LIQUIDATION PLAN
Regarding the insolvency and liquidation of
The Statesman National Life Insurance Company
TABLE OF CONTENTS
Page
1 RECITALS 1
2 DEFINITIONS 6
3 STATESMAN LIQUIDATION AND RECEIVERSHIP PROCEEDINGS 6
3.1 Consent and Participation of the Parties 6
3.2 Receivership Proceedings and Permanent Injunction 7
3.3 Coinsurance Agreement for Medicare Supplement Pre-Standard
Policies 7
3.4 Identification of Participating Guaranty Associations 8
3.5 Affected Associations - Claims and Premiums 9
3.6 Early Access Application. 11
3.7 Processing the Claims Backlog 12
3.8 Southern Financial Reinsurance Agreement 12
3.9 Major Medical Policies Assumed by Participating Guaranty
Associations 13
3.10 Uncovered Claims. 13
4 TRANSFER AND ASSUMPTION OF STATESMAN POLICY LIABILITIES 14
4.1 Statesman Policy Liabilities Assumed and Reinsured 14
4.1.1 Medicare Supplement Attained Age 14
4.1.4 Medicare Supplement Issue Age 15
4.2 Funding for the Policy Liabilities 15
4.2.1 Formula and Calculations 15
4.2.2 Participating Guaranty Association Funding 15
4.2.3 Enhancement from Assuming Insurer 17
4.3 Insolvency of Assuming Insurer 18
4.3.1 Texas Imperial 18
4.3.2 American Capitol 18
4.4 Receiver Cooperation in Assumption of Assumed Policies. 18
4.5 Assuming Insurer Licensing 20
4.6 Policy Form Approval and the Writing of New Business 21
4.7 Closing of Liquidation Plan and Assumption Agreements 21
4.8 Assuming Insurer Third Party Claims 22
4.9 Notice of Change of Control 23
5 LIABILITIES AND INDEMNITIES 23
5.1 Claims Processing After the Closing Date 23
5.2 Notice 23
5.3 Assuming Insurers Action After the Closing Date 24
5.4 Form A Recission 24
5.5 Administration of Assumed Policies 25
5.6 Extra-Contractual Damages 25
5.7 Covered Obligations 25
5.8 Party Conduct 26
5.9 NOLHGA 26
5.10 Claims Preserved 26
6 REPRESENTATIONS 27
6.1 Participating Guaranty Association Representations 27
6.2 NOLHGA's Representations 28
6.3 Assuming Insurers' Representations 28
6.3.1 Corporate Existence 28
6.3.2 Authority 29
6.3.3 Solvency 29
6.3.4 Fees 29
6.4 Receiver's and Commissioner's Representations and Duties 29
7 RESERVES 30
8 JURISDICTION AND ACCOUNTING PROCEDURE 30
9 NOTICE 32
10 GENERAL PROVISIONS 33
10.1 Claims Operations 33
10.2 Assuming Insurer Shareholder Distributions 33
10.3 Software Transfer to American Capitol 34
10.4 Use of Statesman Facilities Post-Closing. 34
10.5 Continuation Statesman Bank Accounts. 35
10.6 Settlement of Intercompany Transactions 36
10.7 No Third Party Beneficiaries 36
10.8 Entire Agreement 37
10.9 Amendment 37
10.10 Counterparts 37
10.11 Exhibits 37
10.12 Recitals 37
10.13 Cooperation 37
10.14 Statutory Obligations 38
10.15 Severability. 38
10.16 Express Terms 38
10.17 Continued Support 39
10.18 Confidentiality 39
10.19 Assignability 39
10.20 Compromise Agreement 40
10.21 No Construction Against Any Party 40
LIQUIDATION PLAN
Regarding the insolvency and liquidation of
The Statesman National Life Insurance Company
This Liquidation Plan regarding the insolvency and liquidation of
The Statesman National Life Insurance Company ("Statesman") is entered
into this 10th day of June, 1999 by and among ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇,
Commissioner of Insurance, Texas Department of Insurance ("TDI") in his
capacity as Commissioner and as Receiver of Statesman ("Commissioner"
and/or "Receiver" as appropriate), the National Organization of Life and
Health Insurance Guaranty Associations ("NOLHGA"), and the life and
health insurance guaranty associations affected by the insolvency and
liquidation of Statesman that elect to participate in this Liquidation
Plan ("Participating Guaranty Associations"), Texas Imperial Life
Insurance Company ("Texas Imperial"), American Capitol Insurance Company
("American Capitol") and Statesman.
1 RECITALS
1.1 Statesman, which holds a certificate of authority under the
provisions of Chapter 3 of the Texas Insurance Code (hereinafter
referred to as the TEX. INS. CODE ▇▇▇."), is an "insurance
company" as that term is defined in TEX. INS. CODE ▇▇▇. Art.
21.28-A, Sec. 2(a), and is an "insurer" as that term is defined
in TEX. INS. CODE ▇▇▇. Art. 21.28, Sec. 1(a).
1.2 Statesman is domiciled in Texas and was incorporated on or about
December 31, 1954. At the time of this Liquidation Plan, Statesman is
a wholly-owned subsidiary of Texas Imperial, which is a wholly-owned
subsidiary of American Capitol.
1.3 American Capitol entered into a Coinsurance Agreement with
Statesman dated November 17, 1998, in which American Capitol coinsured
Statesman's "pre-standard" Medicare supplement insurance policies in
force as of October 31, 1998. Pursuant to the Coinsurance Agreement,
American Capitol paid Statesman $1,000,000 consideration.
1.4 Texas Imperial acquired all the stock of Statesman effective
December 16, 1998, pursuant to a Stock Purchase Agreement dated
October 19, 1998, as amended on November 20, 1998 and subject to
a Form A approval order issued by the Texas Department of
Insurance dated December 16, 1998. In conjunction with that
closing, ▇▇▇▇▇▇▇▇▇ issued a surplus debenture to Texas Imperial
in the original principal amount of $800,000. Prior to that
stock purchase, the majority of the ownership of Statesman (50.2
percent) was held by ▇▇▇▇▇ ▇. ▇▇▇▇▇ with the remaining 49.8
percent held by: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇; ▇▇▇▇ Guest ▇▇▇▇▇; and ▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇, Trustee of the ▇▇▇▇▇ ▇▇▇▇▇ Guest Life Insurance Trust.
1.5 In January, 1999, following Texas Imperial's
acquisition of Statesman on December 16, 1998, Texas Imperial and
American Capitol met with TDI personnel and provided the
following information: (a) a miscommunication between Statesman
employees and Statesman's consulting actuary in the third quarter
of 1998 caused material errors regarding Statesman's claims
payment history which resulted in an understatement of
Statesman's third quarter reserves and insufficient premium rate
increases that became effective in 1999; (b) Statesman's third
quarter financial condition was significantly worse than
previously reported, and the fourth quarter transactions
associated with the acquisition of Texas Imperial were inadequate
to resolve the related financial consequences; (c) the mistake
regarding Statesman's claims payment history was such that it
eluded the pre-acquisition investigation performed by Texas
Imperial; (d) the officers and directors of Texas Imperial and
American Capitol, who became officers and directors of Statesman
upon closing of the acquisition on December 16, 1998, had no role
in Statesman prior to the acquisition and thus had no
responsibility for the mistake and the financial consequences
thereof; and (e) Texas Imperial, American Capitol, and ▇▇▇▇▇▇▇▇▇
agreed that, if they had been aware of the mistake, they would
not have entered into the stock purchase agreement and related
transactions and thus they requested the Commissioner to approve
the rescission of the acquisition and related transactions. The
TDI and the Commissioner are not aware of the existence of any
evidence or documentation that is inconsistent with the above
information. However, because there has not been a requirement
that the TDI and the Commissioner verify the above information,
the TDI and the Commissioner are not in a position to, and do not
hereby confirm or deny the accuracy of the above information.
