", "includes", or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation". Whenever the singular is used herein, the same
shall include the plural, and whenever the plural is used herein, the same shall
include the singular, where appropriate.
(d) For purposes of this Agreement, Trust shall be deemed to have
consented to any action requiring its consent prior to the Closing to the extent
that any person as may be designated from time to time by Trust as an authorized
representative of the Trust and whose designation has been communicated to the
Conseco Parties, has communicated a consent to such action in writing to the
Conseco Parties or their Affiliates or their respective representatives.
(e) This Agreement shall be deemed to be the joint work product
of the parties and any rule of construction that a document shall be interpreted
or construed against a drafter of such document shall not be applicable.
Section 12.10 No Third Party Beneficiaries. Nothing in this Agreement
is intended or shall be construed to give any Person (including, but not limited
to, the employees of the Conseco Parties or their Affiliates), other than the
parties hereto, their successors and permitted assigns, any legal or equitable
right, remedy or claim under or in respect of this Agreement or any provision
contained herein.
Section 12.11 Counterparts. This Agreement may be executed by the
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute one and the same instrument.
Section 12.12 Exhibits and Schedules. The Exhibits and the Schedules
to this Agreement that are specifically referred to herein are a part of this
Agreement as if fully set forth herein. All references herein to Articles,
Sections, subsections, paragraphs, subparagraphs, clauses, Exhibits and
Schedules shall be deemed references to such parts of this Agreement, unless the
context shall otherwise require.
Section 12.13 Headings. The headings in this Agreement are for
reference only, and shall not affect the interpretation of this Agreement.
(The rest of this page is intentionally left blank)
51
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
CONSECO, INC.
By: /s/ Edward J. Bonach
-----------------------------------
Name: Edward J. Bonach
Title: Executive Vice President
CDOC, INC.
By: /s/ Edward J. Bonach
-----------------------------------
Name: Edward J. Bonach
Title: President
SENIOR HEALTH CARE TRANSITION TRUST
By: /s/ John W. Wells
-----------------------------------
Name: John W. Wells
Title: Sole Trustee
EXHIBIT A
---------
SEPARATION TRANSACTIONS
-----------------------
Prior to the Closing Date contemplated by the Transfer Agreement (the "Transfer
Agreement"), dated August 11, 2008, by and among CDOC, Inc., a Delaware
corporation ("CDOC"), Conseco, Inc., a Delaware corporation ("CNO," and together
with CDOC, the "Conseco Parties"), and Senior Health Care Transition Trust, a
Pennsylvania business trust ("Trust"), Conseco Parties shall, and shall cause
Conseco Senior Health Insurance Company, a health insurance company domiciled in
Pennsylvania ("CSHI"), to, use commercially reasonably efforts to enter into
agreements, which shall be effective as of the Closing Date, to accomplish the
following objectives on terms that shall be reasonably acceptable to the Conseco
Parties, on one hand, and Trust, on the other hand:
I. Long Term Care Group Contract
The parties, prior to closing, will seek to enter into a new contract (the "New
LTCG Contract") among Long Term Care Group, Inc. ("LTCG"), CSHI and one or more
Conseco entities, including Conseco Services, LLC (collectively, "Conseco"),
which will supersede the Existing LTCG Contracts. The general framework of the
New LTCG Contract is presently expected to include the following elements: (i)
LTCG will complete the system conversion process contemplated under the Existing
LTCG Contracts (the "Conversion"), (ii) Conseco will allow LTCG and CSHI to
access its systems for purposes of completing the Conversion, (iii) CSHI will
direct the Conversion activities undertaken by LTCG, (iv) LTCG will provide
"steady state" services to CSHI upon completion of each phase of the Conversion,
(v) LTCG will continue its existing license of software to Conseco (the
"Software License"), (vi) Conseco will pay LTCG directly for fees generated
under the Software License arrangement, (vii) Conseco will sublicense the
software provided under the Software License to CSHI in return for a fee that
covers any ongoing costs payable to LTCG and allows Conseco to recapture, over a
five year period (or other mutually agreed upon time period), its prior and
future payments to LTCG for the Conversion project, and at the conclusion of
such five year term (or other mutually agreed upon term), transfer the Software
License to CSHI, and (ix) the existing facilities lease between Conseco
Services, LLC and LTCG will remain in place until such time as CSHI moves off of
the Conseco premises in accordance with the terms of the Transfer Agreement, at
which time LTCG will relocate to CSHI's new location. For purposes of this
Exhibit A, the term "Existing LTCG Contracts" means the Master Services
Agreement, effective as of January 1, 2008, among LTCG, CSHI, Bankers Conseco
Life Insurance Company, Conseco Health Insurance Company and Washington National
Insurance Company, and the Agreement, effective as of January 1, 2008, between
LTCG and Conseco Services, LLC.
II. Reinsurance Arrangements
o Amend any reinsurance agreement to which CSHI is a party that relates to
insurance business to be retained by CSHI after the Closing Date and the
business of CSHI to be assigned to Conseco Insurance Company pursuant to
the Assignment Agreement (as defined in the Transfer Agreement) as of the
Closing Date, in order to provide that the
A-1
rights and obligations under the reinsurance agreement relating to the
portion of the business to be so assigned or retained may be divided and
allocated amongst Conseco Insurance Company and CSHI, as appropriate. In
the alternative to the foregoing and if acceptable to the parties, Conseco
Insurance Company and CSHI shall agree to reasonably cooperate with one
another to facilitate the making of any claims by Conseco Insurance Company
under a reinsurance agreement to which CSHI is a party and pursuant to
which one or more of the policies to be assigned to Conseco Insurance
Company is reinsured, including by providing reasonable assistance with
processing or submitting such claims and by seeking to access files from
insurance intermediaries relating to such reinsurance.
o Amend any reinsurance agreement to which both CSHI and one or more
additional Affiliates (as defined in the Transfer Agreement) of the Conseco
Parties are parties, in order to provide that the rights and obligations
under the reinsurance agreement relating to the respective business of
those companies may be divided and allocated amongst the companies as
appropriate.
III. Investment Advisor
Retain an experienced investment advisor to provide investment management
services with respect to CSHI's investment assets in accordance with the terms
of CSHI's investment guidelines, unless and to the extent that any such services
are to be provided by the Separation and Transition Matters Agreement.
IV. Investment Assets
The investment assets of CSHI as of the Closing shall comply with the investment
guidelines set forth on Schedule 5.21 of the Transfer Agreement; it being
understood that such investment assets shall not include: (a) securities issued
by Fall Creek CLO Ltd., (b) securities issued by Eagle Creek CLO Ltd., (c)
securities issued by IGA, (d) securities issued by Conseco Funding Ltd. CBO and
(e) securities issued by Inviva, Inc. It is the intention of the parties that
the selection of the investment assets to be retained by CSHI or transferred by
CSHI to Conseco Insurance Company pursuant to the Assignment Agreement, as
applicable, as of the Closing be generally consistent with that set forth in the
"Summary of CSHI Investment Portfolio: Proposed Split of Investments - as of
June 30, 2008," with appropriate adjustments being made, which are mutually
acceptable to the Conseco Parties and Trust, to reflect changes in the
composition and value of the investment assets of CSHI prior to the Closing, as
well as changes in the reserves held with respect to the business of CSHI to be
assigned to Conseco Insurance Company pursuant to the Assignment Agreement.
V. Subleases
The Conseco Parties shall cause their Affiliates to enter into the Subleases (as
defined in the Transfer Agreement) in accordance with Section 5.26 of the
Transfer Agreement.
A-2
Exhibit C
===============================================================================
OPERATING PRINCIPLES AND GUIDELINES AGREEMENT
between
SENIOR HEALTH CARE OVERSIGHT TRUST
and
CONSECO SENIOR HEALTH INSURANCE COMPANY
Dated as of [ ], 2008
===============================================================================
TABLE OF CONTENTS
-----------------
Page
----
1. Definitions..............................................................................................1
2. Board of Directors.......................................................................................3
3. Committees of the Board..................................................................................4
4. Matters Requiring Trust or Department Approval...........................................................5
5. Compensation Matters.....................................................................................6
6. Additional Information and Assistance....................................................................7
7. Restrictions on Transfer, Pledge and Refusal of Capital Stock of the Company.............................7
8. Financial Statements and Other Information...............................................................7
9. Records and Inspection...................................................................................8
10. Fiscal Year..............................................................................................8
11. Notices..................................................................................................8
12. Waivers and Amendments; Non-Contractual Remedies; Preservation of Remedies...............................9
13. Governing Law............................................................................................9
14. Jurisdiction.............................................................................................9
15. Binding Effect; Assignment...............................................................................9
16. Headings................................................................................................10
17. Counterparts............................................................................................10
18. Severability............................................................................................10
19. Entire Agreement........................................................................................10
20. Interpretation..........................................................................................10
21. Expenses................................................................................................10
Exhibit A Business Plan
i
This Operating Principles and Guidelines Agreement, made this [ ]
day of [ ], 2008 (this "Agreement"), between Senior Health Care Oversight Trust,
a Pennsylvania business trust (the "Trust") and Conseco Senior Health Insurance
Company, an insurance company domiciled in the Commonwealth of Pennsylvania (the
"Company," and together with the Trust, the "Parties").
WHEREAS, CDOC, Inc., a Delaware corporation ("CDOC"), Conseco,
Inc., a Delaware corporation ("Conseco"), and the Senior Health Care Transition
Trust, a Pennsylvania business trust, have entered into the Transfer Agreement
(as defined below);
WHEREAS, following the consummation of the transactions
contemplated under the Transfer Agreement (the "Closing Date"), the Trust will
own all of the issued and outstanding shares of capital stock or other equity
interests of the Company (the "Shares");
WHEREAS, the Parties acknowledge that the terms of this Agreement
are being made, in part, to provide assurances to the Department (as defined
below) concerning the operation of the Company following the Closing Date; and
WHEREAS, the Trust and the Company desire to confirm their
understandings with respect to the manner in which the Company will be operated
subsequent to the Closing Date, including rights of the Trust to approve certain
matters and to obtain information to fulfill its oversight responsibilities, as
well as certain other matters.
NOW, THEREFORE, the Parties hereto, in consideration of the
mutual covenants and agreements herein contained, and intending to be legally
bound hereby, covenant and agree as follows:
1. Definitions. The following terms, as used herein, have the
following meanings:
"Affiliate" means, with respect to any Person, at the time in
question, any other Person controlling, controlled by or under common control
with such Person. For purposes of the foregoing, "control", including the terms
"controlling", "controlled by" and "under common control with", means the
possession, direct or indirect, of the power to direct or cause the direction of
the management and policies of an institution, whether through the ownership of
voting securities, by contract or otherwise.
"Ancillary Agreements" means this Agreement, the Assignment
Agreement, the LTC Administrative Services Agreements, the Employee Matters
Agreement, the Expense Reimbursement Agreement, the Senior Note, the Separation
and Transition Matters Agreement, the Tax Matters Agreement, the Transfer
Documents and the Subleases (as defined in the Transfer Agreement).
"Assignment Agreement" means the Assignment Agreement dated [ ],
2008 by and between Conseco Insurance Company, an insurance company duly
organized and existing under the laws of the State of Illinois, and the Company.
1
"BCLIC LTC Administrative Services Agreement" means an
Administrative Services Agreement dated [ ], 2008 between Bankers Conseco Life
Insurance Company of New York, an insurance company duly organized and existing
under the laws of the State of New York, and the Company.
"Board of Directors" means either the board of directors of the
Company or any duly authorized committee of that board.
"Business Plan" means the five year business plan setting forth
the current operating policies, procedures and business objectives and
strategies of the Company attached hereto as Exhibit A.
"CDOC" has the meaning ascribed in the preamble to this
Agreement.
"CHIC LTC Administrative Services Agreement" means an
Administrative Services Agreement dated [ ], 2008 between Conseco Health
Insurance Company, an insurance company duly organized and existing under the
laws of the State of Arizona, and the Company.
"Closing Date" has the meaning ascribed in the preamble to this
Agreement.
"Company" has the meaning ascribed in the first paragraph of this
Agreement.
"Conseco" has the meaning ascribed in the preamble to this
Agreement.
"Department" means the Pennsylvania Insurance Department.
"Employee Matters Agreement" means the Employee Matters Agreement
dated [ ], 2008 among Conseco and the Company.
"Expense Reimbursement Agreement" means the Expense Reimbursement
Agreement dated [ ], 2008 between the Trust and the Company.
"Independent Trustee" means a Trustee that is not an officer or
employee of the Company.
"LTC Administrative Services Agreement" means the BCLIC LTC
Administrative Services Agreement, the CHIC LTC Administrative Services
Agreement and the WNIC LTC Administrative Services Agreement.
"Parties" has the meaning in the first paragraph of this
Agreement.
"Senior Note" means the 6% Senior Note due on [anniversary of the
Closing Date], 2013 in the aggregate principal amount of $125,000,000 issued by
Conseco to the Company.
"Shares" has the meaning ascribed in the preamble to this
Agreement.
"Tax Matters Agreement" means the Tax Matters Agreement dated [
], 2008 among CDOC, Inc., a Delaware corporation, Conseco, the Company and the
Trust.
2
"Transaction Documents" means, collectively, this Agreement, the
Transfer Agreement, the Ancillary Agreements and the other agreements to be
entered into pursuant hereto and thereto.
"Transfer Agreement" means the transfer agreement dated August
11, 2008 among CDOC, Inc., a Delaware corporation, Conseco and the Senior Health
Care Transition Trust, a Pennsylvania business trust.
"Trust" has the meaning in the first paragraph of this Agreement.
"Trustees" mean the individual trustees of the Trust.
"WNIC LTC Administrative Services Agreement" means an
Administrative Services Agreement dated [ ], 2008 between Washington National
Insurance Company, an insurance company duly organized and existing under the
laws of the State of Illinois, and the Company.
2. Board of Directors.
(a) On the Closing Date, the Trust shall elect a new Board
of Directors of the Company consisting of seven directors, with at least three
of such directors being Independent Trustees and one of such directors being the
President and Chief Executive Officer of the Company.
(b) Each director elected pursuant to Section 2(a) above may
at any time be removed, with or without cause, by the Trust and replaced by some
other person appointed by the Trust to be a director by written notice to the
Company. In the event a director resigns or otherwise vacates such director
position, the Trust may select and appoint a replacement director by written
notice to the Company. In the event that a director that is an Independent
Trustee is removed, replaced or resigns, the Trust shall replace such director
with another Independent Trustee. Notwithstanding anything to the contrary in
this Agreement, no person shall be appointed or remain as a director who would
be disqualified from holding such office by law.
(c) The Company's Board of Directors shall initially be
comprised of the following persons:
John G. Wells
Julianne M. Bowler
Gregory V. Serio
Cecil D. Bykerk
Brian C. Wegner
Dean G. Sarantos
[ ](1)
- -------------------
(1) Additional director to be named with the prior approval of the Trust prior
to the execution of this Agreement.
3
Such directors shall serve on the Board of Directors until their
respective successors are duly elected.
(d) A quorum of at least a majority of the directors of the
Company shall be necessary for the transaction of any business by the Board of
Directors at a duly commenced meeting.
(e) Regular meetings of the Board of Directors of the
Company shall be held at least 4 times per year. Special meetings may be called
by the Trust or a member of the Board of Directors upon at least 48 hours'
notice, unless a shorter notice is agreed to in writing by the Trust or the
Company. Special meetings shall be held at a location mutually agreed to by the
Parties.
(f) No separate compensation shall be paid to any member of
the Board of Directors outside of the compensation that such member may receive
as a Trustee or as an officer of the Company; provided, however, that reasonable
compensation shall be paid to any member of the Board of Directors who is not a
Trustee or an officer of the Company.
3. Committees of the Board.
(a) The Board of Directors may form such committees as are
established by resolution adopted by the Board of Directors and as are otherwise
permitted by 15 Pa. C.S.A. Section 1731; provided, however, that the Company
shall take all steps necessary to ensure that there will at all times be an
Audit, Nomination and Compensation Committee.
(b) The Audit, Nomination and Compensation Committee shall
consist of three directors of the Company, all of whom are Independent Trustees
who are then currently serving as directors of the Company. In addition, the
President and Chief Executive Officer of the Company will serve as an ex
officio, non-voting member of the Audit, Nomination and Compensation Committee.
As a committee whose voting members are not officers or employees of the Company
or an Affiliate of the Company in accordance with the requirements of 40 Pa.
C.S.A. Section 991.1405, the Audit, Nomination and Compensation Committee will
have the responsibility to:
(i) Recommend the selection of independent certified
public accountants;
(ii) Review the Company's financial condition and
results of operation;
(iii) Review the scope and results of independent audit
and any internal audit;
(iv) Nominate candidates for director election by the
Trust; and
(v) Evaluate the performance and compensation of
officers of the Company.
4
(c) The Audit, Nomination and Compensation Committee shall
have sole authority over the payment of incentive based compensation to officers
of the Company.
4. Matters Requiring Trust or Department Approval.
(a) The Company hereby agrees that it shall not take the
following actions without first obtaining approval from the Trust:
(i) Liquidation or dissolution of the Company;
(ii) Entry into any contracts, agreements, arrangements
or material transactions between the Company and a director, executive
officer, employee or Affiliate of the Company;
(iii) Guarantees of material payment obligations or
performance of other material obligations of third parties, except in
the ordinary course of business consistent with past practices;
(iv) Long-term financial commitments exceeding
$3,000,000 individually or $10,000,000 in the aggregate (on an annual
basis) which are not specified in the Business Plan;
(v) Appointment or removal of the Company's President
and Chief Executive Officer;
(vi) Entering into any material transactions not
contemplated by the Business Plan;
(vii) Entering into any new reinsurance agreement or
securitization transaction, materially amending any existing
reinsurance agreements or terminating or commuting any existing
reinsurance transaction;
(viii) Issuance, sale, redemption or repurchase or any
agreement to issue, or sell to, or redeem or repurchase from, any
person or entity, any equity securities of the Company, or any rights,
options or warrants to acquire any such securities, or any securities
convertible into or exchangeable or exercisable for such securities;
or
(ix) Agreeing or otherwise committing to take any of
the actions described in the foregoing paragraphs (i) through (viii).
(b) The Company hereby agrees that it shall not take the
following actions without first obtaining approval from both the Trust and the
Department:
(i) Material modifications to the Company's Business
Plan or investment policies;
(ii) Entering into or amending in any material respect
any agreement with Conseco or any of its Affiliates;
5
(iii) Declaring or making any dividend or distribution
with respect to any capital stock of the Company or redeeming any
shares of the Company's capital stock;
(iv) Issuing new insurance contracts, except as
required by law or contract;
(v) Acquiring the business, in whole or in part, of
another entity, including any asset acquisition, stock acquisition,
other than a purchase of investment securities in the ordinary course
of business;
(vi) Amending, repealing or restating the Articles of
Incorporation or Bylaws of the Company; or
(vii) Agreeing or otherwise committing to take any of
the actions described in the foregoing paragraphs (i) through (vi).
5. Compensation Matters. The Company hereby agrees that the
following procedures shall be taken relating to compensation matters of officers
of the Company:
(a) The President and Chief Executive Officer of the Company
shall submit to the Audit, Nomination and Compensation Committee not less than
annually his/her recommendation as to the compensation packages of all other
officers of the Company.
(b) The Audit, Nomination and Compensation Committee shall
consider such recommendations and shall approve the level of compensation that
it deems appropriate for the officers of the Company, including its President
and Chief Executive Officer.
(c) In determining appropriate levels of compensation, the
Audit, Nomination and Compensation Committee shall consider such factors as the
Audit, Nomination and Compensation Committee deems appropriate, which may, in
the case of incentive based compensation include, among others:
(i) Satisfaction of the Company's policyholders,
including the payment of claims as required under the Company's
insurance policies;
(ii) Quality of the Company's relationship with
insurance regulators, including its compliance record;
(iii) Financial viability of the Company;
(iv) Approval of appropriate premium rate increases
sufficient to ensure the ongoing solvency of the Company; and
(v) Success of other initiatives intended to ensure
that the Company has the ongoing ability to meet its obligations under
the Company's insurance policies.
6
6. Additional Information and Assistance.
(a) The Company shall cooperate and use its reasonable best
efforts to furnish to the Trust such necessary information and reasonable
assistance, in the most expeditious manner practicable, as the Trust may
reasonably request in connection with the Trust's oversight of the transactions
and actions contemplated by the Ancillary Agreements and the Business Plan.
7. Restrictions on Transfer, Pledge and Refusal of Capital Stock
of the Company.
(a) The Trust hereby agrees that it shall not (i) sell,
transfer, assign or otherwise in any manner dispose of any of the shares of
capital stock of the Company which it beneficially owns, or (ii) pledge,
hypothecate, encumber or otherwise grant a security interest in any of the
shares of capital stock of the Company which it beneficially owns, without, in
either instance, the approval of the Department.
(b) Each certificate for capital stock of the Company shall
contain a legend substantially in the form of the following:
The shares represented by this Certificate are subject to the terms and
conditions of, and restrictions on transfer set forth in, an Operating
Principles and Guidelines Agreement entered into between Senior Health
Care Oversight Trust and Conseco Senior Health Insurance Company (the
"Company") dated as of _________, 2008, copies of which are on file
with the Secretary of the Company, and are held and may not be sold,
assigned, transferred, pledged, hypothecated, encumbered, otherwise
granted as security, or otherwise disposed of except in accordance
therewith.
(c) In the event that the Trust shall fail to comply with
this Section 7 in respect of any shares of capital stock of the Company which
the Trust intends to sell or pledge, any such sale or pledge, of the capital
stock of the Company by the Trust shall be void and of no effect and shall not
be recognized by the Company.
8. Financial Statements and Other Information. The Company shall
deliver to the Trust, the following:
(a) As soon as available, but in any event not later than 60
days after the end of each of the quarterly accounting periods (other than the
fourth fiscal quarter of the Company in each fiscal year which is governed by
Section 8(b) below), a copy of each quarterly statutory statement that is filed
with the Department, together with any other financial information reasonably
requested by the Trustees. All such financial statements shall be prepared in
accordance with statutory accounting practices prescribed or permitted by the
Commonwealth of Pennsylvania for reporting the financial condition and results
of operations of an insurance company.
(b) From and after the 2008 fiscal year, as soon as
available, but in any event no later than 70 days after the end of each fiscal
year of the Company, (i) a copy of the
7
Company's annual statutory statement as submitted to the Department, together
with all exhibits and supplements thereto, (ii) three-year financial projections
for the Company, (iii) copies of all actuarial reports prepared by or on behalf
of the Company since the previous report to the Trust and (iv) an update as to
the progress that the Company has made under the Business Plan. All financial
statements of the Company shall be prepared in accordance with statutory
accounting practices prescribed or permitted by the Commonwealth of Pennsylvania
for reporting the financial condition and results of operations of an insurance
company.
(c) With reasonable promptness, such other information and
data with respect to the Company and its operations as from time to time may be
reasonably requested by the Trust.
9. Records and Inspection. The Company shall maintain reasonably
complete books and records, including accurate records and accounts of all
Company income and expenditures, working capital, investments, acquisitions and
disposition of properties, financial arrangements and all other Company
activities. Such financial records and accounts shall be maintained in
accordance with applicable law and shall be available to the Trust (and its
representatives), as well as the Department, during reasonable business hours to
inspect or copy. In addition, the Company shall furnish as promptly as
practicable to the Trust such information concerning the Company or its
operations as the Trust may from time to time reasonably request.
10. Fiscal Year. The Company's fiscal year shall commence on
January 1, and end on December 31st of each year.
11. Notices. Any notice or other communication required or
permitted hereunder shall be in writing (including facsimile or similar writing)
and shall be deemed given if (i) delivered personally, (ii) sent by overnight
courier (providing proof of delivery) or (iii) sent by facsimile, to the Parties
at the following address:
If to the Trust, to:
Senior HealthCare Oversight Trust,
[ ]
[ ]
Attention: [ ]
Chairman of the Board of Trustees
Facsimile: [ ]
If to the Company, to:
Conseco Senior Health Insurance Company
600 West Chicago Avenue
Chicago, IL 60610
Attention: John W. Wells
President and Chief Executive Officer
Facsimile: (312) 396-5922
8
Any Party may, by notice given in accordance with this Section 11
to the other Parties, designate another address or person for receipt of notices
hereunder; provided, that notice of such a change shall be effective upon
receipt.
12. Waivers and Amendments; Non-Contractual Remedies;
Preservation of Remedies. This Agreement may be amended, superseded, canceled,
renewed or extended, and the terms hereof may be waived, only by a written
instrument signed by each of the Parties or, in the case of a waiver, by the
Party waiving compliance provided, however, that any material modification,
supplement or amendment shall only become effective when approved by the
Department. For the avoidance of doubt, neither Party may waive any requirement
of this Agreement to obtain the approval of the Department without the prior
written approval of the Department. No delay on the part of any Party in
exercising any right, power or privilege hereunder shall operate as a waiver
thereof, nor shall any waiver on the part of any Party of any right, power or
privilege, nor any single or partial exercise of any such right, power or
privilege, preclude any further exercise thereof or the exercise of any other
such right, power or privilege. The rights and remedies herein provided are
cumulative and are not exclusive of any rights or remedies that any Party may
otherwise have at law or in equity. The Parties agree that irreparable damage
would occur in the event any provision hereof were not to be performed in
accordance with its terms and that each Party shall be entitled to specific
performance of the terms hereof in addition to any other remedies at law or in
equity.
13. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA,
WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF.
14. Jurisdiction. Each Party hereby irrevocably and
unconditionally consents to submit to the non-exclusive jurisdiction of any
court of the United States or any state court which in either case is located in
the City of Philadelphia for any actions, suits or proceedings arising out of or
relating to this Agreement and the transactions contemplated hereby (and each
Party agrees that service of any process, summons, notice or document by U.S.
registered mail to its address set forth above shall be effective service of
process for any action, suit or proceeding brought against it in any such
court). Each Party hereby irrevocably and unconditionally waives any objection
to the laying of venue of any action, suit or proceeding arising out of this
Agreement or the transactions contemplated hereby in any such court, and hereby
further irrevocably and unconditionally waives and agrees not to plead or claim
in any such court that any such action, suit or proceeding brought in any such
court has been brought in an inconvenient forum. EACH PARTY HERETO HEREBY WAIVES
TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY ANY OF THEM
AGAINST ANOTHER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS AGREEMENT OR
ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN.
15. Binding Effect; Assignment. This Agreement shall be binding
upon and inure to the benefit of the Parties and their respective successors,
permitted assigns and legal representatives. Neither this Agreement, nor any of
the rights, interests or obligations hereunder, may be assigned, in whole or in
part, by any Party without the prior written consent of the other Party hereto
and any such assignment that is not consented to shall be null and void.
9
16. Headings. The headings in this Agreement are for reference
only, and shall not affect the interpretation of this Agreement.
17. Counterparts. This Agreement may be executed by the Parties
hereto in separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute one
and the same instrument.
18. Severability. If any provision, including any phrase,
sentence, clause, section or subsection, of this Agreement is invalid,
inoperative or unenforceable for any reason, such circumstances shall not have
the effect of rendering such provisions in question invalid, inoperative or
unenforceable in any other case or circumstance, or rendering any other
provision contained in this Agreement invalid, inoperative or unenforceable to
any extent whatsoever; provided, that if any of the provisions hereof are
determined to be illegal, invalid or unenforceable, the Parties shall negotiate
in good faith to modify this Agreement so as to effect the original intent of
the Trust and the Company to the fullest extent possible.
19. Entire Agreement. This Agreement, together with the Transfer
Agreement, and the other Ancillary Agreements, contains the entire agreement
among the Parties with respect to the subject matter hereof and supersedes all
prior agreements and understandings, written or oral, with respect thereto.
20. Interpretation.
(a) For purposes of this Agreement, the words "hereof",
"herein", "hereby" and other words of similar import refer to this Agreement as
a whole unless otherwise indicated. Whenever the words "include", "includes", or
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation". Whenever the singular is used herein, the same
shall include the plural, and whenever the plural is used herein, the same shall
include the singular, where appropriate.
(b) This Agreement shall be deemed to be the joint work
product of the Parties and any rule of construction that a document shall be
interpreted or construed against a drafter of such document shall not be
applicable.
21. Expenses. Except as otherwise expressly provided herein, the
Trust shall bear its fees, costs and expenses in connection with the
transactions contemplated herein.
10
IN WITNESS WHEREOF, the undersigned have caused this Agreement
to be executed by their officers thereunto duly authorized, all as of the day
and year first above written.
SENIOR HEALTH CARE OVERSIGHT
TRUST
By:
--------------------------------
Name:
Title:
CONSECO SENIOR HEALTH
INSURANCE COMPANY
By:
--------------------------------
Name:
Title:
11
Exhibit A
---------
Business Plan
A-1
Exhibit D
Separation and Transition Matters Agreement
Term Sheet
A description of the material terms of the Separation and Transition Matters
Agreement (the "Agreement") is set forth below.
Parties......................................CDOC, Inc., a Delaware corporation
("CDOC"), Conseco, Inc., a Delaware
corporation ("CNO," and together
with CDOC, the "Conseco Parties"),
and Conseco Senior Health Insurance
Company, an insurance company
domiciled in the Commonwealth of
Pennsylvania ("CSHI," each a
"Party" and CSHI, together with the
Conseco Parties, the "Parties").
Separation Matters
------------------
Litigation and Cooperation...................CSHI shall (i) retain
responsibility for all claims
arising out of or relating to long
term care policies issued or
assumed by CSHI (the "CSHI LTC
Policies") and (ii) indemnify
Conseco Parties and their
affiliates against any liabilities
arising in connection therewith
(including the costs incurred by
the Conseco Parties in defending
any action in which any such person
is a named party).
The Conseco Parties shall (i)
retain responsibility for all
claims arising out of or relating
to policies other than the CSHI LTC
Policies, whether originally issued
by CSHI or other parties (the
"Non-CSHI LTC Policies"), and (ii)
indemnify CSHI against any
liabilities arising in connection
therewith (including the costs
incurred by CSHI in defending any
action in which CSHI is a named
party).
In the event that a non-responsible
party is named in any action, the
Parties shall provide their
reasonable cooperation with each
other in taking steps to have the
non-responsible party replaced.
Upon the commencement of any
action, suit, litigation,
arbitration, investigation or
proceeding relating to CSHI (each
an "Action"), by any third party
who is not CDOC, Conseco, CSHI or
one of their affiliates (a "Third
Party Claimant") in respect of
which indemnity may be sought
hereunder (a "Third Party Claim"),
the named party, except as the
indemnitor and the indemnitee
otherwise agree in writing, shall
be responsible for selecting and
engaging counsel to defend itself
in respect of such Third Party
Claim. The Conseco Parties shall be
responsible for all defense costs
relating to Non-CSHI LTC Policies,
including the costs incurred by
CSHI in defending any action in
which CSHI is a named party. CSHI
shall be responsible for all
defense costs relating to CSHI LTC
Policies, including the costs
incurred by the Conseco Parties in
defending any action in which any
such person is a named party. The
foregoing, however, shall not
affect the indemnitor's
responsibility for any losses
required to be indemnified
hereunder. The indemnitee may not
settle any such action without the
consent of the indemnitor, which
consent shall not be unreasonably
withheld. Each Party shall be
entitled to participate fully in
and monitor, at the expense of
either the Conseco Parties if the
Third Party Claim relates to
Non-CSHI LTC Policies or CSHI if
the Third Party Claim relates to
CSHI LTC Policies, the defense of a
Third Party Claim with internal
counsel or with outside counsel
reasonably acceptable to the other
Party.
In connection with any action
involving CSHI, the Conseco Parties
or one of their affiliates, CSHI
and the Conseco Parties will
provide reasonable cooperation to
the other, to the extent reasonably
requested by the other. Such
cooperation shall include the
provision of records and
information in its possession and
making employees available on a
mutually convenient basis to
provide additional information and
explanation of any material
information provided.
The responsibilities of the Parties
under this "Litigation and
Cooperation" section shall survive
the termination of the Agreement
(except as may be agreed by the
Parties) and shall not be subject
to the Limitations of Liability set
forth therein.
Instruments..................................Except as otherwise specifically
provided in the Agreement or the
Transfer Agreements or the
Ancillary Agreements (as defined in
the Transfer Agreement), any
monies, checks, drafts, money
orders, postal notes and other
instruments received by one Party
after the Closing Date in payment
of amounts due to the other Party
shall be held in trust for such
other Party and promptly delivered
to such Party.
Cost.........................................Conseco Parties will agree to bear
all reasonable out of pocket
expenses incurred by CSHI on or
prior to the
A-2
Closing Date in connection with the
preparation and execution of the
Agreement.
Transition Services
-------------------
Description of Services......................Following the Closing Date, the
Conseco Parties will continue to
provide, and/or will cause their
subsidiaries to continue to
provide, to CSHI all services
necessary (including those to be
specified in Schedules to the
Agreement, and together with the
Additional Services (as defined
below), the "CNO Transition
Services") in order to provide for
the orderly transition by CSHI to
become a stand alone company. The
Schedules will describe the
anticipated termination date for
most CNO Transition Services, but
the Agreement will also recognize
(as set forth below) that CSHI will
need the ability to request
reasonable extensions thereof,
including the recognition that
certain services will need to be
continued beyond the target
termination date as set forth in
the Schedules to a date following
the completion of the conversion
services pursuant to the Master
Services Agreement with Long Term
Care Group, Inc. (or its successor
agreement) to be mutually agreed
upon by the Parties. To the extent
that services are required beyond
the twelve month termination date,
they will be continued for a
reasonable period of time as
requested by CSHI, provided that
CSHI shall have used its reasonable
best efforts to replace such
services. The services to be
provided will include, unless
otherwise agreed upon by the
Parties, those services set forth
on Appendix A hereto. To the extent
that additional services are
requested, the Conseco Parties will
have a reasonable time period to
implement any said request.
Following the Closing Date, CSHI
will provide to the CNO Group those
services set forth in Schedules to
the Agreement (together with any
other services reasonable requested
by the Conseco Parties, the "CSHI
Transition Services", and together
with the CNO Transition Services,
the "Transition Services"). Such
Schedule will also describe the
anticipated termination date for
such services.
Except as otherwise provided in the
Agreement or the Transfer
Agreements or the Ancillary
Agreements (as defined in the
Transfer Agreement), the provision
of all services by the CNO Group to
CSHI and by CSHI to the CNO Group
will cease on and as of the Closing
Date.
A-3
Cost.........................................The fees for all Transition
Services shall be determined on a
cost basis consistent with past
practices (but for CSHI Transition
Services, in no event less than the
fair market value thereof). The
fees for each Transition Service
will be set forth in Schedules to
the Agreement.
Quality Standards............................CNO Transition Services will be
provided to CSHI in accordance
with: (i) the same levels of
quality, care and service
consistent with the Conseco
Parties' practices for providing
such Transition Services to the CNO
Group in effect in the six (6)
months prior to the Closing Date,
and (ii) all laws, regulations or
orders, including the Regulatory
Settlement Agreement (as defined in
the Transfer Agreement), that are
applicable to such Transition
Services.
CSHI Transition Services will be
provided to the CNO Group in
accordance with: (i) the same
levels of quality, care and service
consistent with past practices for
providing such services in effect
in the six (6) months prior to the
Closing Date, and (ii) all laws,
regulations or orders that are
applicable to such Transition
Services.