Texas Imperial and American Capitol have cooperated with, and
rendered assistance to, the TDI and NOLHGA in the development of
this Liquidation Plan.
1.6 On February 8, 1999, ▇▇▇▇▇▇▇▇▇ was placed under a
Confidential Order Creating State of Supervision, and Appointment
of Supervisor, Order No. 99-0219 (the "Supervision Order"). The
Supervision Order was based on, among other things, information
indicating that: (1) Statesman experienced a net loss of income
of approximately $3,100,000 during 1998; and (2) Statesman had a
capital and surplus deficit of approximately $600,000 as of
December 31, 1998.
1.7 In a letter dated February 3, 1999, Texas Imperial,
American Capitol and Statesman requested that the Commissioner
approve a rescission of the acquisition and related transactions
which was declined by the Commissioner in a letter dated March 4,
1999. On March 24, 1999, Texas Imperial and American Capitol
filed a petition with the Commissioner requesting a hearing on
their Petition for Rescission. On April 14, 1999, the
Commissioner denied that Petition. As part of this Liquidation
Plan, Texas Imperial and American Capitol withdraw their petition
and request for rescission and any related requests for a hearing
or appeals or further remedies in that regard.
1.8 On September 30, 1998, Southern Financial Life Insurance
Company ("Southern Financial") entered into a coinsurance
agreement with Statesman coinsuring Statesman's Individual Life
Policies (final expense policies with small face amounts). On
approximately April 19, 1999, Southern Financial filed an
assumption agreement and assumption certificates with TDI for
review and approval to assume Statesman's individual life
policies. That assumption agreement and assumption certificates
have been approved by TDI before execution of this Liquidation Plan.
1.9 Regarding the Coinsurance Agreement with Statesman
coinsuring the Medicare Supplement Pre-Standard policies,
identified in Section 1.3 above, American Capitol has submitted
an assumption agreement and assumption certificates with TDI for
review and approval to assume the Medicare Supplement Pre-
Standard policies. The assumption agreement and assumption
certificates have been approved by TDI before execution of this
Liquidation Plan.
1.10 On June 10, 1999, the Court entered an agreed Permanent
Injunction in the Receivership Proceedings which appointed the
Commissioner as Receiver for Statesman.
1.11 Statesman Policyholder Obligations.
1.11.1 As of December 16, 1998, Statesman had in force the
following blocks of insurance business with the indicated annual
premiums:
1. Medicare supplement policies ($15.6 million)
consisting of:
a. Medicare Supplement Pre-Standard ($2.1 million);
b. Medicare Supplement Issue Age ($7.9 million);
c. Medicare Supplement Attained Age ($5.6 million);
2. Hospital Indemnity policies consisting of approximately
962 hospital confinement coverage policies with an
annualized premium of $84,080 as of March 31, 1999;
3. Companion Life policies consisting of approximately 1,300
policies in force as of March 31, 1999 with an approximate
face amount total of $7,924,503 and annualized premiums of
$440,447, most of which appear to have been sold as
companions to the Medicare Supplement Attained Age
policies; and
4. Major Medical policies consisting of approximately 100
in-hospital and comprehensive coverage policies outside
of Louisiana and 33 such policies in Louisiana with
approximately $260,000 annualized premium outside of
Louisiana and $135,000 annualized premium in Louisiana.
1.11.2 A backlog of claims for benefits from Statesman
(currently estimated at 39,000 pieces of unprocessed mail) has
developed with respect to processing the claims. Each Party has
indicated its belief that implementation of this Liquidation Plan
is the best means to provide continuing insurance coverage for
the policyholders of Statesman and otherwise satisfy Statesman's
creditors.
1.12 This Liquidation Plan supersedes and replaces the Term Sheet
for a Liquidation Plan Re: Statesman National Life Insurance
Company executed by the Parties on April 20, 1999.
NOW, THEREFORE, in consideration of the foregoing premises, and
the covenants, promises and agreements set forth in this
Liquidation Plan, the Parties agree as follows:
2 DEFINITIONS
2.1 Unless otherwise specifically provided or the context so
requires, the capitalized terms set forth in this
Liquidation Plan shall have the same meaning as set
forth in Exhibit 2.1 and such definitions are
incorporated by reference as if fully set forth herein.
The American Capitol Assumption Agreement, the Texas
Imperial Assumption Agreement, the Pre-Standard
Assumption Agreement and the Settlement Agreement, which
are components of this Liquidation Plan, also utilize
the same defined terms as set forth in Exhibit 2.1.
3 STATESMAN LIQUIDATION AND RECEIVERSHIP PROCEEDINGS
3.1 Consent and Participation of the Parties.
3.1.1 After all Parties have executed this Liquidation Plan,
the Assumption Agreements, and the Settlement Agreement, the
Receiver shall file an agreed application for approval of the
Liquidation Plan, the Assumption Agreements and the Settlement
Agreement with the Court seeking approval of such agreements.
NOLHGA will enter its appearance and join in that Motion seeking
the Court's approval of such agreements. By execution of this
Liquidation Plan, Texas Imperial, American Capitol and Statesman
join in, stipulate and agree to the terms and provisions of this
Liquidation Plan and consent to the Permanent Injunction placing
Statesman under the control of the Receiver and declaring
Statesman insolvent. To the extent requested by the Receiver or
NOLHGA, Texas Imperial and American Capitol each agrees to enter
its appearance and seek approval from the Court for this
Liquidation Plan.
3.1.2 American Capitol, Texas Imperial and Statesman, each on
its own behalf and on behalf of its respective agents,
affiliates, subsidiaries, successors and assigns, hereby agree to
waive any and all actions or claims that now exist or may arise
against the TDI, the Commissioner or the Receiver and their duly
appointed designees as a result of the Commissioner's denial of
any and all requests and petition to rescind the Form A and
related transactions filed by American Capitol and Texas Imperial.
3.2 Receivership Proceedings and Permanent Injunction. A
petition has been filed seeking an order placing Statesman into
Receivership Proceedings, seeking a declaration that Statesman is
insolvent and placing Statesman under a Permanent Injunction.
Statesman, Texas Imperial, the sole stockholder of Statesman, and
American Capitol, the sole stockholder of Texas Imperial,
stipulate and agree to initiation of the Receivership Proceedings
and entry of the Permanent Injunction.
3.2 Coinsurance Agreement for Medicare Supplement Pre-
Standard Policies. Before execution of the Liquidation Plan and
to be effective before entry of the Permanent Injunction, in
accordance with the terms and provisions of the Coinsurance
Agreement (a copy of which is attached as Exhibit 3.3-A),
American Capitol converted the Coinsurance Agreement into an
assumption reinsurance agreement which is attached as Exhibit 3.3-
B and which has been approved by the TDI and consented to by
NOLHGA with the effect of causing American Capitol to assume and
reinsure the Medicare Supplement Pre-Standard policies. American
Capitol has submitted certificates of assumption to TDI for
approval and has received such approval prior to the execution of
this Liquidation Plan in the form attached as Exhibit 3.3-C. No
Participating Guaranty Association payment or distribution of
Statesman assets with respect to the policyholders affected by
the Coinsurance Agreement shall be made.
3.3 Identification of Participating Guaranty Associations.
Attached as Exhibit 3.4-A is a list of Affected Associations.
Within ten (10) days after the execution of this Liquidation Plan
by all Parties, NOLHGA shall advise the Parties of the identity
of the Participating Guaranty Associations by submitting Exhibit
3.4-B. Each Participating Guaranty Association will satisfy its
obligation to provide continuing coverage to Statesman
policyholders by participating in this Liquidation Plan and the
Assumption Agreements. If Affected Associations "opt-out" of
this Liquidation Plan so that ten percent (10%) or more of the
Covered Obligations associated with the Medicare Supplement
Attained Age policies, the Medicare Supplement Issue Age
policies, the Hospital Indemnity policies or the Companion Life
policies (with such ten percent (10%) calculated on an
independent, policy block specific basis) are not transferred to
American Capitol (or ten (10%) or more of the Medicare Supplement
Issue Age Policies with respect to Texas Imperial), then the
parties agree to renegotiate the Enhancement attributable to that
specific policy block.