Billing......................................Billing and cash settlement for
Transition Services will occur
monthly. Bills will be delivered in
a mutually acceptable format and
contain a reasonable level of
detail regarding the particular
services performed or in such other
format as may be mutually agreed
upon by the Parties. Parties will
settle amounts outstanding for
Transition Services on the last
business day of the month following
the month for which such Transition
Services are provided.
Termination of Services......................Transition Services may be
terminated, in whole or in part:
(i) By mutual written consent of
the Parties;
(ii) At the election of CSHI, (A)
in the event of a material breach
of any provision of the Agreement,
by CDOC, Conseco or such member of
the CNO Group that provides
Transition Services, if such breach
is not cured within a specified
number of days, or (B) upon 90
days' written notice to CDOC and
Conseco if CSHI determines that it
no longer needs a particular
service or services to be provided
by the CNO Group (in which case
CSHI may elect, except as may be
provided in the Agreement, to
terminate a
A-4
particular Transition Service
provided by the CNO Group without
terminating the Agreement in full);
and
(iii) At the election of the
Conseco Parties, (A) in the event
of a material breach of any
provision of the Agreement by CSHI
if such breach is not cured within
a specified number of days, or (B)
upon 90 days' written notice to
CSHI if the Conseco Parties
determine that they no longer need
a particular service or services to
be provided by CSHI (in which case
the Conseco Parties may elect,
except as may be provided in the
Agreement, to terminate a
particular Transition Service
provided by CSHI without
terminating the Agreement in full).
Additional Transition Services...............Following the Closing Date, the
Conseco Parties will provide,
and/or will cause their
subsidiaries to provide, to CSHI
any additional services (the
"Additional Services") as may be
requested by CSHI as being
necessary in order for the business
of CSHI to be operated after
Closing in a manner consistent with
its Plan of Operations (provided
that the Conseco Parties are then
capable of providing such
services), to the extent that such
services were (i) provided by CNO
Group to CSHI during the six month
period prior to the Closing Date,
(ii) not otherwise listed as a
Transition Services, and (iii) not
otherwise described in the
agreement as a service that would
not be provided by the CNO Group.
Subcontracting...............................Any of the Conseco Parties or CSHI,
as the case may be, that is
providing, or causing to be
provided, Transition Services (the
"Provider") may, with the written
consent of the other Party (the
"Recipient") (which consent shall
not unreasonably be withheld),
subcontract to any third party for
the performance of any Transition
Services; provided, however, that
the Agreement will provide that any
third party performing any
Transition Services as of the
Closing Date is approved to
continue providing such services
after the Closing Date, and that
the Provider shall remain legally
responsible for performance by any
third party subcontractor.
Non-Solicitation.............................Each Party will agree not to
solicit, without the other's
consent, any officer, director or
managerial employee of the other
who is providing Transition
Services pursuant to the Agreement,
to become an employee, for a period
of twelve (12) months following the
termination of all Transition
Services.
A-5
Third Party Consents.........................Certain software licenses and other
licenses, consents, approvals,
notices, registrations, recordings,
filings and other actions
(collectively, "Consents") will
need to be obtained in connection
with the provision of Transition
Services.
To the extent any Party is unable
to obtain any material Consent that
is necessary to provide any
Transition Service, the Parties
will cooperate with each other to
obtain as promptly as practicable
alternative arrangements for the
provision of the applicable
Transition Services.
The Conseco Parties will either
directly pay the out-of-pocket
costs incurred to obtain, perform
or otherwise satisfy each material
Consent in connection with the
provision of Transition Services,
or reimburse CSHI for all actual,
out-of-pocket costs incurred by
CSHI and related to such Consent.
Confidentiality/Privacy......................The Parties agree not to reveal or
disclose the other Party's
confidential information for any
purpose to any other person, or to
use any such confidential
information for any purpose other
than as contemplated by the
Agreement and certain other
identified agreements between the
Parties, without the prior written
consent of the disclosing Party.
Each Party will adopt appropriate
procedures to ensure the protection
of consumer financial information
and other information protected by
applicable privacy laws in
accordance with the requirements of
such laws.
Books and Records............................During the term of the Agreement,
upon reasonable written notice and
during normal business hours, each
Party shall have the right to
examine and make copies, at its own
expense, of such records retained
by the other Party relating to
Transition Services, including for
the purpose of auditing the
performance of, and the charges of,
Provider; provided, however, that
all out-of-pocket expenses of such
inspection shall be borne by
Recipient.
Systems Security.............................If the Provider or Recipient (or
any of their respective affiliates)
is given access to the other's
computer system(s) or software in
connection with performance of the
Transition Services, such Party
shall comply (and cause its
affiliates to comply) with the
other Party's system security
policies, procedures, and
requirements, and will not tamper
A-6
with, compromise or circumvent any
security or audit measures employed
by the other Party.
Intellectual Property........................Subject to Recipient's compliance
with the Agreement, Provider will
grant to Recipient a limited,
royalty free, non-exclusive,
non-transferable, non-sublicensable
license to use or access the
functionality of any proprietary
software, process or other
intellectual property right of
Provider, that is provided by
Provider to Recipient to the extent
required by Recipient in order to
receive the Transition Services.
Force Majeure................................No Party shall be considered in
default in the performance of its
obligations to perform Transition
Services under the Agreement to the
extent that its performance of such
obligations is prevented or delayed
by any cause beyond its control.
Migration Services and Costs
----------------------------
Description of Services......................Following the Closing Date, the
Conseco Parties will continue to
provide, and/or will cause their
subsidiaries to continue to
provide, to CSHI certain migration
services necessary (which will be
specified in Schedules to the
Agreement) in order to provide for
the orderly transition by CSHI to
become a stand alone company (the
"Migration Services"). The
Schedules will describe the
anticipated termination dates for
the Migration Services, but the
Agreement will also recognize that
CSHI will need the ability to
request reasonable extensions
thereof, as mutually agreed upon by
the Parties. The Migration Services
to be provided will include, unless
otherwise agreed upon by the
Parties, (i) those services set
forth on Appendix B hereto and (ii)
other migration projects agreed
upon by the Parties with reasonable
durations once specifically
identified. The Conseco Parties
will bear all reasonable costs
associated with the Migration
Services. For the avoidance of
doubt, all expenses deemed to be
operational in nature and required
for the on-going operations of CSHI
shall be borne by CSHI.
Description of Costs.........................From the Closing Date to the one
year anniversary of the Closing
Date, the Conseco Parties will bear
responsibility for all reasonable
migration costs that are one-time
in nature, relate to the setup of
CSHI as a stand alone company, and
pertain to either CSHI's
facilities, human resources system,
information technology
infrastructure, or
A-7
recruiting fees, but excluding any
costs already specified herein or
associated with the services
provided by Long Term Care Group,
Inc. (the "Migration Costs"). The
nature of the Migration Costs will
be reasonably detailed in Schedules
to the Agreement.
General Terms of the Agreement
------------------------------
Governing Law................................Pennsylvania
Dispute Resolution...........................All Parties agree to submit any
dispute, controversy or claim
arising out of or relating to the
Agreement that cannot be resolved
to binding arbitration in
accordance with the Commercial
Arbitration Rules of the American
Arbitration Association then in
effect. The place of arbitration
will be Philadelphia.
Limitations on Liability.....................No officer, director or stockholder
of either Party (including with
respect to CSHI, the Senior Health
Care Oversight Trust), or a Party
itself, shall be liable to any
other officer, director or
stockholder of either Party
(including with respect to CSHI,
the Senior Health Care Oversight
Trust), or the other Party itself,
for any special, consequential,
indirect, incidental or punitive
damages or lost profits, however
caused and on any theory of
liability (including negligence)
arising in any way out of the
Agreement, whether or not such
Party has been advised of the
possibility of such damages.
Further, the maximum aggregate
amount for which either Party,
together with their affiliates,
officers, directors, stockholders
or trustees, shall be liable to the
other Party, together with their
affiliates, officers, directors,
stockholders or trustees, shall not
exceed the aggregate amount of fees
paid to such Party in consideration
for the Transition Services
provided by such Party.
Further Assurances...........................Each Party will cooperate with each
other and use, and the Conseco
Parties will cause their respective
subsidiaries to use, commercially
reasonable efforts, prior to, on
and after the Closing Date, to
take, or to cause to be taken, all
actions, and to do, or to cause to
be done, all things reasonably
necessary on its part under
applicable law or contractual
obligations to fulfill its
respective obligations contemplated
by the Agreement.
A-8
Amendment....................................The Agreement may only be amended
in writing and signed by all
Parties.
Other Provisions.............................The Agreement will contain other
customary terms and conditions as
are common in agreements of this
type.
A-9
APPENDIX A
----------
CNO Transition Services
The Transition Services to be provided by the Conseco Parties or their
affiliates to CSHI shall, unless the Parties otherwise agree, include at a
minimum the following services: (1)
Conseco Transition Services Provided to CSHI
Closed date = separation date of CSHI
----------------------------------------------------------------------------------------------------------
Close Date through 3 months
---------- -----------------------------------------------------------------------------------------------
1 Provide statutory accounting support and reporting during
stub accounting periods at similar levels experienced by
CSHI as an entity within Conseco
---------- -----------------------------------------------------------------------------------------------
2 Provide statutory accounting support and reporting for
the FY08 annual closing at similar levels experienced by
CSHI as an entity within Conseco.
---------- -----------------------------------------------------------------------------------------------
3 Provide reinsurance accounting support and reporting at
similar levels experienced by CSHI as an entity within
Conseco.
---------- -----------------------------------------------------------------------------------------------
4 Provide call center infrastructure system and support at
similar levels experienced by CSHI as an entity within
Conseco.
---------- -----------------------------------------------------------------------------------------------
5 Provide scan, print and mail processing processes for
CSHI business at similar levels experienced by CSHI as an
entity within Conseco.
---------- -----------------------------------------------------------------------------------------------
6 Provide compliance support from CNO, including
interpretation of regulations and notice of new
regulations.
---------- -----------------------------------------------------------------------------------------------
7 Provide tax filing services on 1099/5498 requirements
with respect to 1)benefits paid and 2)provider payments.
---------- -----------------------------------------------------------------------------------------------
8 In the event CSHI has not migrated CSHI payroll systems,
provide payroll support on Conseco payroll systems at
similar levels experienced by CSHI as an entity with
Conseco.
---------- -----------------------------------------------------------------------------------------------
---------- -----------------------------------------------------------------------------------------------
Close Date through 6 months
---------- -----------------------------------------------------------------------------------------------
1 Provide access to LTC actuarial data warehouses at
similar levels experienced by CSHI as an entity within
Conseco.
---------- -----------------------------------------------------------------------------------------------
2 Provide general ledger system support through the
conversion of CSHI financial data to an independent
General Ledger system chosen by CSHI.
---------- -----------------------------------------------------------------------------------------------
3 Provide general ledger access, processing, reporting, and
system support at similar levels experienced by CSHI as
an entity within Conseco.
---------- -----------------------------------------------------------------------------------------------
4 Provide access to all data warehouses related to CSHI
business at similar levels experienced by CSHI as an
entity within Conseco.
---------- -----------------------------------------------------------------------------------------------
<FN>
__________________
(1) Certain services may be provided under the agreement(s) with Long Term Care
Group, Inc. to be entered into pursuant to the Section 5.11 of the Transfer
Agreement.
</FN>
5 Provide accounts payable support at similar levels
experienced by CSHI as an entity with Conseco.
---------- -----------------------------------------------------------------------------------------------
6 Provide support of non cash disbursements through CDS
until BICPS conversion.
---------- -----------------------------------------------------------------------------------------------
7 Provide systems support related to the BICPS claims
system through the conversion to LTCG claims system.
---------- -----------------------------------------------------------------------------------------------
8 Provide telephone equipment and communication services
until physical relocation of CSHI is implemented.
---------- -----------------------------------------------------------------------------------------------
9 Provide network connectivity, firewalls, internet access
and WAN connections until physical relocation of CSHI is
implemented.
---------- -----------------------------------------------------------------------------------------------
10 Provide reserve valuation and reporting in support of
statutory reporting requirements at similar levels
experienced by CSHI as an entity within Conseco.
---------- -----------------------------------------------------------------------------------------------
11 Prepare and file an actuarial opinion and memorandum for
CSHI at similar levels experienced by CSHI as an entity
within Conseco.
---------- -----------------------------------------------------------------------------------------------
12 Provide assistance with respect to those pending and
threatened regulatory proceedings and investigations
previously disclosed by the Conseco Parties to Trust in
accordance with Section 3.16(c) of the Transfer
Agreement.
---------- -----------------------------------------------------------------------------------------------
13 Provide rate increase filing support and administration
to effect an orderly transition to the solution chosen by
CSHI.
---------- -----------------------------------------------------------------------------------------------
---------- -----------------------------------------------------------------------------------------------
Close Date through 18 months
---------- -----------------------------------------------------------------------------------------------
1 Provide 1099 tax filing for agent commissions until the
greater of 18 months or commissions system converted to a
CSHI chosen independent system.
---------- -----------------------------------------------------------------------------------------------
2 Provide commission administration, processing, and
support until the greater of 18 months or systems
converted to a CSHI chosen independent system.
---------- -----------------------------------------------------------------------------------------------
3 Provide agent care customer service requests related to
commissions until the greater of 18 months or systems
converted to a CSHI chosen independent platform.
---------- -----------------------------------------------------------------------------------------------
4 Provide USSI, CFO, and Sharp system support, access and
maintenance of current data feeds.
---------- -----------------------------------------------------------------------------------------------
5 Provide systems support related to the administrations
system (USSI, CFO, and Sharp) conversion to LTCG
administration system.
---------- -----------------------------------------------------------------------------------------------
---------- -----------------------------------------------------------------------------------------------
A-2
APPENDIX B
----------
Migration Services
The Migration Services to be provided by the Conseco Parties or their affiliates
to CSHI shall, unless the Parties otherwise agree, include at a minimum the
following services:
Migration Services
Closed date = separation date of CSHI
----------------------------------------------------------------------------------------------------------
Close Date through 3 months
---------- -----------------------------------------------------------------------------------------------
1 Continue conversion of the BICPS claims system.
---------- -----------------------------------------------------------------------------------------------
Close Date through 6 months
---------- -----------------------------------------------------------------------------------------------
1 Perform a CSHI financial system implementation chosen by SHIP
---------- -----------------------------------------------------------------------------------------------
Close Date through 18 months
---------- -----------------------------------------------------------------------------------------------
1 Continue USSI, CFO and Sharp administration system conversion.
---------- -----------------------------------------------------------------------------------------------
2 Commission system conversion.
---------- -----------------------------------------------------------------------------------------------
---------- -----------------------------------------------------------------------------------------------
Exhibit E
This ASSIGNMENT AGREEMENT (this "Assignment Agreement"), is made as of
[ ], 2008, by and between Conseco Senior Health Insurance Company, an insurance
company domiciled in the Commonwealth of Pennsylvania ("CSHI"), and Conseco
Insurance Company, an insurance company domiciled in the State of Illinois
("CIC," and, together with CSHI, the "Parties").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Conseco, Inc., a Delaware corporation, CDOC, Inc., a Delaware
corporation, and Senior Health Care Transition Trust, a Pennsylvania business
trust, have entered into a Transfer Agreement, dated as of August 11, 2008 (the
"Transfer Agreement"), which provides for the Parties to enter into this
Assignment Agreement;
WHEREAS, CIC and CSHI desire to transfer certain of CSHI's assets and
certain of CSHI's liabilities as of the date hereof, to, and have them assumed
by, CIC effective as of closing date contemplated by the Transfer Agreement (the
"Closing Date");
WHEREAS, to facilitate CIC's performance of the Administrative
Services (defined below) in connection with the Transferred Liabilities (as
defined below), CSHI desires to grant CIC authority to administer the
Transferred Liabilities (as defined below) in CSHI's name; and
WHEREAS, the consummation of the transactions contemplated by this
Assignment Agreement is a condition to the closing of the transactions
contemplated by the Transfer Agreement (the "Closing").
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements and covenants hereinafter set forth, the Parties hereby agree as
follows:
1. TRANSFER AND ASSUMPTION.
1.1. Effective Time of Transfer and Assumption. Subject to receipt of
approvals from the Illinois Division of Insurance and the Pennsylvania Insurance
Department, this Assignment Agreement shall become effective and non-cancelable
immediately prior to the Closing. For purposes of this Assignment Agreement, the
"Effective Time" shall mean 12:01 A.M. on the Closing Date.
1.2. Transfer and Assumption. In accordance with the terms of this
Assignment Agreement, immediately on the Effective Time all the rights, title,
franchises, and interest of CSHI in and to the Transferred Assets (as defined
below) shall, without any further action by or on behalf of the Parties,
transfer to and be vested in CIC and simultaneously therewith CIC shall
automatically assume any and all of the Transferred Liabilities (as defined
below) of CSHI as of such date (the "Transfer and Assumption").
1.3. Transferred Assets. For purposes of this Assignment Agreement,
"Transferred Assets" means the following assets of CSHI immediately prior to the
Effective Time: (a) all insurance contracts issued by CSHI that are traditional
life insurance contracts, universal life insurance contracts, specified disease
insurance contracts, Medicare supplement
insurance contracts, fixed annuity contracts and single premium immediate
annuity contracts which are in-force as of the Effective Time (the "Insurance
Contracts"); (b) subject to Paragraph II of Exhibit A to the Transfer Agreement,
all reinsurance contracts entered into by CSHI whereby CSHI reinsures, as ceding
company, the Insurance Contracts (the "Ceded Reinsurance"); (c) subject to
Paragraph II of Exhibit A to the Transfer Agreement, all reinsurance contracts
whereby CSHI reinsures, as reinsuring company, traditional life insurance
contracts, universal life insurance contracts, specified disease insurance
contracts, Medicare supplement insurance contracts, fixed annuity contracts and
single premium immediate annuity contracts (the "Assumed Reinsurance," and,
together with the Ceded Reinsurance, the "Reinsurance Contracts"); (d) cash or
investment assets with a fair market value equal to the statutory reserves
associated with the Insurance Contracts and the Assumed Reinsurance as of the
Effective Time (the "Closing Date Reserves"); (e) any and all monies owing to or
balances due to CSHI from others related to the Insurance Contracts and the
Reinsurance Contracts; and (f) all other assets of CSHI to the extent that such
assets relate solely to the business and operations of CSHI in administering the
Insurance Contracts and the Reinsurance Contracts (other than Reinsurance
Contracts to the extent covering business of CSHI other than Insurance
Contracts). A list of the Transferred Assets contemplated by subsections (b) and
(c) of the foregoing sentence is set forth on Schedule 1.3(a). It is the
intention of the Parties that the selection of the investment assets to be
retained by CSHI or transferred by CSHI to CIC pursuant to this Assignment
Agreement, as applicable, as of the Effective Time be generally consistent with
that set forth in the "Summary of CSHI Investment Portfolio: Proposed Split of
Investments - as of June 30, 2008" attached hereto as Schedule 1.3(b), with
appropriate adjustments being made, which are mutually acceptable to the
Parties, to reflect changes in the composition and value of the investment
assets of CSHI prior to the Closing, as well as changes in the reserves held
with respect to the business of CSHI to be assigned to CIC pursuant to this
Assignment Agreement.
1.4. Closing Date Reserves.
(a) For purposes of causing the transfer of the Closing Date Reserves
on the Closing Date, the Closing Date Reserves shall be estimated
to be equal to the statutory reserves associated with the
Insurance Contracts and the Assumed Reinsurance as reflected on
CSHI's last filed calendar quarter end financial statements (the
"Quarter End Reserve Amount").
(b) CSHI shall cause to be prepared and delivered to CIC within 45
days following the Closing Date a statement prepared in
accordance with the Methodologies (in a format to be agreed upon
by the Parties) setting forth the Closing Date Reserves (the
"Statement of Closing Date Reserves"). For purposes of this
Assignment Agreement, the term "Methodologies" means with respect
to CSHI's establishment of the Closing Date Reserves (1) the most
recent practices of CSHI with respect to the Insurance Contracts
and Assumed Reinsurance used in preparing the statutory financial
statements of CSHI, and (2) to the extent not contemplated by the
practices referred to in (1), applicable statutory accounting
practices prescribed or permitted by the Commissioner of the
Pennsylvania
2
Department of Insurance, but disregarding any permitted practices
applicable specifically to CSHI.
(c) Upon receipt, CIC shall have 30 days to review the Statement of
Closing Date Reserves (the "Review Period"). During the Review
Period, CSHI shall cooperate fully with CIC and its advisors in
all reasonable respects in order to allow CIC to complete its
review of the Statement of Closing Date Reserves, including
furnishing any additional information and documents that may be
reasonably requested by CIC or its advisors in connection with
their review.
(d) If CIC provides CSHI with no written objection to the amount of
the Closing Date Reserves listed on the Statement of Closing Date
Reserves within the Review Period, such amount shall be deemed
the amount of the Closing Date Reserves for purposes of this
Assignment Agreement and shall be binding on the Parties (the
"Final Closing Date Reserve Amount").
(e) If the Parties cannot reach agreement on the amount of the
Closing Date Reserves during the Review Period (or such longer
period as agreed to by the Parties), the Parties shall submit
their dispute for resolution to a nationally recognized
accounting firm that (i) is mutually acceptable to the Parties
and (ii) does not have any material relationship with either
Party or other actual or potential conflict of interest (the
"Third Party Accountant"). The amount of the Closing Date
Reserves determined by the Third Party Accountant to be the
correct amount shall be deemed the Final Closing Date Reserve
Amount and shall be binding on the Parties.
(f) Within 5 days of the resolution of the Final Closing Date Reserve
Amount, the difference between the Quarter End Reserve Amount and
the Final Closing Date Reserve Amount shall be transferred, in
the form of cash or investment assets, (i) from CSHI to CIC if
the Final Closing Date Reserve Amount is higher than the Quarter
End Reserve Amount or (ii) from CIC to CSHI if the Final Closing
Date Reserve Amount is lower than the Quarter End Reserve Amount.
1.5. Treatment of Transferred Assets. As of the Effective Time,
ownership of the Transferred Assets shall be transferred to CIC and CIC shall
treat all such assets as its property for all purposes, including, but not
limited to, annual statement and financial accounting purposes, and CSHI shall
no longer own, or have any claim of any kind whatsoever against, the Transferred
Assets, including, but not limited to, annual statement and financial accounting
purposes. All assets of CSHI other than Transferred Assets shall remain property
of CSHI, and CIC shall have no claim whatsoever against such assets under this
Assignment Agreement.
1.6. Transferred Liabilities. The term "Transferred Liabilities" shall
mean any and all of CSHI's liabilities or contractual commitments of every
nature and description arising under or relating in any way to the ownership or
use of the Transferred Assets, whether
3
absolute, accrued, contingent or otherwise, and whenever arising or due and
payable (whether before or after the Effective Time); provided, however, in no
event shall Transferred Liabilities include any Specified Third Party Claims, as
defined in Section 4. For the avoidance of doubt, "Transferred Liabilities"
shall include, without limitation, the following to the extent that such
liabilities arise under or are related to the Transferred Assets:
(a) any and all unpaid losses and loss adjustment expenses and any
and all liabilities existing or arising in the future;
(b) any and all unpaid expenses, including contingent commissions,
underwriting and investment expenses;
(c) any and all unearned premiums relating to policy periods prior to
the Effective Time;
(d) any and all monies withheld or retained for the account of others
and any and all monies owing by CSHI to others, including
policyholders, agents, brokers and other underwriting
representatives and reinsurers;
(e) any and all monies or other obligations due under Reinsurance
Contracts;
(f) any and all actions, proceedings or liabilities arising from any
of the foregoing liabilities or the Transferred Assets.
1.7. Treatment of Transferred Liabilities. As of the Effective Time,
CIC shall be liable, as a primary obligor and not a guarantor, for 100% of the
Transferred Liabilities, and shall indemnify and hold harmless the CSHI
Indemnified Parties from and against any Losses (as defined in Section 4)
arising out of or in any way related to the Transferred Liabilities, other than
for Specified Third Party Claims, in accordance with terms and conditions of
Section 4. CIC shall report the Transferred Liabilities as its direct
liabilities and obligations for annual statement and financial accounting
purposes; and CSHI shall not report any of the Transferred Liabilities as its
direct liabilities and obligations for annual statement and financial accounting
purposes; provided, however, that CSHI shall disclose in its statutory financial
statements a contingent liability in the amount of the aggregate reserves
outstanding with respect to the Transferred Liabilities.
1.8. Books and Records. On the Closing Date, CSHI shall deliver to CIC
originals or copies of all of the books, records, data and information in the
possession or control of CSHI relating to the Transferred Assets or the
Transferred Liabilities or the conduct and operations of CSHI to the extent
related thereto. CSHI may retain a copy of such books, records, data and
information to the extent it deems necessary or appropriate.
1.9. Payment. On the Closing Date, CIC shall transfer as a ceding
commission to CSHI cash or cash equivalents equal to [$35 million], which amount
shall be discharged by CIC accepting a reduction of equal amount in the
Transferred Assets transferred by CSHI to CIC.
4
1.10. Notice to Policyholders. Within 30 Business Days (as defined
below) after the Effective Time, CSHI shall provide written notice,
substantially in the form of Exhibit A attached hereto, to each policyholder of
record of an in-force Insurance Contract.
1.11. Business Day. For purposes of this Assignment Agreement,
"Business Day" means any day other than a Saturday, Sunday, a day on which
banking institutions in the Commonwealth of Pennsylvania are permitted or
obligated by Law to be closed or a day on which the New York Stock Exchange is
closed for trading.
1.12. Enforcement of Transferred Liabilities against CIC. No actions
or proceedings pending on the Effective Time or any subsequent actions or
proceedings arising from the Transferred Assets or the Transferred Liabilities
to which CSHI may be a party shall be abated or discontinued by reason of the
Transfer and Assumption, but the same may be prosecuted to final judgment in the
same manner as if the Transfer and Assumption had not taken place, or CIC may be
substituted in place of CSHI by order of the court in which the action or
proceeding may be pending. All Transferred Liabilities of every nature and
description shall attach to and be assumed by CIC and may be enforced against
CIC to the same extent as if such Transferred Liabilities had been originally
incurred or contracted by CIC.
1.13. Cooperation Between Parties. Each Party hereto shall cooperate
fully with the other in all reasonable respects in order to accomplish the
objectives of this Assignment Agreement including furnishing any additional
assistance, information and documents as may be reasonably requested by a Party
from time to time subject to reimbursement for reasonable costs by the Party
making such request.
2. ADMINISTRATION OF TRANSFERRED ASSETS AND LIABILITIES
2.1. Administration. In connection with the Transfer and Assumption,
on and after the Effective Time, CIC shall have the right and obligation to
administer, manage and oversee all aspects of the Transferred Assets and the
Transferred Liabilities (the "Administrative Services"). CIC shall perform all
Administrative Services with respect to the Transferred Liabilities, whether on
its behalf or on behalf of CSHI, including without limitation:
(a) billing, collection of premiums and other amounts due from any
policyholder under the Insurance Contracts or Reinsurance
Contracts;
(b) payment of all obligations relating to any Transferred
Liabilities;
(c) processing and administration of any claim which is, or is the
subject of, any Transferred Liability;
(d) handling of any service requests under any Insurance Contract or
Reinsurance Contract;
(e) administration of any Insurance Contract or Reinsurance Contract;
(f) calculation and payment of any commissions due and payable; and
5
(g) all other actions necessary or appropriate for the administration
and discharge of the Transferred Liabilities.
2.2. Appointment. CSHI, on behalf of itself and its successors, hereby
irrevocably appoints CIC and its designated officers, directors and
representatives as:
(a) the true and lawful attorney of CSHI to handle, satisfy and/or
dispute the Transferred Liabilities as well as to execute,
acknowledge and deliver, or cause to be executed, acknowledged
and delivered, such assurances or documents, and to promptly
perform, or cause to be performed, such further acts or deeds,
which, in the reasonable discretion of CIC and its designated
officers and directors may be necessary, desirable or expedient
for the purpose of administering the Transferred Liabilities;
provided, that such power of -------- attorney, being coupled
with any interest, shall not be revoked by dissolution of CSHI
and may be exercised in the name and on behalf of CIC; and
(b) its exclusive administrator to perform all Administrative
Services as may be required on behalf of CSHI.
2.3. Use of Name. After the Effective Time and upon CIC's reasonable
request, CSHI shall provide specific authorizations for CIC designated officers
and directors to:
(a) sign letters and acknowledge contract modifications on behalf of
CSHI to the extent necessary or appropriate for the
administration and claim matters with respect to any Insurance
Contract; and
(b) use CSHI's trademarks or corporate name to the extent necessary
or appropriate in providing the Administrative Services.
2.4. Administration Standards. CIC shall have the exclusive authority
hereunder, from and after the Effective Time, to administer the Transferred
Liabilities in its discretion, in furtherance of which authority, CIC shall be
authorized hereunder to perform such acts with respect to any Insurance
Contract, Reinsurance Contract or Transferred Liabilities to the extent
necessary or appropriate for the performance of the Administrative Services. In
performing Administrative Services, CIC shall act in a competent and
professional manner. Without limiting the foregoing, CSHI shall provide the
Administrative Services in accordance with (i) the terms of this Assignment
Agreement, (ii) applicable Law, including maintenance by CIC of all licenses,
authorizations, permits and qualifications from Governmental Entities necessary
to perform the Administrative Services required by this Assignment Agreement,
(iii) the terms of the Insurance Contracts, Reinsurance Contracts or Transferred
Liabilities, as applicable and (iv) CIC's own standards in providing such
services with respect to its other assets, liabilities or contractual
commitments.
2.5. Administration Expenses. All costs and expenses incurred in
connection with its performance of the Administrative Services shall be borne by
CIC.
6
2.6. Bank Accounts. As long as any Transferred Liability exists, CIC
shall have the authority to establish and maintain, at its sole expense,
accounts with banking institutions in CSHI's name to provide the Administrative
Services (the "Bank Accounts"). CIC shall have the authority to:
(a) request CSHI to open the Bank Accounts for the exclusive use and
funding by CIC;
(b) designate the authorized signatures on the Bank Accounts;
(c) issue drafts on and make deposits in the Bank Accounts in the
name of CSHI; and
(d) make withdrawals from the Bank Accounts.
CSHI shall do all things reasonably necessary to enable CIC to open
and maintain the Bank Accounts including, without limitation, executing and
delivering such depository resolutions and other documents as may be requested
from time to time by the banking institutions. CSHI agrees that without CIC's
prior written consent (which consent shall not be unreasonably conditioned,
withheld or delayed) it shall not make any changes to the authorized signatories
on the Bank Accounts nor attempt to withdraw any funds therefrom. CIC shall own
all funds deposited in the Bank Accounts, shall be entitled to all interest
thereon, and shall pay all taxes on such interest.
2.7. Credit for Reinsurance. In the event that, despite the provisions
of this Assignment Agreement, CSHI reasonably concludes that it will be required
to reflect any of the Transferred Liabilities as direct liabilities on its
statutory financial statements, CIC will promptly, and in any event with effect
no later than the end of the financial reporting quarter in which CSHI provides
notice of its conclusion as set forth in the preceding clause, take, or cause to
be taken, all actions, and do, or cause to be done, and assist and cooperate
with CSHI and its representatives in doing all things necessary, proper or
advisable to permit CSHI to obtain credit for a reinsurance recoverable from CIC
equal to the amount of such Transferred Liabilities required to be reflected as
direct liabilities on its statutory financial statements in each state
(including the District of Columbia) in which CSHI is required to file statutory
financial statements, including, without limitation, by executing a 100% quota
share reinsurance agreement; it being understood that CIC shall be entitled to
elect, after consultation with CSHI, among the methods available for obtaining
such credit; it being further understood that at the request of CIC, CSHI shall
agree to amend the Trust Agreement in all respects reasonably necessary to
provide CSHI with such credit. All expenses, including all fees and expenses of
insurance regulators, agents, representatives, counsel, advisors and
accountants, incurred by any Party in connection with the obtaining such credit
pursuant to this Section 2.6 shall be borne by CIC.
2.8. Regulatory Proceedings. If CSHI or CIC receives notice of, or
otherwise becomes aware of, any regulatory investigation or proceeding relating
to any of the Transferred Liabilities, CSHI or CIC, as applicable, shall
promptly notify the other Party thereof. CIC shall provide CSHI and its counsel
the opportunity to review in advance and comment on all filings
7
with any governmental entity relating to such investigations or proceedings,
each of which shall be reasonably satisfactory to CSHI. Each Party shall keep
the other Party informed on a current basis of the status of matters relating to
such investigations, proceedings and filings. It is expressly understood by the
Parties that each Party shall ensure that representatives of both CSHI and CIC
shall have the right to attend and participate in any hearing, proceeding,
meeting, conference or similar event before or with any person relating to such
investigations, proceedings or filings. In furtherance of the foregoing, each
Party shall provide the other Party reasonable advance notice of any such
proceeding, meeting, conference or similar event.
2.9. Complaint Handling. The Parties shall cooperate and consult with
each other in providing information necessary to respond to any consumer
complaint concerning any Insurance Contract, including any complaint received
from any governmental entity. After the Effective Time, CIC shall answer all
complaints received concerning any Insurance Contract. In connection with the
handling of any complaint, the complaining party shall be provided with a copy
of the notice provide to policyholders pursuant to Section 1.10. On or after the
Effective Time, CSHI shall promptly forward to a contact person designated by
CIC any such complaint that is pending as of the date hereof or that CSHI
receives after the date hereof. Upon answering such complaint, CIC shall furnish
CSHI with a copy of the complaint file if requested by CSHI. CIC shall be solely
responsible for maintaining any complaint files, complaint registers or other
reports of any kind required to be maintained under applicable Law, and shall be
responsible for preparing and submitting any other complaint filings for which
it is responsible under applicable Law.
2.10. Non-Assignability. Notwithstanding anything to the contrary
contained in this Assignment Agreement, to the extent that the assignment or
transfer or attempted assignment or transfer to CIC of any Transferred Asset or
Transferred Liability or any benefit arising thereunder or resulting therefrom
would require any third party consents or waivers and such consents or waivers
shall not have been obtained prior to the Effective Time, this Assignment
Agreement shall not constitute an assignment or transfer, or any attempted
assignment or transfer thereof. Following the Effective Time, the Parties shall
continue to cooperate fully with each other and use reasonable best efforts to
obtain promptly such consents or waivers. Pending receipt of such consent or
waiver, the Parties shall fully cooperate with each other to provide the full
rights and benefit of such Transferred Asset to CIC and to support the provision
of Administrative Services by CIC with respect to such Transferred Liability.
3. ESTABLISHMENT AND MAINTENANCE OF TRUST ACCOUNT
3.1. In order to provide CSHI with additional security for the
performance of CIC of its obligations under this Assignment Agreement, CIC
agrees that simultaneously with the execution of this Assignment Agreement it
shall enter into a trust agreement in the form attached hereto as Exhibit B (the
"Trust Agreement") pursuant to which CIC shall establish and fund a trust
account ("Trust Account") in a qualified United States financial institution, at
its sole cost and expense, in an initial amount equal to the Quarter End Reserve
Amount. Thereafter, for the duration of the Trust Agreement, CIC shall maintain
in the Trust Account an amount equal to 100% of the statutory reserves relating
to the Transferred Liabilities reported on CIC's last filed calendar quarter end
financial statements.
8
4. INDEMNIFICATION.
4.1. Obligation to Indemnify.
(a) From and after the Effective Time, and subject to the limitations
set forth in this Section 4, CIC agrees to indemnify and hold
harmless CSHI, its affiliates and their respective trustees,
directors, officers, employees, agents, advisors and
representatives (collectively, the "CSHI Indemnified Parties")
from and against all losses, liabilities, claims, litigations,
arbitrations, expenses (including reasonable expenses of
investigation, enforcement and collection and reasonable
attorneys' fees and expenses) and damages (including reasonable
expenses of investigation, enforcement and collection and
reasonable attorneys' fees and expenses) and damages (including
any incidental or similar damages, but excluding any lost
profits, diminution in value or any punitive, consequential,
exemplary or similar damages other than such damages arising in
connection with a Third Party Claim) whether or not involving a
Third Party Claim (collectively, "Losses") to the extent arising
from or related to: (i) any breach or nonfulfillment by CIC of,
or any duties or obligations under, this Assignment Agreement;
(ii) any Transferred Asset or Transferred Liability (excluding
Losses in connection with a Third Party Claim arising out of or
relating to actions taken by CSHI with respect to such
Transferred Asset or Transferred Liability after the Effective
Time, solely to the extent such Losses are attributable to the
actions taken by CSHI (other than at the request or direction of
CIC) with respect to such Transferred Asset or Transferred
Liability after the Effective Time) ("Specified Third Party
Claims"); and (iii) any enforcement of this indemnity.
(b) From and after the Effective Time, and subject to the limitations
set forth in this Section 4, CSHI agrees to indemnify and hold
harmless CIC, its affiliates and their respective directors,
officers, employees, agents, advisors and representatives
(collectively, the "CIC Indemnified Parties," and, together with
the CSHI Indemnified Parties, the "Indemnified Parties") from and
against all Losses to the extent arising from or related to (i)
any breach or nonfulfillment by CSHI of, or any its duties or
obligations under, this Assignment Agreement; (ii) any Specified
Third Party Claims, solely to the extent such Losses are
attributable to the actions taken by CSHI (other than at the
request or direction of CIC) with respect to such Transferred
Asset or Transferred Liability after the Effective Time or (iii)
any enforcement of this indemnity.
4.2. Indemnification Procedures.
(a) In order for a party (the "Indemnified Party") to be entitled to
any indemnification provided for under this Assignment Agreement
in respect of, arising out of or involving a claim or demand made
by, or an action, proceeding or investigation instituted by, any
person neither a party to this
9
Assignment Agreement nor an affiliate of such a Party (a "Third
Party Claim"), such Indemnified Party must notify the party from
which indemnity is sought (the "Indemnifying Party") in writing,
and in reasonable detail, of the Third Party Claim promptly
following becoming aware of such claim; provided, however, that
failure to give such notification shall not affect the
indemnification provided hereunder except to the extent that such
failure results in a lack of actual notice to the Indemnifying
Party and such Indemnifying Party shall have been materially
prejudiced as a result of such failure. Thereafter, the
Indemnified Party shall deliver to the Indemnifying Party copies
of all notices and documents (including court papers) received by
the Indemnified Party relating to the Third Party Claim.
(b) If a Third Party Claim is made against an Indemnified Party, the
Indemnifying Party will be entitled to participate in the defense
thereof and, if it so chooses, to assume the defense thereof (at
the expense of such Indemnifying Party) with counsel selected by
the Indemnifying Party, which shall be reasonably satisfactory to
the Indemnified Party. If the Indemnifying Party assumes such
defense, the Indemnified Party shall have the right to
participate in the defense thereof and to employ counsel, at its
own expense, separate from the counsel employed by the
Indemnifying Party; provided, however, that the Indemnifying
Party shall bear the reasonable fees, costs and expenses of such
separate counsel if the (A) Indemnified Party shall have
determined in good faith and after consulting with outside
counsel that an actual or potential conflict of interest makes
representation by the same counsel or the counsel selected by the
Indemnifying Party inappropriate or (B) Indemnifying Party shall
have authorized the Indemnified Party to employ separate counsel
at the Indemnifying Party's expense. If the Indemnifying Party
does not promptly assume the defense of such Third Party Claim
following notice thereof, the Indemnified Party shall be entitled
to assume and control such defense without prejudice to the
ability of the Indemnified Party to enforce its claim for
indemnification against the Indemnifying Party hereunder. Whether
or not the Indemnifying Party shall have assumed the defense of a
Third Party Claim, all of the parties hereto shall cooperate in
the defense or prosecution thereof. Such cooperation shall
include the retention and the provision of records and
information which are reasonably relevant to such Third Party
Claim, and making employees available on a mutually convenient
basis to provide additional information and explanation of any
material provided hereunder. All reasonable costs and expenses
incurred in connection with the Indemnified Party's cooperation
shall be borne by the Indemnifying Party. Whether or not the
Indemnifying Party assumes the defense of a Third Party Claim,
the Indemnified Party shall not admit any liability with respect
to, or settle, compromise or discharge, such Third Party Claim
without the Indemnifying Party's prior written consent (which
consent shall not be unreasonably withheld or delayed). If the
Indemnifying Party assumes the defense of a Third Party Claim,
the
10
Indemnifying Party, in the defense of such Third Party Claim,
shall not admit any liability with respect to, or settle,
compromise or discharge, such Third Party Claim without the
Indemnified Party's prior written consent (which consent shall
not be unreasonably withheld or delayed) unless (A) there is no
finding or admission of any violation of Law or any violation of
the rights of any person and no effect on any other claims that
may be made against the Indemnified Party and (B) the sole relief
provided is monetary damages that are paid in full by the
Indemnifying Party and a full, complete and irrevocable release
is provided to the Indemnified Party. If the Indemnified Party in
good faith determines that the conduct of the defense or any
proposed settlement of any Third Party Claim would reasonably be
expected to have a materially adverse effect on the Indemnified
Party's ability (or the ability of any of its affiliates) to
conduct its business, the Indemnified Party shall have the right
at all times to take over and control the defense, settlement,
negotiation or litigation relating to any such Third Party Claim
at the sole cost of the Indemnifying Party, provided that if the
Indemnified Party does so take over and control, the Indemnified
Party shall not settle such Third Party Claim without the written
consent of the Indemnifying Party, such consent not to be
unreasonably withheld or delayed.
(c) In the event any Indemnified Party shall have a claim against any
Indemnifying Party under Sections 4.1(a) and 4.1(b) that does not
involve a Third Party Claim being asserted against or sought to
be collected from such Indemnified Party, the Indemnified Party
shall deliver notice of such claim with reasonable promptness to
the Indemnifying Party; provided, however, that failure to give
such notification shall not affect the indemnification provided
hereunder except to the extent that such failure results in a
lack of actual notice to the Indemnifying Party and such
Indemnifying Party shall have been materially prejudiced as a
result of such failure. The Indemnifying Party will have 30 days
following its receipt of such notice to give notice of dispute of
the claim to the Indemnified Party.
(d) Except (i) for claims for specific performance pursuant to
Section 4.7 and (ii) for claims based on fraud, intentional
misrepresentation or omission or intentional misconduct, the
indemnity provided in Sections 4.1(a) and 4.1(b) shall be the
sole and exclusive remedy of the Indemnified Party against the
Indemnifying Party at law or equity for any claim arising under
this Assignment Agreement.
(e) The rights and remedies of any party in respect of any breach of
any covenant or agreement shall in no way be limited by the fact
that the act, omission, occurrence or other state of facts or
circumstances upon which any claim of any such breach is based
may also be the subject matter of any other covenant or agreement
as to which there is no breach.
11
5. MISCELLANEOUS.
5.1. Cooperation; Further Assurances.
(a) On and after the Effective Time, each Party shall take all such
further action and furnish all documents and other agreements and
instruments, including, without limitation, signatures of its
officers, as may be necessary or appropriate and as reasonably
requested by the other Party in order to carry out the
transactions contemplated by this Assignment Agreement. In the
event that any Party shall be required, by applicable Law or
otherwise, to obtain the consent or the signature of any
authorized officer of the other Party in order to carry out the
transactions contemplated by this Assignment Agreement, upon
request, such Party shall promptly provide such consent or
signature.
(b) The Parties covenant and agree to take such additional steps, to
perform such additional acts, and to furnish such additional
documents and other agreements and instruments, as may at any
time be necessary or appropriate to carry out the transactions
contemplated by this Assignment Agreement. Each Party hereby
irrevocably authorizes and empowers all of its duly authorized
officers, or any one of them, to take such further action and to
execute such additional documents and other agreements and
instruments on that Party's behalf in furtherance hereof, and
such acts when taken and performed, and such documents and other
agreements and instruments when executed shall have full effect
and be as if taken, performed or executed by that respective
Party under its corporate seal.
5.2. Redomestication: On and after the Effective Time, CSHI shall not
change its domiciliary state (a "Redomestication") unless the insurance
regulatory authority in the jurisdiction in which CSHI will be domiciled as a
result of such Redomestication either approves or fully recognizes the Transfer
and Assumption in connection with such Redomestication.
5.3. Dollar References. All dollar references in this Assignment
Agreement are to the currency of the United States.
5.4. Tax Matters. The Parties agree that for U.S. federal income tax
purposes and applicable provisions of state and local tax law, the Transfer and
Assumption will be treated as occurring prior to the Closing, and will be
reported on the CIC consolidated federal income tax return for the year that
includes the Closing Date. None of the Parties or their affiliates will take any
position on any tax return or in any audit or other proceeding that is
inconsistent with the tax treatment described in this Section 5.4. The Parties
agree to make the election contemplated by Treasury Regulation ss. 1.848-2(g)(8)
and each Party agrees (i) to attach a schedule to its federal income tax return
for its first taxable year ending on or after the Effective Time that identifies
this Agreement as including for federal income tax purposes a
12
reinsurance agreement for which the joint election under Treasury Regulation ss.
1.848-2(g)(8) has been made, and (ii) that the Party with net positive
consideration (as defined in Treasury Regulation ss. 1.848-2(f)) under the
reinsurance agreement contained in this Agreement for each taxable year will
capitalize specified policy acquisition expenses with respect to the reinsurance
agreement without regard to the general deductions limitation of Section
848(c)(1) of the Internal Revenue Code of 1986, as amended (the "Code"). By
April 1 of each year, CIC shall submit to CSHI a schedule of its calculation of
the net consideration under this Agreement for the preceding calendar year
separately with respect to each category of Insurance Contracts that are
specified insurance contracts described in Sections 848(c)(1) and 848(e) of the
Code (the "Specified Insurance Contracts") and with respect to the Insurance
Contracts that are not Specified Insurance Contracts. Any dispute with respect
to the calculation provided by CIC will be resolved as provided in Section 9 of
the Tax Matters Agreement (as defined in the Transfer Agreement). The Parties
shall use this information in determining net consideration with respect to the
reinsurance agreement under this Agreement for such prior year.
5.5. Notices. Any notice or other communication required or permitted
hereunder shall be in writing (including facsimile or similar writing) and shall
be deemed given if (a) delivered personally, (b) sent by overnight courier
(providing proof of delivery) or (c) sent by facsimile, to the parties at the
following address:
If to CIC:
Conseco Insurance Company
11825 N. Pennsylvania Street
Carmel, IN 46032
Attention: Thomas D. Barta
SVP, Financial Planning and Analysis
Facsimile: (317) 817-5439
With a concurrent copy to:
Conseco Insurance Company
11825 N. Pennsylvania Street
Carmel, IN 46032
Attention: Matthew J. Zimpfer
EVP and General Counsel
Facsimile: (317) 817-2826
If to CSHI:
Conseco Senior Health Insurance Company
600 West Chicago Avenue
Chicago, IL 60610
Attention: John W. Wells
President and Chief Executive Officer
Facsimile: (312) 396-5922
13
Any party may, by notice given in accordance with this Section 5.5 to
the other Party, designate another address or person for receipt of notices
hereunder; provided, that notice of such a change shall be effective upon
receipt.
5.6. Entire Assignment Agreement. This Assignment Agreement, together
with the Transfer Agreement and the other Ancillary Assignment Agreement (as
defined in the Transfer Agreement), contains the entire agreement among the
Parties with respect to the subject matter hereof and supersedes all prior
agreements and understandings, written or oral, with respect thereto.
5.7. Waivers and Amendments; Non-Contractual Remedies. This Assignment
Agreement may be amended, superseded, canceled, renewed or extended, and the
terms hereof may be waived, only by a written instrument signed by each of the
Parties or, in the case of a waiver, by the Party waiving compliance. No delay
on the part of any Party in exercising any right, power or privilege hereunder
shall operate as a waiver thereof, nor shall any waiver on the part of any party
of any right, power or privilege, nor any single or partial exercise of any such
right, power or privilege, preclude any further exercise thereof or the exercise
of any other such right, power or privilege. The rights and remedies herein
provided are cumulative and are not exclusive of any rights or remedies that any
party may otherwise have at law or in equity. The parties agree that irreparable
damage would occur in the event any provision hereof were not to be performed in
accordance with its terms and that each party shall be entitled to specific
performance of the terms hereof in addition to any other remedies at law or in
equity.
5.8. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA, WITHOUT GIVING
EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF.
5.9. Jurisdiction. Each Party hereby irrevocably and unconditionally
consents to submit to the non-exclusive jurisdiction of any court of the United
States or any state court which in either case is located in the City of
Philadelphia for any actions, suits or proceedings arising out of or relating to
this Assignment Agreement and the transactions contemplated hereby (and each
Party agrees that service of any process, summons, notice or document by U.S.
registered mail to its address set forth above shall be effective service of
process for any action, suit or proceeding brought against it in any such
court). Each Party hereby irrevocably and unconditionally waives any objection
to the laying of venue of any action, suit or proceeding arising out of this
Assignment Agreement or the transactions contemplated hereby in any such court,
and hereby further irrevocably and unconditionally waives and agrees not to
plead or claim in any such court that any such action, suit or proceeding
brought in any such court has been brought in an inconvenient forum. EACH PARTY
HERETO HEREBY WAIVES TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
BROUGHT BY ANY OF THEM AGAINST ANOTHER ARISING OUT OF OR IN ANY WAY CONNECTED
WITH THIS ASSIGNMENT AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN.
14
5.10. Binding Effect; Assignment. This Assignment Agreement shall be
binding upon and inure to the benefit of the Parties and their respective
successors, permitted assigns and legal representatives. Neither this Assignment
Agreement, nor any of the rights, interests or obligations hereunder, may be
assigned, in whole or in part, by any party without the prior written consent of
the other Party hereto and any such assignment that is not consented to shall be
null and void.
5.11. Interpretation.
(a) For purposes of this Assignment Agreement, the words "hereof",
"herein", "hereby" and other words of similar import refer to
this Assignment Agreement as a whole unless otherwise indicated.
Whenever the words "include", "includes", or "including" are used
in this Assignment Agreement, they shall be deemed to be followed
by the words "without limitation". Whenever the singular is used
herein, the same shall include the plural, and whenever the
plural is used herein, the same shall include the singular, where
appropriate.
(b) This Assignment Agreement shall be deemed to be the joint work
product of the parties and any rule of construction that a
document shall be interpreted or construed against a drafter of
such document shall not be applicable.
5.12. Third Party Beneficiaries. Nothing in this Assignment Agreement
is intended or shall be construed to give any person other than the Parties
hereto, their successors and permitted assigns, any legal or equitable right,
remedy or claim under or in respect of this Assignment Agreement or any
provision contained herein; provided, however, that policyholders under the
Insurance Contracts shall be considered third party beneficiaries with respect
to the ability to enforce Transferred Liabilities directly against CIC as
contemplated by this Assignment Agreement.
5.13. Counterparts. This Assignment Agreement may be executed by the
Parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute one and the same instrument.
5.14. Exhibits and Schedules. The Schedules to this Assignment
Agreement that are specifically referred to herein are a part of this Agreement
as if fully set forth herein. All references herein to Articles, Sections,
subsections, paragraphs, subparagraphs, clauses, and Schedules shall be deemed
references to such parts of this Assignment Agreement, unless the context shall
otherwise require.
5.15. Defined Terms. Capitalized terms used but not defined have the
same meaning as in the Transfer Agreement.
5.16. Headings. The headings in this Assignment Agreement are for
reference only, and shall not affect the interpretation of this Assignment
Agreement.
(The rest of this page is intentionally left blank)
15
IN WITNESS WHEREOF, CSHI and CIC have caused this Assignment Agreement to be
duly executed as of the date first written above.
Conseco Senior Health Insurance Company Conseco Insurance Company
By: By:
----------------------------------- ------------------------
Name: Name:
Title: Title:
[SEAL] [SEAL]
16
Schedule 1.3(a)
Transferred Assets
[To be completed prior to the closing contemplated
by the Transfer Agreement.]
Schedule 1.3(b)
CSHI Investment Portfolio Split
(attached)
Exhibit A to Assignment Agreement
---------------------------------
NOTICE AND CERTIFICATION OF ASSUMPTION
BY
CONSECO INSURANCE COMPANY
Pursuant to the terms of an Assignment Agreement, dated [ ], between
Conseco Senior Health Insurance Company ("CSHI") and Conseco Insurance Company
("CIC"), all liabilities and obligations of CSHI, an insurance company duly
organized and existing under the laws of the Commonwealth of Pennsylvania, under
certain policies of insurance (including any amendment or modifications thereto)
heretofore written by CSHI, including your policy, will be assumed by CIC, an
insurance company duly organized and existing under the laws of the State of
Illinois.
This change is effective as of [ ], 2008.
All terms and conditions of your policy with us remain unchanged, except
that CIC shall be substituted as your insurer. All payments, notices, claims and
suits or actions on your policy shall hereafter be made to CIC as though it were
your original insurer.
Please be advised that you retain all rights against CSHI, your original
insurer, with respect to your policy. For example, in the event CIC, the
assuming insurer, is unable to fulfill its obligations, CSHI, your original
insurer, remains liable to you notwithstanding the terms of the above-referenced
Assignment Agreement.
IN WITNESS WHEREOF, CSHI has caused its corporate seal to be affixed hereto
and this Notice and Certification of Assumption to be executed by its duly
authorized officers.
By: [SEAL]
----------------------------------
Name:
Title:
Exhibit B to Assignment Agreement
---------------------------------
Form of Trust Agreement
(attached)
Summary of CSHI Investment Portfolio
Proposed Split of Investments - as of June 30, 2008
Reinsured Total All
business Conseco
CSHI (LTC) (Non-LTC) Entities
---------- --------- ---------
Book Value 3,028.2 300.5 24,015.5
Market Value 2,848.9 289.5 22,674.8
MV/BV 94.1 96.3 94.4
Book yield 6.18% 6.38% 6.05%
Coupon 6.23% 6.30% 6.04%
Duration 9.2 7.8 8.2
Quality indicators
% NAIC 3 1.4% 2.6% 2.8%
% NAIC 4 0.7% 0.3% 1.3%
% NAIC 5 0.1% 0.2% 0.2%
% NAIC 6 0.0% 0.0% 0.0%
RBC Base factor 0.90% 1.02% 1.16%
Normalized default charge 0.25% 0.28% 0.42%
Liquidity
CTLs/Commerical mortgages 244.3 66.9 2,233.3
As % of portfolio 8.1% 22.3% 9.3%
Private placements 160.5 13.3 1,457.3
As % of portfolio 5.3% 4.4% 6.1%
Notes
CSHI (LTC) portfolio summary is after removing Special Situation
Investments. It represents the SHIP investment portfolio, before capital
contributions, after the reinsurance (assignment) of the non-LTC business.
Values as of 6/30/2008.
Reinsured business (Non-LTC) - represents the assets that would back the
reinsured (assigned) non-LTC business.
Summary includes Bonds, Preferred Stock, Mortgages (schedules D1, D21, B)
and Cash and Short Term, but excludes OIA Schedule BA.
Book yield, and duration exclude cash and short since the % of cash and
short fluctuates
RBC Base factor - pre-tax, before covariance C1 factor applied in the RBC
formula, chart below
Normalized default charge - internal default charge scale used in asset
adequacy analyses, see chart below
Security type / Quality
RBC Base Normalized
factor Default Charge
-------- --------------
Bond & CTL NAIC 1 0.40% 0.06%
Bond & CTL NAIC 2 1.30% 0.30%
Bond & CTL NAIC 3 4.60% 1.31%
Bond & CTL NAIC 4 10.00% 3.60%
Bond & CTL NAIC 5 23.00% 7.71%
Bond & CTL NAIC 6 30.00% 20.00%
Mortgages 1.30% 0.32% Note: RBC Base equals
2.60% * 50% MEA factor
Special Situation Investments
The following investments will be transferred out of CSHI:
amounts in $1000s Schedule Par/Units BV MV
Eagle creek D1 1,500.0 1,500.0 1,134.0
Fall Creek D1 4,000.0 4,000.0 2,824.0
IGA D21 25,000.0 25,000.0 21,475.0
Inviva D21 10,193.4 0.0 7,004.9
Conseco Funding Ltd CBO BA 0.0 0.0 12/31/07 values
Eagle creek BA 345.6 345.6 12/31/07 values
Exhibit F
===============================================================================
ADMINISTRATIVE SERVICES AGREEMENT(1)
by and between
WASHINGTON NATIONAL INSURANCE COMPANY
and
CONSECO SENIOR HEALTH INSURANCE COMPANY
Dated as of [ ], 2008
===============================================================================
(1) A substantially identical Administrative Services Agreement will be entered
into between Conseco Senior Health Insurance Company and each of Conseco
Health Insurance Company and Bankers Conseco Life Insurance Company of New
York with respect to the "closed block" long term care business of such
insurers.
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS
Section 1.1 Defined Terms...................................................................................1
ARTICLE II
AUTHORITY
Section 2.1 Appointment.....................................................................................3
Section 2.2 Limitations.....................................................................................4
ARTICLE III
STANDARD FOR SERVICES; FACILITIES; SUBCONTRACTING, ETC.
Section 3.1 Standards.......................................................................................4
Section 3.2 Facilities and Personnel........................................................................5
Section 3.3 Subcontracting..................................................................................5
Section 3.4 LTCG Contract...................................................................................5
Section 3.5 Independent Contractor..........................................................................5
Section 3.6 Limitations on Services.........................................................................5
Section 3.7 Disclaimer of Warranties........................................................................5
ARTICLE IV
CLAIMS HANDLING
Section 4.1 Claims Services.................................................................................5
Section 4.2 Company's Control Rights........................................................................6
Section 4.3 Notification of Governmental Inquiries..........................................................6
Section 4.4 Payment of Claims and Allocated Loss Expenses...................................................7
ARTICLE V
REPORTING MATTERS
Section 5.1 Monthly Claims Reporting Requirements...........................................................7
Section 5.2 Notification of Certain Types of Claims.........................................................7
Section 5.3 Regulatory Compliance and Reporting.............................................................7
Section 5.4 Additional Reports and Updates..................................................................8
Section 5.5 Certification of Accuracy.......................................................................8
i
Page
ARTICLE VI
COMPENSATION
Section 6.1 Fee Schedule....................................................................................8
Section 6.2 Payment.........................................................................................8
ARTICLE VII
COOPERATION
Section 7.1 Cooperation Between Parties.....................................................................8
Section 7.2 Rate Increases..................................................................................9
ARTICLE VIII
LIABILITY INSURANCE AND FIDELITY BOND
Section 8.1 Policies Required to be Held by Administrator...................................................9
ARTICLE IX
RECORD MAINTENANCE
Section 9.1 Record Retention by Administrator...............................................................9
Section 9.2 Ownership and Access............................................................................9
ARTICLE X
CONFIDENTIALITY; PRIVACY REQUIREMENTS
Section 10.1 Use of Confidential Information................................................................10
Section 10.2 Disclosure.....................................................................................10
Section 10.3 Privacy Requirements...........................................................................11
ARTICLE XI
INDEMNIFICATION
Section 11.1 By Administrator...............................................................................11
Section 11.2 By Company.....................................................................................12
Section 11.3 Procedure......................................................................................12
ARTICLE XII
DURATION; TERMINATION
Section 12.1 Duration.......................................................................................13
ii
Page
Section 12.2 Termination....................................................................................13
ARTICLE XIII
GENERAL PROVISIONS
Section 13.1 Notices........................................................................................14
Section 13.2 Entire Agreement...............................................................................15
Section 13.3 Waivers and Amendments; Non-Contractual Remedies; Preservation of Remedies.....................15
Section 13.4 Governing Law..................................................................................16
Section 13.5 Jurisdiction...................................................................................16
Section 13.6 Binding Effect; Assignment.....................................................................16
Section 13.7 Interpretation.................................................................................16
Section 13.8 No Third Party Beneficiaries...................................................................16
Section 13.9 Counterparts...................................................................................17
Section 13.10 Exhibits.......................................................................................17
Section 13.11 Force Majeure..................................................................................17
Section 13.12 Headings.......................................................................................17
EXHIBIT A Administrative Services .............................................................................A-1
EXHIBIT B Other Material Contracts.............................................................................B-1
EXHIBIT C Authority Limits ....................................................................................C-1
EXHIBIT D Claims Disbursement Account .........................................................................D-1
EXHIBIT E Fee Schedule ........................................................................................E-1
iii
ADMINISTRATIVE SERVICES AGREEMENT
This ADMINISTRATIVE SERVICES AGREEMENT (this "Agreement"), dated as of
______, 2008 and effective as of the Closing Date (as defined below), is entered
into by and between Washington National Insurance Company, an insurance company
domiciled in the State of Illinois ("Company"), and Conseco Senior Health
Insurance Company, an insurance company domiciled in the Commonwealth of
Pennsylvania ("Administrator").
RECITALS:
WHEREAS, Conseco, Inc., a Delaware corporation, CDOC, Inc., a Delaware
corporation, and Senior Health Care Transition Trust, a Pennsylvania business
trust, have entered into a Transfer Agreement dated as of August 11, 2008 (the
"Transfer Agreement") which provides for the parties to enter into this
Agreement;
WHEREAS, Company wishes to appoint Administrator to provide certain
administrative services with respect to the Policies (as defined below), and
Administrator desires to provide such administrative services; and
WHEREAS, this Agreement, duly executed by the parties, must be
delivered at the Closing (as defined below) of the transactions contemplated by
the Transfer Agreement.
NOW, THEREFORE, in consideration of the covenants and agreements set
forth herein, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
-----------
Section 1.1 Defined Terms.The following terms shall have the
respective meanings set forth below throughout this Agreement:
"Action" has the meaning set forth in Section 11.1 hereof.
"Administrative Services" has the meaning set forth in Section 2.1
hereof.
"Administrator" has the meaning set forth in the introductory
paragraph hereof.
"Affiliates" means, with respect to any Person, at the time in
question, any other Person controlling, controlled by or under common control
with such Person. For purposes of the foregoing, "control", including the terms
"controlling", "controlled by" and "under common control with", means the
possession, direct or indirect, of the power to direct or cause the direction of
the management and policies of an institution, whether through the ownership of
voting securities, by contract or otherwise.
"Agreement" has the meaning set forth in the introductory paragraph
hereof.
1
"Allocated Loss Expenses" shall mean the types of items and expenses
incurred or authorized by Administrator set forth on Exhibit C as may be
reasonable and necessary in connection with its provision of the Claims
Services.
"Authority Limit" has the meaning set forth in Section 4.1(a) hereof.
"Business Day" means any day other than a Saturday, Sunday, a day on
which banking institutions in the Commonwealth of Pennsylvania are permitted or
obligated by Law to be closed or a day on which the New York Stock Exchange is
closed for trading.
"Claims" has the meaning set forth in Section 4.1(b) hereof.
"Claims Disbursement Account" has the meaning set forth in Exhibit D
hereto.
"Claims Services" has the meaning set forth in Section 4.1(a) hereof.
"Closing" means the closing of the transactions contemplated by the
Transfer Agreement.
"Closing Date" means the date on which the transactions contemplated
by the Transfer Agreement close.
"Company" has the meaning set forth in the introductory paragraph
hereof.
"Conversion" means the project to enable LTCG to administer the
Policies using LTCG platforms and processes, as referenced in the LTCG Contract.
"Costs" has the meaning set forth in Section 11.1 hereof.
"Fee and Service Schedule" has the meaning set forth in Section 6.1
hereof.
"Force Majeure" means, with respect to each party hereto, each (or a
combination) of any acts or omissions of any civil or military authority, acts
of God, wars, hostilities, terrorism, acts or omissions of the other party
hereto, fires, strikes or other labor disturbances, equipment failures,
fluctuations or non availability of electrical power, heat, light, air
conditioning or telecommunications equipment, or any other act, omission or
occurrence beyond such party's reasonable control, irrespective of whether
similar to the foregoing enumerated acts, omissions or occurrences.
"Governmental Entity" means any federal, state, local, foreign,
international or multinational agency, commission, court, entity or authority
exercising executive, legislative, judicial, regulatory, administrative or
taxing functions of or pertaining to government or any non-governmental United
States or foreign self-regulatory agency, commission or authority or any
arbitral tribunal.
"Indemnified Party" has the meaning set forth in Section 11.3 hereof.
"Indemnifying Party" has the meaning set forth in Section 11.3 hereof.
2
"Law" means any constitution, law, ordinance, rule, principle of
common law, regulation, statute, treaty, order, judgment, decree, administrative
interpretation or other requirement of any Governmental Entity or any order,
writ, injunction, directive, judgment or decree of any Governmental Entity
applicable to a Person or such Person's business, property or assets.
"LTCG" means Long Term Care Group, Inc.
"LTCG Contract" means the contract to be entered into prior to the
Closing among LTCG, Administrator and one or more Conseco entities, including
Conseco Services, LLC, pursuant to which LTCG will provide certain services
related to the Conversion and the administration of the Policies.
"Other Material Contracts" has the meaning set forth in Section 3.1
hereto.
"Person" means any individual, corporation, partnership, firm, joint
venture, association, limited liability company, limited liability partnership,
joint-stock company, trust, unincorporated organization, Governmental Entity,
business unit, division or other entity.
"Policies" means those individual or group long term care insurance
"base" policies and certificates issued by Company or any of its
predecessors.(2) The term "Policies" excludes any riders attached to the
foregoing referenced "base" policies and certificates.
"Policyholder" means the holder of a Policy.
"Representative" has the meaning set forth in Section 10.1 hereof.
"Separation and Transition Matters Agreement" means the Separation and
Transition Matters Agreement to be entered into by and among CDOC, Inc.,
Conseco, Inc. and Administrator simultaneously with this Agreement.
"Subcontractor" has the meaning set forth in Section 3.3 hereto.
"Transfer Agreement" has the meaning set forth in the first "Whereas
clause" hereto.
ARTICLE II
AUTHORITY
---------
Section 2.1 Appointment. Company hereby appoints Administrator,
and Administrator hereby accepts such appointment, to provide as an independent
contractor of Company, from and after the Closing Date, in accordance with the
procedures set forth in this Agreement and from time to time established by
agreement between Company and Administrator, the following services with respect
to the Policies:
- -----------------
(2) For the BCLIC Administrative Services Agreement, the definition of
"Policies" will need to reference BCLIC's closed block LTC policies by form
number in order to exclude from the definition BCLIC's active long-term
care business.
3
(a) managerial oversight of the functions to be performed by LTCG
under the LTCG Contract in connection with the Policies; and
(b) those administrative services set forth on Exhibit A not
covered by the LTCG Contract (collectively, the "Administrative Services").
Section 2.2.......Limitations. Administrator shall have no authority
with respect to Company or the Policies, nor shall it represent itself as having
such authority, other than as specifically set forth in this Agreement.
Administrator specifically agrees that it will not:
(a) without the prior consent of Company, waive, amend, modify,
alter, terminate, or change any term, provision, or condition stated in any of
the Policies in the name of Company;
(b) have the authority or power to accept or bind risk on behalf
of Company, bind or cede reinsurance or retrocession or reinsurance on behalf of
Company, or commit Company to participate in insurance or reinsurance
syndicates; or
(c) have the authority or power to commit Company to a claim
settlement outside the settlement authority stated within this Agreement without
Administrator's receipt of the prior written approval of Company for such claim
settlement.
ARTICLE III
STANDARD FOR SERVICES; FACILITIES; SUBCONTRACTING, ETC.
-------------------------------------------------------
Section 3.1 Standards. Administrator acknowledges that the performance
of the Administrative Services in an accurate and timely manner is of paramount
importance to Company. All of the Administrative Services shall be performed by
Administrator in a competent and professional manner. Without limiting the
foregoing, Administrator shall provide the Administrative Services in accordance
with (i) the terms of this Agreement, (ii) applicable Law, including maintenance
by Administrator of all licenses, authorizations, permits and qualifications
from Governmental Entities necessary to perform the Administrative Services
required by this Agreement, (iii) the terms of the Policies, (iv)
Administrator's own standards in providing services with respect to similar
policies issued by Administrator in its own name, and (v) to the extent
allowable under applicable Law, in all material respects, the terms of the other
material contracts applicable to the administration of the Policies set forth on
Exhibit B hereto (such contracts, "Other Material Contracts"); provided,
however, Company agrees that from and after the date of this Agreement, it shall
not waive, amend, modify, alter, terminate, or otherwise change any of the terms
of the Other Material Contracts applicable to the administration of the Policies
without providing Administrator thirty (30) days written notice prior to such
change. In the event that such changes or modifications to the Other Material
Contracts would impose additional unreasonably burdensome responsibilities on
Administrator, Administrator may decline to take on such additional
responsibilities by providing written notice to Company, in which event
Administrator shall have no obligation under clause (v) above in respect any
such waiver, amendment, alteration or other change.
4
Section 3.2 Facilities and Personnel. Subject to Section 3.3 and
the provisions of the Separation and Transition Matters Agreement, Administrator
shall at all times maintain sufficient facilities and trained personnel of the
kind necessary to perform its obligations under this Agreement in accordance
with the performance standards set forth herein.
Section 3.3 Subcontracting. The Administrator may subcontract the
performance of any Administrative Service to another Person (the
"Subcontractor"), provided, that Administrator shall provide Company with
reasonable advance written notice of its intention to subcontract to an
unaffiliated third party; and provided, further, that no such subcontracting
shall relieve Administrator from any of its obligations or liabilities
hereunder, and Administrator shall remain responsible for all obligations or
liabilities of such Subcontractor with respect to the providing of such service
or services as if provided by Administrator.
Section 3.4 LTCG Contract. For so long as the LTCG Contract remains
in-force, Administrator covenants to take all commercially reasonable actions
necessary to enable Administrator to administer the Policies under the LTCG
Contract.
Section 3.5 Independent Contractor. For all purposes hereof, except as
explicitly set forth herein, Administrator shall at all times act as an
independent contractor and Administrator and its Affiliates, on the one hand,
and Company and its Affiliates, on the other hand, shall not be deemed an agent,
lawyer, employee, representative, joint venturer or fiduciary of one another,
nor shall this Agreement or the Administrative Services or any activity or any
transaction contemplated hereby be deemed to create any partnership or joint
venture between the parties or among their Affiliates.
Section 3.6 Limitations on Services. Administrator shall be excused
from any failure to meet the standards set forth in Section 3.1 or to perform
any of its other obligations hereunder to the extent such failure is not due to
any fault of Administrator or any Subcontractor but to the extent due to a
breach by Company or any Affiliate of the Company of this Agreement, the
Separation and Transition Services Agreement or any of the agreements
contemplated hereby or thereby.