3.5 Affected Associations - Claims and Premiums.
3.5.1 Upon entry of the Permanent Injunction, title to
Statesman's assets vested in the Receiver pursuant to TEX. INS.
CODE ▇▇▇. Art. 21.28, Sec. 2(b). Based on all the available
evidence as of the execution of this Liquidation Plan, the
parties anticipate that the Statesman Estate will have sufficient
assets to pay Class 1 Claims in full, to make only a partial
distribution to Class 2 claims and to make no distribution to any
other class of creditors under the Priority Statute.
Accordingly, this Liquidation Plan will have no impact on
creditors in classes other than Class 1 and Class 2.
3.5.2 Premiums and other policyholder payments related to the
American Capitol Assumed Policies which will be assumed by
American Capitol pursuant to the American Capitol Assumption
Agreement for time periods after the date of entry of the
Permanent Injunction will belong to and be the property of
American Capitol. Premiums and other policyholder payments
related to the Medicare Supplement Issue Age policies which will
be assumed by Texas Imperial pursuant to the Texas Imperial
Assumption Agreement for time periods after the date of entry of
the Permanent Injunction will belong to and be the property of
Texas Imperial. Premiums and other policyholder payments related
to the Major Medical policies for time periods after the date of
entry of the Permanent Injunction will belong to and be the
property of the Affected Associations.
3.5.3 All of each Affected Association's approved
costs and expenses of administration relating to Statesman as
well as approved expenses in handling claims and all of NOLHGA's
approved costs and expenses relating to the negotiation and
implementation of the Liquidation Plan shall constitute Class 1
priority level claims against the Statesman Estate pursuant to
the Priority Statute. All cash and Association Notes of the
Participating Guaranty Associations shall be treated as Class 2
priority claims against the Statesman Estate pursuant to the
Priority Statute. Approval of claims of Participating Guaranty
Associations and NOLHGA by the Receiver shall not be unreasonably
withheld. Payments by Affected Associations who do not become
Participating Guaranty Associations for the costs and expenses of
administration and approved expenses in handling claims relating
to Statesman will be handled in accordance with the claims
process set forth in TEX. INS. CODE ▇▇▇. Art. 21.28. If the
Receiver determines that such claims should be paid prior to the
final calculation of the Enhancement, the Affected Associations
who are not Participating Guaranty Associations shall receive a
pro rata distribution on such claims based upon an estimate of
the final payment for Class 1 and Class 2 creditor claims.
3.5.4 If the amount of funds recovered by each Participating
Guaranty Association from the Enhancement exceeds the amount of
that Participating Guaranty Association's Class 1 and Class 2
claims, combined, the balance of that Participating Guaranty
Association's share of the Enhancement shall be transmitted to
the Receiver who will distribute such transmitted funds pursuant
to the Priority Statute. In the event of an excess Enhancement
as discussed herein and if the Statesman Estate is closed at the
time the Enhancement is made, the Commissioner shall apply to
reopen the Statesman Estate to facilitate distribution of such
transmitted funds.
3.5.5 Claims of Statesman agents for commissions,
along with claims of all other creditors, will be handled in
accordance with the claims process set forth in TEX. INS. CODE
▇▇▇. Art. 21.28.
3.6 Early Access Application.
3.6.1 Within one hundred twenty (120) days of the
commencement of the Receivership Proceedings against Statesman,
the Receiver will file with the Court an application for approval
of the Early Access Distributions contemplated in this
Liquidation Plan pursuant to the TEX. INS. CODE ▇▇▇., Art. 21.28,
Sec. 7A.
3.6.2 Subject to approval by the Court and pursuant to TEX.
INS. CODE ▇▇▇. Art. 21.28 Sec. 7A, the Receiver will make Early
Access Distributions to each Participating Guaranty Association
specified in the respective Assumption Agreement based on a pro
rata allocation set forth in Exhibit 3.6 periodically as directed
by the Court. Affected Associations which do not become
Participating Guaranty Associations will receive Early Access
Distributions on a pro rata basis in accordance with the Priority
Statute. The Receiver will use his best efforts to liquidate and
distribute Statesman's assets as soon as reasonably possible and,
in any event, on or before the Plan Termination Date.
3.6.3 To the extent any Participating Guaranty Association is
the beneficiary of a special deposit or other deposit provided
for by statute or regulation, the Participating Guaranty
Association will be deemed to have received such deposit as an
Early Access Distribution, unless the Participating Guaranty
Association has demonstrated that it has not received the benefit
of such funds. For any Participating Guaranty Association which
is the beneficiary of such a deposit, no other Early Access
Distribution shall be made until:
3.6.3.1 At the request of the Receiver, the
Participating Guaranty Association identifies in writing the
amount of the deposit and any distributions which have been made
to, or for the benefit of, the Participating Guaranty
Association; and
3.6.3.2 Each Participating Guaranty Association which is not a
beneficiary of a deposit has received distributions of
Statesman's general assets in the same pro rata amount as the
Participating Guaranty Association which is the beneficiary of
such deposit.
3.7 Processing the Claims Backlog. The Participating Guaranty
Associations, through NOLHGA, will pay for ▇▇▇▇▇▇▇▇ World-wide
LLP to assist in processing the existing backlog of Statesman
claims, currently estimated at 39,000 pieces of unprocessed mail,
up to a maximum cost of one hundred thousand dollars ($100,000).
Any such payments by the Participating Guaranty Associations and
NOLHGA to ▇▇▇▇▇▇▇▇ World-wide LLP shall constitute a Class 1
claim against the Statesman Estate. Any involvement and expenses
of ▇▇▇▇▇▇▇▇ World-wide LLP in excess of the involvement
associated with the above $100,000 maximum shall be at the option
of American Capitol and payment for such involvement shall be the
sole responsibility of American Capitol.
3.8 Southern Financial Reinsurance Agreement. Southern
Financial and Statesman entered into the Southern Financial
Reinsurance Agreement dated September 30, 1998, a copy of which
is attached as Exhibit 3.8. On approximately April 19, 1999,
Southern Financial filed an assumption agreement and assumption
certificates with TDI for review and approval to assume
Statesman's individual life policies. That assumption agreement
and assumption certificates have been approved by TDI before
execution of this Liquidation Plan.
3.9 Major Medical Policies Assumed by Participating
Guaranty Associations. Effective as of the Closing Date, the
Major Medical Policies will be directly assumed by each
Participating Guaranty Association responsible for such policies
in accordance with the enabling act of each Participating
Guaranty Association. The Major Medical Policies will be
administered directly by each Participating Guaranty Association
and/or pursuant to an administrative services agreement entered
into by the Participating Guaranty Association. The
Participating Guaranty Associations may attempt to transfer the
Major Medical policies to a different insurance company. The
Receiver agrees to seek approval for and make Early Access
Distributions in conjunction with the coverage provided by the
Participating Guaranty Associations with respect to the Major
Medical policies. Participating Guaranty Association payments
made for administrative services related to the Major Medical
policies constitute Class 1 claims and Participating Guaranty
Association payments for benefits under the Major Medical
policies constitute Class 2 claims.
3.10 Uncovered Claims. Based on all the evidence
available as of the date of this Liquidation Plan, no Party is
aware of any insurance benefits owed by Statesman to policy
owners, contract owners or beneficiaries which are not covered by
the Affected Associations. In the event that there are Statesman
liabilities or obligations which are not Covered Obligations,
Texas Imperial, American Capitol, or the Participating Guaranty
Association with knowledge of such uncovered obligation shall
advise the Receiver. Any such claim shall be transferred to the
Receiver for handling under TEX. INS. CODE ▇▇▇. Art. 21.28 Sec. 3.