Section 3.7 Disclaimer of Warranties. NO WARRANTIES, WHETHER EXPRESS,
IMPLIED OR STATUTORY, ARE MADE OR CREATED, AMONG THE PARTIES, INCLUDING, BUT NOT
LIMITED TO, IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE, TITLE AND NON-INFRINGEMENT OF ANY SOFTWARE OR HARDWARE USED HEREUNDER,
WARRANTIES AS TO THE OPERABILITY OF ANY SOFTWARE OR THAT ANY SOFTWARE DOES NOT
CONTAIN ANY HARMFUL COMPONENTS, AND ANY WARRANTIES ARISING FROM COURSE OF
DEALING, COURSE OF PERFORMANCE OR TRADE USAGE.
ARTICLE IV
CLAIMS HANDLING
---------------
Section 4.1 Claims Services.
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(a) From and after the Closing Date, to the extent not required
to be performed by LTCG under the LTCG Contract, Administrator agrees to provide
those services as are set forth in paragraph (b) of this Section 4.1 (the
"Claims Services") with respect to any claim made under the Policies which
involves an actual or alleged loss occurring during the term of the Policy and
which is reported to Administrator before the date on which this Agreement shall
become terminated pursuant to the provisions of Article XII ("Claims").
(b) The Claims Services to be rendered by Administrator with
respect to Claims shall be the following:
(i) To provide managerial oversight of the claims processing
functions, including claims adjudication, performed by LTCG under the
LTCG Contract in connection with the Policies;
(ii) To adjust, settle or resist all Claims, or cause LTCG
to adjust, settle or resist all Claims, within the discretionary
settlement authority limit of Administrator as set forth in Exhibit C
(the "Authority Limit");
(iii) To adjust, settle or resist all Claims, or cause LTCG
to adjust, settle or resist all Claims, in excess of the Authority
Limit with the express prior approval of Company;
(iv) To supervise all litigation or other proceedings
involving any Claim and, where appropriate, to attend any judicial or
administrative hearing involving any Claim; and
(v) To furnish Company with such information regarding
Claims and the Claims Disbursement Account (defined in Exhibit D
hereto) in such periodic intervals as is set forth in Article V and as
may reasonably be requested by Company.
Section 4.2 Company's Control Rights. Subject to the provisions of
Article XII, Administrator agrees to provide the Claims Services with respect to
all Claims for so long as and until each Claim shall have been paid or until, in
the opinion of Administrator and Company, Company shall have no further
liability therefor. Notwithstanding the foregoing, Company reserves the right to
assume the control and handling of any Claim at any time (upon reasonable prior
notice), and Administrator agrees to deliver promptly any claim file to Company
which it may request, but without any off-set or deduction from any of the fees
or charges paid or payable by Company to Administrator under Article VI.
Administrator further agrees to fully cooperate with Company concerning any
requests by Company for information about any Claim for which Company has
assumed control or Administrator's involvement and participation in the handling
of such Claim.
Section 4.3 Notification of Governmental Inquiries. In the event any
Governmental Entity should contact Administrator (or Administrator shall receive
notice from LTCG of a Governmental Entity contacting LTCG) for any reason with
respect to any Claim, Administrator agrees to notify Company within two (2)
Business Days of the nature of such
6
communication and, if the communication is in writing, Administrator shall send
Company a copy thereof.
Section 4.4 Payment of Claims and Allocated Loss Expenses.
(a) Administrator agrees to make all payments with respect
to Claims and to pay all Allocated Loss Expenses from funds provided by Company
in accordance with the procedures set forth in Exhibit D.
(b) No Allocated Loss Expense payments with respect to any
particular Claim will be incurred on behalf of Company by Administrator above
the Allocated Loss Expenses limit (as such limit is defined in Exhibit C)
without the prior approval of Company.
ARTICLE V
REPORTING MATTERS
-----------------
Section 5.1 Monthly Claims Reporting Requirements. Administrator
agrees to provide Company, within fifteen (15) days following the end of each
calendar month, in an electronic format (the specific form of which is to be
mutually agreed upon by the parties hereto), on an inception-to-date and monthly
basis, the information specified by Company for each Claim. This electronic
format shall include control totals for all Claims arising under each Policy.
Additionally, "hard" copies of the electronic information containing all monthly
reports required hereunder shall also be delivered to Company within fifteen
(15) days following the end of each month for which such reports are prepared.
Section 5.2 Notification of Certain Types of Claims. A copy of a
claim file shall be sent (in electronic form where permitted by applicable Law)
to Company at its request or promptly after it becomes known that the Claim (i)
involves a coverage dispute, (ii) alleges bad faith, (iii) is likely to exceed
the Authority Limit, (iv) is open for more than six months, or (v) alleges a
violation of any applicable unfair practices and unfair competition statutes.
Section 5.3 Regulatory Compliance and Reporting.
(a) Administrator shall provide to Company such information
within possession of Administrator or which is obtainable by Administrator in
the ordinary course of business (including information obtainable under the
terms of the LTCG Contract from LTCG), with respect to the Policies as is
required to satisfy all current and future informational reporting, prior
approval and any other requirements imposed by any Governmental Entity. Upon the
reasonable request of Company, Administrator shall timely prepare such reports
and summaries, including statistical summaries and certifications, as are
necessary or reasonably required to satisfy any requirements imposed by a
Governmental Entity upon Company with respect to the Policies.
(b) Administrator shall assist Company and cooperate with
Company in doing all things necessary, proper or advisable in a commercially
reasonable manner in connection with any and all market conduct or other
Governmental Entities examinations to the extent related to the Policies.
7
Section 5.4 Additional Reports and Updates. For so long as this
Agreement remains in effect, upon reasonable notice, each party shall from time
to time furnish to the other such other reports and information as may be
reasonably required by such other party for regulatory, tax or similar purposes
and reasonably available to it.
Section 5.5 Certification of Accuracy All information provided to
Company by Administrator pursuant to this Agreement shall be complete and
accurate in all material respects and the provision of such information shall
constitute a certification by Administrator of such completeness and accuracy.
ARTICLE VI
COMPENSATION
------------
Section 6.1 Fee Schedule. In consideration of Administrator
providing the Administrative Services as provide for in this Agreement, Company
agrees to pay Administrator those fees and other charges as are set forth in
Exhibit E (the "Fee Schedule") in accordance with the terms set forth herein.
Section 6.2 Payment.
(a) Subject to paragraph (c) of this Section 6.2, within
thirty (30) days of Administrator submitting a demand for payment for those fees
and other charges set forth in Exhibit E, Company shall either remit such
payment amount to Administrator or, to the extent such fees and other charges
relate to Claims, authorize the release of such payment amounts from the Claims
Disbursement Account to Administrator.
(b) Company agrees to pay all fees within the time period
specified in paragraph (a) of this Section 6.2, except for any fees or expenses
that are subject to good faith dispute. In the event of such a dispute, Company
may only withhold that portion of the fee subject to the good faith dispute.
Company shall promptly notify Administrator in writing following the receipt of
each billing notice if Company is disputing any amounts in good faith. Company
shall settle such dispute amounts within a mutually agreed upon timeframe on
which the parties agree on the amount to be paid by payment of the agreed
amount. If no agreement is reached, then such disputed amounts shall be settled
as may be required by Law or legal process in accordance with the terms of this
Agreement.
ARTICLE VII
COOPERATION
-----------
Section 7.1 Cooperation Between Parties. Each party hereto shall
cooperate fully with the other in all reasonable respects in order to accomplish
the objectives of this Agreement including making available to each their
respective officers and employees for interviews and meetings with Governmental
Entities and furnishing any additional assistance, information and documents as
may be reasonably requested by a party from time to time subject to
reimbursement for reasonable costs by the party making such request.
8
Section 7.2 Rate Increases. Administrator shall cooperate fully
with, and provide assistance to, Company in all reasonable respects in order to
effectuate the filing by Company of all requests for actuarially justified rate
increases with state insurance regulators for the Policies subject to
reimbursement for reasonable costs by Administrator.
ARTICLE VIII
LIABILITY INSURANCE AND FIDELITY BOND
-------------------------------------
Section 8.1 Policies Required to be Held by Administrator.(3)
Administrator shall maintain a professional errors and omissions liability
policy of not less than $[ ] per claim and $[ ] annual aggregate; a commercial,
general and liability policy of not less than $[ ] per occurrence and $[ ]
annual aggregate; and a fidelity liability policy in the face amount of not less
than $[ ]. Administrator, at Company's request, shall deliver to Company
evidence of the existence of these policies upon Company's request and will give
Company thirty (30) days' written notice prior to cancellation of, or any
material change in any policy.
ARTICLE IX
RECORD MAINTENANCE
------------------
Section 9.1 Record Retention by Administrator. Administrator
shall maintain complete books and records of all transactions between
Administrator, Company, LTCG and the Policyholders with respect to the Policies.
Administrator will preserve detailed and adequate books and records of all
transactions among Administrator, Company, LTCG and the Policyholders sufficient
to permit Company to fulfill all of its contractual obligations to the
Policyholders. These books and records shall be maintained in accordance with
prudent standards generally accepted in business record keeping and will be made
available to Company in their current format and in digital format (including
but not limited to disk and scanned images) upon Company's reasonable request.
Administrator shall maintain Company's records intact, separate and apart from
it own records. The books and records shall be maintained throughout this
Agreement and for ten (10) years after the transaction to which they
respectively relate.
Section 9.2 Ownership and Access.
(a) Company shall own the records generated by Administrator
pertaining to Company; however, Administrator shall retain the right to
continuing access to records to permit Administrator to fulfill its contractual,
legal and regulatory obligations. Company and Administrator shall have
continuing right to access and copy all accounts and records maintained by
Administrator related to Company's business. Any appropriately authorized
Governmental Entity shall have access to all books, bank accounts, and records
of Administrator and Company for the purpose of examination, inspection, and
audit.
- ---------------
(3) Dollar amounts for this Section 8.1 to reflect customary amounts for any
agreement of this type and to be mutually agreed upon by the parties prior
to the closing contemplated under the Transfer Agreement.
9
(b) Notwithstanding anything in this Agreement to the
contrary, Administrator shall not be required to provide Company with any
information, reports, documents, data or access to any information, reports,
documents, data, systems, software, databases, office and storage space as
regards, in each instance, its internal systems, processes, procedures, and
other non-Policyholder-related information utilized in providing the
Administrative Services, except to the extent (i) permitted by applicable Law,
(ii) permitted by any contract to which Administrator is a party without
violating any confidentiality provision thereof, (iii) not subject to
attorney-client or other legal privilege and subject to Article X hereof, and
solely to the extent reasonably necessary to receive the Administrative
Services, and provided, that such access is without material disruption to the
business operations of Administrator. Company shall give Administrator
reasonable prior notice of the need for such access and shall comply with any
written instructions provided by Administrator in connection with the use of or
access to any of Administrator's information, personnel, equipment, facilities,
software, databases, office and storage space or systems. Without limiting the
foregoing, each party shall cooperate with the other in all commercially
reasonable respects in order to accomplish the objectives of this Agreement.
ARTICLE X
CONFIDENTIALITY; PRIVACY REQUIREMENTS
-------------------------------------
Section 10.1 Use of Confidential Information. Company and
Administrator acknowledge that they will have access to confidential and
proprietary information concerning the other party and its businesses, which
information is not readily available to the public, and acknowledge that Company
and Administrator have taken and will continue to take reasonable actions to
ensure such information is not made available to the public. Company and
Administrator further agree that they will not at any time (during the term
hereof or thereafter) disclose to any Person (except (i) Company or
Administrator and their Affiliates and the officers, directors, employees,
agents, consults and advisors (each a "Representative") of Company and
Administrator and their Affiliates who require such information in order to
perform their duties in connection with the services provided hereunder or (ii)
LTCG in order to perform its duties under the LTCG Contract), directly or
indirectly, or make any use of, for any purpose other than those contemplated by
this Agreement, any information or trade secrets relating to the Policies or the
business affairs of Company or Administrator, including the identity of and/or
the compensation arrangements with, any Affiliates of Company and Administrator,
so long as such information remains confidential.
Section 10.2 Disclosure. Subject to the terms and conditions set
forth herein, Administrator or Company may disclose confidential information in
the following circumstances (or as otherwise provided by the provisions of this
Agreement):
(a) if the confidential information is or becomes generally
publicly known and available, through no act or omission by such party or on its
behalf or by any of its Representatives;
(b) if the confidential information was obtained by such
party from a third Person who does not have an obligation to keep such
confidential information confidential;
10
(c) if the confidential information is demonstrated to have
been known by such party, without any restriction on use or disclosure, before
it was disclosed to such party by the other party or independently developed
without reference to the confidential information;
(d) in response to a request or requirement (by deposition,
interrogatory, request for documents, subpoena, civil investigative demand or
similar process ("Legal Process")) after notice to the other party (to the
extent such notice is reasonably practicable and to the extent allowed by Law);
provided, however, that such disclosure shall be limited only to the extent that
is required by such Legal Process;
(e) at the proper request of Company or Policyholder or
his/her legal representative; provided, however, that such disclosure shall be
limited only to the extent that is reasonably necessary to satisfy such a
request;
(f) as disclosed in any discussions with rating agencies,
auditors, actuaries or outside counsel; or
(g) as otherwise required by applicable Law.
Section 10.3 Privacy Requirements. In providing the
Administrative Services provided for under this Agreement, and in connection
with maintaining, administering, handling and transferring the data of the
Policyholders and other recipients of loss payments under the Policies,
Administrator shall, and shall cause its Affiliates and any permitted
Subcontractors to, comply with confidentiality and security obligations
applicable to them in connection with the collection, use, disclosure,
maintenance and transmission of personal, private, health or financial
information about individual Policyholders or loss payment recipients, pursuant
to the privacy policies under which such information was gathered by
Administrator and under all applicable Law, including, without limitation, the
Gramm-Leach-Bliley Act and the Health Insurance Portability and Accountability
Act of 1996. Administrator shall entitle Company and its agents and
representatives, the Commissioner of Health and Human Services and such other
Governmental Entities, to the extent required by applicable Law, to audit
Administrator's compliance herewith. To the extent required by applicable Law,
Administrator shall also enable individual subjects of personally identifiable
information, upon request from such individuals, to review and correct
information maintained by Administrator about them, and to restrict use of such
information. Administrator shall promptly report to Company any violation of
this provision of which Administrator becomes aware. Unless required by
applicable Law, Administrator shall not during the term of this Agreement modify
the privacy policies under which information utilized by Administrator in
administering the Policies is gathered, without Company's prior written consent,
which consent shall not be unreasonably withheld.
ARTICLE XI
INDEMNIFICATION
---------------
Section 11.1 By Administrator. Administrator will indemnify,
defend and hold Company harmless from any and all claims, demands, suits and
proceedings by any third party (each, an "Action"), and all liability, loss,
damages, fines, penalties, interest and costs, including
11
all costs and expenses, including all fees and disbursements of counsel and
other professionals incurred in investigating, defending or negotiating the
settlement or resolution of any such Action (collectively, "Costs"), resulting
from: (a) the dishonest acts of Administrator's employees or officers; (b)
Administrator's gross negligence or willful misconduct in carrying out its
responsibilities as set forth in this Agreement; or (c) Administrator's
violation of, or failure to comply with, any Law governing Administrator's
obligations under this Agreement. In no event, however, will Administrator be
liable for the payment of benefits under the Policies.
Section 11.2 By Company. Company will indemnify, defend and hold
Administrator harmless from any and all Actions and Costs resulting from its
actions as Administrator pursuant to this Agreement; provided, that such
indemnification right does not extend to, and Administrator shall not be
indemnified with respect to, such Actions or Costs incurred or suffered by
Administrator as a result of, or arising out of, (a) the dishonest acts of
Administrator's employees or officers; (b) Administrator's gross negligence or
willful misconduct in carrying out its responsibilities as set forth in this
Agreement; or (c) Administrator's violation of, or failure to comply with, any
Law governing Administrator's obligations under this Agreement.
Section 11.3 Procedure.
(a) The party seeking to be indemnified (the "Indemnified
Party") shall provide the other party (the "Indemnifying Party") with timely
written notice regarding the claim; provided, however, that failure to give such
notification shall not affect the indemnification provided hereunder except to
the extent that such failure results in a lack of actual notice to the
Indemnifying Party and such Indemnifying Party shall have been materially
prejudiced as a result of such failure. Thereafter, the Indemnified Party shall
promptly deliver to the Indemnifying Party copies of all notices and documents
(including court papers) received by the Indemnified Party relating to the
Action.
(b) If an Action is made against an Indemnified Party, the
Indemnifying Party will be entitled to participate in the defense thereof and,
if it so chooses, to assume the defense thereof (at the expense of such
Indemnifying Party and so long as the Indemnifying Party acknowledges in writing
its obligation to indemnify the Indemnified Party for Costs related to such
Action) with counsel selected by the Indemnifying Party, which counsel shall be
reasonably satisfactory to the Indemnified Party. If the Indemnifying Party
assumes such defense, the Indemnified Party shall have the right to participate
in the defense thereof and to employ counsel, at its own expense, separate from
the counsel employed by the Indemnifying Party; provided, however, that the
Indemnifying Party shall bear the reasonable fees, costs and expenses of such
separate counsel if the (A) Indemnified Party shall have determined in good
faith and after consulting with outside counsel that an actual or potential
conflict of interest makes representation by the same counsel or the counsel
selected by the Indemnifying Party inappropriate or (B) Indemnifying Party shall
have authorized the Indemnified Party to employ separate counsel at the
Indemnifying Party's expense. If the Indemnifying Party does not promptly assume
the defense of such Action following notice thereof, the Indemnified Party shall
be entitled to assume and control such defense and to settle or agree to pay in
full such Action without the consent of the Indemnifying Party without prejudice
to the ability of the Indemnified Party to enforce its claim for indemnification
against the Indemnifying Party
12
hereunder. Whether or not the Indemnifying Party shall have assumed the defense
of an Action, all of the parties hereto shall cooperate in the defense or
prosecution thereof. Such cooperation shall include the retention and the
provision of records and information which are reasonably relevant to such
Action, and making employees available on a mutually convenient basis to provide
additional information and explanation of any material provided hereunder. All
reasonable costs and expenses incurred in connection with the Indemnified
Party's cooperation shall be borne by the Indemnifying Party. Whether or not the
Indemnifying Party assumes the defense of an Action, the Indemnified Party shall
not admit any liability with respect to, or settle, compromise or discharge,
such Action without the Indemnifying Party's prior written consent (which
consent shall not be unreasonably withheld or delayed). If the Indemnifying
Party assumes the defense of an Action, the Indemnifying Party, in the defense
of such Action, shall not admit any liability with respect to, or settle,
compromise or discharge, such Action without the Indemnified Party's prior
written consent (which consent shall not be unreasonably withheld or delayed)
unless (A) there is no finding or admission of any violation of Law or any
violation of the rights of any person and no effect on any other claims that may
be made against the Indemnified Party and (B) the sole relief provided is
monetary damages that are paid in full by the Indemnifying Party and a full,
complete and irrevocable release is provided to the Indemnified Party. If the
Indemnified Party in good faith determines that the conduct of the defense or
any proposed settlement of any Action would reasonably be expected to affect
adversely the Indemnified Party's tax liability or the Indemnified Party's
ability (or the ability of any of its affiliates) to conduct its business, or
that the Indemnified Party may have available to it one or more defenses or
counterclaims that are inconsistent with one or more of those that may be
available to the Indemnifying Party in respect of such Action, the Indemnified
Party shall have the right at all times to take over and control the defense,
settlement, negotiation or litigation relating to any such Action at the sole
cost of the Indemnifying Party, provided that if the Indemnified Party does so
take over and control, the Indemnified Party shall not settle such Action
without the written consent of the Indemnifying Party, such consent not to be
unreasonably withheld or delayed.
ARTICLE XII
DURATION; TERMINATION
---------------------
Section 12.1 Duration. This Agreement shall commence on the
Closing Date and continue with respect to each Policy until no further
Administrative Services in respect of such Policy are required, unless this
Agreement is earlier terminated under Section 12.2.
Section 12.2 Termination.
(a) This Agreement is subject to immediate termination at
the option of Company, upon written notice to Administrator, upon the occurrence
of any of the following events:
(i) a voluntary or involuntary proceeding is commenced
in any jurisdiction by or against Administrator for the purpose of
conserving, rehabilitating or liquidating Administrator;
13
(ii) fraud, misappropriation of any of Company's funds
or property, or gross negligence or willful misconduct by
Administrator; or
(iii) Administrator is unable to perform the services
required under this Agreement for a period of thirty (30) consecutive
days following written notice from Company of such failure to perform,
it being understood that nothing in this Section 12.2(a)(iii) shall
relieve Administrator from its administrative responsibilities and
other obligations under this Agreement.
(b) This Agreement may be terminated by Company, with or
without cause, and for any reason whatsoever, upon Company giving Administrator
prior written notice sufficient to allow Administrator to exercise any rights it
may have under the LTCG Contract to avoid incurring any material stranded costs
under the LTCG Contract that would otherwise result from the elimination of the
administration of the Policies under the LTCG Contract; provided, however,
Company may terminate this Agreement at any earlier date if it agrees to
reimburse Administrator for any stranded costs that it incurs under the LTCG
Contract as a result of the elimination of the administration of the Policies
under the LTCG Contract.
(c) This Agreement may be terminated by Administrator, with
or without cause, and for any reason whatsoever, upon Administrator giving
Company not less than three-hundred-sixty-five (365) days prior notice, provided
that the Administrator may terminate upon 90 days notice if (i) it is unable to
perform due to Force Majeure and (ii) the parties hereto agree that it is
reasonable to conclude that the event or events comprising the Force Majeure are
likely to continue in a manner that causes Administrator to be unable to perform
under this Agreement for an extended period of time into the future.
(d) This Agreement may be terminated at any time upon the
mutual written consent of the parties hereto, which writing shall state the
effective date of termination.
(e) Upon termination of this Agreement under this Section
12.2, Administrator shall cooperate fully in all reasonable respects in order to
promptly transfer the services and the books and records maintained by
Administrator pursuant to this Agreement (or, where appropriate, copies thereof)
to, as directed by Company, either a third-party administrator designated by
Company or to Company, so that such third-party administrator or Company, as the
case may be, will be able to perform the services required under this Agreement.
ARTICLE XIII
GENERAL PROVISIONS
------------------
Section 13.1 Notices. Any notice or other communication required
or permitted hereunder shall be in writing (including facsimile or similar
writing) and shall be deemed given if (i) delivered personally, (ii) sent by
overnight courier (providing proof of delivery) or (iii) sent by facsimile, to
the parties at the following address:
14
(i) If to Administrator:
Conseco Senior Health Insurance Company
600 West Chicago Avenue
Chicago, IL 60610
Attention: John W. Wells
President and Chief Executive Officer
Facsimile: (312) 396-5922
(ii) If to Company:
Washington National Insurance Company
11825 N. Pennsylvania Street
Carmel, IN 46032
Attention: Thomas D. Barta
SVP, Financial Planning and Analysis
Facsimile: (317) 817-5439
With a concurrent copy to:
Washington National Insurance Company
11825 N. Pennsylvania Street
Carmel, IN 46032
Attention: Matthew J. Zimpfer
EVP and General Counsel
Facsimile: (317) 817-2826
Any party may, by notice given in accordance with this Section
13.1 to the other parties, designate another address or person for receipt of
notices hereunder; provided, that notice of such a change shall be effective
upon receipt.
Section 13.2 Entire Agreement. This Agreement (including the
other agreements contemplated hereby and the Exhibits hereto) contains the
entire agreement among the parties with respect to the subject matter hereof and
supersedes all prior agreements and understandings, written or oral, with
respect thereto.
Section 13.3 Waivers and Amendments; Non-Contractual Remedies;
Preservation of Remedies. This Agreement may be amended, superseded, canceled,
renewed or extended, and the terms hereof may be waived, only by a written
instrument signed by each of the parties or, in the case of a waiver, by the
party waiving compliance. No delay on the part of any party in exercising any
right, power or privilege hereunder shall operate as a waiver thereof, nor shall
any waiver on the part of any party of any right, power or privilege, nor any
single or partial exercise of any such right, power or privilege, preclude any
further exercise thereof or the exercise of any other such right, power or
privilege. The rights and remedies herein provided are cumulative and are not
exclusive of any rights or remedies that any party may otherwise have at law or
in equity. The parties agree that irreparable damage would occur in the event
any
15
provision hereof were not to be performed in accordance with its terms and that
each party shall be entitled to specific performance of the terms hereof in
addition to any other remedies at law or in equity.
Section 13.4 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA,
WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF.
Section 13.5 Jurisdiction. Each party hereby irrevocably and
unconditionally consents to submit to the non-exclusive jurisdiction of any
court of the United States or any state court which in either case is located in
the City of Philadelphia for any actions, suits or proceedings arising out of or
relating to this Agreement and the transactions contemplated hereby (and each
party agrees that service of any process, summons, notice or document by U.S.
registered mail to its address set forth above shall be effective service of
process for any action, suit or proceeding brought against it in any such
court). Each party hereby irrevocably and unconditionally waives any objection
to the laying of venue of any action, suit or proceeding arising out of this
Agreement or the transactions contemplated hereby in any such court, and hereby
further irrevocably and unconditionally waives and agrees not to plead or claim
in any such court that any such action, suit or proceeding brought in any such
court has been brought in an inconvenient forum. EACH PARTY HERETO HEREBY WAIVES
TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY ANY OF THEM
AGAINST ANOTHER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS AGREEMENT, OR
ANY OTHER AGREEMENTS EXECUTED IN CONNECTION HEREWITH OR THE ADMINISTRATION
THEREOF OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN OR THEREIN.
Section 13.6 Binding Effect; Assignment. This Agreement shall be
binding upon and inure to the benefit of the parties and their respective
successors, permitted assigns and legal representatives. Neither this Agreement,
nor any of the rights, interests or obligations hereunder, may be assigned, in
whole or in part, by any party without the prior written consent of the other
parties hereto and any such assignment that is not consented to shall be null
and void.
Section 13.7 Interpretation. For purposes of this Agreement, the
words "hereof", "herein", "hereby" and other words of similar import refer to
this Agreement as a whole unless otherwise indicated. Whenever the words
"include", "includes", or "including" are used in this Agreement, they shall be
deemed to be followed by the words "without limitation". Whenever the singular
is used herein, the same shall include the plural, and whenever the plural is
used herein, the same shall include the singular, where appropriate.
Section 13.8 No Third Party Beneficiaries. Nothing in this
Agreement is intended or shall be construed to give any Person, other than the
parties hereto, their successors and permitted assigns, any legal or equitable
right, remedy or claim under or in respect of this Agreement or any provision
contained herein.
16
Section 13.9 Counterparts. This Agreement may be executed by the
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute one and the same instrument.
Section 13.10 Exhibits. The Exhibits to this Agreement that are
specifically referred to herein are a part of this Agreement as if fully set
forth herein. All references herein to Articles, Sections, subsections,
paragraphs, subparagraphs, clauses and Exhibits shall be deemed references to
such parts of this Agreement, unless the context shall otherwise require.
Section 13.11 Force Majeure. If either party is prevented or
delayed in the performance of any of its obligations under this Agreement by any
Force Majeure, that party shall as soon as practicable serve notice in writing
on the other party, specifying the nature and extent of such Force Majeure, and
shall have no liability for any delay or failure in the performance of any
obligation under this Agreement (other than obligations to make payments
hereunder) or for any loss or damage (including indirect or consequential
damage) to the extent such nonperformance, delay, loss or damage results from
such Force Majeure.
Section 13.12 Headings. The headings in this Agreement are for
reference only, and shall not affect the interpretation of this Agreement.
(The rest of this page is intentionally left blank)
17
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
CONSECO SENIOR HEALTH INSURANCE COMPANY
By:
-----------------------------------
Name:
Title:
WASHINGTON NATIONAL INSURANCE COMPANY
By:
-----------------------------------
Name:
Title:
EXHIBIT A
---------
ADMINISTRATIVE SERVICES
- -----------------------
Close Date through 6 months (or, if later, completion of the Conversion)
- ---------------------------------------------------------------------------------------------------------------------------
1 Provide claim administration services on the Policies until such
time that the Policies convert to the LTCG system.
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
2 Provide support for claim complaints, market conduct exams, and
regulatory inquires on the Policies until such time that the
Policies convert to the LTCG system.
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
3 Provide multi-state reporting and support until such time that the
Policies convert to the LTCG system.
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
4 Provide 1099 support for provider payments and other financial
processing support until the policy administration functions are
converted to the LTCG system.
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Close Date through 18 months (or, if later, completion of the Conversion)
- ---------------------------------------------------------------------------------------------------------------------------
1 Provide policy administration and call center support on the
Policies until such time that the Policies convert to the LTCG
system.
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
2 Provide support for policy administration complaints, market
conduct exams, and regulatory inquires on the Policies until such
time that the Policies convert to the LTCG system.
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
3 Provide multi-state reporting and support until such time that the
Policies convert to the LTCG system.
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
4 Provide support for the conversion of the Policies and history to the LTCG systems, as necessary to
successfully complete the migration
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
[This Exhibit A remains subject to further refinement prior to the closing
contemplated by the Transfer Agreement.]
A-1
EXHIBIT B
OTHER MATERIAL CONTRACTS
- ------------------------
[To be completed prior to the closing contemplated by the Transfer Agreement]
B-1
EXHIBIT C
---------
AUTHORITY LIMITS
- ----------------
CSHI/SHIP non-CSHI Authority Limits
(Individual payments for non-CSHI LTC above these levels require
approval from Conseco)
- ------------------------------------------------------------------------------------------------------------------------
Invoice Limits Claims
- ---------------------------------------------------------------- -------------------------------------------------
- ---------------------------------------------------------------- -------------------------------------------------
unlimited (N/A) $100,000
- ---------------------------------------------------------------- -------------------------------------------------
Surrenders, Maturity Refunds
- ---------------------------------------------------------------- -------------------------------------------------
- ---------------------------------------------------------------- -------------------------------------------------
$100,000 $100,000
- ---------------------------------------------------------------- -------------------------------------------------
[This Exhibit C remains subject to further refinement prior to the closing
contemplated by the Transfer Agreement.]
C-1
EXHIBIT D
---------
CLAIMS DISBURSEMENT ACCOUNT
- ---------------------------
A. Administrator shall establish a regular bank checking account entitled
"Administrator, as custodian for Company" (the "Claims Disbursement
Account") to which Company agrees to make an initial deposit of $[ ](4),
which the parties estimate are equal to approximately two months of
estimated claims payments and allocated loss adjustment expense. Company
shall be required to make additional deposits, as necessary, so that the
deposit amount in the Claims Disbursement Account equals approximately two
months of estimated claims payments and allocated loss adjustment expense
on a continuous basis. The Claims Disbursement Account shall bear the
employer identification number of Company and any interest earned on said
account shall be used solely by Administrator to make payments of Claims or
to pay Allocated Loss Expenses in accordance with the terms of this Exhibit
and the Agreement.
B. All funds received by Administrator for the payment of Claims, losses,
Allocated Loss Expenses for Claims, settlements, judgments, and expenses
payable by Administrator on behalf of Company are the property of Company
and shall be held on behalf of Company in a fiduciary capacity.
C. Administrator is authorized to withdraw funds from the Claims Disbursement
Account for the following: (1) payment of Allocated Loss Expenses, (2)
payment of Claims and losses, and (3) remittance to Company of recoveries..
D. Administrator shall submit to Company a written request to transfer funds
to replenish the Claims Disbursement Account in order to pay Claims, losses
and expenses upon the compromise, settlement or adjustment of a Claim or
loss. Funds received by Administrator from Company shall be deposited in
the Claims Disbursement Account. Company shall transfer the requested funds
to Administrator within two (2) Business Days of the request. In addition,
all recoveries made by Administrator shall be deposited into the Claims
Disbursement Account and written notice explaining the nature of the
recovery be placed in the applicable electronic claim file.
E. Administrator shall notify the Company before making any payment in excess
of $[ ](5) from the Claims Disbursement Account.
F. Administrator shall not authorize or pay any Claim or Allocated Loss
Expense in excess of the Authority Limit without obtaining the prior
express approval therefore from Company.
- -----------------
(4) Figure to be mutually agreed upon by the parties prior to closing
contemplated under the Transfer Agreement.
(5) Figure to be mutually agreed upon by the parties prior to closing
contemplated under the Transfer Agreement.
D-1
G. Administrator agrees that it shall not issue or authorize any check or
other withdrawal from the Claims Disbursement Account unless ready funds
are on deposit sufficient to pay or cover such check or withdrawal. It is
expressly understood that Administrator shall not be required to advance
its own funds to fund the Claims Disbursement Account or pay any of
Company's obligations.
H. Administrator agrees that Company shall have at least one authorized signor
on the Claims Disbursement Account and Administrator shall provide the
required bank forms to Company for execution.
I. For the avoidance of doubt, in accordance with Article XI, Company shall
indemnify and hold harmless Administrator for any Costs resulting from
Company's failure to fund its obligations. Any bank charges resulting from
inadequate funding, including, but not limited to, stop payment charges and
overdraft fees shall be the obligation of Company and shall be billed to
Company when known.
D-2
EXHIBIT E
---------
FEE SCHEDULE
- ------------
[This Exhibit E is to be developed prior to the closing contemplated by the
Transfer Agreement in accordance with the following principle: fees are to be
determined on a cost plus basis, which the parties believe should approximate
fair values.]
E-1
Exhibit G
CONFIDENTIAL
SASM&F Draft 08/08/08
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE SOLD, ASSIGNED, PLEDGED,
TRANSFERRED, ENCUMBERED OR OTHERWISE DISPOSED IN THE ABSENCE OF SUCH
REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM.
$125,000,000 [ ], 2008
CONSECO, INC.
6.0% SENIOR NOTE DUE [ ], 2013
Conseco, Inc., a corporation duly organized and existing under the laws of
the State of Delaware (herein called the "Company," which term includes any
successor Person under the terms of this Security hereof), for value received,
hereby promises to pay to the registered holder hereof, or its assigns (the
"Holder") the principal sum of one hundred twenty-five million United States
Dollars (U.S.$ 125,000,000) (the "Principal Amount") on the Payment Dates and in
the amounts reflected on the Amortization Schedule set forth in Schedule A
hereto and to pay interest on the unpaid balance thereof and at the rate
specified in Article I below.
ARTICLE I
PRINCIPAL AND INTEREST
----------------------
Section 1.1 Maturity, Interest and Payments Generally. (a) This 6.0% Senior
Note Due [ ], 2013 (the "Security") will mature on [ ], 2013 (the "Stated
Maturity Date") and the Holder will be entitled to receive the full Remaining
Principal Amount of the Security, plus accrued and unpaid interest thereon, on
the Stated Maturity Date.
(b) Principal of the Security shall be due and payable on the Payment
Dates and in the amounts reflected on the Amortization Schedule set forth in
Schedule A hereto, subject to adjustment by the Issuer pursuant to clause (c)
below upon any Optional Redemption in part of the unpaid Principal Amount of the
Security outstanding, to Holders of record on the Record Date in respect of each
Payment Date.