If the Receiver determines that such claim should be paid prior
to the final calculation of the Enhancement, the Participating
Guaranty Associations consent to a pro rata distribution on such
claim based upon an estimate of the final payment for Class 1 and
Class 2 creditor claims.
4 TRANSFER AND ASSUMPTION OF STATESMAN POLICY LIABILITIES
4.1 Statesman Policy Liabilities Assumed and Reinsured. As
part of this Liquidation Plan, American Capitol, Texas
Imperial, NOLHGA and the Participating Guaranty
Associations have entered into Assumption Agreements
through which the Participating Guaranty Associations
will provide continuing coverage for covered Statesman
policyholders of Medicare Supplement Issue Age, Medicare
Supplement Attained Age policies, Hospital Indemnity
policies and Companion Life policies. The American
Capitol Assumption Agreement is attached as Exhibit 4.1-
A and the terms and provisions of the American Capitol
Assumption Agreement are incorporated as if set forth
herein. The Texas Imperial Assumption Agreement is
attached as Exhibit 4.1-B and the terms and provisions
of the Texas Imperial Assumption Agreement are
incorporated as if set forth herein.
4.1.1 Medicare Supplement Attained Age. Pursuant to the
American Capitol Assumption Agreement, on the Closing Date,
American Capitol will assume and reinsure the Medicare Supplement
Attained Age policies.
4.1.2 Hospital Indemnity. Pursuant to the American Capitol
Assumption Agreement, on the Closing Date, American Capitol will
assume and reinsure the Hospital Indemnity policies.
4.1.3 Companion Life. Pursuant to the American
Capitol Assumption Agreement, on the Closing Date, American
Capitol will assume and reinsure the Companion Life policies.
All of the Included Treaties which pertain or apply to the
Companion Life policies are identified on Exhibit III.F. to the
American Capitol Assumption Agreement. All such Included
Treaties shall be transferred to American Capitol on the Closing
Date, subject to the reinsurer's acceptance of the transfer, and
may be terminated thereafter at the election of American Capitol.
The Parties hereto shall use commercially reasonable efforts to
ensure that all such Included Treaties shall be amended,
adjusted, assigned or novated on terms and conditions
satisfactory to American Capitol on or before the Closing Date.
4.1.4 Medicare Supplement Issue Age. Pursuant to the Texas
Imperial Assumption Agreement, on the Closing Date, Texas
Imperial will assume and reinsure the Medicare Supplement Issue
Age policies.
4.2 Funding for the Policy Liabilities. In addition to assuming
and reinsuring the Statesman policy liabilities from the
Participating Guaranty Associations, the Assuming Insurer, either
American Capitol or Texas Imperial, will receive assets from the
Participating Guaranty Associations related to the Medicare
Supplement Issue Age, the Hospital Indemnity, the Companion Life
and the Medicare Supplement Attained Age policies as set forth in
the Assumption Agreements.
4.2.1 Formula and Calculations. The calculations to
determine the funding amounts are set forth in detail in the
Assumption Agreements.
4.2.2 Participating Guaranty Association Funding.
4.2.2.1 The Association Liability will be funded by a
combination of cash and/or Association Note from each
Participating Guaranty Association in the amounts specified in
the American Capitol Assumption Agreement and the Texas Imperial
Assumption Agreement. The principal of the Association Note will
accrue interest at the rate of 5.3% percent per annum. A form of
the Association Note is attached as Exhibit 4.2.2. At the
Closing, each Participating Guaranty Association shall transfer
an Association Note and/or cash to fund the Association
Liability. At Closing, the Participating Guaranty Associations
will transfer cash which, in the aggregate, will total a payment
of $2,287,225 to the Assuming Insurers. The cash payments at
Closing by the Participating Guaranty Associations shall be used
first by the Assuming Insurers to pay the claims backlog existing
on the Closing Date. Within ninety (90) days after the Closing
Date, the Participating Guaranty Associations will pay, in the
aggregate and in addition to the $2,287,225, a total of
$4,299,767 to Assuming Insurers which shall reduce their
respective Association Notes by a corresponding amount. As of
the Plan Termination Date, each Association Note will be paid in
full or in part by the applicable Participating Guaranty
Association, subject to any adjustment for the Enhancement, and
in accordance with the terms and provisions of the Association
Note. Each Association Note shall be deemed an admissible asset
on the books of the Assuming Insurer, whether American Capitol or
Texas Imperial. The parties acknowledge that the Association
Notes comply with the respective Guaranty Association enabling
acts and all applicable NAIC guidelines. However, in the event
an Association Note is determined not to be an admissible asset,
the parties will negotiate and enter into an amendment curing
such defect in good faith.
4.2.2.2 The Association Liability specified in the Assumption Agreements
shall constitute the maximum amount of funding provided by the
Participating Guaranty Associations with respect to
the Covered Obligations. In no event shall the liability of the
Participating Guaranty Associations exceed the amount of the
Association Liability as calculated in each Assumption Agreement,
except to the extent contemplated in the Accounting Procedures and
the accounting and audit process set forth in Section VI of each
Assumption Agreement. The Parties agree and by order approving
this Liquidation Plan the Court orders that the provisions of this
Liquidation Plan fully satisfy each Participating Guaranty
Association's liabilities associated with Covered Obligations.
4.2.3 Enhancement from Assuming Insurer.
4.2.3.1 As set forth in the Assumption Agreements, American
Capitol and Texas Imperial will contribute an Enhancement to each
Participating Guaranty Association calculated in the manner set
forth in Exhibit IV.B. of each Assumption Agreement. In
calculating the Enhancement, the Medicare Supplement Attained Age
and the Medicare Supplement Issue Age will be pooled along with
the Medicare Supplement Pre-Standard policies subject to the
Coinsurance Agreement.
4.2.3.2 To the extent a Participating Guaranty Association has
not paid in cash the full amount of the Association Liability as
of the Plan Termination Date, the Enhancement shall operate as a
reduction in the remaining balance of the Association Liability.
To the extent the Participating Guaranty Association has fully
funded in cash the Association Liability, American Capitol and/or
Texas Imperial shall make a cash payment in the amount of the
Enhancement to the Participating Guaranty Association as a
refund.
4.2.3.3 The opportunity for financial gain after
liquidation (except to the extent the Enhancement reduces the
Association Liability), and the exposure for financial loss lie
solely with the Assuming Insurer - either Texas Imperial or
American Capitol, with respect to all Assumed Policies.
4.3 Insolvency of Assuming Insurer
4.3.1 Texas Imperial. In the event of the insolvency of
Texas Imperial prior to the Plan Termination Date, American
Capitol shall guarantee and assume all of Texas Imperial's
policyholder liabilities with respect to the Medicare Supplement
Issue Age policies. In the event of Texas Imperial's insolvency,
any Association Notes issued to Texas Imperial will become void
and the applicable Participating Guaranty Associations shall
deliver equivalent replacement Association Notes (adjusted for
prior payments and interest) to American Capitol upon American
Capitol's assumption of the policies.
4.3.2 American Capitol. In the event of the insolvency of
American Capitol prior to the Plan Termination Date, the
obligations of the Participating Guaranty Associations under any
Association Notes issued to American Capitol are canceled and
void. In the event of such insolvency resulting in the
cancellation of the Association Notes, the Association Notes and
their corresponding policyholder liabilities shall be returned to
the appropriate Participating Guaranty Association and shall be
the sole responsibility of that Participating Guaranty
Association.
4.4 Receiver Cooperation in Assumption of Assumed Policies.
4.4.1 Except as otherwise provided in this Liquidation
Plan, the Receiver transfers, cedes and assigns to the Assuming
Insurers as of the Closing Date the Receiver's rights, privileges
and prerogatives under the Assumed Policies, if any. The
Assuming Insurers shall accept and assume the Assumed Policies
subject to all defenses, set-offs and counterclaims to which the
Receiver would be entitled with respect to such Assumed Policies.