(c) In the event of an Optional Redemption of less than the entire
unpaid Principal Amount of the Security outstanding, the Company shall reduce
the amount of each Scheduled Amortization Payment subsequent to such partial
redemption pro rata in proportion to the principal amount redeemed pursuant to
the Optional Redemption.
(d) Payments on the Security will be made in U.S. dollars. All
payments made by the Company hereunder shall be made without set off or
counterclaim on the due date thereof by wire transfer in immediately available
funds to the account specified by the Holder in the Security Register.
1
Section 1.2 Interest.
(a) Interest will accrue on the unpaid Principal Amount of this
Security at the rate of 6.0% per annum ("Interest Rate"), during any three-month
period from and including March 15 to and including June 14, from and including
June 15 to and including September 14, from and including September 15 to and
including December 14 and from and including December 15 to and including March
14 (each an "Interest Period"), provided that the initial Interest Period shall
commence on the date hereof and run to but excluding March 15, 2009. Interest
will be payable in arrears on March 15, June 15, September 15 and December 15 in
each year (each, an "Interest Payment Date") (provided, however, that if such
date is not a Business Day, interest will be payable on the next succeeding
Business Day, and no additional interest will accrue therefor), beginning March
15, 2009, to the Holder.
(b) If all or any portion of (i) the unpaid Principal Amount or (ii)
any other amount due hereunder (including interest provided for in this
sentence, to the extent permitted by law) shall not be paid when due (whether at
Maturity, by acceleration or otherwise), such overdue amount shall bear interest
at a rate equal to the Interest Rate plus 2.0% per annum, in each case from the
date of such non-payment until such overdue amount is paid in full (after as
well as before judgment). Interest payable pursuant to the foregoing sentence
shall be payable upon demand.
Section 1.3 Computation of Interest. Interest on the Security shall be
computed on the basis of a 360-day year of twelve 30-day months.
Section 1.4 Mutilated, Destroyed, Lost or Stolen Security. If a mutilated
Security is surrendered to the Company, the Company shall execute and deliver in
exchange therefor a new Security of like tenor and principal amount, so long as
the Holder delivers to the Company (i) a certificate as to the destruction, loss
or theft of the Security and (ii) such indemnity as may be reasonably
satisfactory to the Company to save it and any agent of the Company harmless.
ARTICLE II
OPTIONAL REDEMPTION
-------------------
Section 2.1 Optional Redemption. The Security is subject to redemption
(each such redemption, an "Optional Redemption") at the option of the Company,
in whole or in part, upon notice as provided below, at a price equal to the
portion of the Principal Amount being paid, plus accrued and unpaid interest
thereon to, but excluding, the Redemption Date (the "Redemption Price").
Section 2.2 Mandatory Redemption. The Security is not subject to mandatory
redemption.
Section 2.3 Applicability of Article. Redemption of the Security at the
election of the Company or otherwise, as permitted or required by any provision
of this Security, shall be made in accordance with such provision and this
Article II.
2
Section 2.4 Election to Redeem; Notice to Holder. (a) In case of any
redemption, the Company will, at least 30 calendar days prior to the Redemption
Date fixed by the Company (unless a shorter notice shall be satisfactory to the
Holder), notify the Holder in writing of such Redemption Date and of the portion
of the unpaid Principal Amount of the Security to be redeemed.
(b) For all purposes of this Security, unless the context otherwise
requires, all provisions relating to the redemption of this Security shall
relate, in the case of the Security redeemed or to be redeemed only in part, to
the portion of the unpaid Principal Amount of the Security which has been or is
to be redeemed.
Section 2.5 Notice of Redemption. Notice of redemption of the Security will
be given by the Company and will be irrevocable (such notice, a "Redemption
Notice"). A Redemption Notice will be given by mail, first class postage
prepaid, not less than 30 calendar days prior to the Redemption Date, to the
Holder (unless a shorter notice shall be satisfactory to the Holder), at its
address appearing in the Security Register. All notices of redemption will
state:
(a) the Redemption Date;
(b) the Redemption Price and accrued interest;
(c) if less than the entire unpaid Principal Amount of the Security is
to be redeemed, the portion of the Remaining Principal Amount to be redeemed;
(d) that on the Redemption Date the Redemption Price will become due
and payable and that, if the Company pays the Redemption Price on the Redemption
Date, interest thereon will cease to accrue on the redeemed portion of the
unpaid Principal Amount of the Security after said date; and
(e) if all of the unpaid Principal Amount is being redeemed, the place
where the Security is to be surrendered for payment of the Redemption Price.
Section 2.6 Security Payable on Redemption Date. A Redemption Notice having
been given as aforesaid, the unpaid Principal Amount of the Security so to be
redeemed shall, on the Redemption Date, mature and become due and payable at the
Redemption Price therein specified, and from and after such date (unless the
Company shall default in the payment of the Redemption Price, including accrued
interest) the redeemed portion of the unpaid Principal Amount of the Security
shall cease to accrue interest. Any Security paid or prepaid in full shall be
surrendered to the Company and cancelled and shall not be reissued and no
Security shall be issued in lieu of any redeemed unpaid Principal Amount of such
Security.
ARTICLE III
TRANSFER
--------
Section 3.1 Registration of Transfer. Any transfer of this Security is
registrable in the Security Register, upon surrender of this Security for
registration of transfer at
3
the office or agency of the Company in a [Place of Payment], duly endorsed by,
or accompanied by a written instrument of transfer in form reasonably
satisfactory to the Company and the Security Registrar duly executed by the
Holder hereof or such Holder's attorney duly authorized in writing, and
thereupon one or more new Securities of like tenor, of authorized denominations
and for the same aggregate principal amount, will be issued to the designated
transferee or transferees.
Section 3.2 Transfer. The Security may not be sold, assigned, pledged,
transferred, encumbered or otherwise disposed for the first two years from the
date of issuance. Thereafter, the Security may be transferred in whole or in
part, and any Securities shall be issuable only in fully registered form,
without coupons, and only in minimum denominations of U.S. $20,000,000 and
integral multiples of U.S. $1,000 in excess thereof; provided, however, that the
Securities may not be transferred in the absence of any registration under the
Securities Act or an applicable exemption therefrom. The Securities are
exchangeable for like aggregate principal amount of Securities of like tenor of
a different authorized denomination, as requested by the Holder surrendering the
same.
Section 3.3 Service Charge. No service charge will be made for any such
registration, transfer or exchange, but the Company may require payment of a sum
sufficient to cover any transfer tax or other governmental charge payable in
connection therewith.
Section 3.4 Registered Holder. Prior to due presentment of this Security
for registration or transfer, the Company may treat the Person in whose name
this Security is registered as the owner hereof for all purposes, whether or not
this Security be overdue, and the Company shall not be affected by notice to the
contrary.
ARTICLE IV
DEFAULT AND REMEDIES
--------------------
Section 4.1 Events of Default. (a) "Event of Default," wherever used
herein, means any one of the following events (whatever the reason for such
Event of Default and whether it shall be voluntary or involuntary or be effected
by operation of law or pursuant to any judgment, decree or order of any court or
any order, rule or regulation of any administrative or governmental body):
(i) default in the payment when it becomes due and payable
of all or any part of the Principal Amount, whether at Maturity, pursuant
to a Scheduled Amortization Payment or at an earlier Redemption Date, and
continuance of such default for a period of two (2) Business Days;
(ii) default in the payment when it becomes due and payable
of any interest due hereunder, and continuance of such default for a period
of thirty (30) calendar days;
(iii) the entry by a court having jurisdiction in the
premises of (a) a decree or order for relief in respect of the Company or
any
4
Significant Subsidiary in an involuntary case or proceeding under any
applicable Federal or state bankruptcy, insolvency, reorganization, or
other similar law or (b) a decree or order adjudging the Company or any
Significant Subsidiary a bankrupt or insolvent, or approving as properly
filed a petition seeking reorganization, arrangement, adjustment, or
composition of or in respect of the Company or any Significant Subsidiary
under any applicable Federal or state law, or appointing a custodian,
receiver, liquidator, assignee, trustee, sequestrator, or other similar
official of the Company or any Significant Subsidiary of any substantial
part of the property or ordering the winding up or liquidation of its
affairs, and the continuance of any such decree or order for relief or any
such other decree or order unstayed and in effect for a period of 60
consecutive calendar days;
(iv) the commencement by the Company or any Significant
Subsidiary of a voluntary case or proceeding under any applicable Federal
or state bankruptcy, insolvency, reorganization, or other similar law or of
any other case or proceeding to be adjudicated a bankrupt or insolvent, or
the consent by the Company or any Significant Subsidiary to the entry of a
decree or order for relief in respect of the Company or any Significant
Subsidiary in an involuntary case or proceeding under any applicable
Federal or state bankruptcy, insolvency, reorganization, or other similar
law or to the commencement of any bankruptcy or insolvency case or
proceeding against the Company or any Significant Subsidiary, or the filing
by the Company or any Significant Subsidiary of a petition or answer or
consent seeking reorganization or relief with respect to the Company or any
Significant Subsidiary under any applicable Federal or state bankruptcy,
insolvency, reorganization, or other similar law, or the consent by the
Company or any Significant Subsidiary to the filing of such petition or to
the appointment of or taking possession by a custodian, receiver,
liquidator, assignee, trustee, sequestrator, or other similar official of
the Company or any Significant Subsidiary of any substantial part of the
property pursuant to any such law, or the making of an assignment for the
benefit of creditors, or the admission by the Company or any Significant
Subsidiary in writing of its inability to pay its debts generally as they
become due, or the taking of corporate action by the Company or any
Significant Subsidiary in furtherance of any such action;
(v) default by the Company or any of its Subsidiaries in the
payment of principal, interest or premium when due under any agreement or
instrument relating to any other Indebtedness of the Company or any
Subsidiary having an aggregate outstanding principal amount of U.S.
$50,000,000 or more, and such default continues in effect for more than
thirty (30) calendar days after the expiration of any grace period or
extension of time for payment applicable thereto;
(vi) acceleration of any Indebtedness under any agreement or
instrument evidencing any Indebtedness of the Company or any of its
Subsidiaries having an aggregate outstanding principal amount of U.S.
5
$50,000,000 or more, unless such acceleration has been rescinded or
annulled within 30 days after written notice of such acceleration has been
received by the Company or its Subsidiary;
(vii) any final judgment or order for the payment of money
in excess of U.S. $50,000,000 shall be rendered against the Company or any
Significant Subsidiary (other than any judgment to the extent a
non-affiliated insurance company has accepted liability) and such judgment
or order shall not be discharged and either (x) enforcement proceedings
shall have been commenced by any creditor upon such judgment or order which
shall not have been stayed or dismissed within 30 days after the
commencement of such proceedings or (y) there shall be any period of 30
consecutive days during which a stay of enforcement of such judgment or
order, by reason of a pending appeal or otherwise, shall not be in effect,
or any failure by the Company or any Significant Subsidiary to satisfy when
due any non-monetary judgment if the failure to do so would, individually
or in the aggregate, reasonably be expected to have a material adverse
effect on the business and operations of the Company or any Significant
Subsidiary; or
(viii) there occurs any Change of Control.
(b) If an Event of Default (other than an Event of Default
arising under Section 4.1(a)(iii) or (iv)) occurs and is continuing, the Holder
may declare the unpaid Principal Amount of and accrued and unpaid interest as of
the date thereof on the Security to be due and payable immediately, by a notice
in writing to the Company, and upon any such declaration such unpaid Principal
Amount plus accrued and unpaid interest as of the date thereof will become
immediately due and payable. If an Event of Default under Section 4.1(a)(iii) or
(iv) occurs, then the unpaid Principal Amount of and accrued and unpaid interest
as of the date thereof on the Security shall become immediately due and payable
without any declaration or other act on the part of the Holder.
(c) At any time after a declaration of acceleration with respect
to the Security has been made and before a judgment or decree for payment of the
money due has been obtained by the Holder as hereinafter in this Article
provided, if (i) all Events of Default with respect to the Security have been
cured (other than the nonpayment of any Principal Amount or interest that has
become due solely by reason of the declaration of acceleration) or waived and
(ii) a rescission and annulment would not conflict with any judgment or decree
issued in appropriate judicial proceedings regarding the payment to the Holder
of the amounts referred to in Section 4.1(b), then the declaration of
acceleration shall be automatically annulled and rescinded. No such rescission
or annulment will affect any subsequent default or impair any right consequent
thereon.
(d) If an Event of Default with respect to the Security occurs
and is continuing, the Holder may in its discretion proceed to protect and
enforce its rights available hereunder or applicable law by an action at law,
suit in equity or other proceeding as the Holder shall deem most effectual to
protect and enforce any such rights, whether for the specific enforcement of any
covenant or agreement in this Security, or for an injunction against a
6
violation of any of the terms hereof, or in aid of the exercise of any power
granted herein or by law or otherwise, or to enforce any other proper remedy.
Section 4.2 Notice of Defaults. The Company will give the Holder written
notice of any Event of Default promptly, and in any event within five (5)
Business Days after any Responsible Officer of the Company becomes aware of such
Event of Default, specifying the nature and period of existence thereof and what
action the Company is taking or proposes to take with respect thereto.
Section 4.3 Unconditional Right of Holder to Receive Principal and
Interest. Notwithstanding any other provision in this Security, the Holder will
have the right, which is absolute and unconditional, to receive payment of the
Principal Amount of and interest on such Security on the respective due dates
expressed in this Security (or, in the case of redemption, on the Redemption
Date) and such rights may not be impaired without the consent of the Holder.
Section 4.4 Rights and Remedies Cumulative. No right, power, privilege or
remedy herein conferred upon or reserved to the Holder is intended to be
exclusive of any other right, power, privilege or remedy, and every right,
right, power, privilege or remedy will, to the extent permitted by law, be
cumulative and in addition to every other right, power, privilege or remedy
given hereunder or now or hereafter existing at law or in equity or otherwise.
The assertion or employment of any right, power, privilege or remedy hereunder,
or otherwise, will not prevent the concurrent or subsequent assertion or
employment of any other appropriate right, power, privilege or remedy.
Section 4.5 Delay or Omission not Waiver. No delay or omission of the
Holder to exercise any right, power or privilege hereunder or remedy accruing
upon any Event of Default will impair any such right, power, privilege or remedy
or constitute a waiver thereof. Every right, power or privilege hereunder and
right or remedy given by this Article or by law to the Holder may be exercised
from time to time, and as often as may be deemed expedient, by the Holder, as
the case may be.
Section 4.6 Waiver of Past Defaults. The Holder may, by notice to the
Company, waive any past default hereunder and its consequences, except a default
in the payment of the Principal Amount of or interest on this Security.
ARTICLE V
COVENANTS
---------
Section 5.1 Payment of Principal and Interest. The Company covenants and
agrees that it will duly and punctually pay the Principal Amount of and interest
on the Security in accordance with the terms of this Security.
Section 5.2 Waiver of Stay, Usury or Extension Laws. The Company covenants
(to the extent that it may lawfully do so) that it will not at any time insist
upon, or plead, or in any manner whatsoever claim or take the benefit or
advantage of, any stay, usury or extension law wherever enacted, now or at any
time hereafter in force, that may affect the
7
covenants or the performance of this Security; and the Company (to the extent
that it may lawfully do so) hereby expressly waives all benefit or advantage of
any such law and covenants that it will not hinder, delay or impede by reason of
such law the execution of any power herein granted to the Holder, but will
suffer and permit the execution of every such power as though no such law had
been enacted.
Section 5.3 SEC Reports, Financial Reports. (a) The Company shall deliver
to the Holder, within fifteen (15) days after it files them with the Securities
and Exchange Commission (the "SEC"), copies of any quarterly and annual reports
and of any information, documents and other reports (or copies of such portions
of any of the foregoing as the SEC may by rules and regulations prescribe) which
the Company may from time to time be required to file with the SEC pursuant to
Section 13 or 15(d) of the Exchange Act.
(b) If the Company is not subject to the requirements of such Section
13 or 15(d) of the Exchange Act, the Company shall deliver to the Holder, within
thirty (30) days after it would have been required to file quarterly or annual
reports with the SEC pursuant to Section 13 or 15(d) of the Exchange Act, such
financial statements and notes thereto (but no other information) which the
Company would have been required to include in such quarterly or annual reports,
as the case may be, if the Company were subject to the requirements of such
Section 13 or 15(d) of the Exchange Act.
ARTICLE VI
CONSOLIDATION, MERGER, SALE OR TRANSFER
---------------------------------------
Section 6.1 Limit on Consolidation, Merger, Sale or Transfer. The Company
shall not (i) consolidate with or merge with or into any other Person, or
convey, sell, transfer or lease or otherwise dispose of all or substantially all
of its assets to any other Person in any one transaction or series of related
transactions; or (ii) permit any Person to consolidate with or merge with or
into the Company, unless in the case of a merger or consolidation, either the
Company is the surviving Person or, if the Company is not the surviving Person,
the surviving Person formed by such merger or consolidation or into which the
Company is merged or consolidated or in the case of a conveyance, sale,
transfer, lease or other disposition of all or substantially all of the
Company's assets, the Person to which the Company's properties and assets are so
transferred shall be a corporation organized and existing under the laws of the
United States, any state thereof, or the District of Columbia, and shall execute
and deliver to the Holder an agreement expressly assuming the payment when due
hereunder of the Principal Amount and interest on this Security.
Section 6.2 Successor Substituted. Upon any consolidation of the Company
with, or merger of the Company into, any other Person or any sale, transfer or
lease, sale or other disposition of all or substantially all the properties and
assets of the Company, in accordance with Section 6.1, the successor Person
formed by such consolidation or into which the Company is merged or to which
such sale, transfer, lease or other disposition is made shall succeed to and be
substituted for, and may exercise every right and power of the Company under
this Security with the same effect as if such successor or Person had been named
as the Company herein, and
8
thereafter, except in the case of a lease, the predecessor Person shall be
relieved of all obligations and covenants under this Security.
ARTICLE VII
IMMUNITY OF INCORPORATORS, STOCKHOLDERS,
----------------------------------------
OFFICERS AND DIRECTORS
----------------------
Section 7.1 Security Solely Corporate Obligation. No recourse for the
payment of the Principal Amount of or interest on the Security and no recourse
under or upon any obligation, covenant or agreement of the Company in this
Security, or because of the creation of any indebtedness represented thereby,
shall be had against any past, present or future incorporator, stockholder,
employee, agent, officer, or director or subsidiary, as such, of the Company or
of any successor corporation, whether by virtue of any constitution, statute or
rule of law, or by the enforcement of any assessment or penalty or otherwise; it
being expressly understood that all such liability is hereby waived and released
as a condition of, and as a consideration for, the execution of, and issuance
of, this Security.
ARTICLE VIII
DEFINITIONS
-----------
Section 8.1 Definitions. For all purposes of this Security, except as
otherwise expressly provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings assigned to
them in this Article and include the plural as well as the singular; and
(b) the words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Security as a whole and not to any particular
Article, Section or other subdivision.
"Amortization Payment" means payments made pursuant to the Amortization
Schedule set forth in Schedule A hereto.
"Business Day" when used with respect to any Place of Payment or any other
place, as the case may be, means any day other than a Saturday or Sunday, a day
on which banking institutions in the City of New York or the City of
Indianapolis are permitted or obligated by Law to be closed or a day on which
the New York Stock Exchange is closed for trading.
"Change of Control" means (a) any acquisition, directly or indirectly, by
any Person, or two or more Persons acting in concert, of beneficial ownership
(within the meaning of Rule 13d-3 of the SEC under the Exchange Act) of 40% or
more of the outstanding shares of voting stock of the Company, (b) during any
period of 12 consecutive calendar months, commencing on the date hereof, the
ceasing of those individuals (the "Continuing Directors") who (i) were directors
of the Company on the first day of each such period or (ii) who subsequently
became directors of the Company and whose election or initial nomination for
election subsequent to that date was
9
approved by a majority of the Continuing Directors then on the board of
directors of the Company, to constitute a majority of the board of directors of
the Company or (c) any "change of control" (howsoever defined) in the Credit
Facility.
"Company" means the Person named as the "Company" in the first paragraph of
this Security until a successor Person shall have become such pursuant to the
applicable provisions of this Security, and thereafter "Company" shall mean such
successor Person.
"Continuing Directors" has the meaning specified in the definition of
Change of Control.
"Credit Facility" means the Second Amended and Restated Credit Agreement,
dated as of October 10, 2006, as amended on June 12, 2007, among the Company,
Bank of America, N.A., JPMorgan Chase Bank, N.A., and the other financial
institutions party thereto.
"Dollar" or "U.S. $" means a dollar or other equivalent unit in such coin
or currency of the United States as at the time shall be legal tender for the
payment of public and private debts.
"Event of Default" has the meaning specified in Section 4.1.
"Exchange Act" means the U.S. Securities Exchange Act of 1934 (or any
successor statute), as amended from time to time.
"Governmental Entity" means any federal, state, local, foreign,
international or multinational agency, commission, court, entity or authority
exercising executive, legislative, judicial, regulatory, administrative or
taxing functions of or pertaining to government or any non-governmental United
States or foreign self-regulatory agency, commission or authority or any
arbitral tribunal.
"Holder" means the Person named as the "Holder" in the first paragraph of
this Security.
"Indebtedness" means the principal of, premium, if any, and interest on any
indebtedness for borrowed money (excluding trade payables and insurance
liabilities) of the Company, whether outstanding on the date hereof or hereafter
created, incurred or assumed, so long as the instrument or agreement pursuant to
which indebtedness was created does not expressly provide that such indebtedness
will be subordinate in right of payment to the Security.
"Interest Payment Date" has the meaning specified in Section 1.2.
"Interest Period" has the meaning specified in Section 1.2.
"Interest Rate" has the meaning specified in Section 1.2.
"Law" means any constitution, law, ordinance, rule, principle of common
law, regulation, statute, treaty, order, judgment, decree, administrative
interpretation or other requirement of any Governmental Entity or any order,
writ, injunction, directive, judgment or decree of any Governmental Entity
applicable to a Person or such Person's business, property or assets.
10
"Maturity" when used with respect to the Security, means the date on which
the Remaining Principal Amount of such Security becomes due and payable as
herein provided, whether at the Stated Maturity Date, by call for redemption set
forth in Article II or otherwise.
"Optional Redemption" has the meaning specified in Section 2.1.
"Payment Date" has the meaning specified on Schedule A hereto.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, trust, estate, unincorporated organization or
government or any agency or political subdivision thereof.
"Place of Payment" means the location of the Holder's principal executive
offices.
"Principal Amount" has the meaning specified in the first paragraph of this
Security.
"Record Date" has the meaning specified on Schedule A hereto.
"Redemption Date" when used with respect to the Security or portion thereof
being redeemed, means the date fixed for such redemption by or pursuant to this
Security.
"Redemption Notice" has the meaning specified in Section 2.5.
"Redemption Price" has the meaning specified in Section 2.1.
"Responsible Officer" means any officer of the Company to whom such matter
is referred because of his or her knowledge and familiarity with the particular
subject.
"Scheduled Amortization Payment" means a payment of principal of the
Security due to be paid on a Payment Date in accordance with Section 1.1(b).
"SEC" has the meaning specified in Section 6.3.
"Security" means this 6.0% Senior Note due 2013.
"Security Register" means the register maintained at the Company in which
the Company shall provide for the registration of the Security.
"Securities Act" means the U.S. Securities Act of 1933 (or any successor
statute), as amended from time to time.
"Significant Subsidiary" means a Subsidiary of the Company that would
constitute a "significant subsidiary" as such term is defined under Rule 1-02 of
Regulation S-X under the Securities Act and the Exchange Act.
"Stated Maturity Date" has the meaning specified in Section 1.1.
11
"Subsidiary" means a Person of which (or in which), directly or indirectly,
more than 50% of (a) the issued and outstanding capital stock having ordinary
voting power to elect a majority of the board of directors of such corporation
(irrespective of whether at the time capital stock of any other class or classes
of such corporation shall or might have voting power upon the occurrence of any
contingency) or (b) the interest in the capital or profits of such partnership,
joint venture or limited liability company or other Person, is at the time owned
by the Company, or by the Company and one or more of its other Subsidiaries or
by one or more of the Company's other Subsidiaries.
"United States" means the United States of America (including the States
and the District of Columbia), its territories, its possessions and other areas
subject to its jurisdiction (its "possessions" including Puerto Rico, the U.S.
Virgin Islands, Guam, American Samoa, Wake Island and the Northern Mariana
Islands).
ARTICLE IX
MISCELLANEOUS
-------------
Section 9.1 Calculations in Respect of the Security. The Company will be
responsible for making any calculations called for under the Security. These
calculations include, but are not limited to, any accrued interest payable on
the Security. The Company will make these calculations in good faith and, absent
manifest error, its calculations will be final and binding on the Holder. The
Company will provide a schedule of its calculations to the Holder upon a written
request by such Holder.
Section 9.2 Notices. Any notice or other communication required or
permitted hereunder shall be in writing (including facsimile or similar writing)
and shall be deemed given if (i) delivered personally, (ii) sent by overnight
courier (providing proof of delivery) or (iii) sent by facsimile, to the parties
at the following address:
(i) If to the Holder:
[Conseco Senior Health Insurance Company]
600 West Chicago Avenue
Chicago, IL 60610
Attention: John W. Wells
President and Chief Executive Officer
Facsimile: (312) 396-5922
With a concurrent copy to:
Debevoise & Plimpton LLP
919 Third Avenue
New York, New York 10022
Attention: Nicholas F. Potter, Esq.
Facsimile: (212) 521-7459
12
(ii) If to the Company:
Conseco, Inc.
11825 N. Pennsylvania Street
Carmel, IN 46032
Attention: Thomas D. Barta
SVP, Financial Planning and Analysis
Facsimile: (317) 817-5439
With a concurrent copy to:
Conseco, Inc.
11825 N. Pennsylvania Street
Carmel, IN 46032
Attention: Matthew J. Zimpfer
EVP and General Counsel
Facsimile: (317) 817-2826
and
Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square
New York, NY 10036
Attention: Robert J. Sullivan, Esq.
Facsimile: (917) 777-2930
Any party may, by notice given in accordance with this Section 9.3 to the
other parties, designate another address or person for receipt of notices
hereunder; provided, that notice of such a change shall be effective upon
receipt.
Section 9.3 Governing Law. THIS SECURITY SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA, WITHOUT GIVING
EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF.
Section 9.4 Jurisdiction. Each party hereby irrevocably and unconditionally
consents to submit to the non-exclusive jurisdiction of any court of the United
States or any state court which in either case is located in the City of
Philadelphia for any actions, suits or proceedings arising out of or relating to
this Agreement and the transactions contemplated hereby (and each party agrees
that service of any process, summons, notice or document by U.S. registered mail
to its address set forth above shall be effective service of process for any
action, suit or proceeding brought against it in any such court). Each party
hereby irrevocably and unconditionally waives any objection to the laying of
venue of any action, suit or proceeding arising out of this Agreement or the
transactions contemplated hereby in any such court, and hereby further
irrevocably and unconditionally waives and agrees not to plead or claim in any
such court that any such action, suit or proceeding brought in any such court
has been brought in an inconvenient forum. EACH PARTY HERETO HEREBY WAIVES TRIAL
BY JURY IN
13
ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY ANY OF THEM AGAINST ANOTHER
ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS AGREEMENT, OR ANY OTHER
AGREEMENTS EXECUTED IN CONNECTION HEREWITH OR THE ADMINISTRATION THEREOF OR ANY
OF THE TRANSACTIONS CONTEMPLATED HEREIN OR THEREIN.
Section 9.5 Severability. If any provision, including any phrase, sentence,
clause, section or subsection, of this Security is invalid, inoperative or
unenforceable for any reason, such circumstances shall not have the effect of
rendering such provisions in question invalid, inoperative or unenforceable in
any other case or circumstance, or rendering any other provision contained in
this Security invalid, inoperative or unenforceable to any extent whatsoever;
provided, that if any of the provisions hereof are determined to be illegal,
invalid or unenforceable, the parties shall negotiate in good faith to modify
this Security so as to effect the original intent of the Holder and the Company
to the fullest extent possible.
Section 9.6 Binding Effect; Assignment. This Security shall be binding upon
and inure to the benefit of the parties and their respective successors,
permitted assigns and legal representatives. Neither this Security, nor any of
the rights, interests or obligations hereunder, may be assigned, in whole or in
part, by any party without the prior written consent of the other parties hereto
and any such assignment that is not consented to shall be null and void, except
that, notwithstanding the foregoing, this Security may, without written consent
of the Company, be assigned or transferred by the Holder to (a) an affiliate of
the Holder and (b) following the occurrence of an Event of Default, to any other
person.
Section 9.7 Headings. The headings in this Security are for reference only,
and shall not affect the interpretation of this Security.
14
IN WITNESS WHEREOF, the Company has caused this Security to be duly
executed.
CONSECO, INC.
By:
---------------------------
Name:
Title:
15
CONFIDENTIAL
SASM&F DRAFT 8/08/08
A-1
Schedule A
Amortization Schedule
In each case in accordance with and subject to the terms of the Security,
the unpaid Principal Amount shall be amortized on each Payment Date in
accordance with the following schedule subject to adjustment as provided in
Section 1.1(c) of the Security.
Payment Date Record Date Principal Repayment
- ------------ ----------- -------------------
(U.S.$ )
[ ] 2009 [ ] 2009 25,000,000
[ ] 2010 [ ] 2010 25,000,000
[ ] 2011 [ ] 2011 25,000,000
[ ] 2012 [ ] 2012 25,000,000
[ ] 2013 [ ] 2013 25,000,000
A-1
Exhibit H
===============================================================================
EXPENSE REIMBURSEMENT AGREEMENT
between
CONSECO SENIOR HEALTH INSURANCE COMPANY
and
SENIOR HEALTH CARE OVERSIGHT TRUST
Dated as of [ ], 2008
===============================================================================
TABLE OF CONTENTS
Page
----
ARTICLE I
DEFINITIONS; OTHER DEFINITIONAL PROVISIONS
Section 1.1 Definitions.....................................................................................1
Section 1.2 Interpretations.................................................................................2
ARTICLE II
REPRESENTATIONS
Section 2.1 General.........................................................................................3
ARTICLE III
EXPENSES
Section 3.1 Payment of Expenses.............................................................................3
Section 3.2 Trust Expenses..................................................................................4
Section 3.3 Waiver of Notice................................................................................4
Section 3.4 No Impairment...................................................................................4
Section 3.5 Third Party Beneficiaries.......................................................................5
ARTICLE IV
GENERAL PROVISIONS
Section 4.1 Binding Effect; Assignment......................................................................5
Section 4.2 Dollar References...............................................................................5
Section 4.3 Term of Agreement...............................................................................5
Section 4.4 Notices.........................................................................................5
Section 4.5 Governing Law...................................................................................6
Section 4.6 Jurisdiction....................................................................................6
Section 4.7 Counterparts....................................................................................6
Section 4.8 Severability....................................................................................6
Section 4.9 Entire Expense Agreement........................................................................6
Section 4.10 Waivers and Amendments; Non-Contractual Remedies; Preservation of Remedies......................7
Section 4.11 Concerning the Trustees.........................................................................7
Section 4.12 Headings........................................................................................7
Exhibit A Notice of Accounting
Exhibit B Notice of Expense Advancement
i
This Expense Reimbursement Agreement, dated as of [ ], 2008 (this
"Expense Agreement"), is entered into between Conseco Senior Health Insurance
Company, an insurance company domiciled in the Commonwealth of Pennsylvania (the
"Company") and Senior Health Care Oversight Trust, a Pennsylvania business trust
(the "Trust").
NOW THEREFORE, in consideration of the premises and covenants set
forth in this Expense Agreement, the parties agree as follows:
ARTICLE I
DEFINITIONS; OTHER DEFINITIONAL PROVISIONS
------------------------------------------
Section 1.1 Definitions. The following terms, as used herein, have
the following meanings:
"Base Amount of Working Capital" means the agreement by Conseco
pursuant to Section 5.19(a) of the Transfer Agreement to transfer to the Trust
one million dollars ($1,000,000) in cash or cash equivalents on the Closing Date
to serve as a base level of working capital in support of the operations of the
Trust.
"Beneficiary" means the owner of 100% of the beneficial interest in
the Trust, which shall initially be Senior Health Care Oversight Beneficiary
Trust, a common law trust organized under the laws of Pennsylvania.
"Business Day" means any day other than a Saturday, Sunday, a day on
which banking institutions in the Commonwealth of Pennsylvania are permitted or
obligated by Law to be closed or a day on which the New York Stock Exchange is
closed for trading.
"CNO Expense Advancement" means the agreement by Conseco pursuant to
Section 5.19(b) of the Transfer Agreement to transfer to the Trust cash or cash
equivalents to assist the Trust in meeting the operating and incidental expenses
of the Trust in the amount of ten million dollars ($10,000,000) on the Closing
Date.
"Company" has the meaning ascribed in the first paragraph of this
Expense Agreement.
"Conseco" means Conseco, Inc, a Delaware corporation.
"Expense Agreement" has the meaning ascribed in the first paragraph of
this Expense Agreement.
"Expenses" means all reasonable and customary actual and incidental
expenses of the Trust or its Trustees, including, but not limited to,
compensation and expense reimbursement paid to Trustees, any expenses of the
Trust incurred in connection with the expense reimbursement obligations of the
Trust to the Beneficiary, day-to-day operating expenses incurred by the Trust
(or the Beneficiary), amounts paid by the Trust to outside advisors, including
auditors, actuaries, accountants and counsel, amounts reimbursed to Beneficiary
1
pursuant to the Trust Agreement, and premiums paid by the Trust for insurance,
including but not limited to, directors and officers liability insurance.
"Notice of Expense Advancement" has the meaning ascribed in Section
3.1(b) hereof.
"Notice of Accounting" has the meaning ascribed in Section 3.3(a)
hereof.
"Person" means any natural person, corporation, limited partnership,
general partnership, joint stock company, limited liability company, joint
venture, association, company, trust (including any beneficiary thereof), bank,
trust company, land trust, business trust or other organization, whether or not
a legal entity, and governments and agencies and political subdivisions thereof.
"Reporting Period" has the meaning ascribed in Section 3.3(a) hereof.
"Transfer Agreement" means the Transfer Agreement dated August 11,
2008 (and as such agreement may be amended or modified) among CDOC, Inc.,
Conseco and the Senior Health Care Transition Trust, a Pennsylvania business
trust.
"Trust" has the meaning ascribed in the first paragraph of this
Expense Agreement.
"Trust Agreement" means that Trust Agreement dated as of [], 2008,
among the Trustees.
"Trustees" mean the persons serving as trustees of the Trust from time
to time.
Section 1.2 Interpretations. For all purposes of this Expense Agreement,
except as otherwise expressly provided herein or unless the context otherwise
requires:
(a) Notwithstanding anything in this Expense Agreement to the
contrary, no term or condition of this Expense Agreement shall be construed to
supersede, restrict or otherwise limit any term or condition set forth in the
Transfer Agreement.
(b) For purposes of this Expense Agreement, the words "hereof",
"herein", "hereby" and other words of similar import refer to this Expense
Agreement as a whole unless otherwise indicated. Whenever the words "include",
"includes", or "including" are used in this Expense Agreement, they shall be
deemed to be followed by the words "without limitation". Whenever the singular
is used herein, the same shall include the plural, and whenever the plural is
used herein, the same shall include the singular, where appropriate.