It is expressly understood and agreed by the parties that no such
defenses, set-offs or counterclaims are waived by the execution
of this Liquidation Plan or by the consummation of any related
transactions, and that on the Closing Date, the Assuming Insurers
shall be fully subrogated to all such defenses, set-offs and
counterclaims (all of which defenses, set-offs and counterclaims
may also be asserted by the Receiver with respect to any claims
asserted against the Receiver).
4.4.2 Notwithstanding anything to the contrary in this
Liquidation Plan: (a) the Receiver retains all rights and
interests of Statesman policyholders, in equity or at law based
on violations of common law, tort law, contract law, statutory
law or other law, to which the Participating Guaranty Association
is not subrogated under its enabling statute or otherwise; (b)
the Receiver retains all privileges, prerogatives, defenses, set-
offs and counterclaims to the extent they relate to any other
obligations of the Receiver; and (c) the Assuming Insurer shall
have no claim under the Assumed Policies against the Receiver,
the Statesman Estate or any Participating Guaranty Association
except as set forth in the Assumption Agreements.
4.4.3 The Receiver agrees to execute all documents
or instruments as may be necessary to ensure that Assuming
Insurer receives, possesses and owns all moneys, checks, drafts,
money orders, postal notes and other instruments to which the
Assuming Insurers are entitled under the Assumption Agreements
related to the Assumed Policies after the Closing Date, including
endorsements so that Assuming Insurer's name shall be recognized
and accepted. The Receiver agrees that it will transfer and
deliver to Assuming Insurer any cash or other property that
Receiver may receive with respect to such receivable or other
items.
4.4.4 The Receiver agrees to transfer, assign, deliver and
convey to the Assuming Insurers, subject to the terms set forth
in this Liquidation Plan, all files and records related to the
Assumed Policies in the Receiver's possession or under the
Receiver's control. The Assuming Insurer's agree that after such
delivery, the Receiver shall be entitled, at any reasonable time
and at the Receiver's expense, to inspect, audit and copy any and
all such records and files of the Assuming Insurers and all other
records and files of the Assuming Insurers related to the Assumed
Policies. The Receiver makes no warranty or representation that
the books and records of Statesman which may be transferred are
either accurate or complete. Any and all correspondence,
premiums, records or documents coming into the possession of the
Receiver after the Closing Date directly pertaining to any
Assumed Policy shall be promptly delivered to the Assuming
Insurer by the Receiver, without charge to the Assuming Insurer.
4.5 Assuming Insurer Licensing. American Capitol will
use commercially reasonable efforts to become licensed in all
states where Statesman is licensed and where policyholders of
American Capitol Assumed Policies reside. Texas Imperial will
use commercially reasonable efforts to become licensed in all
states where Statesman was licensed and where Medicare Supplement
Issue Age policyholders reside. The Participating Guaranty
Associations will cooperate in those licensing efforts. In the
event that Texas Imperial is unsuccessful in obtaining such
licensure, Texas Imperial will use commercially reasonable
efforts, with the cooperation of the Participating Guaranty
Associations, to obtain approval from each respective state's
insurance department to assume the Medicare Supplement Issue Age
policies without the requirement of licensure in such state. If
Texas Imperial has not obtained such licensure or permission to
assume such policies, all such Medicare Supplement Issue Age
policies shall be guaranteed or one-hundred percent coinsured
directly by American Capitol.
4.6 Policy Form Approval and the Writing of New Business.
American Capitol will use commercially reasonable efforts to
acquire approval from the TDI and all other applicable
jurisdictions for American Capitol Medicare supplement policy
forms. The Participating Guaranty Associations will cooperate in
this effort. American Capitol and Texas Imperial will cause
Statesman to cease writing new business at the earliest
opportunity prior to the Closing Date; and American Capitol has
advised that Statesman ceased writing new business on May 7,
1999. In no case shall Statesman write new business after the
Closing Date.
4.7 Closing of Liquidation Plan and Assumption Agreements.
4.7.1 The Liquidation Plan and the Assumption Agreements will
close on the Closing Date. At the Closing, each Participating
Guaranty Association shall transfer cash and/or an Association
Note to fund the Association Liability.
4.7.2 Court approval of the Liquidation Plan is a
condition precedent to Closing and, in the absence of a Court
order approving this Liquidation Plan, this Liquidation Plan will
be void and unenforceable. In the event of an appeal of the
order approving this Liquidation Plan or the Permanent Injunction
or other legal challenge to this Liquidation Plan's
enforceability after Closing, the Parties agree to cooperate in
good faith to develop a plan and agreement to "unwind" the
transactions in this Liquidation Plan which would return each
Party (other than Statesman) to the status quo, to the extent
possible, in the event the appeal or other legal challenge were
successful.
4.7.3 As a condition precedent to Closing, all written
representations, recitals and affirmations made by any Party in
the Liquidation Plan shall be true and correct in all material
respects as of the Closing Date as if made at the Closing, except
for changes in the usual and ordinary course of business that,
individually or in the aggregate, do not affect materially the
financial condition, business or prospects of the Party that made
the representation that has changed or would not have a material
adverse effect on such party's ability to perform its obligations
under this Liquidation Plan. No Party may avoid its obligations
under this Agreement by asserting that its own representations
are not true and correct in all material respects as of the
Closing Date.
4.8 Assuming Insurer Third Party Claims. American
Capitol and Texas Imperial will take all steps necessary to
assert claims which in their sole discretion have a good faith
basis with a probable successful outcome (taking into account
costs and uncertainties involved in litigation), triggering
potential insurance coverage, including director and officer
liability coverage and errors and omissions coverage with respect
to those persons and entities who may be responsible for
financial loss incurred by American Capitol or Texas Imperial.
Recovery from any such claims shall be first used to reduce the
principal and interest due under Association Notes or to return
cash to the Participating Guaranty Associations up to the amount
of their Association Liability, at the discretion of each
Participating Guaranty Association.
4.9 Notice of Change of Control. If, prior to the Plan
Termination Date an anticipated change of control in an Assuming
Insurer is applied for or if an assumption reinsurance agreement
or coinsurance agreement or other reinsurance agreement is
entered into by Assuming Insurer with respect to the Assumed
Policies, the Assuming Insurer shall provide notice to all other
Parties of the requested change of control or reinsurance
transaction, including but not limited to copies of any "Form A"
filings. The reinsurance agreements and the change of control
including any reinsurance agreements shall be subject to the
approval of the TDI.
5 LIABILITIES AND INDEMNITIES
5.1 Claims Processing After the Closing Date. From and after
the Closing Date, the Assuming Insurers shall be liable for all
obligations and payments related to Assumed Policies and for
processing and paying all claims that are outstanding and unpaid
and incurred under the Assumed Policies.
5.2 Notice. The Receiver, NOLHGA, each Participating Guaranty
Association and the Assuming Insurers will notify the other
parties hereto promptly of any suit or claim brought against it
with respect to any Assumed Policy; except no notice from
Assuming Insurers shall be required with respect to any suit or
claim that is a routine claims handling dispute in the ordinary
course of business.
5.3 Assuming Insurers Action After the Closing Date. The
Assuming Insurers agree to save, defend, indemnify and hold
NOLHGA and each Participating Guaranty Association completely
free and harmless from any and all suits or claims arising out of
any action or omission of Assuming Insurer, taken with respect to
one or more Assumed Policies on or after the Closing Date,
regardless of whether the action or omission complained of is
attributable to Assuming Insurer alone or jointly with NOLHGA
and/or a Participating Guaranty Association. Where the suit
concerns or involves acts or decisions of the Participating
Guaranty Association, the applicable Participating Guaranty
Association will cooperate with Assuming Insurer in its defense
of such suit, and Assuming Insurer will notify the Participating
Guaranty Association before any settlement thereof. The payment
of all judgments and settlement agreements resulting from such
suit shall be the sole responsibility of Assuming Insurer.
5.4 Form A Recission. The Assuming Insurers release and hold
harmless the Commissioner, Receiver and TDI with respect to the
denial of all petitions and efforts by the Assuming Insurers to
rescind the Form A and related transactions, including but not
limited to the Coinsurance Agreement and any attempt to rescind
or re-characterize in any manner the $800,000 surplus debenture
transaction whereby Texas Imperial invested $800,000 into
Statesman. Furthermore, each Assuming Insurer, on its behalf and
on behalf of its agents, affiliates, subsidiaries, successors,
and assigns, waives any and all actions that now exist or may
arise, and any and all claims against TDI, the Commissioner, the
Receiver and their appointed designees, as a result of the
Commissioner's denial of all requests to rescind the Form A and
related transactions.
5.5 Administration of Assumed Policies. NOLHGA, the
Participating Guaranty Associations and the Assuming Insurers
shall not bear liability for any damages awarded to any claimant
solely because of the acts or decisions of Statesman in
administering any Assumed Policy. NOLHGA and the Participating
Guaranty Associations shall not bear liability for any damages
awarded to any claimant solely because of the acts or decisions
of Assuming Insurers in administering any Assumed Policy. The
Assuming Insurers indemnify and hold harmless NOLHGA and the
Participating Guaranty Associations from any liability associated
with administering any Assumed Policy after the Closing Date.
5.6 Extra-Contractual Damages. Notwithstanding paragraphs 5.1
through 5.5, if any suit seeks consequential damages, tort
damages, punitive damages or attorneys fees or costs (referred to
as "extra-contractual damages") based upon alleged acts or
decisions of NOLHGA, the Participating Guaranty Association,
and/or the Assuming Insurer, then NOLHGA, the Participating
Guaranty Association, and/or the Assuming Insurer may retain its
own counsel and participate in and control the defense or
settlement of its own acts or decisions.
5.7 Covered Obligations. Each Participating Guaranty
Association will undertake at its expense the defense of any
suit, whenever filed, which is based or alleged to be based on
any Covered Obligation of such Participating Guaranty Association
and any decision or act solely of such Participating Guaranty
Association regarding coverage or level of benefits. The
Participating Guaranty Association will make any and all
decisions regarding management of the defense and settlement of
any such suit. The payment of all judgments and settlement
agreements resulting from such suit shall be the sole
responsibility of the Participating Guaranty Association to the
extent they actually relate to decisions or acts of the
Participating Guaranty Association prior to the Closing Date.
5.8 Party Conduct. Each Participating Guaranty Association
agrees to indemnify and hold Assuming Insurer and the Receiver
harmless against any and all loss, liability and expense,
including reasonable attorney's fees and court costs, which
result from negligent, dishonest, malicious, fraudulent or
criminal acts, by the Participating Guaranty Association, its
employees or agents. Assuming Insurer agrees to indemnify and
hold each Participating Guaranty Association and the Receiver
harmless against any and all loss, liability and expense,
including reasonable attorney's fees and court costs, which
results from negligent, dishonest, malicious, fraudulent or
criminal acts, by Assuming Insurer, its employees or agents.
5.9 NOLHGA. No liability in damages, or for indemnity or
contribution to any party to this Liquidation Plan shall arise
under this Liquidation Plan against NOLHGA for its negligent
acts. Each Participating Guaranty Association, on a pro rata
basis allocated based on its share of Covered Obligations, agrees
to indemnify and hold NOLHGA harmless against any and all loss,
liability and expense, including attorney's fees, which arise in
connection with its Covered Obligations for any negligent acts of
NOLHGA.
5.10 Claims Preserved. Consistent with this Liquidation
Plan, the Commissioner, the Receiver, NOLHGA, the Participating
Guaranty Associations, American Capitol and Texas Imperial
preserve any and all claims against Statesman and the Statesman
Estate, including claims as creditors in the Receivership
Proceedings. With respect to the statements of Texas Imperial
and American Capitol personnel as addressed in Section 1.5 of the
Liquidation Plan, NOLHGA and the Participating Guaranty
Associations have made no investigation or due diligence review
of this matter or the accuracy of the statements by
representatives of Texas Imperial and American Capitol to the
TDI, and NOLHGA and the Participating Guaranty Associations make
no representation or acknowledgment related thereto. Section 1.5
of this Liquidation Plan shall not operate as a waiver or
limitation of any rights or claims with respect to NOLHGA, the
Participating Guaranty Associations and the TDI.
6 REPRESENTATIONS
In addition to the representations and warranties
elsewhere in this Agreement, the Parties make the
following representations and warranties:
6.1 Participating Guaranty Association Representations. Each
Participating Guaranty Association represents as follows:
6.1.1 That it has the statutory authority to participate in
this Liquidation Plan and has taken all actions necessary under
its governing law to do so.
6.1.2 Each Participating Guaranty Association
acknowledges and affirms: (1) that it is obligated, pursuant to
TEX. INS. CODE ▇▇▇. Art. 21.28 Sec. 7A(a) and its agreements with
the Receiver pursuant hereto to return to the Statesman Estate,
upon request and approval by the Court, such Early Access
Distributions, together with income on assets previously
disbursed, as may be required to pay Class 1 claimants and any
federal claimants asserting priority claims under the Priority
Statute; and (2) that it is obligated to make a full report to
the Receiver, as requested by the Receiver, but no more
frequently than quarterly, accounting for the Early Access
Distributions, all disbursements made therefrom, any interest
earned by the Participating Guaranty Association on such Early
Access Distributions and any other matter as the Court may
direct.
6.2 NOLHGA's Representations. NOLHGA may not bind the Affected
Associations to the provisions of this Liquidation Plan and
executes this Liquidation Plan only in the capacity of
coordinating the joint efforts of the Affected Associations.
Before an Affected Association is bound by this Liquidation Plan,
NOLHGA's Members Participation Council must approve this
Liquidation Plan and each Affected Association must affirmatively
opt in to such Liquidation Plan or pursuant to rules established
in the NOLHGA governing documents, not opt out of this
Liquidation Plan after the passage of appropriate time periods
found within such governing documents. NOLHGA shall submit this
Liquidation Plan to its Members Participation Council for
approval, and assuming such approval, shall initiate the opt-in,
opt-out process for Affected Associations in accordance with its
governing documents.
6.3 Assuming Insurers' Representations. American Capitol and
Texas Imperial, as Assuming Insurers, each represents as follows:
6.3.1 Corporate Existence. Each Assuming Insurer represents
that it is a corporation duly organized as a stock life insurance
company, validly existing and in good standing under the laws of
the State of Texas, with power and authority to conduct the
business in which it is engaged, and has complete and
unrestricted power to enter into and consummate this Liquidation
Plan.
6.3.2 Authority. The signatory for each Assuming
Insurer below is authorized to execute this Liquidation Plan on
behalf of Assuming Insurer and bind Assuming Insurer to the terms
and conditions of this Liquidation Plan.
6.3.3 Solvency. Assuming Insurer represents it is a solvent
company not under any administrative or judicial supervision or
limitation on its operations by any court or insurance
supervisory official in any state. Assuming Insurer further
represents that no material adverse change in its financial
condition has occurred since its 1998 Annual Statement and
reasonably believes no material adverse change as aforesaid is
forthcoming, except to the extent caused by this Liquidation
Plan.
6.3.4 Fees. Assuming Insurer agrees that it has the sole
responsibility to pay any finder or other fees, due or claimed to
be due, to any party engaged by Assuming Insurer which provided
services for or assistance to Assuming Insurer as a part of the
assumption of the Assumed Policies. Assuming Insurer agrees to
hold harmless NOLHGA, the Receiver and any applicable
Participating Guaranty Association from the payment of any finder
or other fees, due or claimed to be due, to any party engaged by
Assuming Insurer because of Assuming Insurer's assumption of the
Assumed Policies.
6.4 Receiver's and Commissioner's Representations and
Duties. The Receiver and the Commissioner will cooperate with
Assuming Insurer and the Participating Guaranty Associations in
providing any ad hoc reporting and any other special reports
required to effectuate the terms of this Liquidation Plan.
Neither the Receiver nor the Commissioner has taken any action
that would impose on any other Party hereto liability for payment
of any broker, finder or similar fee in connection with the
origin, negotiation, execution or performance of this Liquidation
Plan.
7 RESERVES
7.1 American Capitol and Texas Imperial shall each maintain
minimum capital and surplus and unearned premium, health and
other reserves consistent with the laws of all jurisdictions
having regulatory authority over said companies with respect to
the Assumed Policies.
8 JURISDICTION AND ACCOUNTING PROCEDURE
8.1 This Liquidation Plan shall be governed and construed in
accordance with the laws of the State of Texas, without giving
effect to the principles of conflicts of law thereunder; except
that the Covered Obligations of each Participating Guaranty
Association shall be determined in accordance with the laws of
the state in which the Participating Guaranty Association was
created and, in particular, with regard to the enabling act
creating such Participating Guaranty Association and any such
issues shall be raised only in the state courts where such
Participating Guaranty Association is located. Each
Participating Guaranty Association reserves the right to
challenge the venue and forum of the Court to the extent that an
issue related to the interpretation of the Participating Guaranty
Association's enabling act is the subject of the proceeding.
8.2 Except for disputes addressed by the Accounting
Procedure set forth in Section 8.3 and to the extent otherwise
set forth in Section 8.1, the Parties hereby consent to the
exclusive jurisdiction of the Court to resolve any and all
disputes as amongst the parties which arise out of or relate,
directly or indirectly, to the Liquidation Plan, the Assumption
Agreements or the transactions contemplated hereby. The parties
further agree that service of process shall be effective if sent
by certified or registered mail, return receipt requested, to the
addresses as shown in Article 9 of this Liquidation Plan.
8.3 Any dispute between or among the Parties related to
calculations contemplated by this Liquidation Plan and any
related exhibits, including but not limited to the final
accounting and audits contemplated in Article VI of each
Assumption Agreement, shall be resolved by means of this
Accounting Procedure:
8.3.1 The Parties involved in the dispute shall each retain
one nationally recognized actuarial consulting firm or nationally
recognized independent certified public accounting firm, as
appropriate, which will perform the required calculations in the
manner required by the Liquidation Plan as expeditiously as
possible and issue their respective reports to the parties. If
the variation between the reports of the firms is less than five
percent (5%) of the smallest amount, the results of the
calculations shall be averaged, with the result deemed to be a
final and determinative calculation of the amount at issue. If
the reports differ by five percent (5%) or more of the smallest
amount, the firms shall choose another firm which shall perform
the calculations and issue a report to the parties. Thereafter,
the two (2) calculations that are the closest shall be averaged,
with the result deemed to be a final and determinative
calculation of the amount at issue. Each Party shall be
responsible for the payment of the fees and expenses of the
actuaries and accountants retained by them to conduct the
Accounting Procedure. The fees and expenses of the additional
firm, if any, shall be shared equally by the parties.
9 NOTICE
9.1 Any notice required or permitted to be given hereunder shall
be deemed to be given if delivered by hand or if mailed by first
class or certified mail, postage prepaid, or by postal or a
commercial express document delivery service which issues an
individual delivery receipt, to the following address:
9.1.1 If to American Capitol to:
President
American Capitol Insurance Company
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇.
Houston, Texas 77043
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
9.1.2 If to Texas Imperial to:
President
Texas Imperial Life Insurance Company
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇.
Houston, Texas 77043
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
9.1.3 If to Statesman to:
Receiver
c/o ▇▇▇▇▇ ▇▇▇▇▇▇▇
Mail Code 110-1A
Texas Department of Insurance
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇.▇. Box 149104
Austin, TX 78714-9101
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
9.1.4 If to the Commissioner, the Receiver and/or the TDI to:
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
Commissioner of Insurance
Texas Department of Insurance
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇.▇. Box 149104
Austin, TX 78714-9101
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
9.1.5 If to NOLHGA, to:
NOLHGA
Attention: President
▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇- ▇▇▇▇
FAX: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇▇ ▇. ▇'▇▇▇▇▇▇▇▇, Esq.
Rothgerber ▇▇▇▇▇▇▇ & ▇▇▇▇▇ LLP
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
FAX: (▇▇▇) ▇▇▇-▇▇▇▇
9.2 If to a Participating Guaranty Association, to the person
and address on Exhibit 3.4.
9.3 Each Party shall be responsible for notifying, in writing,
the others promptly of any change in addressee or address.
10 GENERAL PROVISIONS
10.1 Claims Operations. American Capitol and Texas Imperial
shall administer the Assumed Policies in accordance with
the performance measures as set forth in Exhibit 10.1.
The policy administration of American Capitol and Texas
Imperial are subject to financial penalties in the event
of non-compliance as set forth in Exhibit 10.1.
American Capitol and Texas Imperial agree to become
compliant with Texas law concerning claims processing
and payment with respect to the current backlog of
Statesman claims within one hundred twenty (120) days
after the Closing Date.
10.2 Assuming Insurer Shareholder Distributions. Until the Plan
Termination Date, American Capitol and Texas Imperial may not pay
shareholder dividends, may not make payments on surplus
debentures, and must not enter into management contracts, raise
salaries, bonuses or other compensation of directors, officers,
management and employees outside the ordinary course of business
with the exception of payments on American Capitol's surplus
debenture in the amount of $62,500 plus interest per quarter for
payment on the bank loan used to finance the purchase of the
American Capitol surplus debenture and dividends to fund
preferred stock dividends by Acap Corporation (the holding
company of American Capitol) based on historical payments of
approximately $50,000 per quarter and to fund Acap Corporation's
business expenses incurred in the ordinary course of business in
the amount of approximately $12,500 per quarter.
10.3 Software Transfer to American Capitol. The Parties agree to
and ratify the assignment and transfer of the LifePro licensure,
the Macola license, and the "COPS" claims system heretofore made
by Statesman to American Capitol, and acknowledge that such
transfer was made for valuable consideration, the same being an
integral part of the other transactions and agreements contained
herein. American Capitol agrees to provide free and unrestricted
access to and use of the above mentioned software systems to
NOLHGA, the Participating Guaranty Associations and the Receiver
and his appointed designees to the extent needed to carry out
their respective duties and obligations during the pendency of
the Receivership proceedings.
10.4 Use of Statesman Facilities Post-Closing. The Parties
acknowledge that American Capitol will need to take over
essentially all of the policy administration operations of
Statesman immediately following Closing, that American Capitol
will need approximately two months following Closing to prepare
to re-locate Statesman's employees and related policy
administration operations to American Capitol's offices, and
that, accordingly, American Capitol will be permitted to carry on
said operations at Statesman's offices during such time subject
to the terms of the Permanent Injunction. Statesman, American
Capitol, and the Receiver will cooperate during such transition
period, and American Capitol will pay its share of any direct
costs incurred as a result of having a continuing presence at
Statesman's offices.
10.5 Continuation Statesman Bank Accounts. The Parties agree
that to facilitate the implementation of this Liquidation Plan
and the American Capitol and Texas Imperial Assumption
Agreements, the Receiver shall designate certain Statesman bank
accounts to remain open from the date of the Permanent Injunction
until the Closing and funding pursuant to paragraph 4.2.2.1 of
this Liquidation Plan ("Interim Period"). Such designation shall
be for the purpose of allowing all outstanding Statesman checks
written from such designated accounts to clear and for the
payment of policyholder claims and operating and administrative
expenses of the Statesman Estate. During the Interim Period, and
at the discretion of the Receiver, the designated accounts may be
funded by Statesman monies and Statesman statutory deposits. Any
and all bank disbursements for the payment of policyholder claims
made during the interim period shall be considered an early
access distribution to the respective Participating Guaranty
Associations pursuant to TEX. INS. CODE ▇▇▇. art. 21.28 Sec.7A. At
the expiration of the Interim Period, the Receiver shall also
designate particular Statesman bank accounts to be transferred to
American Capitol and to Texas Imperial for the purpose of
continuing the processing of the business being assumed pursuant
to the American Capitol and Texas Imperial Assumption Agreements.
Upon such transfer, the Receiver shall withdraw all funds
belonging to the Statesman Estate and any statutory deposit funds
from the bank accounts to be transferred to American Capitol and
Texas Imperial. Thereafter pursuant to the terms of this
Liquidation Plan, American Capitol and Texas Imperial will be
solely responsible for the funding and processing of the business
assumed under their respective assumption agreements. After
Closing, American Capitol will reimburse the Receiver for all
claims paid in the Interim Period, subject to any accounting for
the premiums and costs associated with premiums after June 1,
1999.
10.6 Settlement of Intercompany Transactions. The Parties
acknowledge that all intercompany debts, obligations and other
transactions among American Capitol, Texas Imperial and Statesman
have been paid and fully settled as of the Permanent Injunction
and consent to such payment and settlement in the manner set
forth in Exhibit 10.6. The Parties further acknowledge that
Statesman shall pay American Capitol an amount equal to all
Statesman employee wages (including all related taxes, employee
insurance benefits, and 401K contributions, matching fees, and
salary deductions) that have accrued from June 1, 1999, to the
date of the Permanent Injunction. American Capitol hereby agrees
to pay such amount to the Statesman employees to satisfy and
discharge Statesman's obligations to its employees for the same.
10.7 No Third Party Beneficiaries. Nothing in this Liquidation
Plan is intended or shall be construed to give any person, other
than the Parties, any legal or equitable right, remedy or claim
under or in respect of this Liquidation Plan or any provision
contained herein.
10.8 Entire Agreement. This Liquidation Plan (including the
Assumption Agreements and all other exhibits) constitutes the
entire agreement and merges and supersedes all prior agreements,
term sheets, understandings, and negotiations, both written and
oral, among the Parties with respect to the subject matter of
this Liquidation Plan.
10.9 Amendment. This Liquidation Plan may be amended or modified
only by a writing executed by all the Parties in any way affected
by the amendment or modification, and to the extent required by
NOLHGA's Articles of Association and By-Laws, by the
Participating Guaranty Association(s). It is agreed that,
notwithstanding the submission of this Liquidation Plan for
approval by the Court, the Parties may, subject to mutual
agreement, amend this Liquidation Plan without further approval
by the Court if such amendments do not result in a material
adverse economic change to Statesman policyholders.
10.10 Counterparts. This Liquidation Plan may be executed in
separate counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same
instrument.
10.11 Exhibits. All exhibits are hereby incorporated by reference
into this Liquidation Plan as if they were set forth at length in
the text of this Liquidation Plan.
10.12 Recitals. The Recitals to this Liquidation Plan are hereby
incorporated by reference into this Liquidation Plan as if they
were set forth at length in the text of this Agreement.
10.13 Cooperation. The Parties agree that they will from
time to time, upon the request of any other Party and without
further consideration, execute, acknowledge, and deliver in
proper form any further instruments and take such other action as
another Party may reasonably require in order to carry out
effectively the purposes of this Liquidation Plan.
10.14 Statutory Obligations. Except as expressly stated herein,
nothing in this Liquidation Plan shall be deemed to limit,
expand, enlarge, or otherwise modify any Participating Guaranty
Association's statutory obligations, or to expand or enlarge any
person's interest in or to the assets of Statesman, or to waive
any defenses which any Participating Guaranty Association may now
or in the future have. Nothing in this Agreement shall be deemed
to limit, expand, enlarge or otherwise modify the Receiver's
statutory obligations pursuant to the Texas Insurance Code
Annotated or to waive any defenses which the Receiver or
Commissioner may have now or in the future.
10.15 Severability. If any term or provision of this Liquidation
Plan or the application thereof to any person or circumstance
shall, to any extent, be declared invalid or unenforceable by the
Court or other court of competent jurisdiction, the remainder of
this Agreement or the application of such terms or provisions to
persons or circumstances other than those as to which it is held
invalid or unenforceable, shall remain in full force and effect
to the extent that their continuance is practicable and
consistent with the original intent of the Parties.
10.16 Express Terms. This Liquidation Plan shall be construed in
accordance with its express and not its implied terms. Captions,
paragraph and section headings appearing in this Liquidation Plan
shall be used only for convenience in identifying the material
terms and provisions of the Liquidation Plan and shall not be
construed to express any other intent.
10.17 Continued Support. The Receiver shall assist the
Assuming Insurer in the orderly transfer of the business
associated with the Assumption Agreements until the Plan
Termination Date.
10.18 Confidentiality. All non-public books, records, data and
information (collectively, the "Non-Public Information")
furnished by one party to another in connection with the
transactions contemplated by this Liquidation Plan shall remain
and be deemed to be the exclusive property of the party
furnishing the Non-Public Information unless and until the
Closing occurs on the Closing Date and shall be held in the
strictest of confidence by the other Parties to the extent such
information is not publicly available (other than Non-Public
Information which has been published or made publicly available
by unauthorized disclosure of a party) and shall not be used by
such other Parties for any purpose other than consideration of
the transactions contemplated by this Liquidation Plan and for
obtaining governmental consents and approvals for such
transactions. In the event that the transactions contemplated by
this Liquidation Plan are not consummated, each party shall
return all Non-Public Information in its possession which is
deemed to be the exclusive property of any other party, together
with all copies thereof, and shall continue to hold such Non-
Public Information in strict confidence and not use such Non-
Public Information for any purpose whatsoever except as required
by law.
10.19 Assignability. No party to this Liquidation Plan may
assign, transfer, cede or convey in any manner any rights,
duties, liabilities or obligations related to this Agreement
without prior written approval of all other Parties to this
Liquidation Plan.
10.20 Compromise Agreement. This Liquidation Plan and all
negotiations, proceedings and statements made in connection with
the negotiations of this Liquidation Plan and/or in support of
its approval reflect a compromise of differing views on various
matters. It shall be without prejudice to any person or party
hereto, shall not be deemed as or construed to be an admission by
any party hereto of any act, matter, proposition or merit or lack
of merit or any claim or defense, shall not be offered in
evidence in any action or proceedings, except in connection with
the enforcement of this Liquidation Plan, and shall not
constitute a precedent for any purpose whatsoever or be any
precedential value as to any person or party hereto.
10.21 No Construction Against Any Party. This Liquidation Plan
has been structured, approved and jointly drafted by all of the
Parties hereto and, for purposes of interpreting its terms, shall
not be construed against any party as the principal draftsman
hereof.
IN WITNESS WHEREOF, this Liquidation Plan has been executed and
agreed to on the day and year subscribed.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, Commissioner of Insurance
Texas Department of Insurance in his capacity as
Commissioner and as Receiver of Statesman National
Life Insurance Company
By: \s\ ▇▇▇▇ ▇. ▇▇▇▇▇
-----------------------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇
Title:Temporary Acting Commissioner of Insurance for ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, Commissioner of Insurance, Commissioner's
Order No. 99-0812
AMERICAN CAPITOL INSURANCE COMPANY
By: \s\ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
------------------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title:Chairman
TEXAS IMPERIAL LIFE INSURANCE COMPANY
By: \s\ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
------------------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title:Chairman
STATESMAN NATIONAL LIFE INSURANCE COMPANY
By: \s\ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
------------------------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title:Chairman
NATIONAL ORGANIZATION OF LIFE AND HEALTH INSURANCE GUARANTY
ASSOCIATIONS
By: \s\ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
------------------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title:President