(c) This Expense Agreement shall be deemed to be the joint work
product of the parties and any rule of construction that a document shall be
interpreted or construed against a drafter of such document shall not be
applicable.
2
ARTICLE II
REPRESENTATIONS
---------------
Section 2.1 General. Each party hereto represents and warrants to the other
that as of the date hereof:
(a) it has the power to enter into this Expense Agreement and to
consummate the transactions contemplated hereby;
(b) it has duly authorized, executed and delivered this Expense
Agreement;
(c) assuming the due authorization, execution and delivery of this
Expense Agreement by the other party, this Expense Agreement constitutes a
legal, valid and binding obligation of the representing party; and
(d) this Expense Agreement is enforceable against the representing
party in accordance with the terms hereof, subject to applicable bankruptcy,
insolvency and similar laws affecting creditors' rights, and subject as to
enforceability to general principles of equity, regardless of whether
enforcement is sought in a proceeding in equity or at law.
ARTICLE III
EXPENSES
--------
Section 3.1 Payment of Expenses.
(a) The Company hereby irrevocably and unconditionally agrees, subject
only to the terms and conditions of this Expense Agreement, to reimburse and
indemnify the Trust against Expenses incurred by the Trust to the extent, but
only to the extent, such Expenses are not satisfied from the CNO Expense
Advancement. In furtherance of the foregoing, promptly upon receipt of a Notice
of Accounting, the Company shall reimburse any Expense not covered by the CNO
Expense Advancement unless such amount was previously paid to the Trust pursuant
to Section 3.1(b) below.
(b) To the extent that the Trust anticipates incurring any Expenses in
the future that would not be covered by the CNO Expense Advancement and that, if
paid, would exceed the amount of the Trust's then cash resources or jeopardize
the Trust's ability to meet future obligations, the Trust shall be entitled to
have the Company advance those funds necessary to pay such Expenses. In such
event, the Company shall advance to the Trust funds to be used to pay such
Expenses within two (2) Business Days of receipt of the applicable Notice of
Expense Advancement, which shall be substantially in the form set forth in
Exhibit B attached hereto (the "Notice of Expense Advancement").
(c) The Company and the Trust hereby agree that all payments due under
this Section 3.1 in respect of any Expense shall be effected, and any
responsibility of the Company to pay such Expense pursuant to this Expense
Agreement shall be discharged, by the payment by
3
the Company, at the order of the Trust, to the account of the person to whom
such Expense is owed, as specified in the applicable Notice of Expense.
(d) The Company and the Trust hereby acknowledge that the provisions
of Section 3.1 are designed, in part, to ensure that the Trust will be in a
position to pay expenses as they are incurred.
Section 3.2 Trust Expenses.
(a) Following the end of each reporting period deemed appropriate by
the Trust (the "Reporting Period"), which will be no less frequently than
semi-annually during the first three years and quarterly thereafter, the Trust
shall provide an accounting of all expenses incurred by the Trust that are
entitled to reimbursement under this Expense Agreement in substantially the form
set forth in Exhibit A attached hereto (the "Notice of Accounting").
(b) The Trust shall maintain supporting records regarding expenses
submitted for reimbursement under this Expense Agreement reasonably requested by
the Company.
Section 3.3 Waiver of Notice. The Company hereby waives notice of any fact
or circumstance that could give rise to the payment of any Expense under Section
3.1 and, except as provided herein, also waives presentment, demand for payment,
protest, notice of nonpayment, notice of dishonor, notice of redemption and all
other notices and demands.
Section 3.4.......No Impairment. The obligations, covenants, agreements and
duties of the Company under this Expense Agreement will in no way be affected or
impaired by reason of the happening from time to time of any of:
(a) The extension of time for the payment of all or any portion of any
Expense or for the performance of any other obligation arising under, out of, or
in connection with, any Expense;
(b) Any failure, omission, delay or lack of diligence on the part of
the Trust to enforce, assert or exercise any right, privilege, power or remedy
conferred on the Trust with respect to any Expense or any action on the part of
the Trust granting indulgence or extension of any kind;
(c) The voluntary or involuntary liquidation, dissolution, sale of any
collateral, receivership, insolvency, bankruptcy, assignment for the benefit of
creditors, reorganization, arrangement, composition or readjustment of debt of,
or other similar proceedings affecting, the Trust or any of the assets of the
Trust;
(d) The existence of any claim, set-off or other rights that the
Company may have at any time against the Trust; provided, that nothing herein
shall prevent the assertion of any such claim by separate suit or compulsory
counterclaim; or
(e) Any other act or omission to act or delay of any kind by the Trust
or any other Person or any other circumstance whatsoever which might, but for
the provisions of this
4
Section 3.4(e), constitute a legal or equitable discharge of or defense to the
Company's obligations hereunder.
Section 3.5 Third Party Beneficiaries. The parties to this Expense
Agreement understand and agree that the Beneficiary and its successors and
permitted assigns shall be a third party beneficiary under this Expense
Agreement. Other than the Beneficiary and the parties hereto, no other Person
shall have any legal or equitable right, remedy or claim under or in respect of
this Expense Agreement or any covenants, conditions or provisions contained
herein.
ARTICLE IV
GENERAL PROVISIONS
------------------
Section 4.1 Binding Effect; Assignment. This Expense Agreement shall be
binding upon and inure to the benefit of the parties and the intended third
party beneficiary stated above and their respective successors, permitted
assigns and legal representatives. Neither this Expense Agreement, nor any of
the rights, interests or obligations hereunder, may be assigned, in whole or in
part, by any party without the prior written consent of the other parties hereto
and any such assignment that is not consented to shall be null and void.
Section 4.2 Dollar References. All dollar references in this Expense
Agreement are to the currency of the United States.
Section 4.3 Term of Agreement. Unless and until this Expense Agreement is
terminated by liquidation of the Trust in accordance with the terms of the Trust
Agreement, this Expense Agreement will continuing and in effect in accordance
with its terms.
Section 4.4 Notices. Any notice or other communication required or
permitted hereunder shall be in writing (including facsimile or similar writing)
and shall be deemed given if (i) delivered personally, (ii) sent by overnight
courier (providing proof of delivery) or (iii) sent by facsimile, to the parties
at the following address:
If to the Trust, to:
Senior HealthCare Oversight Trust,
[ ]
[ ]
Attention: [ ]
Chairman of the Board of Trustees
Facsimile: [ ]
If to the Company, to:
5
Conseco Senior Health Insurance Company
600 West Chicago Avenue
Chicago, IL 60610
Attention: John W. Wells
President and Chief Executive Officer
Facsimile: (312) 396-5922
Any party may, by notice given in accordance with this Section 4.4 to the
other parties, designate another address or person for receipt of notices
hereunder; provided, that notice of such a change shall be effective upon
receipt.
Section 4.5 Governing Law. THIS EXPENSE AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA,
WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF.
Section 4.6 Jurisdiction. Each party hereby irrevocably and unconditionally
consents to submit to the non-exclusive jurisdiction of any court of the United
States or any state court which in either case is located in the City of
Philadelphia for any actions, suits or proceedings arising out of or relating to
this Expense Agreement and the transactions contemplated hereby (and each party
agrees that service of any process, summons, notice or document by U.S.
registered mail to its address set forth above shall be effective service of
process for any action, suit or proceeding brought against it in any such
court). Each party hereby irrevocably and unconditionally waives any objection
to the laying of venue of any action, suit or proceeding arising out of this
Expense Agreement or the transactions contemplated hereby in any such court, and
hereby further irrevocably and unconditionally waives and agrees not to plead or
claim in any such court that any such action, suit or proceeding brought in any
such court has been brought in an inconvenient forum. EACH PARTY HERETO HEREBY
WAIVES TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY ANY OF
THEM AGAINST ANOTHER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS EXPENSE
AGREEMENT, OR ANY OTHER AGREEMENTS EXECUTED IN CONNECTION HEREWITH OR THE
ADMINISTRATION THEREOF OR ANY OF THE TRANSACTIONS CONTEMPLATED HEREIN OR
THEREIN.
Section 4.7 Counterparts. This Expense Agreement may be executed by the
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute one and the same instrument.
Section 4.8 Severability. If any provision, including any phrase, sentence,
clause, section or subsection, of this Expense Agreement is invalid, inoperative
or unenforceable for any reason, such circumstances shall not have the effect of
rendering such provisions in question invalid, inoperative or unenforceable in
any other case or circumstance, or rendering any other provision contained in
this Expense Agreement invalid, inoperative or unenforceable to any extent
whatsoever; provided, that if any of the provisions hereof are determined to be
illegal, invalid or unenforceable, the parties shall negotiate in good faith to
modify this Expense Agreement so as to effect the original intent of the Trust
and the Company to the fullest extent possible.
6
Section 4.9 Entire Expense Agreement. This Expense Agreement (including the
Exhibits hereto) contains the entire agreement among the parties with respect to
the subject matter hereof and supersedes all prior agreements and
understandings, written or oral, with respect thereto.
Section 4.10 Waivers and Amendments; Non-Contractual Remedies; Preservation
of Remedies. This Expense Agreement may be amended, superseded, canceled,
renewed or extended, and the terms hereof may be waived, only by a written
instrument signed by each of the parties or, in the case of a waiver, by the
party waiving compliance. No delay on the part of any party in exercising any
right, power or privilege hereunder shall operate as a waiver thereof, nor shall
any waiver on the part of any party of any right, power or privilege, nor any
single or partial exercise of any such right, power or privilege, preclude any
further exercise thereof or the exercise of any other such right, power or
privilege. The rights and remedies herein provided are cumulative and are not
exclusive of any rights or remedies that any party may otherwise have at law or
in equity. The parties agree that irreparable damage would occur in the event
any provision hereof were not to be performed in accordance with its terms and
that each party shall be entitled to specific performance of the terms hereof in
addition to any other remedies at law or in equity.
Section 4.11 Concerning the Trustees. It is expressly understood and agreed
by the parties that (a) this Expense Agreement is executed and delivered by
Trustees, not individually or personally, but solely as Trustees, in the
exercise of the powers and authority conferred and vested in it, pursuant to the
Transfer Agreement and the Trust Agreement, (b) each of the representations,
undertakings and agreements herein made on the part of the Trust is made and
intended not as personal representations, undertakings and agreements by the
Trustees but is made and intended for the purpose of binding only the Trust, (c)
nothing contained herein shall be construed as creating any liability on the
Trustees individually or personally, to perform any covenant either expressed or
implied contained herein, all such liability, if any, being expressly waived by
the parties hereto and by any person claiming by, through or under the parties
hereto, and (d) under no circumstances shall the Trustees be personally liable
for the payment of any indebtedness or expenses of the Trust generally or be
liable for any breach or failure of any obligation, representation, warranty or
covenant made or undertaken by the Trust under this Expense Agreement; provided,
however, that such waiver shall not affect the liability of the Trustees (or any
entity acting as successor or additional trustee) to any person under any other
agreement to the extent expressly agreed to in its individual capacity
thereunder.
Section 4.12 Headings. The headings in this Expense Agreement are for
reference only, and shall not affect the interpretation of this Expense
Agreement.
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IN WITNESS WHEREOF, the parties have caused this Expense Agreement to
be executed by duly authorized representatives as of the day and year first
above written.
Conseco Senior Health Insurance Company
By:
------------------------------------
Name:
Title:
Senior Health Care Oversight Trust
By:
------------------------------------
Name:
Title:
8
EXHIBIT A
NOTICE OF ACCOUNTING
Date: [ ]
By [Hand or Overnight] Delivery and/or Facsimile
- ------------------------------------------------
Conseco Senior Health Insurance Company
Attention: General Counsel
Telephone:
Facsimile:
Ladies and Gentlemen:
Reference is hereby made to that certain Expense Reimbursement
Agreement dated as of [ ], 2008 (the "Expense Agreement") entered into between
Conseco Senior Health Insurance Company, a health insurance company domiciled in
the State of Pennsylvania (the "Company") and Senior Health Care Oversight
Trust, a business trust organized under the laws of the State of Pennsylvania
(the "Trust"). Capitalized terms used in this notice (this "Notice of Expense")
and not otherwise defined have the respective meanings ascribed in the Expense
Agreement.
The Trust hereby represents to the Company that during the past
Reporting Period the Trust has incurred the Expenses described in Annex A
hereto.
Appropriate supporting documents and instruments regarding the
Expenses are attached to this Notice of Accounting.
Annex A also identifies any item for which a special advance has been
paid.
The Trust hereby requests the Company to pay an amount equal to $___
(Expenses, less amounts covered by CNO Expense Advancements) in accordance with
the Expense Agreement to the following account:
[Name of Bank:
Account No.:
Reference No.:]
A-1
In witness whereof, the Trust has executed and delivered this Notice
of Accounting as of the date first written above.
[ ]
By: [ ], not in his or her individual capacity,
but solely as Trustee
By:
--------------------------------------------
Name:
Title:
A-2
Annex A
Amount Date Reason
------ ---- ------
A-3
EXHIBIT B
NOTICE OF EXPENSE ADVANCEMENT
Date: [ ]
By [Hand or Overnight] Delivery and/or Facsimile
- ------------------------------------------------
Conseco Senior Health Insurance Company
Attention: General Counsel
Telephone:
Facsimile:
Ladies and Gentlemen:
Reference is hereby made to that certain Expense Reimbursement
Agreement dated as of [ ], 2008 (the "Expense Agreement") entered into between
Conseco Senior Health Insurance Company, a health insurance company domiciled in
the State of Pennsylvania (the "Company") and Senior Health Care Oversight
Trust, a business trust organized under the laws of the State of Pennsylvania
(the "Trust"). Capitalized terms used in this notice (this "Notice of Expense")
and not otherwise defined have the respective meanings ascribed in the Expense
Agreement.
The Trust hereby represents to the Company that the Trust anticipates
incurring the following expenses that are otherwise subject to reimbursement by
the Company pursuant to the Expense Agreement, but to which insufficient CNO
Expense Advancements will be available:
(a) the Trust will incur an Expense in an amount of $[ ];
(b) the Expense will result from [ ]; and
(c) all documents and instruments evidencing the Expense are attached
to this Notice of Expense.
The Trust hereby requests the Company to advance the funds to pay the
above expenses in accordance with the Expense Agreement, no later than ___, to
the following account:
[Name of Bank:
Account No.:
Reference No.:]
B-1
In witness whereof, the Trust has executed and delivered this Notice
of Expense Advancement as of the date first written above.
[ ]
By: [ ], not in his or her individual capacity,
but solely as Trustee
By:
---------------------------------------------
Name:
Title:
B-2
Exhibit I
SENIOR HEALTH CARE OVERSIGHT BENEFICIARY TRUST
THIS TRUST AGREEMENT (the "Agreement"), made as of the 8th day of
August, 2008, by and among CDOC, Inc., a Delaware corporation, as Grantor, and
John W. Wells (not in his individual capacity except as otherwise expressly
provided herein, but solely as trustee of the Trust (as hereinafter defined),
the "Trustee").
WHEREAS, the Grantor has determined that it is appropriate to create
this trust, in order to facilitate the purposes hereof; and
WHEREAS, the Grantor desires to transfer the Initial Contribution to
the Trust and, thereafter, a beneficial interest in each of the Senior Health
Care Trusts (as hereinafter defined).
NOW, THEREFORE, the Grantor hereby transfers and assigns to the
Trustee the Initial Contribution to be held for the benefit of the Beneficiaries
(as defined herein). The Trustee accepts and acknowledges receipt of the Initial
Contribution, and agrees to hold it and all Additional Acquired Property
received and accepted by him, in trust, and to invest, manage and distribute
such property upon the following terms and conditions as hereinafter set forth.
ARTICLE I
NAME AND DEFINITIONS
Section 1.1 Name. This Trust shall be known as the "Senior Health Care
Oversight Beneficiary Trust".
Section 1.2 Certain Terms Defined. For all purposes of this Agreement,
unless the context otherwise requires:
"Additional Acquired Property" shall mean any property, from time to
time, acquired by the Trustee (or Trustees), including, without limitation, an
interest in each of the Senior Health Care Trusts.
"Affiliate" shall have the meaning assigned to such term in Rule 12b-2
promulgated under the Securities Exchange Act of 1934, as amended, by the
Securities and Exchange Commission, as in effect on the date hereof.
"Beneficiaries" shall mean the Qualified Organizations deemed
appropriate by the Trustee (or Trustees) to be beneficiaries hereunder and so
designated as such pursuant to Section 3.1 hereof.
"Code" shall mean the Internal Revenue Code of 1986, as amended
(including any successor code).
"CSHI" shall mean Conseco Senior Health Insurance Company, an
insurance company domiciled in the Commonwealth of Pennsylvania.
"Grantor" shall mean CDOC, Inc., a Delaware corporation.
"Initial Contribution" shall mean the property described on Schedule A
annexed hereto.
"Merger" shall mean the merger of the Senior Health Care Transition
Trust with and into the Senior Health Care Oversight Trust, with the Senior
Health Care Oversight Trust as the surviving entity.
"Qualified Organizations" shall mean tax-exempt organizations
described in Section 501(c)(3) of the Code, contributions to which are
deductible under Section 170(c) of the Code (in either instance, any successor
provisions of the Code), and whose charitable objectives and purposes include,
either in whole or in substantial part, a focus on senior health or related
issues.
"SHIP" shall mean Senior Health Care Insurance Company of
Pennsylvania.
"Senior Health Care Oversight Trust" shall mean that certain business
trust to be created in accordance with the laws of the Commonwealth of
Pennsylvania to (i) receive all of the issued and outstanding capital stock (the
"Shares") of CSHI to be renamed SHIP, (ii) exercise all voting rights with
respect to the Shares and (iii) perform certain oversight responsibilities with
respect to CSHI/SHIP.
"Senior Health Care Transition Trust" shall mean that certain business
trust to be created in accordance with the laws of the Commonwealth of
Pennsylvania to facilitate the transfer of the Shares of CSHI to Senior Health
Care Oversight Trust.
"Senior Health Care Trusts" shall mean the Senior Health Care
Oversight Trust and the Senior Health Care Transition Trust, collectively.
"Trust" shall mean the trust established by this Agreement.
"Trust Estate" shall mean all property held from time to time by the
Trustee (or Trustees) under this Agreement, including, without limitation, the
Initial Contribution, all Additional Acquired Property, if any, and, in
addition, shall include all dividends, income, proceeds and other receipts of or
from the Trust Estate.
ARTICLE II
CREATION OF TRUST
Section 2.1 Appointment and Authorization. The Grantor hereby appoints
John W. Wells, as Trustee of the Trust created hereunder, and authorizes and
directs the Trustee, and the Trustee hereby agrees, subject to the terms of this
Agreement, to exercise the rights and perform the duties as set forth herein.
2
Section 2.2 Grant of Trust. (a) The Grantor hereby grants, assigns,
transfers, conveys and delivers unto the Trustee (or Trustees) for the purpose
set forth in Section 3.1 all of the Grantor's right, title and interest in and
to the Trust Estate, in trust for the uses and purposes stated herein, subject
to the terms and provisions set forth below.
(b) The Trustee (or Trustees) may receive Additional Acquired Property
and hold the same as part of the Trust Estate, provided such property (if other
than an interest as a beneficial owner of the Senior Health Care Trusts) is
acceptable to the Trustee (or Trustees).
Section 2.3 Declaration of Trust. The Trustee (or Trustees) hereby
acknowledge(s) that they will hold the Trust Estate, as Trustee (or Trustees),
for the purpose set forth in Section 3.1
ARTICLE III
PURPOSE OF TRUST
Section 3.1 Purpose of Trust. The purpose of this Trust is to (i) hold
a beneficial interest in the Senior Health Care Trusts, (ii) to the extent that
some time in the future any distributions are made to the Trust as a beneficial
owner of the Senior Health Care Trusts, select one or more Qualified
Organizations deemed appropriate by the Trustee (or Trustees), after consulting
with the Pennsylvania Insurance Department, as beneficiaries of the Trust and
(iii) otherwise take appropriate steps, consistent with the provisions of
Article VI hereof, to manage the Trust Estate for the benefit of the
Beneficiaries.
Section 3.2 Distribution of Proceeds. Subject to the provisions of
Article V hereof, any and all proceeds received by the Trust shall be
distributed to the Beneficiaries.
ARTICLE IV
DURATION AND TERMINATION OF TRUST
Section 4.1 Duration. The Trust created hereunder shall continue until
the earlier to occur of (i) the elapse of One Hundred Eighty (180) days
following the date of the termination of the Senior Health Care Oversight Trust;
(ii) such alternative date determined by the Trustee (or Trustees) with the
written consent of the trustee of the Senior Health Care Transition Trust, prior
to the Merger, and the written consent of the majority of the trustees of the
Senior Health Care Oversight Trust, subsequent to the Merger and (iii) the
Perpetuities Date. For purposes of this Agreement, the term "Perpetuities Date"
shall mean the longest period of time that a trust can last under the laws of
the Commonwealth of Pennsylvania, including any period in gross; provided that,
if any element of the laws of the Commonwealth of Pennsylvania requires or
permits that period to be measured, in whole, in part, or in the alternative, by
lives in being, then those lives, to the extent employed, shall be such of the
issue of the late King George VI of the United Kingdom, as were in being at the
date of this Agreement.
Section 4.2 Continuance of Trust for Winding Up. After the termination
of the Trust and solely for the purpose of liquidating and winding up the
affairs of the Trust, the
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Trustee (or Trustees) shall continue to act as such until their duties have been
fully performed. Upon the distribution of all the Trust Estate, the Trustee (or
Trustees) shall have no further duties or obligations hereunder.
ARTICLE V
ADMINISTRATION OF TRUST ESTATE
Section 5.1 Administration of the Trust Estate. In furtherance of the
purpose of the Trust, the Trustee (or Trustees) shall be charged with the
management and administration of the Trust Estate for the benefit of the
Beneficiaries.
Section 5.2 Payment of Claims, Expenses and Liabilities. The Trustee
(or Trustees) shall pay from the Trust Estate all claims, expenses, liabilities,
charges and obligations of the Trust Estate and such liabilities which the
Trustee (or Trustees) may be obligated to pay, including, without limitation,
interest, penalties, taxes, assessments and public charges of every kind and
nature and the costs, charges and expenses connected with the execution or
administration of this Trust and such other payments and disbursements as are
provided in this Agreement or which may be determined to be a proper charge
against the Trust Estate by the Trustee (or Trustees). In the management and
administration of the Trust Estate, the Trustee (or Trustees) may make
provisions by reserve or otherwise, out of the Trust Estate, for such amount as
the Trustee (or Trustees) in good faith may determine to be necessary to meet
present or future claims and liabilities of the Trust, whether fixed or
contingent, to make future investments or for any other purpose.
Section 5.3 Final Distribution. Upon the termination of the Trust, the
Trustee (or Trustees) shall, after paying or making provisions for the payment
of liabilities of the Trust Estate as provided in Section 5.2, if any, transfer,
pay over and distribute all of the then principal and income of the Trust Estate
to such one or more of the Beneficiaries, and in such shares or proportions, as
the Trustees determine.
Section 5.4 Tax Returns. The Trustee (or Trustees) shall be
responsible for the keeping of all appropriate books and records relating to the
receipt and disbursement by them of all monies under this Agreement. The Trustee
(or Trustees) agree to file (or consent to be filed) an application with the
Internal Revenue Service for a taxpayer identification number with respect to
the Trust and will cause to be prepared all tax returns required to be filed
with respect to the Trust and shall execute and file such returns with the
appropriate taxing authorities.
ARTICLE VI
POWERS OF AND LIMITATIONS ON THE TRUSTEES
Section 6.1 Limitations on Trustees. The Trustee (or Trustees) shall
be restricted to the collection, holding and administration of the assets in the
Trust Estate and the payment and distribution thereof for the purposes set forth
in this Agreement and to the conservation and protection of the Trust Estate and
the administration thereof in accordance with the provisions of this Agreement.
4
Section 6.2 Limitations on Investments. Except for (i) the Trust's
interest as a beneficiary of the Senior Health Care Trusts prior to the
respective Senior Health Care Trusts' termination and (ii) the maintenance by
the Trustee (or Trustees) of a checking or like account (whether or not interest
bearing) of funds reasonably required to pay the current or reasonably expected
expenses of the Trust, the Trustee (or Trustees) shall invest and reinvest the
Trust Estate (including assets at any time received by the Trustee (or Trustees)
from the Senior Health Care Trusts) only in institutional money market funds
registered with the U.S. Securities and Exchange Commission under Rule 2a-7 and
which guarantee 100% same day liquidity with total assets exceeding 1 billion
dollars.
Section 6.3 Specific Powers and Duties of the Trustees.
Notwithstanding the provisions of Section 6.1 and Section 6.2, in addition to
any powers and duties conferred upon them by any other Section or provision of
this Agreement or any laws of the Commonwealth of Pennsylvania, the Trustee (or
Trustees) is (are) expressly authorized to have the following specific powers
and duties:
(a) To perform any and all acts necessary or desirable to carry out
the purposes of the Trust, including, but not limited to, any and all acts
necessary or desirable to appoint, at an appropriate time, Beneficiaries and, as
deemed appropriate by the Trustee (or Trustees), to conserve, maintain and
manage the Trust Estate;
(b) To retain sufficient cash (if and when received) to meet the
Trustee's (or Trustees')? reasonable and good faith estimate of actual, possible
and/or potential debts or liabilities (whether contingent or otherwise) and/or
expenses (whether contingent or otherwise) incurred in connection with the
Trustee's (or Trustees') administration of the Trust Estate;
(c) To contest, satisfy or otherwise resolve the debts and liabilities
of the Trust Estate or, upon receipt of evidence reasonably satisfactory to the
Trustee (or Trustees) as to the validity thereof, to pay any claim or matter for
which the Trustee (or Trustees) are charged with responsibility under this
Agreement;
(d) To maintain adequate records with respect to the Trust's
activities;
(e) To hire (and fire) such agents, officers, employees, auditors,
legal counsel, financial advisors, and consultants as determined reasonable or
necessary by the Trustee (or Trustees) to assist them in fulfilling their duties
hereunder and to pay them reasonable compensation as determined by the Trustee
(or Trustees); and
(f) To delegate discretionary powers to an agent for the efficient
administration of the Trust;
provided, however, that the enumeration of the powers and duties set forth above
shall not be considered in any way to limit or control the power and duties of
the Trustee (or Trustees) to act as specifically authorized by any other Section
or provision of this Agreement; provided, further, that the Trustee (or
Trustees) shall have no duty to and need not perform any active monitoring or
oversight function regarding the Senior Health Care Trusts (or either of them)
or CSHI/SHIP;
5
and provided, further, that the exercise of all such powers and duties shall be
binding on all Beneficiaries.
ARTICLE VII
CONCERNING THE TRUSTEES,
EMPLOYEES AND AGENTS
Section 7.1 Generally. The Trustee (or Trustees) accept(s) and
undertake(s) to discharge the Trust, upon the terms and conditions hereof. The
Trustee (or Trustees) shall exercise such of the rights and powers vested in
them by this Agreement, and use the same degree of care and skill in their
exercise as a prudent person would exercise or use under the circumstances in
the conduct of such person?'s own affairs but shall have no liability or
obligation to Grantor for any act or omission. No provision of this Agreement
shall be construed, however, to relieve the Trustee (or Trustees), or any of
them, of liability for a breach of trust committed in bad faith or with reckless
indifference of the purpose of the Trust or the interests of the Beneficiaries,
except that no implied covenants or obligations shall be read into this
Agreement against the Trustee (or Trustees).
Section 7.2 Reliance by Trustees. Except as otherwise provided in
Section 7.1:
(a) The Trustee (or Trustees) may rely and shall be protected in
acting upon any resolution, certificate, statement, instrument, opinion, report,
notice, request, consent, order or other paper or document believed by them to
be genuine and to have been signed or presented by the proper party or parties;
(b) The Trustee (or Trustees) may consult with legal counsel,
auditors, financial advisors, and consultants to be selected by them including
firms of which the Trustee (or Trustees) may be a member, and the advice or
opinion of any such person as to matters that the Trustee (or Trustees)
reasonably believe to be within such person?'s professional competence shall be
full and complete personal protection to the Trustee (or Trustees) and all
employees and agents of the Trust in respect of any action taken or suffered by
them in reliance on, or in accordance with, such advice or opinion;
(c) Persons dealing with the Trustee (or Trustees) shall look only to
the Trust Estate to satisfy any liability incurred by the Trustee (or Trustees)
to such person in carrying out the terms of this Trust, and the Trustee (or
Trustees) shall have no personal or individual obligation to satisfy any such
liability; and
(d) As far as practicable, the Trustee (or Trustees) shall cause any
written instrument creating an obligation of the Trust to include a reference to
this Agreement and to provide that neither the Trustee (or Trustees) nor their
agents shall be liable thereunder and that the other parties to such instrument
shall look solely to the Trust Estate for the payment of any claim thereunder or
the performance thereof; provided, however, that the omission of such provision
from any such instrument shall not render the Trustee (or Trustees), or their
agents liable nor shall the Trustee (or Trustees) be liable to anyone for such
omission.
6
Section 7.3 Liability to Third Persons. No Trustee, employee or agent
of this Trust shall be subject to any personal liability whatsoever, in tort,
contract or otherwise, to any person in connection with the Trust Estate or the
affairs of this Trust except for such person'?s own grossly negligent actions,
grossly negligent failures to act, willful disregard of duties, willful
misconduct; and all such other persons shall look solely to the Trust Estate for
satisfaction of claims of any nature arising in connection with the affairs of
this Trust. To the extent available, the Trustee (or Trustees) may maintain
insurance for the protection of the Trust Estate, Trustees, employees and agents
in such amount as the Trustee (or Trustees) shall deem adequate to cover all
reasonably foreseeable liability and pay the cost of such insurance from the
Trust Estate.
Section 7.4 Indemnifications. Each Trustee and each employee and agent
of the Trustee (or Trustees) or the Trust shall be indemnified out of the Trust
Estate against all liabilities and expenses, including amounts paid in
satisfaction of judgments, in compromise or as fines and penalties, and counsel
fees, reasonably incurred by such person in connection with the defense or
disposition of any action, suit or other proceeding by such person, whether
civil or criminal, in which such person may be involved or with which such
person may be threatened, while in office or thereafter by reason of such person
being or having been such a Trustee, employee or agent, provided that such
person shall not be entitled to have such indemnification in respect of any
matter as to which such person shall have been adjudicated to have acted, or to
have failed to act, with willful misfeasance, gross negligence, or in willful
disregard of such person'?s duties unless and only to the extent that the court
in which such action, suit or other proceeding was brought, or another court of
competent jurisdiction, determines upon application that, despite such
adjudication, but in view of all of the circumstances of the case, such Trustee
or other indemnified person is fairly and reasonably entitled to indemnification
for such liabilities and expenses as the court may deem proper. The rights
accruing to any Trustee, employee or agent under these provisions shall not
exclude any other right to which such person may be lawfully entitled. The
Trustee (or Trustees) may make advance payments in connection with
indemnification under this Section, provided that the indemnified Trustee,
employee or agent shall have given a written undertaking to repay any amount
advanced to such person and to reimburse the Trust in the event it is
subsequently determined that such person is not entitled to such
indemnification. The Trustee (or Trustees) may purchase such insurance as they
determine, in their discretion, adequate to insure that each Trustee, employee
and agent of the Trust shall be indemnified against any such loss, liability or
damage pursuant to this Section. The rights accruing to any person by reason of
the foregoing shall not be deemed to exclude any other right to which such
person may legally be entitled (including, without limitation, under any
director and officer liability insurance maintained by either of the Senior
Health Care Trusts or CSHI/SHIP, or under any agreement so providing
indemnification rights to which either Senior Health Care Trust is a party) nor
shall anything else contained herein restrict the right of the Trustee (or
Trustees) to indemnify or reimburse such person in any proper case even though
not specifically provided for herein, nor shall anything contained herein
restrict the right of any such person to contribution under applicable law.
7
ARTICLE VIII
PROTECTION OF PERSONS DEALING WITH THE TRUSTEES
Section 8.1 Reliance on Statement by Trustees. Any person dealing with
the Trustee (or Trustees) shall be fully protected in relying upon the Trustee's
(or Trustees')? certificate that they have authority to take any action under
this Trust.
ARTICLE IX
COMPENSATION OF TRUSTEES
Section 9.1 Compensation. Except as set forth in Section 9.2, no
Trustee shall be entitled to receive any compensation for his/her services as
Trustee.
Section 9.2 Expenses. Each Trustee shall be reimbursed from the Trust
Estate (including any rights to expense reimbursement granted in agreements to
which either Senior Health Care Trust is a party) for all reasonable and
customary fees and expenses incurred by such Trustee in the performance of such
Trustee?'s duties in accordance with this Agreement.
ARTICLE X
TRUSTEES AND SUCCESSOR TRUSTEES
Unless the Merger shall have occurred, this Article X shall be
effective, and Article XI shall not be effective.
Section 10.1 Resignation and Removal.
(a) The Trustee may resign as Trustee hereunder by mailing notice to
the Senior Health Care Transition Trust. Such resignation shall become effective
upon the appointment of such Trustee's successor and such successor's acceptance
of such appointment, whichever is later.
(b) The trustee of the Senior Health Care Transition Trust may remove
any Trustee, with or without cause.
Section 10.2 Appointment of Successor Trustees. Should at any time the
Trustee resign, be removed, die or become incapacitated, then a vacancy shall be
deemed to exist and a successor shall be appointed by the Senior Health Care
Transition Trust (any such successor shall be included in the term "Trustee" for
purposes of this Agreement). The term "incapacitated" shall refer to an
individual with respect to whom any Trustee comes into possession of any of the
following: (1) a court order holding the individual to be legally incapacitated
to act in his or her own behalf, or appointing a guardian, conservator or other
personal representative to act in his or her behalf; (2) certificates of two
licensed physicians certifying that the individual is unable, for any reason, to
act rationally and prudently in his or her own financial best interests; or (3)
evidence the recipient deems both credible and currently
8
applicable that the individual has disappeared, is unaccountably absent, or is
being detained under duress in such manner as to be unable effectively and
prudently to attend to his or her own financial best interests.
Section 10.3 Acceptance of Appointment by a Successor Trustee. Any
successor Trustee appointed hereunder shall execute an instrument accepting such
appointment hereunder and shall deliver a copy to the then acting trustee of the
Senior Health Care Transition Trust. Thereupon such successor Trustee shall,
without any further act, become vested with all the estates, properties, rights,
powers, trusts and duties of its predecessor in the Trust with like effect as if
originally named herein; but the predecessor Trustee shall nevertheless, when
requested in writing by the successor Trustee, execute an instrument or
instruments conveying and transferring to the Trustee upon the Trust herein all
the estates, properties, rights, powers and trusts of such predecessor Trustee,
and shall duly assign, transfer and deliver to the Trustee all property and
money held by such predecessor hereunder. The predecessor Trustee shall be
entitled to reimbursement from the Trust for all expenses it incurs in
connection with the settlement of its accounts and the transfer and delivery of
the trust assets to its successor. The predecessor Trustee shall continue to be
indemnified by reason of such person being or having been a Trustee in
accordance with Section 7.4 hereof.
Section 10.4 Bonds. No bond or other security shall be required in any
jurisdiction of any Trustee to secure the faithful performance of its duties as
such.
ARTICLE XI
TRUSTEES AND SUCCESSOR TRUSTEES POST-MERGER
Following the Merger, Article X shall not be effective, and this
Article XI shall be effective.
Section 11.1 Post-Merger Trustees. Immediately following the Merger,
the then acting trustee shall resign as Trustee, and two individuals who serve
as trustees of the Senior Health Care Oversight Trust shall be elected and
appointed to serve as Trustees of the Trust as of the date the Merger is
consummated.
Section 11.2 Resignation and Removal.
(a) A Trustee may resign as Trustee hereunder by mailing notice to the
other Trustee at his or her respective address as they appear in the records of
the Trust, with copies provided to the then acting Trustees of the Senior Health
Care Oversight Trust. Such resignation shall become effective on the day
specified in such notice or upon the appointment of such Trustee'?s successor
and such successor's acceptance of such appointment, whichever is later.
(b) A majority of the then acting trustees of the Senior Health Care
Oversight Trust may remove any Trustee, with or without cause.
(c) It is the intention of the Grantor that both of the Trustees be
and remain independent of the Grantor and its Affiliates. If at any time a
Trustee is no longer independent of
9
the Grantor or any of its Affiliates, such Trustee shall promptly resign upon
losing such independence. In determining the independence of a Trustee from the
Grantor and its Affiliates, such independence shall be determined by reference
to Section 2-01(b) of Regulation S-X promulgated by the Securities and Exchange
Commission and such releases and correspondence interpreting such section;
provided, however, that the following circumstances shall not affect the
determination of the independence of a Trustee: (i) any direct or indirect
ownership by a Trustee of any debt or equity securities of the Grantor in an
amount which is not material to the net worth of such Trustee or (ii) employment
of a Trustee by a firm which acts as an underwriter or promoter of the Grantor
or any of its Affiliates or a provider of other services to the Grantor or its
Affiliates provided the fees paid to such firm by the Grantor or its Affiliates
are not material to the net income of such firm. If any one or more of the
Trustees require guidance as to whether a Trustee is independent of the Grantor
and its Affiliates hereunder, the Trustees shall hire and consult with a
nationally recognized accounting or law firm to determine such independence. The
determination of such firm shall be conclusive.
Section 11.3 Appointment of Successor Trustees. Should at any time a
Trustee resign, be removed, die or become incapacitated, then a vacancy shall be
deemed to exist and a successor shall be appointed by the remaining Trustee (any
such successor shall be included in the term "Trustee" for purposes of this
Agreement). The term "incapacitated" shall refer to an individual with respect
to whom any Trustee comes into possession of any of the following: (1) a court
order holding the individual to be legally incapacitated to act in his or her
own behalf, or appointing a guardian, conservator or other personal
representative to act in his or her behalf; (2) certificates of two licensed
physicians certifying that the individual is unable, for any reason, to act
rationally and prudently in his or her own financial best interests; or (3)
evidence the recipient deems both credible and currently applicable that the
individual has disappeared, is unaccountably absent, or is being detained under
duress in such manner as to be unable effectively and prudently to attend to his
or her own financial best interests.
Section 11.4 Default Appointment of Successor Trustee. If at any time
no Trustee is serving hereunder, a majority of the then acting trustees of the
Senior Health Care Oversight Trust shall appoint one or more successor Trustees
to serve hereunder.
Section 11.5 Acceptance of Appointment by a Successor Trustee. Any
successor Trustee appointed hereunder shall execute an instrument accepting such
appointment hereunder and shall deliver one counterpart thereof to the other
Trustee then acting hereunder, with a copy to the then acting trustees of the
Senior Health Care Oversight Trust. Thereupon such successor Trustee shall,
without any further act, become vested with all the estates, properties, rights,
powers, trusts and duties of its predecessor in the Trust with like effect as if
originally named herein; but the predecessor Trustee shall nevertheless, when
requested in writing by the successor Trustee, execute an instrument or
instruments conveying and transferring to the Trustees upon the Trust herein all
the estates, properties, rights, powers and trusts of such predecessor Trustee,
and shall duly assign, transfer and deliver to the Trustees all property and
money held by such predecessor hereunder. The predecessor Trustee shall be
entitled to reimbursement from the Trust for all expenses it incurs in
connection with the settlement of its accounts and the transfer and delivery of
the trust assets to its successor. The
10
predecessor Trustee shall continue to be indemnified by reason of such person
being or having been a Trustee in accordance with Section 7.4 hereof.
Section 11.6 Bonds. No bond or other security shall be required in any
jurisdiction of any Trustee to secure the faithful performance of its duties as
such.
ARTICLE XII
MISCELLANEOUS PROVISIONS
Section 12.1 Filing Documents. This Agreement shall be filed or
recorded in such office or offices as the Trustee (or Trustees) may determine to
be necessary or desirable. The Trustee (or Trustees) shall file or record any
instrument which relates to any change in the office of Trustee (or Trustees) in
the same place where the original Agreement is filed or recorded.
Section 12.2 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania, and
the Trustee (or Trustees) consent, and agree that this Agreement shall be
governed by and construed in accordance with such laws.
Section 12.3 Severability. In the event any provision of this
Agreement or the application thereof to any person or circumstances shall be
finally determined by a court of proper jurisdiction to be invalid or
unenforceable to any extent, the remainder of this Agreement, or the application
of such provision to persons or circumstances, other than those as to which it
is held invalid or unenforceable, shall not be affected thereby.
Section 12.4 Notices. Any notice or other communication by the Trustee
(or Trustees) shall be deemed to have been sufficiently given, for all purposes,
if given by delivery by registered or certified mail, return receipt requested,
postage prepaid or by nationally recognized overnight delivery service,
addressed to such person at its address as shown in the records of the Trustee
(or Trustees).
Section 12.5 Irrevocability. This Agreement and the trust hereunder
shall be irrevocable. The Grantor shall have no right or power in any capacity,
whether alone or in conjunction with others, to alter, amend, revoke or
terminate the Trust or any terms of this Agreement, in whole or in part.
Section 12.6 No Third Party Beneficiaries. There are no third party
beneficiaries to this Agreement. The Trust is created for the benefit of the
Beneficiaries as a group and no individual beneficiary shall be considered a
beneficiary hereunder.
Section 12.7 Amendment. The Trustee (or Trustees) may amend this
Agreement by unanimous vote. Trustee (or Trustees) or their designee are
authorized to undertake all acts necessary or appropriate to effectuate such
amendments.
11
Section 12.8 Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be an original, but such
counterparts shall together constitute but one and the same instrument.
Section 12.9 Accounting. The Grantor shall excuse the periodic
accounting of the Trustee (or Trustees).
Section 12.10 Headings. The headings in this Agreement are for
reference only, and shall not affect the interpretation of this Agreement.
Section 12.11 Interpretation. For purposes of this Agreement, the
words "hereof", "herein", "hereby" and other words of similar import refer to
this Agreement as a whole unless otherwise indicated. Whenever the words
"include", "includes", or "including" are used in this Agreement, they shall be
deemed to be followed by the words "without limitation". Whenever the singular
is used herein, the same shall include the plural, and whenever the plural is
used herein, the same shall include the singular, where appropriate.
12
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered as of the date first set forth above.
CDOC, INC.
By:/s/ Edward J. Bonach
--------------------------------
Name: Edward J. Bonach
Title: President
ATTEST
By:/s/ Karl W. Kindig
----------------------
Name: Karl W. Kindig
Title: Secretary
/s/ John W. Wells, Trustee
----------------------------------
John W. Wells, Trustee
Schedule A
SENIOR HEALTH OVERSIGHT BENEFICIARY TRUST
$10.00 (Ten Dollars)
14
STATE OF INDIANA )
:ss.:
COUNTY OF HAMILTON )
On this 8th day of August, 2008, before me personally came Edward J.
Bonach, to me known who duly swore to the foregoing instrument and who did say
that he resides at Carmel, Indiana; that he is the President of CDOC, INC.,
the corporation described in and which executed the foregoing instrument; that
he knows the seal of said corporation; that the seal affixed to such instrument
is such corporate seal, that it was so affixed by order of the Board of
Directors of CDOC, INC. and that he signed his name thereto by like authority.
/s/ Jennifer E. Tuggle
-------------------------------
Notary Public
STATE OF INDIANA )
:ss.:
COUNTY OF HAMILTON )
On this 8th day of August, 2008, before me, a Notary Public in and for
the State of Indiana, personally appeared Karl W. Kindig, personally known to me
or proved to me on the basis of satisfactory evidence to be the individual whose
name is subscribed to the within instrument and acknowledged to me that he
executed the same in his capacity and that by his signature on the instrument,
the individual, or the person upon behalf of which the individual acted,
executed the instrument.
/s/ Jennifer E. Tuggle
-------------------------------
Notary Public
15
STATE OF ILLINOIS )
:ss.:
COUNTY OF COOK )
On this 7th day of August, 2008, before me, a Notary Public in and
for the State of Illinois, personally appeared John W. Wells, personally
known to me or proved to me on the basis of satisfactory evidence to be the
individual whose name is subscribed to the within instrument and acknowledged to
me that he/she executed the same in his/her capacity and that by his/her
signature on the instrument, the individual, or the person upon behalf of which
the individual acted, executed the instrument.
/s/ Sherry Kremer
-------------------------------
Notary Public
16
Exhibit J-1
Exhibit J-1
John W. Wells
(Sole Trustee)
|
|
|
|
Senior Health Care Transition Trust
Exhibit J-2
Exhibit J-2
Independent Trustees
|
|
|
Senior Health Care Transition Trust-----------Senior Health Care Oversight Trust
Merger |
|
|
Senior Health Insurance
Company of Pennsylvania
(formerly Conseco Senior Health
Insurance Company)
Exhibit K-1
Exhibit K-1
Trustee of Senior Health Care Transition Trust
Name Address
- ---- -------
John W. Wells 130 North Garland Court
Unit 901
Chicago, Illinois 60602
Trustees of Senior Health Care Oversight Trust
Name Address
- ---- -------
John W. Wells 130 North Garland Court
Unit 901
Chicago, Illinois 60602
Julianne M. Bowler 37 M Street, #2
South Boston, Massachusetts 02127
Gregory V. Serio 130 Pollock Road
Latham, New York 12110
Dr. C. Everett Koop, M.D. 3 Ivy Pointe Way
Hanover, New Hampshire 03755
Cecil D. Bykerk 9643 Oak Circle
Omaha, Nebraska 68124
Exhibit K-2
Exhibit K-2
Current Directors and Executive Officers of
Conseco Senior Health Insurance Company
Directors
---------
Steven Michael Stecher
Thomas Donald Barta
Edward John Bonach
John Robert Kline
Christopher Joseph Nickele
Timothy J. Tongson
John W. Wells
Officers
--------
John Wain Wells President
Todd Michael Hacker Treasurer
Karl William Kindig Secretary
Eric Ronald Johnson Executive Vice President
Russell M. Bostick Executive Vice President
Thomas Donald Barta Senior Vice President
Richard Warren Garner Senior Vice President
William Mark Johnson Senior Vice President
Exhibit K-3
Exhibit K-3
Directors and Executive Officers of Conseco Senior Health Insurance Company
After the Proposed Acquisition of Control
Directors(1)
------------
John W. Wells
Brian C. Wegner
Dean G. Sarantos
Julianne M. Bowler
Gregory V. Serio
Cecil D. Bykerk
Officers(2)
-----------
John W. Wells President and Chief Executive Officer
Brian C. Wegner Chief Operating Officer
Dean G. Sarantos Chief Financial Officer
- -----------------
(1) It is contemplated that the Chief Actuary of the Domestic Insurer, once
appointed, will also be a member of its Board of Directors.
(2) As of the date of filing. This list will be supplemented as additional
officers are appointed.
Exhibit M
Transition Trust
Closing Date: TBD
Period Ending: TBD
Assets Liabilities
------------------------------------------ --------------- ------------------------------------------------ ----------------
Current assets Current liabilities
------------------------------------------ --------------- ------------------------------------------------ ----------------
Loans payable and current portion long-term
Cash and cash equivalents (1) 11,000,000 debt -
------------------------------------------ --------------- ------------------------------------------------ ----------------
Short-term investments - Accounts payable and accrued expenses -
------------------------------------------ --------------- ------------------------------------------------ ----------------
Accounts receivable - Income taxes payable -
------------------------------------------ --------------- ------------------------------------------------ ----------------
Deferred income taxes - Policy Benefits Payable -
------------------------------------------ --------------- ------------------------------------------------ ----------------
Prepaid expenses and other current assets -
------------------------------------------ =============== ------------------------------------------------ ================
Total current assets $ 11,000,000 Total current liabilities $ -
------------------------------------------ =============== ------------------------------------------------ ================
Other assets Other liabilities
------------------------------------------ --------------- ------------------------------------------------ ----------------
Property, plant, and equipment at cost - Long-term debt -
------------------------------------------ --------------- ------------------------------------------------ ----------------
Less accumulated depreciation - Deferred income taxes -
------------------------------------------ --------------- ------------------------------------------------ ----------------
Property, plant, and equipment (net) - Policy Benefits Payable - long term 289,800,000
------------------------------------------ --------------- ------------------------------------------------ ----------------
Long-term cash investments -
------------------------------------------ --------------- ------------------------------------------------ ----------------
Equity investments (2,3,4,5) 289,800,000
------------------------------------------ --------------- ------------------------------------------------ ----------------
Deferred income taxes -
------------------------------------------ --------------- ------------------------------------------------ ================
Notes Receivable - Total other liabilities $ 289,800,000
------------------------------------------ =============== ------------------------------------------------ ================
Total other assets $289,800,000 Total liabilities $ 289,800,000
------------------------------------------ =============== ------------------------------------------------ ================
Equity
------------------------------------------------ ----------------
Common Stock -
------------------------------------------------ ----------------
Preferred Stock -
------------------------------------------------ ----------------
Retained Earnings 11,000,000
------------------------------------------------ ================
Total Equity $ 11,000,000
------------------------------------------ =============== ------------------------------------------------ ================
Total assets $300,800,000 Total Liabilities and Equity $ 300,800,000
------------------------------------------ =============== ------------------------------------------------ ================
<FN>
Notes:
(1) $11,000,000 cash/cash equivalents from Conseco, Inc.
(2) $35,700,000 cash/cash equivalents from Conseco, Inc. for ceding commission.
(3) $125,800,000 book value equity in CSHI at 6/30/08.
(4) $3,300,000 due to forgiveness of series A preferred shares dividend.
(5) $125,000,000 note receivable due to Senior Health Insurance Company of
Pennsylvania (SHIP) from Conseco, Inc.
</FN>
Exhibit O
SEPARATION OF CONSECO SENIOR HEALTH INSURANCE COMPANY
-----------------------------------------------------
Introduction
- ------------
This memorandum provides Conseco, Inc.'s rationale for its decision to
separate Conseco Senior Health Insurance Company, a health insurance company
domiciled in the Commonwealth of Pennsylvania (CSHI), from its holding company
system. Conseco, Inc., a publicly held Delaware corporation (Conseco), is a
provider, through its insurance subsidiaries, of life, annuity and supplemental
health care products to the middle income market place. Its indirect subsidiary,
CSHI, has in-force business comprised mainly of "legacy" guaranteed renewable
long-term care (LTC) policies. These policies have experienced significant
adverse development since Conseco's predecessor (Old Conseco) acquired the
insurance companies which wrote such policies in 1996. As a result of such
experience, CSHI discontinued writing new LTC business approximately five years
ago. In addition to its LTC business, CSHI has underwritten Medicare supplement,
disability, hospital indemnity and specified disease products, all of the
related assets and liabilities of which will be assigned to, and assumed by,
Conseco Insurance Company (CIC), an indirect insurer subsidiary of Conseco, at
the time the separation becomes effective.
As of December 31, 2007, CSHI's LTC policies numbered 148,930, comprising
53% of its 281,000 total in-force policies. In the aggregate, Conseco's insurer
subsidiaries, which include eight insurers in addition to CSHI, had a total of
4.1 million in-force policies of various types outstanding as of December 31,
2007. CSHI's LTC policies comprise approximately 3.7% of the total in-force
policies issued by the Conseco insurers.
Although the CSHI LTC policies represent only a small percentage of the
total in-force policies of the Conseco insurers, the magnitude of the losses
they have generated over the years has caused significant stress on Conseco's
financial resources. Although Conseco has no obligation to make financial
contributions to CSHI, Conseco has contributed approximately $915 million to
CSHI over the past ten years in order to provide needed capital support to
counter the impact of higher claims costs, higher morbidity and lower investment
income than what was anticipated when the LTC policies were initially sold, and
in light of CSHI's inability to obtain approvals for all necessary rate
increases. Further, in the past ten years, CSHI has not paid any shareholder
dividends other than a divided in June of 2005 of the stock of a subsidiary
which was offset by a capital contribution of equal value from CSHI's parent.
Although CSHI's statutory financial condition has stabilized, these factors have
created an unsustainable financial situation for Conseco.
As a result of the above, commencing at the beginning of this year,
Conseco's management and the Board of Directors of Conseco, assisted by Morgan
Stanley & Co. Incorporated, as Conseco's outside financial advisor, Skadden,
Arps, Slate, Meagher & Flom LLP, as Conseco's outside legal counsel, and Simpson
Thacher & Bartlett LLP, as corporate counsel to Conseco's Board, undertook a
detailed analysis of strategic alternatives available to Conseco. Conseco's
management and the Board of Directors of Conseco determined it valid not to make
capital contributions to CSHI indefinitely and that a separation of CSHI from
Conseco's holding company system was the most balanced solution for all key
stakeholders,
1
and that the policyholders of CSHI, as discussed in more detail below, are best
served through a business trust structure.
This memorandum will cover the actions taken to date to stabilize CSHI, the
rationale for Conseco's decision to move forward with the separation, the
rationale for Conseco's selection of the business trust structure as the best
transactional structure for the separation, and the conclusions reached by
Conseco on certain matters relating to the separation.
Stabilization Efforts
- ---------------------
1. Background
The LTC Policies are largely "legacy" policies. In December 1996, Old
Conseco acquired American Travellers Life Insurance Company (ATLIC) and
Transport Life Insurance Company (TLIC), which are the predecessor companies of
CSHI. After the acquisition, ATLIC's and TLIC's respective books of business
remained with those companies. TLIC merged into ATLIC in November of 1997, and
ATLIC changed its name to CSHI in November of 1998.
Since inception of the LTC policies in 1988, CSHI and its predecessors
reported significant losses (earned premiums less paid claims, expenses,
reserves and accumulated interest) from these policies. For every dollar in
premiums that CSHI receives this year, the company expects to pay out $1.35 in
claims.
2. Actions Taken to Stabilize CSHI
In an effort to stabilize the run-off of CSHI's LTC business, Conseco
initiated a number of management actions over the years, including, most
recently, (i) installing an experienced management team focused on the LTC
business, (ii) making improvements in the administration of the LTC policies,
and (iii) substantially strengthening CSHI's reserves.
i. Changes in Executive Management
In December 2006, Conseco brought its LTC business under the direction
of John Wells, Senior Vice President, Long Term Care, with a focus on
initiatives that improved operating performance, including claims adjudication
processes and operating efficiencies.
Mr. Wells joined Conseco in 2004 and has over twenty-five years of
industry experience, largely in operations, including LTC and management
leadership positions at Mutual of Omaha, Chubb and Jefferson Pilot.
Joining Mr. Wells in 2006 as part of the LTC management team was Brian
Wegner, Vice President, Long Term Care Operations, and Dean Sarantos, Senior
Director, Strategic Planning - LTC Operations. Mr. Wegner, who joined Conseco in
2006, brings over twenty years of diverse, professional experience including
operations, LTC, information technology, and strategic planning. Mr. Sarantos
joined Conseco in 2004 and has over twelve years of financial management
experience.
The efficiencies achieved through this management team's programs
helped CSHI reduce its general insurance expenses from $62.8 million in 2006 to
$53.7 million in 2007.
2
CSHI expenses for the first half of 2008 have continued to trend positively,
totaling $23.6 million for the first six months of 2008. Messrs. Wells, Wegner
and Sarantos will comprise the executive management team of CSHI following the
separation.
ii. Improvements in Policy Administration
Conseco, under the direction of John Wells and his management team,
has been implementing LTC industry best practices through the use of technology
and process, quality, measurement and organizational change. This approach has
been augmented through partnering with industry leaders, namely the Long Term
Care Group, Inc. (LTCG) and LifePlans. LTCG is the country's largest LTC
administrator, providing services to over thirty LTC insurers, including eight
of the top ten. LifePlans, a division of Munich Reinsurance Company, is a
professional service company which operates exclusively in the areas of LTC
underwriting and claims management.
Operational improvements, which have incorporated independent third
party analysis from LTCG & LifePlans, include improving the accuracy of initial
claim adjudication, re-certifications and intensity reviews. By implementing
industry best practice claims management processes, CSHI is now more
consistently paying claims in accordance with the terms of the LTC policies,
thereby contributing to the financial performance of the business. Claim
documents have been standardized, telephonic contact with initial claim
applicants has been installed, and case management has been improved in
collaboration with LTCG. Systems have been enhanced, with a conversion underway
to LTCG's system that will be completed in 2009. Training has been increased
along with related metrics. Service metrics and claims inventories have been
stabilized over the past six months with performance proactively managed on a
daily basis. Call center performance and claims turnaround times are now at
industry best practice standards.
LTCG has assumed responsibility for the customer call center and the
processing of continuing claims and related transactions. LTCG and LifePlans are
involved in reviewing various claims decisions.
CSHI has recently reached a settlement as part of a multi-state exam,
the findings of which show that CSHI had not engaged in a practice of improper
claims denials. It is also important to note that CSHI began reviewing its LTC
processes and identified areas for improvement well before the onset of the
multi-state exam. CSHI continues to implement a process improvement plan
designed to achieve tolerance metrics established in the agreement, including
timeliness for processing claims and complaints. CSHI has projects already
underway to meet these standards, including ongoing monitoring of key
performance metrics and the implementation of Automated Work Distributor (a
comprehensive business process management solution). Furthermore, CSHI is in the
process of spending $26 million on systems enhancements and business process
improvements.
iii. Strengthening of CSHI's Reserves
As evidenced by an actuarial appraisal report dated August 8, 2008 by
Milliman, Inc., an independent actuarial firm retained by Conseco, CSHI's
statutory financial position is currently stable. This is due in large part to
CSHI's receipt of capital contributions in support of reserve strengthening, as
well as CSHI's receipt of some, but not all, of its requested rate
3
increases, and, to a lesser extent, the management and administrative
efficiencies described above.
Conseco's financial support of CSHI has taken the form of not less
than twenty-two (22) capital infusions into CSHI, which totaled more than $915
million. Of this amount, approximately $439 million was contributed by Conseco
over the years following its emergence from bankruptcy in September of 2003. A
list of all capital contributions made to CSHI since its acquisition by Old
Conseco in 1996 is attached as Exhibit A. These contributions were made by
CSHI's then direct parent, Conseco Life Insurance Company of Texas (CLTX), a
life insurance company domiciled in the State of Texas and an indirect
subsidiary of Conseco. The funds CLTX used to pay the capital contributions came
from dividends it received from its other insurance company subsidiaries,
namely, Bankers Life and Casualty Company (BLCC), Colonial Penn Life Insurance
Company (CP), Washington National Insurance Company (WNIC), Conseco Health
Insurance Company (CHIC), and Bankers Conseco Life Insurance Company of New York
(BCLIC), as well as capital infusions from Conseco.
The capital contributions by CLTX to CSHI were needed, in significant
part, in order to counter CSHI's inability to obtain necessary rate increases
for its LTC policies from state insurance regulators. The capital contributions
were primarily designed to allow CSHI to maintain a risk-based capital ratio
above regulatory action levels. Most recently, during 2007, Conseco elected to
make capital contributions to CSHI totaling $202.0 million, including $56.0
million which was accrued at December 31, 2007 and paid in February 2008, in
order to strengthen the risk-based capital ratio of CSHI to maintain CSHI's
capital at an amount at least above the Regulatory Action Level.
Conseco's historical capital contributions to CSHI were all made on a
voluntary basis, notwithstanding that Conseco was, and remains, under no legal
obligation to provide such financial support.
Decision to Separate
- --------------------
1. Introduction
Although the statutory financial position of CSHI is currently stable, the
adequacy of its LTC policy reserves remains sensitive to rate increases,
interest rates, and claims costs, which are all factors largely outside of
CSHI's control. Costs more controllable by CSHI, such as policy administration
costs, have been reduced. As discussed below, adequate rate increases will be
particularly critical to CSHI's future financial stability.
2. Rate Increases
The actuarial report dated August 8, 2008 prepared by Milliman, which is
referred to above, includes solvency projections for CSHI that assume receipt by
CSHI of certain successive rate increases over time for its LTC policies.
Specifically, five additional rounds of future rate increases are assumed in
that report. As of December 31, 2007, the present value of these future rate
increases, using CSHI's investment portfolio yield as the discount rate, was
$297 million per CSHI's 2007 Actuarial Memorandum on Asset Adequacy analysis.
4
Although expense reductions, improvements in policy administration, capital
contributions and rate increases have contributed to CSHI's financial
stabilization, receipt of actuarially justified rate increases would be
necessary to provide appropriate margin for adverse deviation and to avoid
future reserve strengthening.
3. Actions Taken Toward Separation
In January 2008, Conseco's concerns over its ability to fund any future
capital needs of CSHI, while at the same time maintaining the continued
viability of its core insurance companies, other subsidiaries and businesses,
prompted Conseco's management and Board to explore whether, and how, to move
forward with the separation plan.
i. Separation Alternatives
With the aid of its outside advisors, management and the Board,
assembled a wide ranging list of separation alternatives. The alternative
structures were largely comprised of structures that would transfer one hundred
percent of the shares of CSHI to either a third party or the shareholders of
Conseco for little or no consideration. Specific structures included, but were
not limited to, a sale of CSHI to either its management or a third party, a
spin-off of CSHI to Conseco's shareholders, and the transfer of the shares of
CSHI to a newly formed business trust to be run for the benefit of the
policyholders of the LTC policies.
Of all the separation alternatives, management and the Board
determined that the trust structure balances CSHI's need for adequate funding to
meet its outstanding policyholder obligations with maintaining the viability of
Conseco's other businesses going forward.
The trust structure contemplates a final capital contribution to CSHI
and the trust valued at $175 million at the time of the separation as a means of
providing an additional financial cushion to CSHI over and above its existing
surplus, which together would be dedicated to CSHI and would serve to moderate
the need for future rate increases relating to the LTC policies.
The capital contribution was designed to enhance CSHI's statutory
financial condition within Conseco's limited financial ability to fund such a
contribution. In determining the amount of the capital contribution, of which
$11 million will be dedicated to the initial capitalization and operating
expenses of the trust, Conseco took into account that it would increase CSHI's
adjusted capital and surplus from approximately $ 125 million to $ 300 million
and its company action level risk based capital ratio from approximately 118% to
322% once CSHI's non-LTC liabilities and related assets are assigned to Conseco.
The capital contribution, together with CSHI's existing surplus, would provide
CSHI with a meaningful financial cushion to absorb potential shortfalls in
needed future rate increases. In this regard, at the closing of the proposed
transaction, CSHI's surplus, as a result of the capital contribution, would
approximate the present value of the presently anticipated requests for future
rate increases. Relative to Conseco and its remaining subsidiaries, Conseco took
into account the impact that a continuation of the status quo would have on,
among other things, Conseco's ratings, existing debt facilities, and the capital
needs of the other Conseco insurance companies. Lastly, the amount of the
capital contribution reflected the constraints presently contained in Conseco's
credit facilities.
5
ii. Reasons Underlying Decision to Separate
After due deliberation, the Board decided to pursue the separation,
and the business trust structure in particular, based, in part, on the following
reasons.
First, Conseco has very limited ability to provide funding to CSHI in
the absence of the separation. As discussed below, all of Conseco's financial
strength ratings are presently near or below investment grade and on negative
watch. Conseco's performance has been, over the years, adversely effected by
CSHI's performance and Conseco is under significant pressure by its shareholders
to improve performance (including requests by certain shareholders for seats on
the Board and to have Conseco pursue strategic alternatives). In addition, any
future contributions would have to be provided, directly or indirectly, by the
other Conseco insurance companies, which have their own policyholders to serve.
However, as part of a separation transaction, which brings certainty and
finality to Conseco regarding its potential exposures relating to CSHI, Conseco
should be able to justify making the capital contribution to the domiciliary
regulators of those operating companies that may be called upon to fund the
capital contribution.
Second, the continued inclusion of CSHI in Conseco's holding company
system would likely not be beneficial, and could be detrimental, to the
interests of CSHI and its policyholders since the Board has determined not to
make capital contributions to CSHI indefinitely. By virtue of the separation,
CSHI will be solely focused on its LTC business and able to operate without
regard to Conseco insurance holding company considerations. In addition, the
separation better positions CSHI to demonstrate its need for rate increases to
relevant state insurance regulators, as CSHI will not have returns to
shareholders as part of its expectations.
Lastly, Conseco's risk profile and ability to focus on its active
businesses following the separation will be enhanced and likely lead sometime in
the future to improvements in the financial strength as well as to claims paying
ratings of the remaining Conseco insurance companies, thereby better serving
their policyholders, strengthening business generation potential, and enhancing
Conseco's capital market access. Rating agencies, as well as market analysts and
investors, in Conseco's judgment, currently penalize Conseco and all of it
subsidiaries for perceived CSHI downside risk and management distraction
associated with the LTC business. As a result, the current financial strength
ratings of the Conseco Insurers (other than CSHI) from A.M. Best, Standard &
Poor's Corporation, Moody's Investor Services, Inc. and Fitch are "B+ (Good),"
"BB+," "Baa3" and "BBB/BBB-" respectively, each with a negative outlook. Most,
if not all, other U.S. life insurance companies of similar size to Conseco have
higher financial strength ratings and Conseco believes that it is critical for
it to improve its ratings to be competitive over the long term.
Business Trust Structure
- ------------------------
The terms of the trust structure were finalized by Conseco with the aid of
its outside advisors after being negotiated with the trust and its outside legal
counsel, Debevoise & Plimpton LLP. The Board, after due deliberation, approved
the terms of the trust structure on August 7, 2008.
6
The overriding advantages of the trust structure are that it uniquely
positions CSHI, as described below, to meet, following consummation of the
transaction, its obligations to holders of its LTC policies and will assist
Conseco in achieving its business objective of separating from CSHI in a
responsible manner.
Policyholder Mandate. Under the trust structure, the trust, in its capacity
as CSHI's parent, will have an overarching mandate to seek to have CSHI meet its
policyholder obligations. Unlike a corporation that owes obligations to its
shareholders, which can conflict with its obligations to its policyholders,
particularly in a run-off scenario, the trust will owe no such obligations to
shareholders. Furthermore, CSHI, under ownership of the trust, will be managed
so as to distribute virtually all of its surplus to its policyholders over the
remaining life of the LTC policies, in contrast with an outside investor, which
would not only require the return of surplus, but would also expect to be
compensated for the cost of capital committed to the business. By contrast,
under Conseco's ownership, CSHI would continue to be managed for profit.
Orderly Separation. The separation will be effectuated in a manner designed
to facilitate a seamless transition of CSHI from that of a subsidiary of Conseco
to a fully operational stand-alone company. All operating assets necessary for
CSHI to conduct its business post-separation and not currently in CSHI's name
will either be transferred or assigned by Conseco and its affiliates to CSHI at
the time of the separation or made available to CSHI for a specified period of
time on a transitional basis. During the transition period, CSHI will, with
Conseco's assistance, build its own infrastructure and engage, as necessary,
external service providers to replace services provided by Conseco and its
affiliates during the transition period.
In addition to the above, in order to further facilitate an orderly
transition, Conseco will agree to (i) assist CSHI in implementing the policies
and procedures necessary for CSHI to comply with the Regulatory Settlement
Agreement dated March 30, 2008, (ii) sublease office space to CSHI for a period
of time following the separation in order to enable it to locate and transfer to
new office space, (iii) ensure that CSHI has a capable management team in place
at the time of separation, (iv) segregate from CSHI its non-LTC business, and
(v) seek regulatory approval to change CSHI's name after the separation to
"Senior Health Insurance Company of Pennsylvania."
Meaningful Oversight. In addition, the structure will allow the trust a
meaningful amount of control over CSHI's operations under a contractual
agreement between it and CSHI, which will give the trust an ability to ensure
that CSHI fulfills its policy obligations. In addition, this agreement provides
the Pennsylvania Department of Insurance with significant rights to oversee
certain actions by CSHI that may impact CSHI's ability to meet its outstanding
policyholder obligations.
Enhanced Flexibility. Enhanced flexibility to address potential adverse
trends will be another benefit of the trust structure. The ability to spend
CSHI's surplus will mitigate, but not eliminate, the need for rate increases if
trends in the LTC block adversely deviate from those assumed in the Milliman
report. Regarding future rate increases, the trust structure, in contrast to
that of a for-profit corporation, should facilitate CSHI's ability to seek and
obtain any appropriate and necessary rate increases, since it will be clear
under the trust structure that the rate increases pursued will benefit only the
LTC policyholders as a group, rather than providing profits for shareholders,
which has been a stated concern of state regulators in the past.
7
Conclusion
- ----------
In the opinion of Conseco's management and its Board, the separation
represents the most sustainable solution for the Conseco organization as a
whole, and the trust structure represents a solution that takes into
consideration, in a balanced manner, the interests of the policyholders of CSHI
and Conseco's other policyholders.
From Conseco's perspective, the transaction is essential because it
responsibly separates CSHI from Conseco, which has limited ability to make
future capital contributions to CSHI, and because it supports the continued
viability of the active businesses of the remaining Conseco insurers and their
four million policyholders.
With respect to the implementation of the separation, the trust structure
offers an approach that is most beneficial to the policyholders of CSHI, who
will derive the benefit of CSHI's existing surplus and the capital contribution,
which together will serve to moderate the need for future rate increases.
8
EXHIBIT A
---------
CONSECO SENIOR HEALTH INSURANCE COMPANY
SURPLUS CONTRIBUTIONS MADE SINCE ACQUISITION
Surplus
Date Contributions
- ---- -------------
December 22, 1998 $51,699,690
March 31, 1999 25,000,000
September 30, 1999 20,000,000
September 30, 1999 (a) (19,444,445)
October 29, 1999 105,000,000
December 15, 1999 23,000,000
June 30, 2000 46,900,000
December 29, 2000 55,000,000
June 29, 2001 15,000,000
November 14, 2002 96,302,552
February 28, 2003 57,300,000
December 12, 2003 24,500,000
December 26, 2003 31,000,000
March 1, 2004 35,000,000
February 28, 2005 11,900,000
February 27, 2006 24,950,000
September 14, 2006 16,000,000
September 29, 2006 14,000,000
February 27, 2007 80,000,000
May 14, 2007 20,000,000
August 14, 2007 100,000,000
November 14, 2007 26,000,000
February 29, 2008 56,000,000
------------
Total surplus contributions paid in since acquisition in 1996 $915,107,797
============
<FN>
(a) Reversal of portion of capital contribution dated 12/22/98 in connection
with amendment of 1998 annual statement.
</FN>
A-1
Exhibit P
SPECIAL COMMITMENT TO
THE PENNSYLVANIA INSURANCE DEPARTMENT
Re: Application for Change of Control (the "Proposed Change of Control")
of Conseco Senior Health Insurance Company (the "Domestic Insurer") by
Senior Health Care Transition Trust (together with any successors,
including the Senior Health Care Oversight Trust, the "Applicant")
Dear Commissioner Ario:
In connection with the captioned application, the Applicant agrees
that:
1. all contracts between the Applicant and the Domestic Insurer will
be subject to the prior approval of the Pennsylvania Insurance Department (the
"Department");
2. all dividends or distributions to be made with respect to the
capital stock of the Domestic Insurer shall be subject to the prior approval of
the Department
3. the Applicant will cause the Trust Agreement, in substantially the
form included as an exhibit to the above referenced application, to become the
governing document of the Applicant prior to the closing of the Proposed Change
of Control (the "Closing"), and thereafter the Applicant will not amend or
restate (in any material respect) the Trust Agreement without the prior approval
of the Department;
4. the Applicant will not, or permit the Domestic Insurer to,
terminate, amend or restate (in any material respect) the Operating Principles
and Guidelines Agreement to be entered into by the Domestic Insurer and the
Applicant at the Closing or any of the following agreements:
(i) Separation and Transition Matters Agreement to be entered
into by CDOC, Inc., the current parent of the Domestic Insurer and a direct
wholly-owned subsidiary of Conseco ("CDOC"), Conseco, Inc. ("Conseco") and the
Domestic Insurer at the Closing;
(ii) Tax Matters Agreement to be entered into by CDOC, Conseco,
the Domestic Insurer and the Applicant at the Closing;
(iii) Expense Reimbursement Agreement to be entered into by the
Applicant and the Domestic Insurer at the Closing;
(iv) Assignment Agreement to be entered into by Conseco Insurance
Company, an Illinois domestic insurer and an affiliate of Conseco, and the
Domestic Insurer at the Closing;
(v) Senior Note to be issued by Conseco to the Domestic Insurer
at the Closing;
(vi) Administrative Services Agreements to be entered into by
each of Washington National Insurance Company, an Illinois domestic insurer and
an affiliate of Conseco, Conseco Health Insurance Company, an Arizona domestic
insurer and an affiliate of Conseco, and Bankers Conseco Life Insurance Company
of New York, a New York domestic insurer and an affiliate of Conseco, on the one
hand, and the Domestic Insurer, on the other hand, at the Closing; and
(vii) Employee Matters Agreement to be entered into by CDOC,
Conseco and the Domestic Insurer at the Closing;
5. the Applicant will obtain the prior approval of the Department
before appointing any new or replacement trustees of the Applicant; and
6. the Applicant will not make, without the prior approval of the
Department, any distribution to any beneficiary of the Applicant until all
policyholder obligations of the Domestic Insurer are satisfied and the other
liabilities of the Domestic Insurer have been paid or otherwise extinguished.
Sincerely,
Senior Health Care Oversight Trust
By:
---------------------------------
Name:
Title:
Date: ___________, 2008
2
Exhibit Q
Employee Matters Agreement
Term Sheet
A description of the material terms of the Employee Matters Agreement (the
"Agreement") is set forth below.
Parties......................................CDOC, Inc., a Delaware corporation
("CDOC"), Conseco Services LLC, an
Indiana limited liability company,
Conseco, Inc., a Delaware
corporation ("CNO," and together
with CDOC and Conseco Services LLC,
the "Conseco Parties"), and Conseco
Senior Health Insurance Company, an
insurance company domiciled in the
Commonwealth of Pennsylvania
("CSHI," each a "Party" and CSHI,
together with the Conseco Parties,
the "Parties").
Identification of Employees..................Each employee whose name is set
forth on the schedule previously
provided by CNO to CSHI shall be
designated as a "CSHI-Designated
Employee."
Employee Leasing Arrangement
Employees Covered......................From the Closing Date until December
31, 2008 (the "Employee Leasing
Period"), the CSHI-Designated
Employees will be leased to CSHI and
will perform services exclusively
for CSHI. In the event that a
CSHI-Designated Employee engages in
acts of Cause (to be defined
consistent with current CNO policy),
the Conseco Parties will, at the
request of CSHI, cause such
CSHI-Designated Employee to cease to
be leased to CSHI, at which time
such individual will cease to be a
CSHI-Designated Employee. To the
extent additional employees are
needed during the Employee Leasing
Period to provide services to CSHI
and/or to the extent that
CSHI-Designated Employees terminate
employment during the Employee
Leasing Period, the Conseco Parties
shall, in consultation with CSHI,
use reasonable good faith efforts to
hire or otherwise designate
additional employees to
provide services to CSHI; however,
the Conseco Parties will not be
obligated to hire additional
employees. Any employees so hired or
otherwise designated shall also be
designated as CSHI-Designated
Employees for purposes of this
Agreement.
Compensation and
Employee Benefits......................During and in respect of the
Employee Leasing Period, the Conseco
Parties will cause the CSHI-
Designated Employees to be provided
with comparable compensation (base
wages plus bonus opportunity (if
applicable)) and employee benefits,
as the CSHI-Designated Employees
received immediately prior to the
Closing Date; provided, however,
that the Conseco Parties will not be
obligated to grant the
CSHI-Designated Employees additional
equity awards.
Cost Allocation........................During the Employee Leasing Period,
the Conseco Parties will, on a
monthly basis in arrears, bill CSHI
for all costs (other than direct,
external costs) of providing for the
CSHI-Designated Employees the
benefits and compensation described
in the subsection "Compensation and
Employee Benefits" described above,
including, but not limited to, the
following:
--wages paid to the CSHI-Designated
Employees and any employment taxes
imposed on any of the Conseco
Parties and not withheld from wages;
--401(k) matching contributions made
to the accounts of the
CSHI-Designated Employees;
--the cost (allocated on a basis
consistent with past practices) of
providing the CSHI-Designated
Employees with the following welfare
benefits (to the extent not withheld
from wages or paid for through
insurance proceeds): medical,
dental, accidental death and
dismemberment, vision and life
insurance, flexible spending,
long-term and short-term disability,
and employee assistance.
2
Transfer of Employees..................Prior to January 1, 2009 and, except
as set forth below, effective as of
January 1, 2009 (the "Transfer
Date"), CSHI will offer employment
to all CSHI-Designated Employees
(including employees not actively at
work due to injury, vacation,
military duty, disability or other
leave of absence), on terms and
conditions of employment at least
comparable in the aggregate to the
terms and conditions of employment
applicable to each CSHI-Designated
Employee as of such offer date
(unless otherwise provided for in an
employment agreement entered into
between CSHI and a CSHI-Designated
Employee); provided, however, each
CSHI-Designated Employee will
receive an offer with the same base
pay, same position, and same
location as applicable to such
employee as of such offer date. For
CSHI-Designated Employees not
actively at work on the Transfer
Date (other than by reason of
vacation)(the "Inactive Employees"),
the offer of employment will become
effective upon such employee's
release to resume work, so long as
such release to resume work occurs
within 60 days following the
Transfer Date, and will expire 10
days after such release (or such
longer period during which the
employee has the right to
re-employment under applicable law).
CSHI-Designated Employees who accept
CSHI's offer of employment
("Transferred Employees") will cease
their employment with the Conseco
Parties and commence their
employment with CSHI on January 1,
2009 (other than Inactive Employees,
whose employment will commence upon
their acceptance of CSHI's offer and
return to active service (the
"Inactive Employee Commencement
Date")). From and after January 1,
2009 or the Inactive Employee
Commencement Date, as applicable,
Transferred Employees will cease to
accrue any further benefits under
any Conseco plans, and the Conseco
Parties will have no liability or
other obligation to the Transferred
Employees other than in their
capacity as former employees of the
Conseco Parties. CSHI
3
will have no liability or obligation
to (i) the Transferred Employees in
respect of the period prior to
January 1, 2009 or the Inactive
Employee Commencement Date
(whichever is applicable), other
than under employee benefit plans
maintained solely by CSHI and (ii)
CSHI-Designated Employees who are
not Transferred Employees.
Establishment of New Plans
and Arrangements.............................During the Employee Leasing Period,
CSHI will (with the assistance of
the Conseco Parties, who, in
performing such actions, will act
solely for and on behalf of CSHI),
establish a payroll system covering
wages to be paid to the Transferred
Employees from and after the
Transfer Date. In addition, CSHI
(with the assistance of the Conseco
Parties, who, in performing such
actions, will act solely for and on
behalf of CSHI) will establish
employee benefit plans that are
intended, to the maximum extent
practicable, to provide comparable
benefits in the aggregate to those
provided to the Transferred
Employees by the Conseco Parties
immediately prior to the Transfer
Date. Plans to be so established
will include: medical, dental,
vision, term life, term accidental
death and dismemberment, term
supplemental life, and short- and
long-term disability insurance;
flexible spending accounts;
employee assistance program;
vacation; paid time off; deferred
compensation plan; and 401(k) plan.
During the Employee Leasing Period,
CSHI (with the assistance of the
Conseco Parties, who, in performing
such actions, will act solely for
and on behalf of CSHI) will hold
open enrollment for the
CSHI-Designated Employees with
respect to certain of these plans
and will solicit employee elections
with respect to other of these
plans (in each case as
appropriate). The Transferred
Employees will commence to
participate in these plans on the
Transfer Date. CSHI will provide
the Transferred Employees with
credit for past service with the
Conseco Parties for purposes of
eligibility and vesting under these
plans and all other plans
4
and policies of CSHI to the same
extent such credit is recognized
under the Conseco Parties'
corresponding plans, provided that
service credit shall also be
provided for the purposes of
determining entitlement to accrual
of vacation, other paid time off
and severance benefits.
Treatment of Conseco Benefits
Conseco Equity Compensation.............The Conseco Parties have sole
discretion to determine the
treatment of outstanding equity
held by Transferred Employees,
provided that the Conseco Parties
shall take such actions as are
necessary to ensure that such
equity compensation is not
forfeited as a result of such
Transferred Employees' transfer.
401(k)and Deferred Comp.................For each Transferred Employee who
has an unvested account balance in
the CNO 401(k) plan that would
otherwise be forfeited in
connection with this transaction,
such unvested account balance will
immediately vest upon the Transfer
Date or the Inactive Employee
Commencement Date, as applicable.
There will be no transfer of a
Transferred Employees' account
balances under CNO's 401(k) plan
and deferred compensation plan to
any CSHI plan (except, in the case
of the CNO 401(k) plan, for direct
rollovers of account balances,
including participant loans).
Certain Compensation and Benefits
following the Transfer Date
Preservation of Benefit Levels..........Unless otherwise agreed to in an
employment agreement entered into
between CSHI and a Transferred
Employee, for a period of at least
one year following the Transfer
Date, CSHI will provide
compensation and employee benefits
for each Transferred Employee at
least comparable in the aggregate
to the compensation and benefits
provided to such Transferred
Employee immediately prior to the
Transfer Date, provided that for
this purpose the Annual Plan and
the Long-
5
Term Plan (as defined below) shall
be deemed comparable to the annual
cash incentive plan and the long
term incentive compensation plan
(including equity awards),
respectively, in which a
Transferred Employee participated
immediately prior to the Transfer
Date (if any).
Incentive Compensation..................During the Employee Leasing Period,
CSHI (with the assistance of the
Conseco Parties, who, in performing
such actions, will act solely for
and on behalf of CSHI) will
establish the terms and conditions
of the fiscal year 2009 annual
incentive plan (including
participants; performance criteria;
numerical performance goals; and
minimum, target and maximum
payouts; etc.) (the "Annual Plan").
In addition to the Annual Plan,
during the Employee Leasing Period,
CSHI (with the assistance of the
Conseco Parties, who, in performing
such actions, will act solely for
and on behalf of CSHI) will
establish the terms and conditions
of a three-year long-term,
cash-based incentive plan
(including participants;
performance criteria; numerical
performance goals; and minimum,
target and maximum payouts; etc.),
to be effective as of January 1,
2009 (the "Long-Term Plan").
Employee Litigation/Indemnification..........The Conseco Parties shall (i)
retain any liability relating to or
arising out of any claim by any
Transferred Employee which arises
under federal, state or local
statute, regulation or ordinance,
under the common law or in equity,
or under any employee benefit
policy, plan or agreement, between
the Conseco Parties and the
Transferred Employee, arising out
of actions, events or omissions
that occur (or, in the case of
omissions, fail to occur) prior to
the Effective Time (as defined in
the Transfer Agreement) and (ii)
indemnify CSHI against any
liabilities arising in connection
therewith (including the costs
incurred by CSHI in defending any
action in which CSHI is a named
party). CSHI shall (i) assume any
liability relating to or arising
out of any claim by any Transferred
6
Employee which arises under
federal, state or local statute,
regulation or ordinance, under the
common law or in equity, or under
any policy, plan or agreement
between CSHI and the Transferred
Employee, arising out of actions,
events or omissions that occur (or,
in the case of omissions, fail to
occur) following the Effective Time
(as defined in the Transfer
Agreement) and (ii) indemnify
Conseco Parties and their
affiliates against any liabilities
arising in connection therewith
(including the costs incurred by
the Conseco Parties in defending
any action in which any such person
is a named party)
Miscellaneous................................To be incorporated by reference
from the "General Terms and
Conditions" in the Separation and
Transition Matters Agreement Term
Sheet.
7
Exhibit R
- --------------------------------------------------------------------------------
TAX MATTERS AGREEMENT
BY AND AMONG
CDOC, INC.,
CONSECO, INC.,
CONSECO SENIOR HEALTH INSURANCE COMPANY
AND
SENIOR HEALTH CARE OVERSIGHT TRUST
DATED AS OF [?], 2008
- --------------------------------------------------------------------------------
TAX MATTERS AGREEMENT
THIS TAX MATTERS AGREEMENT, dated as of [?], 2008 among CDOC, Inc., a
Delaware corporation ("CDOC"), Conseco, Inc., a Delaware corporation ("CNO," and
together with CDOC, the "Conseco Parties"), Conseco Senior Health Insurance
Company, an insurance company domiciled in Pennsylvania ("CSHI"), and Senior
Health Care Oversight Trust, a Pennsylvania business trust ("Trust") (each of
the Conseco Parties, CSHI and Trust are referred to herein collectively as the
"Parties", and individually, as a "Party").
RECITALS
WHEREAS, pursuant to the Transfer Agreement dated as of August 11,
2008 among CDOC, CNO and Senior Heath Care Transition Trust, a Pennsylvania
business trust (the "Transfer Agreement "), CDOC has agreed, on the terms and
subject to the conditions set forth in the Transfer Agreement, to transfer (the
"Transfer"), or cause one or more Affiliates (as defined in Section 1 below) to
transfer, to Trust 100% of the issued and outstanding shares of common stock and
preferred stock (the "Shares") of CSHI, for no consideration in a transaction
that is intended to constitute an abandonment of the Shares for United States
federal income tax purposes.
WHEREAS, CNO, CDOC, CSHI and certain other Affiliates of CNO have been
members of an affiliated group of corporations of which CNO is the common parent
(the "CNO Affiliated Group") within the meaning of Section 1504(a) of the Code,
and the members of the CNO Affiliated Group have heretofore filed or will file
United States federal income tax returns on a consolidated basis (the "CNO
Consolidated Returns") pursuant to Section 1501 of the Code.
WHEREAS, CNO, CDOC, CSHI and certain other Affiliates of CNO have
heretofore joined (or will join) in the filing of certain combined, unitary,
consolidated, or other similar United States state, local, or other governmental
or foreign income or franchise tax returns (the "CNO Combined Returns"), and
each group filing such a return is designated a "CNO Combined Group."
WHEREAS, as a consequence of the Transfer, CSHI will no longer be part
of the CNO Affiliated Group or be a member of a CNO Combined Group.
WHEREAS, the Parties to this Agreement desire to make certain
covenants with respect to Tax matters and to allocate the liability for certain
Taxes that may be owed to or assessed by a Governmental Entity.
NOW, THEREFORE, in consideration of the mutual promises and covenants
set forth below, the Parties hereby agree as follows:
SECTION 1. Certain Defined Terms. For the purposes of this Agreement,
unless the context requires otherwise, the following terms shall have the
following meanings:
"Affiliate" shall mean, with respect to any Person, any other Person
that directly or indirectly, through one or more intermediaries, controls, is
controlled by or is under common
control with such first Person. The term "control" (including its correlative
meanings "controlled by" and "under common control with") shall mean possession,
directly or indirectly, of power to direct or cause the direction of management
or policies (whether through ownership of securities or partnership or other
ownership interests, by contract or otherwise).
"Closing Date" shall mean the date on which the Closing occurs.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Final Determination" shall have the meaning ascribed to such term in
Section 1313(a) of the Code or similar provision of state, local or foreign law,
as applicable, or any other event (including the execution of a Form 870-AD)
that finally and conclusively establishes the amount of any liability for Tax.
"Straddle Period" shall mean any Taxable Year with respect to CSHI
that begins on or before and ends after the Closing Date.
"Tax" or "Taxes" shall mean all taxes, charges, fees, levies or other
assessments, including, without limitation, any income, net income, franchise
tax or any tax based on income, any alternative or add-on minimum taxes, any
gross income, gross receipts, estimated, retaliatory, commercial activity,
margin, single business, business, premium, sales, use, ad valorem, value added,
transfer, profits, license, payroll, employment, withholding, excise, severance,
stamp, occupation, property, environmental or windfall profit tax, assessments
or similar charges in connection with guaranty fund or risk pool participation,
custom duty or other tax, governmental fee or other like assessment including
all interest, penalties and additions imposed with respect thereto.
"Taxable Year" shall mean a taxable year as defined in Section 441(b)
of the Code or any comparable provision under state or local law (and thus may
include a period of less than 12 months for which a Return is made).
"Tax Return" or "Return" shall mean any return, declaration, report,
claim for refund, information return or similar statement filed or required to
be filed with respect to any Taxes or by any Governmental Entity, including any
schedule or attachment thereto, and including any amendment thereof.
Capitalized terms not otherwise defined herein shall have the meaning
set forth in the Transfer Agreement. Unless otherwise indicated, all references
to "Sections" herein shall refer to Sections of this Agreement.
SECTION 2. Filing of Tax Returns.
(a) CNO shall prepare (or cause to be prepared) and file (or cause to
be filed) all (i) CNO Consolidated Returns for all Taxable Years (whether ending
before, on, or after the Closing Date) and CNO Combined Returns for all Taxable
Years (whether ending before, on, or after the Closing Date) and (ii) Tax
Returns required to be filed by or with respect to CSHI with respect to all
Taxable Years ending on or before the Closing Date. CNO's preparation and filing
obligations with respect to Tax Returns described in this Section 2(a) shall
apply without regard
3
to whether the obligation to file such Tax Return arises prior to, on, or after
the Closing Date. CNO shall permit CSHI to review and comment on each Tax Return
that includes Taxes for which CSHI may be liable under this Agreement, and shall
make such revisions to such Tax Returns or portions thereof as are reasonably
requested by CSHI. Any dispute or disagreement regarding CSHI's comments to such
Tax Returns shall be resolved in accordance with Section 9. For the avoidance of
doubt, the Parties agree that CSHI shall have no right to review or comment on
CNO Consolidated Returns and CNO Combined Returns. CNO shall pay any Taxes for
which it is responsible pursuant to Section 3. CSHI shall pay or cause to be
paid to CNO an amount equal to the Taxes for which CSHI is liable pursuant to
Section 3, but which are payable with Tax Returns to be filed by CNO pursuant to
this Section 2(a), within 10 days prior to the due date for the filing of such
Tax Returns.
(b) CSHI shall, except to the extent that filing such Tax Returns is
the responsibility of CNO under Section 2(a), prepare (or cause to be prepared)
and file (or cause to be filed), all Tax Returns relating to CSHI including Tax
Returns for any Straddle Period. CSHI shall permit CNO to review and comment on
each Tax Return that includes Taxes for which CNO may be liable under this
Agreement, and shall make such revisions to such Tax Returns as are reasonably
requested by CNO. Any dispute or disagreement regarding CNO's comments on such
Tax Returns shall be resolved in accordance with Section 9. CNO shall pay to
CSHI an amount equal to the Taxes for which it is liable pursuant to Section
3(a), but which are payable with Tax Returns to be filed by CSHI pursuant to the
previous sentence, within 10 days prior to the due date for the filing of such
Tax Returns. CSHI shall pay or cause to be paid to the applicable Governmental
Entity all Taxes due and payable in respect of all Tax Returns required to be
prepared and filed by CSHI pursuant to this Section 2(b).
SECTION 3. Responsibility for Taxes.
(a) CNO shall be liable for and indemnify CSHI and all of its
Affiliates for all Taxes (i) attributable to, imposed on, or for which CSHI may
otherwise be liable, for periods ending on or before the end of the Closing Date
(including Taxes with respect to the CNO Affiliated Group) and, with respect to
any Straddle Period, the portion of such Straddle Period ending as of the end of
the Closing Date and (ii) imposed pursuant to Treasury Regulation Section
1.1502-6 (or any comparable provision under state or local law) for which CSHI
may be liable because of membership in the CNO Affiliated Group or any CNO
Combined Group.
(b) CSHI shall be liable for and indemnify CNO and its Affiliates for
all Taxes attributable to, imposed on, or for which CSHI may otherwise be liable
for any Taxable Year or period that begins after the Closing Date and, with
respect to any Straddle Period, the portion of such Straddle Period beginning
after the Closing Date.
(c) In order to apportion appropriately any Taxes relating to a
Straddle Period between the portion of such Straddle Period ending as of the end
of the Closing Date and the portion of such Straddle Period beginning after the
Closing Date, the Parties shall, to the extent permitted under applicable law,
elect with the relevant Governmental Entity to treat for all Tax purposes the
Closing Date as the last day of a Taxable Year. In the case of any other Taxes
for a Straddle Period for which such election to close the Taxable Year is not
permitted, the portion of such Taxes that are allocable to the portion of the
Straddle Period ending as of the end of the
4
Closing Date shall be: (i) in the case of ad valorem or similar Taxes that are
imposed on a periodic basis, an amount equal to the amount of such Taxes for the
entire period (or, in the case of such Taxes determined on an arrears basis
(such as real property Taxes), the amount of such Taxes for the immediately
preceding period) multiplied by a fraction the numerator of which is the number
of days in the Straddle Period prior to and including the Closing Date and the
denominator of which is the number of days in the entire relevant Straddle
Period; and (ii) in the case of Taxes not described in (i) (such as Taxes that
are either (A) based upon or related to income, receipts or premiums, or (B)
imposed in connection with any sale or other transfer or assignment of property
(real or personal, tangible or intangible)), deemed equal to the amount that
would be payable if the Taxable Year ended on and included the Closing Date.
(d) Indemnification payments under this Section 3 shall be made in
immediately available funds within 30 days after receipt by the indemnifying
Party of a written request therefor.
(e) Any dispute or disagreement under this Section 3 shall be resolved
in accordance with Section 9.
SECTION 4. Cooperation; Exchange of Information. The Parties will
cooperate fully with each other and shall cause their respective Affiliates,
officers, employees, agents, auditors and representatives to cooperate fully in
connection with (a) the preparation and filing of any Tax Returns that include
the business and operations of CSHI, (b) any audit examination by any
Governmental Entity of the Tax Returns referred to in clause (a) or (c) any
judicial or administrative proceeding relating to Tax Returns described in
Clause (a). Such cooperation shall include, without limitation, the furnishing
or making available of records, books of account or other materials of CSHI
necessary or helpful for the defense against and resolving assertions of any
Governmental Entity as to any Tax Returns referred to in clause (a) and
obtaining the signatures of appropriate entities for applicable Tax Returns.
Each Party shall provide timely notice to the other Party in writing of any
pending or threatened tax audits or assessments of CSHI for Taxable Years for
which the other Party may have a liability under this Agreement and shall
furnish the other Party with copies of all correspondence received from any
Governmental Entity in connection with any Tax audit or information request with
respect to any such audit or assessment. CSHI shall, and shall cause each
Affiliate to, prepare any response to a Governmental Entity in respect of a
dispute, audit or other controversy on a basis consistent with past practices of
the relevant entity. CNO and its Affiliates will need access, from time to time,
after the Closing Date, to certain accounting and Tax records and information
held by CSHI to the extent such records and information pertain to events
occurring prior to the Closing Date; therefore, CSHI shall (i) retain and
maintain such records until the later of (A) the date which is 6 years after the
Closing Date, (B) the date which is six months after the date of expiration of
the applicable statute of limitations (including any extensions or waivers
thereof) with respect to any Taxable Years to which such records and information
relate or (C) a specific date if so requested by CNO with respect to specific
records or information, and (ii) allow CNO and its agents and representatives
(and agents or representatives of any of its Affiliates), at times and dates
mutually and reasonably acceptable to the Parties, to inspect, review and make
copies of such records as CNO may deem necessary or appropriate from time to
time, such activities to be conducted during normal business hours and at CNO's
expense.
5
SECTION 5. Control.
(a) Unless CNO in its sole discretion elects otherwise, CNO will have
the exclusive right to file any amended Tax Returns and to control any audit or
other administrative or judicial proceeding with respect to CNO Consolidated
Returns and CNO Combined Returns and any other audit or other administrative or
judicial proceeding regarding any other matter that may result in any Tax
liability for which CNO or a Subsidiary thereof is responsible under this
Agreement, including, without limitation, any amended Tax Returns and any audit
or other administrative or judicial proceeding with respect to CSHI for any
Straddle Period; provided, however, that CNO shall not, without the consent of
CSHI which consent shall not unreasonably be withheld (i) settle or compromise
any such proceeding for any Straddle Period, (ii) amend any Tax Return for any
Straddle Period, in either case in any manner that would require CSHI to pay any
amount pursuant to this Agreement or that purports to be binding with respect to
Tax Returns required to be filed by or with respect to CSHI for periods
beginning after the Closing Date, or (iii) file any Tax Return or amend any Tax
Return previously filed, or settle or compromise any such proceeding, with
respect to any deduction available to CSHI under Section 807 of the Code in a
manner that would reduce the amount of such deduction available to CSHI in
Taxable Years beginning after the Closing; provided, further, that any dispute
or disagreement regarding the application of clauses (i), (ii) and (iii) shall
be resolved in accordance with Section 9.
(b) Subject to Section 5(a), CNO will keep CSHI informed of, consult
with CSHI regarding, and permit CSHI to participate in (at CSHI's own expense),
any such filing, audit, or other judicial or administrative proceeding that
relates to the Long-Term Care Business or that may adversely affect CSHI or any
Affiliate of CSHI.
(c) Except as otherwise provided in Section 5(a), CSHI will have the
exclusive right to control any audit or other administrative or judicial
proceeding with respect to the Tax liability of CSHI; provided, however, that
CSHI shall not settle or compromise any such proceeding in a manner that would
require CNO to pay any amount pursuant to this Agreement or that purport to be
binding with respect to Tax Returns required to be filed by CNO pursuant to
Section 2(a) without the consent of CNO, which consent shall not be unreasonably
withheld. CSHI will keep CNO informed of, consult with CNO regarding, and permit
CNO to participate in (at CNO's own expense), any such filing, audit, or other
judicial or administrative proceeding that may affect CNO or any Affiliate of
CNO.
SECTION 6. Tax Sharing Agreements. Notwithstanding anything in any
other agreement to the contrary, all liabilities and obligations between CNO or
any of its Affiliates (other than CSHI), on the one hand, and CSHI, on the other
hand, under any Tax allocation or Tax sharing agreement in effect prior to the
Closing Date (other than this Agreement) shall cease and terminate as of the
Closing Date.
SECTION 7. Transfer and Similar Taxes. All transfer Taxes assessed as
a result of the transactions contemplated by the Transfer Agreement shall be
borne by CNO.
SECTION 8. Survival of Obligations. The indemnity and payment
obligations set forth in this Agreement will survive until the date which is six
months after the date of expiration of
6
the applicable statute of limitations (including any extensions or waivers
thereof). The right to indemnification with respect to claims of which notice
was given prior to the expiration of the applicable survival period will survive
such expiration until such claim is finally resolved and any obligations with
respect thereto are fully satisfied.
SECTION 9. Reconciliation Procedures. In the event that CNO and CSHI
are unable to resolve a disagreement, the matter shall be submitted for
determination to a nationally recognized expert in the particular area of
disagreement mutually acceptable to both Parties. The expert shall be employed
by, or associated with, a nationally recognized accounting firm or a law firm,
and the expert shall not, and the firm that employs the expert shall not, have
any material relationship with either Party or other actual or potential
conflict of interest. If the matter is not resolved before any payment that is
the subject of a disagreement is due or any Tax Return reflecting the subject of
a disagreement is due, such payment shall be made on the date prescribed by this
Agreement and such Tax Return may be filed as prepared, subject to adjustment or
amendment upon resolution. The costs and expenses relating to the engagement of
such expert or amending any return shall be borne by the Party who did not have
the prevailing position, or if a compromise is reached by the Parties, the costs
and expenses shall be borne equally by the CNO and CSHI. The expert shall
determine which Party prevails. The determinations of the expert pursuant to
this Section 9 shall be binding on the Parties absent manifest error.
SECTION 10. Tax Treatment. The parties agree that for U.S. federal
income tax purposes and applicable provisions of state and local tax law (i)
Trust will not be treated as a grantor trust (as defined in the Code) with
respect to CNO or its affiliates, (ii) CSHI will not be a member of the CNO
Affiliated Group or any CNO Combined Group following the Closing, (iii) the
shares of stock of CSHI will be treated as worthless securities of an affiliated
corporation within the meaning of Section 165(g)(3) of the Code immediately
prior to the Closing, and (iv) all transactions occurring pursuant to the
Assignment Agreement shall be treated for federal income Tax purposes and all
other relevant Tax purposes as occurring on the Closing Date and as reportable
in the CNO Consolidated Returns and all relevant CNO Combined Returns filed for
the Taxable Year that includes the Closing Date. Unless required otherwise by a
Final Determination, none of the Parties or their Affiliates will take any
position on any Tax Return, audit or other proceeding which is inconsistent with
the tax treatment described in this Section 10.
SECTION 11. Termination. In the event that the Transfer Agreement is
terminated prior to the Closing Date, this Agreement shall terminate at such
time. In such event, no party shall have any liability to any other party as a
result of this Agreement.
SECTION 12. Notices. Any notices given pursuant to this Agreement
shall be made in accordance with the notice provisions of the Transfer
Agreement.
SECTION 13. Waivers. The observance of any term of this Agreement may
be waived (either generally or in a particular instance and either retroactively
or prospectively) by the Party entitled to enforce such term, but such waiver
shall be effective only if it is in a writing signed by the Party against whom
the existence of such waiver is asserted. Unless otherwise expressly provided in
this Agreement, no delay or omission on the part of any Party in exercising any
right
7
or privilege under this Agreement shall operate as a waiver thereof, nor shall
any waiver on the part of any Party of any right or privilege under this
Agreement operate as a waiver of any other right or privilege under this
Agreement nor shall any single or partial exercise of any right or privilege
preclude any other or further exercise thereof or the exercise of any other
right or privilege under this Agreement. No failure by any Party to take any
action or assert any right or privilege hereunder shall be deemed to be a waiver
of such right or privilege in the event of the continuation or repetition of the
circumstances giving rise to such right unless expressly waived in writing by
the Party against whom the existence of such waiver is asserted.
SECTION 14. Assignment. No Party may assign its duties and obligations
under this Agreement without the prior written consent of all other Parties.
Notwithstanding the foregoing, this Agreement shall be assignable in whole in
connection with a merger or consolidation or the sale of all or substantially
all of the Assets of a Party so long as the resulting, surviving or transferee
Person assumes all the obligations of the relevant party thereto by operation of
law or pursuant to an agreement in form and substance reasonably satisfactory to
the other Party. This Agreement shall be binding on, and shall inure to the
benefit of, the Parties hereto and to their respective successors and permitted
assigns.
SECTION 15. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA,
WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF.
SECTION 16. Jurisdiction. Each Party hereby irrevocably and
unconditionally consents to submit to the non-exclusive jurisdiction of any
court of the United States or any state court which in either case is located in
the City of Philadelphia for any actions, suits or proceedings arising out of or
relating to this Agreement (and each Party agrees that service of any process,
summons, notice or document by U.S. registered mail to its address set forth
above shall be effective service of process for any action, suit or proceeding
brought against it in any such court). Each Party hereby irrevocably and
unconditionally waives any objection to the laying of venue of any action, suit
or proceeding arising out of this Agreement in any such court, and hereby
further irrevocably and unconditionally waives and agrees not to plead or claim
in any such court that any such action, suit or proceeding brought in any such
court has been brought in an inconvenient forum. EACH PARTY HERETO HEREBY WAIVES
TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY ANY OF THEM
AGAINST ANOTHER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS AGREEMENT, OR
ANY OTHER AGREEMENTS EXECUTED IN CONNECTION HEREWITH OR THE ADMINISTRATION
THEREOF.
SECTION 17. Amendment. No provisions of this Agreement shall be deemed
amended, supplemented or modified unless such amendment, supplement or
modification is in writing and signed by an authorized representative of each of
the Parties.
SECTION 18. Severability. If any provision of this Agreement or the
application thereof to any Person or circumstance is determined by a court of
competent jurisdiction to be invalid, void or unenforceable, the remaining
provisions hereof, or the application of such provision to Persons or
circumstances or in jurisdictions other than those as to which it has been held
invalid
8
or unenforceable, shall remain in full force and effect and shall in no way be
affected, impaired or invalidated thereby, so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
adverse to any Party. Upon such determination, the Parties shall negotiate in
good faith in an effort to agree upon a suitable and equitable provision to
effect the original intent of the Parties.
SECTION 19. Entire Agreement; No Third Party Beneficiaries. This
Agreement contains the entire agreement between the Parties with respect to the
subject matter hereof and supersedes all previous agreements, negotiations,
discussions, writings, understandings, commitments and conversations with
respect to such subject matter, and there are no agreements or understandings
between the Parties other than those set forth or referred to herein or in the
Transfer Agreement. Notwithstanding any other provisions in this Agreement to
the contrary, in the event and to the extent that there is a conflict between
the provisions of this Agreement and the provisions of the Transfer Agreement,
the provisions of this Agreement shall control. This Agreement is not intended
to confer any rights or remedies hereunder upon any person other than the
Parties hereto.
SECTION 20. Counterparts; Headings; Interpretation. This Agreement may
be executed in counterparts, each of which when so executed shall be deemed an
original but all of which taken together shall constitute one and the same
agreement. Delivery of an executed counterpart of a signature page to this
Agreement by facsimile shall be as effective as delivery of an executed original
of such counterpart to this Agreement. The Section headings are inserted for
convenience only and are not to be construed as part of this Agreement. All
provisions of this Agreement shall be interpreted so as to give effect to the
intent of the Parties.
SECTION 21. Mutual Drafting. This Agreement shall be deemed to be the
joint work product of the Parties and any rule of construction that a document
shall be interpreted or construed against a drafter of such document shall not
be applicable.
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IN WITNESS WHEREOF, each Party hereto has caused this Agreement to be
duly executed on its behalf as of the day and year first above written.
CDOC, INC.
By:
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Name:
Title:
CONSECO, INC.
By:
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Name:
Title:
CONSECO SENIOR HEALTH INSURANCE COMPANY
By:
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Name:
Title:
SENIOR HEALTH CARE OVERSIGHT TRUST
By:
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Name:
Title:
: