=================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
---------------
Date of Report (Date of earliest event reported):
December 31, 1998
KENTUCKY CENTRAL LIFE INSURANCE COMPANY
(Exact name of registrant as specified in its charter)
Kentucky 33-13142 61-0244930
(State or other 33-15521 (IRS Employer
jurisdiction of (Commission File Number) Identification No.)
incorporation)
Kincaid Towers, Lexington, Kentucky 40507
(Address of principal executive offices) (Zip Code)
(853) 253-5351
(Registrant's telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report)
================================================================
<PAGE>
Item 7. Financial Statements, Pro Forma Financial Information
-----------------------------------------------------
and Exhibits.
------------
(a) Financial Statements.
--------------------
Filed with this report are the following documents of
Kentucky Central Life Insurance Company-In Liquidation:
(1) Financial statements as of December 31, 1999, September
30, 1999 and December 31, 1998 prepared on modified
liquidating basis (unaudited).
(2) Notes to financial statements which have been filed
with this Form 8-K.
2
<PAGE>
Signatures
----------
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned hereunto duly authorized.
Dated: June 23, 2000
KENTUCKY CENTRAL LIFE INSURANCE COMPANY
By: /s/ George Nichols III
------------------------------------
George Nichols III, Commissioner
of the Kentucky Department of
Insurance, as Liquidator of
Kentucky Central Life Insurance
Company
3
<PAGE>
KENTUCKY CENTRAL LIFE INSURANCE COMPANY
IN LIQUIDATION
BALANCE SHEET
AS OF DECEMBER 31, 1999
(UNAUDITED)
<TABLE>
ASSETS Notes
-----
<S> <C> <C> <C>
Cash: 5
Unrestricted $ 1,368,445
Restricted 31,228
------------
$ 1,399,673
Short-term investments: 6
Unrestricted 32,423,454
Restricted 16,864
------------
32,440,318
Bonds: 7
Unrestricted 37,160,770
37,160,770
Mortgage loans 9 4,949,460
Real estate 10 22,894,200
Investment in M-C Realty, Inc. 11 113,030
Federal income tax recoverable 12 0
Miscellaneous assets 13 2,000
Accrued investment income 506,228
------------
Total Assets $ 99,465,679
============
</TABLE>
The accompanying notes are an integral part of these financial
--------------------------------------------------------------
statements.
-----------
DISCLAIMER
----------
The information contained in these financial statements has been prepared
by the Liquidator from information available to or known by the Liquidator
as of the date of the financial statements; and is based upon records,
information or books available to the Liquidator. The completion and
timing of certain information is at the total discretion of the Liquidator.
The Liquidator makes no warranty as to the accuracy of the information or
of the opinions or evaluations contained in the financial statements and
expressly disclaims any liability arising from the statements of fact,
evaluation or opinion contained in the financial statements.
<PAGE>
KENTUCKY CENTRAL LIFE INSURANCE COMPANY
IN LIQUIDATION
BALANCE SHEET
AS OF DECEMBER 31, 1999
(UNAUDITED)
<TABLE>
LIABILITIES Notes
-----
<S> <C> <C> <C>
Class 1
Guaranty associations' reimbursable
costs under the Plan 1,14 $ 7,000,000
Accrued administrative expenses 3,626,183
------------
$ 10,626,183
Class 2
Policy benefits 1 2,055,178
Opt-in amounts 1,15 102,646,924
Guaranty associations'
post-closing costs 1,16 32,821,654
------------
137,523,756
Class 3
Claims of the federal government 22(a) 0
Class 4
Not evaluated
Class 5
General creditors 17 9,149,144
Escheat funds 488,118
Taxes payable 4,497,750
------------
14,135,012
Class 6 2,222
Class 7
Not evaluated
Class 8 4
Policyholder deductible 16,853,300
General creditor deductible 33,127
Escheat funds deductible 2,500
Taxes payable deductible 2,250
Class 6 deductible 50
------------
16,891,227
Class 9 0
Class 10 18
Shareholder outstanding dividends
and fractional shares 666,224
Common capital stock:
Voting - par value, $100 per sh. 100,000
Class A non-voting - par value,
$1 per sh. 13,314,830
Preferred dividends, Mid-Central 3 2,463,972
Preferred stock, Mid-Central 3 8,799,900
------------
25,344,926
Other Liabilities 22
Tenant security deposits 5 31,228
------------
31,228
------------
Total Liabilities $204,554,555
(Deficiency) of Assets Over Liabilities (105,088,876)
------------
Total Liabilities and (Deficiency) $ 99,465,679
============
</TABLE>
The accompanying notes are an integral part of these financial
--------------------------------------------------------------
statements.
-----------
DISCLAIMER
----------
The information contained in these financial statements has been prepared
by the Liquidator from information available to or known by the Liquidator
as of the date of the financial statements; and is based upon records,
information or books available to the Liquidator. The completion and
timing of certain information is at the total discretion of the Liquidator.
The Liquidator makes no warranty as to the accuracy of the information or
of the opinions or evaluations contained in the financial statements and
expressly disclaims any liability arising from the statements of fact,
evaluation or opinion contained in the financial statements.
<PAGE>
KENTUCKY CENTRAL LIFE INSURANCE COMPANY
IN LIQUIDATION
STATEMENT OF RECEIPTS AND DISBURSEMENTS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1999
(UNAUDITED)
<TABLE>
Notes
-----
RECEIPTS 2 10/1-12/31/99 1/1-12/31/99
-------- ------------- ------------
<S> <C> <C>
Rental receipts $ 1,021,471 2,442,011
Mortgage loans:
(a) Principal 0
(b) Interest 55,000 221,000
Proceeds from:
(a) Mortgage loans 0 970,000
(b) Real estate 0 12,454,603
(c) Other invested assets 7,000 14,845
(d) Sale of Kincaid Towers 0 17,792,168
(e) Notes Receivable 8 0 6,880,810
Agents' balances received 27,203 89,496
Proceeds from settlements 87,094 1,544,866
Refund from Cal. Guaranty Assoc. 233,738
Recovery of taxes previously paid 110,259
Other miscellaneous receipts and changes 20,059 209,877
------------ ------------
Receipts before Investment Activities 1,217,827 42,963,673
------------ ------------
Interest and dividend receipts 978,495 2,851,044
Interest on notes receivable 0 175,384
Proceeds from Sales:
(a) Short-term investments 18,943,873 163,969,324
(b) Bonds 5,634,441 43,818,452
(c) Stocks 0
------------ ------------
Receipts from Investment Activities 25,556,809 210,814,203
------------ ------------
Total Cash Receipts $ 26,774,636 253,777,876
============ ============
</TABLE>
The accompanying notes are an integral part of these financial
--------------------------------------------------------------
statements.
-----------
DISCLAIMER
----------
The information contained in these financial statements has been prepared
by the Liquidator from information available to or known by the Liquidator
as of the date of the financial statements; and is based upon records,
information or books available to the Liquidator. The completion and
timing of certain information is at the total discretion of the Liquidator.
The Liquidator makes no warranty as to the accuracy of the information or
of the opinions or evaluations contained in the financial statements and
expressly disclaims any liability arising from the statements of fact,
evaluation or opinion contained in the financial statements.
<PAGE>
KENTUCKY CENTRAL LIFE INSURANCE COMPANY
IN LIQUIDATION
STATEMENT OF RECEIPTS AND DISBURSEMENTS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1999
(UNAUDITED)
<TABLE>
Notes
-----
DISBURSEMENTS 2 10/1-12/31/99 1/1-12/31/99
------------- ------------- ------------
<S> <C> <C> <C>
Losses/benefit payments 20 $ 262,086 278,380
LAE payments 0 36,236
Legal fees 228,996 1,698,230
Accounting fees 12,844 124,440
Receivers fees 26,422 127,447
Consulting fees 99,887 1,496,000
Salaries 82,738 317,670
Employee benefits 27,826 738,595
KCL retirement liability 3,538,193 3,538,193
Real estate taxes and expenses 374,049 493,050
Payroll and other taxes 201,837 215,413
Rent and related expenses 47,710 177,056
Office expenses and miscellaneous 108,941 491,733
Disbursements related to sale of
Kincaid Towers 0 2,465,078
Interest expense 0 22,391
------------ ------------
Total Disbursements 5,011,529 12,219,912
------------ ------------
Distributions:
(a) Distributions of assets 1 0 57,184,519
(b) Early access distributions 0 0
------------ ------------
Distributions 0 57,184,519
------------ ------------
Disbursements & Distributions Before
Investment Activities 63,420,190
------------ ------------
Investment expenses 21 16,769
Purchase of:
(a) Short-term investments 11,938,664 92,898,187
(b) Bonds 9,989,844 91,757,030
(c) Stocks 0 0
(d) Mortgage loans 0 0
(e) Real estate 0 0
------------ ------------
Disbursements for Investment Activities 21,928,508 184,655,217
------------ ------------
Total Cash Disbursements 26,940,037 254,076,416
============ ============
Net Increase (Decrease) in Cash (165,401) (298,540)
Cash at September 30, 1999 and
December 31, 1998 1,565,074 1,698,213
------------ ------------
Cash at December 31, 1999 5 $ 1,399,673 1,399,673
============ ============
</TABLE>
The accompanying notes are an integral part of these financial
--------------------------------------------------------------
statements.
-----------
DISCLAIMER
----------
The information contained in these financial statements has been prepared
by the Liquidator from information available to or known by the Liquidator
as of the date of the financial statements; and is based upon records,
information or books available to the Liquidator. The completion and
timing of certain information is at the total discretion of the Liquidator.
The Liquidator makes no warranty as to the accuracy of the information or
of the opinions or evaluations contained in the financial statements and
expressly disclaims any liability arising from the statements of fact,
evaluation or opinion contained in the financial statements.
<PAGE>
KENTUCKY CENTRAL LIFE INSURANCE COMPANY
IN LIQUIDATION
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1999
(UNAUDITED)
1. REORGANIZATION AND REINSURANCE OF THE LIFE AND HEALTH
INSURANCE ASSETS OF KENTUCKY CENTRAL LIFE INSURANCE COMPANY AND
ORDER OF LIQUIDATION - On February 12, 1993, Kentucky Central
Life Insurance Company ("Kentucky Central" or the "Company") was
placed into rehabilitation by an order of the Franklin Circuit
Court ("Court") after a determination by the Commissioner of the
Kentucky Department of Insurance that such action was necessary
for the protection of the Company's policyholders. On February
9, 1994, after a thorough investigation regarding rehabilitating
versus liquidating the Company, the Commissioner, in his capacity
as Rehabilitator of Kentucky Central, filed a motion for
reorganization and reinsurance of the Company's life and health
assets and a petition of liquidation with the Court.
On August 18, 1994, the Court issued an order approving the
motion of the Rehabilitator for Reorganization and Reinsurance of
the Company's life and health assets with Jefferson-Pilot Life
Insurance Company ("JP Life"). (The Rehabilitator's Plan of
Reorganization and Reinsurance together with the Guaranty
Association Participation Agreement By and Among the National
Organization of Life and Health Insurance Guaranty Associations
and the Participating State Life and Health Insurance Guaranty
Associations and Kentucky Central Life Insurance Company Acting
By and Through Don W. Stephens, Insurance Commissioner of the
Commonwealth of Kentucky, As Rehabilitator and Liquidator of KCL
and Jefferson Pilot Life Insurance Company are hereinafter
collectively referred to as the "Plan.") In conjunction
therewith, the Court issued an order terminating the
rehabilitation and directing the liquidation of the Company (the
"Order"). The Company was ordered into liquidation following a
determination by the Court that the Company was insolvent and
that rehabilitation of the Company was not feasible. The Order
was affirmed by the Supreme Court of Kentucky on May 11, 1995.
The key element of the Rehabilitator's Plan of
Reorganization and Reinsurance, the transfer to JP Life of most
of the Company's assets in exchange for JP Life's agreement to
assume and "enhance" the life insurance policies and annuity
contracts previously issued by the Company, was closed on May 31,
1995. All policyholders of the Company were given the right, if
they chose to do so, to keep their life insurance and annuity
contracts, and immediately become policyholders of JP Life; such
policyholders are referred to herein as "Opt-ins." Those
policyholders who elected not to have their policies transferred
are referred to herein as "Opt-outs."
In consideration for JP Life's assumption of the liabilities
for Opt-ins, the Company transferred bonds, short-term
securities, cash, policy loans and certain miscellaneous assets
with a total estimated value of $762,862,093 to JP Life on the
date of closing. Policyholders representing approximately 95% of
the total policy values in force opted into the Plan and were
transferred to JP Life on the date of closing.
The life insurance guaranty associations of the states where
the Company was licensed to do business transferred assets
consisting of cash and notes with a total value of $109,986,918
to JP Life in connection with the closing. Such assets, along
with an enhancement added by JP Life, were used to restore the
policy values of Opt-ins whose policies were covered by one of
the guaranty association funds to their full amount as recorded
by the Company as of the closing date and for uncovered
policyholders restructured account values to the extent supported
by the assets. In return for this advancement of assets on
behalf of covered policyholders, the state guaranty associations
obtained what is now a class 2 priority claim against the
Company. The shortfall on uncovered policies was calculated at
closing to be $11,231,328.
1
<PAGE>
Under the Plan, the Company retains a liability to Opt-ins
over and above the amount of their full policy value as of the
closing date. The ultimate amount of this liability, referred to
as the Reimbursable Amount, depends on the interest rates from
February 12, 1993 until a date five years from closing (i.e., May
31, 2000), and on the persistency of Opt-in policies during the
five-year period after closing.
Policyholders representing approximately 5% of the total
policy values in force opted out of the Plan. The Company is
obligated to pay these policyholders their proportionate share of
the Company's assets up to the full amount of their statutory
reserve as of February 12, 1993, plus any additions to their
policy values from premiums paid and less any deductions to their
policy values subsequent to that date. The full amount of such
obligation to Opt-outs was approximately $57 million. The Plan
calls for the Company to pay these amounts in three installments.
The first installment, equivalent to 75% of the total opt-out
amount, was due, and paid, 120 days after closing. The second
installment was paid June 23, 1997 and the final installment was
paid in June 1999.
Assets not transferred to JP Life remained with the Company
and are being liquidated by the Commissioner of the Kentucky
Department of Insurance who has been designated as the Liquidator
of the Company. The Liquidator is vested by operation of law
with the title to all of the Company's property, contracts, and
rights of action, and may recover and reduce all such assets to
possession and liquidate them in accordance with the terms of the
Order and applicable law. The court has ordered the Liquidator
to liquidate the remaining assets of the estate as rapidly and
economically as he can. As these assets are liquidated, they
will be utilized to repay the guaranty associations and to make
policyholders whole. The remaining assets of the Company, if
any, will be distributed to other creditors and shareholders in
the priority established by statute.
Pursuant to the terms of the Plan, $50,000,000 from the
assets of Kentucky Central was disbursed on February 13, 1996.
Of this amount $41,039,878 reduced the liability to the Guaranty
Associations on the Guaranty Associations' advances, $3,557,738
was applied to reduce policy benefits due uncovered policies and
$2,291,194 was applied to the Opt-in Traditional liability. The
remaining $3,111,190 was later distributed to Opt-out
policyholders.
In a similar transaction, $40,000,000 was distributed from
the assets of the Company in May and June 1997. Of this amount,
$32,890,768 reduced the liability to the Guaranty Associations on
the Guaranty Associations' advances, $2,774,651 was applied to
reduce policy benefits due uncovered policies and $1,834,469 was
applied to the Opt-in Traditional liability. The remaining
$2,500,112 was distributed to Opt-out policyholders on June 23,
1997.
In May 1998, an additional $34,880,662 was distributed from
the assets of the Company. Of this amount, $31,647,582 reduced
the liability to the Guaranty Associations on the Guaranty
Associations' advances, $3,233,080 was applied to reduce policy
benefits due uncovered policies and Opt-in Traditional liability.
In June 1999, $57,184,519 was distributed from the assets of
the Company. Of this amount, $41,081,377 reduced the liability
to the Guaranty Associations, $22,817,731 on the Guaranty
Associations' advances and $18,263,646 on the Guaranty
Associations' post closing costs. Additionally, $6,775,707 was
applied to reduce policy benefits due uncovered policies and Opt-
in amounts. The remaining $9,327,434 was distributed as the
final installment to Opt-out policyholders.
2. BASIS OF PRESENTATION - The accompanying financial
statements of Kentucky Central Life Insurance Company (In
Liquidation) are unaudited. The balance sheet has been prepared
on a modified liquidating basis, that is, assets have been
reported at their estimated market value when known, otherwise,
they are reported on the basis more particularly described
herein. The financial statements are presented generally in a
format established by the National Association of Insurance
Commissioners ("NAIC") Report on Receiverships.
With regard to the liabilities, for the purposes of these
financial statements, the liabilities have been
2
<PAGE>
preliminarily classified in accordance with the statutory scheme
set forth in Chapter 304 of the Kentucky Revised Statutes,
Subtitle 33, Section 430. The classifications and amounts are
subject to further review and change, and the Liquidator is not
bound or prejudiced by the classification of the liabilities on
the financial statements as the process for reviewing the
liabilities and claims is ongoing. Claims filed in the amount of
$1,302,380,874 are not reflected on the financial statements.
See footnote number 23(b) for additional information regarding
these claims.
The Statement of Receipts and Disbursements is prepared on a
cash basis. Since the Company has been in both rehabilitation
and liquidation, the books and records were not organized in such
a manner to facilitate the accounting of receipts and
disbursements on a cash basis from the date of rehabilitation.
The information contained in these financial statements has
been prepared by the Liquidator from information available to or
known by the Liquidator as of the date of the financial
statements. The Liquidator makes no warranty as to the accuracy
of the information or of the opinions or evaluations contained in
the financial statements and expressly disclaims any liability
arising from the statements of fact, evaluation or opinion
contained in the financial statements.
3. OWNERSHIP AND AFFILIATED COMPANIES - The common stock of
Kentucky Central consists of two classes: Voting and Class A Non-
voting. The Class A Non-voting common stock is publicly held and
was traded on the NASDAQ stock market until removed from listing
in April 1993. Further, Kentucky Central owned 100% of the
common stock of Mid-Central Investment Co., Inc. ("Mid-Central").
The Company's investment in Mid-Central was previously reported
on the financial statements of Kentucky Central on an equity
basis. However, effective September 30, 1997, the assets and
liabilities of Mid-Central were combined with the assets and
liabilities of Kentucky Central consistent with the Liquidator's
position regarding the true nature of these assets and
liabilities under the Insurers Rehabilitation and Liquidation
Law, KRS 304.33-010 et seq. The preferred stock of Mid-Central
was not owned by Kentucky Central. The owners of said stock have
filed claims with the Liquidator. The Liquidator has classified
these claims, together with the related accrued dividends, as a
Class 10 liability.
4. ORDER OF DISTRIBUTION - The order of distribution from the
assets of the Company's estate is set forth at KRS 304.33-430. By
its express terms, the statute applies and governs the priority
of distribution of assets in any proceeding to liquidate an
insurer pending on the effective date of the statute.
Accordingly, the order of distribution of Kentucky Central's
assets is governed by the statute, as amended.
The statute provides as follows:
Section 1. The order of distribution of claims from
the insurer's estate shall be as stated in this
section. The first fifty dollars ($50) of the amount
allowed on each claim in the classes under subsections
(2) to (6), inclusive, of this section, shall be
deducted from the claim and included in the class under
subsection (8) of this section. Claims may not be
cumulated by assignment to avoid application of the
fifty dollars ($50) deductible provision. Subject to
the fifty dollars ($50) deductible provision, every
claim in each class shall be paid in full or adequate
funds retained for the payment before the members of
the next class receive any payment. No subclasses
shall be established within any class. No claim by a
shareholder, policyholder, or other creditor shall be
permitted to circumvent the priority classes through
the use of equitable remedies.
(1) Administration costs. The costs and expenses of
administration, including but not limited to the
following: the actual and necessary costs of
preserving or recovering the assets of the
insurer; compensation for all services rendered in
the liquidation; any necessary filing fees; the
fees and mileage payable to witnesses; and
reasonable attorneys' fees.
(2) Loss and unearned premium claims. Claims by
policyholders, beneficiaries, and insureds arising
3
<PAGE>
from and within the coverage of and not in excess of
the applicable limits of insurance policies and
insurance contracts issued by the company, and
liability claims against insureds which claims are
within the coverage of and not in excess of the
applicable limits of insurance policies and insurance
contracts issued by the company, and claims of guaranty
associations or foreign guaranty associations.
Notwithstanding the foregoing, the following claims
shall be excluded from Class 2 priority:
(a) Obligations of the insolvent insurer arising out
of reinsurance contracts;
(b) Obligations incurred after the expiration date of
the insurance policy or after the policy has been
replaced by the insured or canceled at the
insured's request or after the policy has been
canceled as provided in this chapter.
Notwithstanding this subsection, earned premium
claims on policies, other than reinsurance
agreements, shall not be excluded;
(c) Obligations to insurers, insurance pools, or
underwriting associations and their claims for
contribution, indemnity or subrogation, equitable
or otherwise;
(d) Any claim which is in excess of any applicable
limits provided in the insurance policy issued by
the insolvent insurer;
(e) Any amount accrued as punitive or exemplary
damages unless expressly covered under the terms
of the policy; and
(f) Tort claims of any kind against the insurer, and
claims against the insurer for bad faith or
wrongful settlement practices.
(3) Claims of the federal government other than those
claims included in Class 2.
(4) Wages.
(a) Debts due to employees for services performed, not
to exceed one thousand dollars ($1,000) to each
employee which have been earned within one (1)
year before the filing of the petition for
liquidation. Officers shall not be entitled to
the benefit of this priority.
(b) This priority shall be in lieu of any other
similar priority authorized by law as to wages or
compensation of employees.
(5) Residual classification. All other claims including
claims of the federal or any state or local government,
not falling within other classes under this section.
Claims, including those of any governmental body, for a
penalty or forfeiture, shall be allowed in this class
only to the extent of the pecuniary loss sustained from
the act, transaction or proceeding out of which the
penalty or forfeiture arose, with reasonable and actual
costs occasioned thereby. The remainder of such claims
shall be postponed to the class of claims under
subsection (8) of this section.
(6) Judgments. Claims based solely on judgments. If a
claimant files a claim and bases it both on the
judgment and on the underlying facts, the claim shall
be considered by the liquidator who shall give the
judgment such weight as he deems appropriate. The
claim as allowed shall receive the priority it would
receive in the absence of the judgment. If the
judgment is larger than the allowance on the underlying
claim, the remaining portion of the judgment shall be
treated as if it were a claim based solely on a
judgment.
4
<PAGE>
(7) Interest on claims already paid. Interest at the legal
rate compounded annually on all claims in the classes
under subsections (1) to (6) of this section,
inclusive, from the date of the petition for
liquidation or the date on which the claim becomes due,
whichever is later, until the date on which the
dividend is declared. The liquidator, with the
approval of the court may make reasonable
classifications of claims for purposes of computing
interest, may make approximate computations and may
ignore certain classifications and time periods as de
minimis.
(8) Miscellaneous subordinated claims. The remaining
claims or portions of claims not already paid, with
interest as in subsection (7) of this section:
(a) The first fifty dollars ($50) of each claim in the
classes under subsections (2) to (6), inclusive,
of this section, subordinated under this section;
(b) Claims under subsection (2) of KRS 304.33-380;
(c) Claims subordinated by KRS 304.33-600;
(d) Claims filed late;
(e) Portions of claims subordinated under subsection
(5) of this section; and
(f) Claims or portions of claims, payment of which is
provided by other benefits or advantages recovered
or recoverable by the claimant.
(9) Preferred ownership claims. Surplus or contribution
notes, or similar obligations, and premium refunds on
assessable policies. Interest at the legal rate shall
be added to each claim, as in subsections (7) and (8)
of this section.
(10) Proprietary claims. The claims of shareholders or
other owners.
Section 2. Section 1 of this Act shall apply to and govern
the priority of the distribution of assets in any proceeding
to liquidate an insurer pending on or commenced on or after
the effective date of the Act.
The liabilities on the accompanying balance sheet are presented
in accordance with the order of distribution set forth in the
amended statute.
5. CASH - As of December 31, 1999, Kentucky Central had cash on
deposit in banks of $ 1,399,673 of which $31,228 was restricted
as tenant security deposits on real estate owned by the Company.
6. SHORT-TERM INVESTMENTS - Short-term investments consisted of
the following: certificates of deposit in the amount of $854,716
money market account in the amount of $12,600,926, U.S. Treasury
bill and Federal National Mortgage Association Note equal to
$19,334,676. Certificates of deposit for $16,864 are held as
collateral to secure letters of credit which guarantee contract
performance on properties owned by the Company.
7. BONDS - Bonds in the amount of $37,160,770 are principally
stated at their market value as obtained from published
information concerning the market value of such bonds. The bond
values are NOT based upon valuations published by the NAIC
Committee on Valuation of Securities. The Kentucky Development
Finance Authority bonds with a par value of $4,800,000 are
included in the total at their book value of $4,800,000 as their
market value is not readily ascertainable.
8. NOTE RECEIVABLE - As part of the settlement of George
Nichols III v. Wallace and Martha Wilkinson,
5
<PAGE>
Franklin Circuit Court, Civil Action No. 93-CI-00196-AP-3, the
Liquidator obtained a note in the amount of $6,880,810. The note
bears interest at 5.5% per annum. As of December 31, 1999 this
note including interest has been paid in full.
9. MORTGAGE LOANS - Mortgage loans on real estate are NOT
stated at their market value as of December 31, 1999, but are
stated at the lower of their unpaid principal balance or at the
appraised value of the underlying collateral. The appraisals
being used were primarily obtained on varying dates in 1998 and
early 1999. Further, the mortgage loans are reported net of
$143,431, the estimated costs to dispose of the loans.
10. REAL ESTATE - Real estate is stated at its estimated market
value as of December 31, 1999, based on appraisals obtained
between 1997 and 1999. Additionally, the total of the real estate
is reported less estimated disposition costs of $1,990,800.
11. INVESTMENT IN M-C REALTY, INC. - At December 31, 1999, the
Company owned 100% of the common stock of M-C Realty, Inc.
("M-C"). M-C owns 100% of the common stock of Wilkinson Hotel
Enterprises, Inc. ("WHE"). WHE is a 1% general partner and M-C
is a 99% limited partner in Wilkinson Hotels, Ltd. Wilkinson
Hotels Ltd. is the owner and operator of the Capital Plaza Hotel
in Frankfort, Kentucky.
The Company's investment in M-C is reported on an equity
basis. The primary asset of M-C is the hotel and its furniture
and fixtures. As of December 31, 1999, the hotel and its
furniture and fixtures had an appraised value equal to
$8,000,000.
The primary liabilities of M-C include bonds which were
payable at December 15, 1997 in the amount of $4,800,000, a
second mortgage in the amount of $186,018 held by Kentucky
Economic Development Finance Authority and $461,734 due on a
Community Development Block Grant issued by the City of
Frankfort. The Company holds the bonds while Central Bank &
Trust Company is the Trustee. The Liquidator has entered into an
agreement with the Trustee of the bonds and the holder of the
second mortgage which permits Wilkinson Hotels, Ltd. to continue
to make interest and other payments on the bonds and the mortgage
through December 15, 1999.
In August 1996, M-C and certain current and former
affiliates of M-C filed refund claims for corporate taxes paid to
the Commonwealth of Kentucky for the 1991-94 tax years. The
total amount of refunds sought is $1,132,166. The probability of
collection of the refunds is unknown at this time. Accordingly,
the refund claims are not reflected on the balance sheet as of
this date.
12. FEDERAL INCOME TAX RECOVERABLE - The Company filed amended
federal income tax returns on September 13, 1996 for the 1989-91
tax years requesting refunds of $18,502,455 plus interest. The
amended returns were filed on the basis that certain Treasury
Regulations were invalid. The Treasury Regulations at issue
prevent the carryback of life subgroup losses to offset nonlife
subgroup income on a consolidated return. The Company filed suit
in the United States District Court for the Eastern District of
Kentucky on May 5, 1997 in order to collect the refund claims.
On July 17, 1998, the Court entered summary judgment in favor of
the United States. The Liquidator has appealed to the Sixth
Circuit Court of Appeals. The probability of collection of the
refund claims is unknown at this time. Accordingly, no amount is
shown for the refund claims on the balance sheet as of this date.
13. MISCELLANEOUS ASSETS - This amount consists of a utility
deposit of $2,000 for property owned by the Company in Frankfort,
Kentucky.
No value has been reflected on the balance sheet for Agents
Debit Balances, Furniture & Fixtures and Other Receivables and
Prepaid Expenses due to the fact that realization of the value of
the accounts is unlikely. However, collection activities
continue on all accounts due the Company and any unused fixed
assets will be
6
<PAGE>
disposed of at the appropriate time. The net book value of the
accounts as of December 31, 1999 was as follows: Agents Debit
Balances - $5,988,763 Furniture & Fixtures - $32,913 and Other
Receivables and Prepaid Expenses - $15,009,077.
The Company is also a 99% partner in two rental property
ventures styled Fred Burns Limited Partnerships I and II. The
value to the Company of these investments, if any, is dependent
upon the outcome of pending litigation. Due to the inherent
uncertainty involved with litigation, it was deemed inappropriate
to place any value upon these interests at this time.
14. GUARANTY ASSOCIATIONS' REIMBURSABLE COSTS UNDER THE PLAN -
This is an estimate by the guaranty associations of their
administrative costs under the Plan. This amount has not been
agreed to by the liquidator and is subject to change.
15. OPT-IN AMOUNTS - This liability is a combination of the
following: reimbursement for the reduced account values
resulting from the difference in the rate credited to
policyholders from February 12, 1993 to May 31, 1995 versus the
new money rate as described in the Plan, reimbursement for the
reduced account values resulting from non-contractual expenses
charged by JP Life during the moratorium period subsequent to the
closing as required by the Plan and reimbursement of reduced
account values resulting from lower than market credited interest
rates applied by JP Life during the moratorium period subsequent
to the closing as required under the Plan.
16. GUARANTY ASSOCIATIONS' POST-CLOSING COSTS - This is an
estimate of the guaranty associations continuing support costs
through the five-year Plan period, together with accrued interest
at the rate set forth in the plan.
17. GENERAL CREDITORS - This liability consists primarily of
amounts due to agents under a deferred compensation agreement
formerly maintained by the Company.
18. OTHER EQUITY CLAIMS - The amounts reflected as Class 10
claims include the book value of the shareholders' common stock
and additional paid-in-capital ($13,414,830), the outstanding
dividends and fractional shares related to the common stock
($666,224), the book value of the preferred stock of Mid-Central
($8,799,900) and the related accrued dividends ($2,463,972).
19. LOSSES/BENEFIT PAYMENTS - This amount includes payments made
to policyholders with claims occurring prior to May 31, 1995 and
continuing claims on credit insurance.
20. INVESTMENT EXPENSES - This expense is generally related to
the operation and maintenance of the Company's investments in
bonds and real estate.
21. LIABILITY TO OPT-IN POLICYHOLDERS - The Plan creates a
liability to policyholders for the difference between
policyholder account values as calculated before and after
restructuring. The liability to Opt-in policyholders was reduced
at closing by amounts paid to JP Life for the benefit of the
policyholders by the guaranty associations on behalf of Kentucky
Central (and such reduction is currently shown as a liability to
the guaranty associations). The Plan also calls for a discharge
of the liability to Opt-in policyholders upon an order by the
Court after several events have occurred. It is currently
anticipated that the entire amount of this liability
(approximately $249 million) will ultimately be discharged by the
Court. Therefore, no dollar amount is included in the financial
statement.
22. CONTINGENT LIABILITIES
(a) INCOME TAXES - The Company may have a tax liability for
Phase III taxable income. Phase III taxable income results from
certain reductions to the Company's "policyholders' surplus
account." The policyholders' surplus account is an untaxed
income account that was accumulated under prior tax law. It is
the
7
<PAGE>
Company's contention, supported by tax case law, that the Company
will not have any federal tax liability related to reductions in
this account. If a liability is found to exist, the tax is
estimated to be between $2.1 and $2.6 million. Additionally, any
such tax liability will increase the amount by which the
Company's liabilities exceed its assets.
(b) CLAIMS FILED - Claims in the amount of $1,302,380,874
have been filed against Kentucky Central pursuant to the claims
process required under KRS 304 Subtitle 33. The majority of
these claims are not reflected in the financial statements as
they are in the process of being reviewed. However, a few of the
known claims are reflected. While a number of the claims may be
rejected and disallowed, to the extent these claims are proven
valid, they will have the effect of increasing the amount by
which the Company's liabilities exceed its assets for the claims
which are not already recorded as liabilities. Additionally,
interest will accrue at the legal rate on those claims which are
proven valid; such interest is a class 7 liability.
The Liquidator cautions that under KRS 304.33-360(2),
certain claimants may assert valid claims after the expiration of
the claims bar date. Further, under KRS 304.33-360(1), certain
claims - specifically, preferred ownership and proprietary claims
under subsections (9) and (10) of KRS 304.33-430 and claims for
unearned premiums and cash surrender values or other investment
values in life insurance and annuities - are not required to be
filed. Thus, total claims asserted against the Liquidator may
actually be in excess of the amounts set forth above. The extent
of any such additional liability is uncertain at this time.
(c) PENDING LITIGATION - A summary of the litigation in
which the Company is a party is included in each Report to the
Court filed on a periodic basis in Franklin Circuit Court. The
claims of litigants against the Company have not been analyzed
for financial reporting purposes. Accordingly, no judgment has
been made as to whether the Company will have any liability to
the litigants or the amount, if any, of such liability.
8
<PAGE>
KENTUCKY CENTRAL LIFE INSURANCE COMPANY
(IN LIQUIDATION)
AS OF DECEMBER 31, 1999
(UNAUDITED)
<TABLE>
CASH
----
AMOUNT
------
<S> <C>
UNRESTRICTED:
REAL ESTATE PROPERTY MANAGER ACCOUNTS 115,347
OPERATING ACCOUNTS 1,253,098
----------
TOTAL $1,368,445
----------
RESTRICTED:
REAL ESTATE PROPERTY, TENANT SECURITY DEPOSIT $ 31,228
----------
$1,399,673
==========
</TABLE>
The accompanying notes are an integral part of these financial
--------------------------------------------------------------
statements.
----------
<PAGE>
KENTUCKY CENTRAL LIFE INSURANCE COMPANY
(IN LIQUIDATION)
DECEMBER 31, 1999
(UNAUDITED)
<TABLE>
SHORT-TERM INVESTMENTS
----------------------
AMOUNT
------
<S> <C>
UNRESTRICTED:
FIFTH THIRD BANK U.S. TREAS. OBLIGATION FUND D $12,600,926
U.S. TREASURY BILL-MATURES 04/27/00 9,852,860
FNMA-MATURES 12/01/00 9,481,816
CERTIFICATES OF DEPOSIT 350,000
CERTIFICATE OF DEPOSIT 137,852
-----------
TOTAL 32,423,454
-----------
RESTRICTED:
CERTIFICATE OF DEPOSIT - SECURING LETTER OF CREDIT$ 16,864
-----------
TOTAL $ 16,864
-----------
$32,440,318
===========
</TABLE>
The accompanying notes are an integral part of these financial
--------------------------------------------------------------
statements.
----------
<PAGE>
KENTUCKY CENTRAL LIFE INSURANCE COMPANY
(IN LIQUIDATION)
BONDS
AS OF DECEMBER 31, 1999
(UNAUDITED)
<TABLE>
UNRESTRICTED:
MATURITY PAR
ISSUER RATE DATE VALUE
<C> <S> <C> <C> <C>
49126NAC9 KENTUCKY DEV. FINANCE AUTH.B 4.875 12/15/97 $ 4,800,000
528908AM8 LEXINGTON-FAYETTE URBAN CO. 5.000 02/01/18 517,570
9128272l5 U.S. TREASURY NOTE 6.250 02/28/02 10,000,000
9128274E9 U.S. TREASURY NOTE 5.625 05/15/01 10,000,000
31331HZF7 FEDERAL FARM CREDIT 5.875 07/02/01 2,000,000
9128272C5 U.S. TREASURY NOTE 5.875 11/30/01 10,000,000
-----------
TOTAL 31,317,570
MARKET VALUE $37,160,770
</TABLE>
===========
The accompanying notes are an integral part of these financial statements.
--------------------------------------------------------------------------
<PAGE>
KENTUCKY CENTRAL LIFE INSURANCE COMPANY
IN LIQUIDATION
BALANCE SHEET
AS OF SEPTEMBER 30, 1999
(UNAUDITED)
<TABLE>
ASSETS Notes
-----
<S> <C> <C> <C>
Cash: 5
Unrestricted $ 1,530,890
Restricted 34,184
------------
$ 1,565,074
Short-term investments: 6
Unrestricted 39,438,875
Restricted 366,864
------------
39,805,739
Bonds: 7
Unrestricted 33,301,360
33,301,360
Mortgage loans 9 4,949,460
Real estate 10 22,894,200
Investment in M-C Realty, Inc. 11 (119,271)
Federal income tax recoverable 12 0
Miscellaneous assets 13 2,000
Accrued investment income 362,525
------------
Total Assets $102,761,087
============
</TABLE>
The accompanying notes are an integral part of these financial
--------------------------------------------------------------
statements.
-----------
DISCLAIMER
----------
The information contained in these financial statements has been prepared
by the Liquidator from information available to or known by the Liquidator
as of the date of the financial statements; and is based upon records,
information or books available to the Liquidator. The completion and
timing of certain information is at the total discretion of the Liquidator.
The Liquidator makes no warranty as to the accuracy of the information or
of the opinions or evaluations contained in the financial statements and
expressly disclaims any liability arising from the statements of fact,
evaluation or opinion contained in the financial statements.
<PAGE>
KENTUCKY CENTRAL LIFE INSURANCE COMPANY
IN LIQUIDATION
BALANCE SHEET
AS OF SEPTEMBER 30, 1999
(UNAUDITED)
<TABLE>
LIABILITIES Notes
-----
<S> <C> <C> <C>
Class 1
Reserve for Kentucky Central
Retirement Plan 14 7,000,000
Guaranty associations' reimbursable
costs under the Plan 1,15 $ 7,000,000
Accrued administrative expenses 3,557,965
------------
$ 17,557,965
Class 2
Policy benefits 1 2,081,542
Opt-in amounts 1,16 102,491,572
Guaranty associations' post-closing
costs 1,17 29,920,494
------------
134,493,608
Class 3
Claims of the federal government 23(a) 0
Class 4
Not evaluated
Class 5
General creditors 18 9,149,144
Escheat funds 488,118
Taxes payable 4,497,750
------------
14,135,012
Class 6 2,222
Class 7
Not evaluated
Class 8 4
Policyholder deductible 16,853,300
General creditor deductible 33,127
Escheat funds deductible 2,500
Taxes payable deductible 2,250
Class 6 deductible 50
------------
16,891,227
Class 9 0
Class 10 19
Shareholder outstanding dividends
and fractional shares 666,224
Common capital stock:
Voting - par value, $100 per sh. 100,000
Class A non-voting - par value,
$1 per sh. 13,314,830
Preferred dividends, Mid-Central 3 2,375,973
Preferred stock, Mid-Central 3 8,799,900
------------
25,256,927
Other Liabilities 23
Tenant security deposits 5 34,184
------------
34,184
------------
Total Liabilities $208,371,145
(Deficiency) of Assets Over Liabilities (105,610,058)
------------
Total Liabilities and (Deficiency) $102,761,087
============
</TABLE>
The accompanying notes are an integral part of these financial
--------------------------------------------------------------
statements.
-----------
DISCLAIMER
----------
The information contained in these financial statements has been prepared
by the Liquidator from information available to or known by the Liquidator
as of the date of the financial statements; and is based upon records,
information or books available to the Liquidator. The completion and
timing of certain information is at the total discretion of the Liquidator.
The Liquidator makes no warranty as to the accuracy of the information or
of the opinions or evaluations contained in the financial statements and
expressly disclaims any liability arising from the statements of fact,
evaluation or opinion contained in the financial statements.
<PAGE>
KENTUCKY CENTRAL LIFE INSURANCE COMPANY
IN LIQUIDATION
STATEMENT OF RECEIPTS AND DISBURSEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(UNAUDITED)
<TABLE>
Notes
-----
RECEIPTS 2 7/1-9/30/99 1/1-9/30/99
-------- ----------- -----------
<S> <C> <C>
Rental receipts 494,135 1,420,541
Mortgage loans:
(a) Principal 0 0
(b) Interest 55,000 166,000
Proceeds from:
(a) Mortgage loans 0 970,000
(b) Real estate 0 12,454,603
(c) Other invested assets (7,031) 7,845
(d) Sale of Kincaid Towers 0 17,792,168
(e) Notes Receivable 8 6,880,810 6,880,810
Agents' balances received 12,272 62,293
Proceeds from settlements 557,771 1,457,771
Refund from Cal. Guaranty Assoc. 233,738
Recovery of taxes previously paid 110,259
Other miscellaneous receipts and changes 15,140 189,817
------------ ------------
Receipts before Investment Activities 8,008,097 41,745,846
------------ ------------
Interest and dividend receipts 526,547 1,872,549
Interest on notes receivable 95,389 175,384
Proceeds from Sales:
(a) Short-term investments 6,490,127 145,025,451
(b) Bonds 319,876 38,184,010
(c) Stocks 0 0
------------ ------------
Receipts from Investment Activities 7,431,939 185,257,394
------------ ------------
Total Cash Receipts $ 15,440,036 227,003,240
============ ============
</TABLE>
The accompanying notes are an integral part of these financial
--------------------------------------------------------------
statements.
-----------
DISCLAIMER
----------
The information contained in these financial statements has been prepared
by the Liquidator from information available to or known by the Liquidator
as of the date of the financial statements; and is based upon records,
information or books available to the Liquidator. The completion and
timing of certain information is at the total discretion of the Liquidator.
The Liquidator makes no warranty as to the accuracy of the information or
of the opinions or evaluations contained in the financial statements and
expressly disclaims any liability arising from the statements of fact,
evaluation or opinion contained in the financial statements.
<PAGE>
KENTUCKY CENTRAL LIFE INSURANCE COMPANY
IN LIQUIDATION
STATEMENT OF RECEIPTS AND DISBURSEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(UNAUDITED)
<TABLE>
Notes
-----
DISBURSEMENTS 2 7/1-9/30/99 1/1-9/30/99
----------- -----------
<S> <C> <C> <C>
Losses/benefit payments 20 $ 3,147 16,293
LAE payments 36,236 36,236
Legal fees 308,775 1,469,234
Accounting fees 61,682 111,597
Receivers fees 35,469 101,025
Consulting fees 209,465 1,396,113
Salaries 54,029 234,932
Employee benefits 93,280 710,769
Real estate taxes 2,903 119,001
Payroll and other taxes 4,164 13,576
Rent and related expenses 31,350 129,346
Office expenses and miscellaneous 132,211 382,791
Disbursements related to sale of
Kincaid Towers 2,465,078
Interest expense 22,391
------------ ------------
Total Disbursements 972,710 7,208,382
------------ ------------
Distributions:
(a) Distributions of assets 1 0 57,184,519
(b) Early access distributions 0 0
------------ ------------
Distributions 0 57,184,519
------------ ------------
Disbursements & Distributions Before
Investment Activities 0 63,420,190
------------ ------------
Investment expenses 21 16,769
Purchase of:
(a) Short-term investments 12,329,790 80,959,523
(b) Bonds 2,311,221 81,767,187
(c) Stocks 0 0
(d) Mortgage loans 0 0
(e) Real estate 0 0
------------ ------------
Disbursements for Investment Activities 14,641,010 162,726,709
------------ ------------
Total Cash Disbursements 15,613,720 227,136,378
============ ============
Net Increase (Decrease) in Cash (173,684) (133,139)
Cash at June 30, 1999 and December 31,1998 1,738,758 1,698,213
------------ ------------
Cash at September 30, 1999 5 $ 1,565,074 1,565,074
============ ============
</TABLE>
The accompanying notes are an integral part of these financial
--------------------------------------------------------------
statements.
-----------
DISCLAIMER
----------
The information contained in these financial statements has been prepared
by the Liquidator from information available to or known by the Liquidator
as of the date of the financial statements; and is based upon records,
information or books available to the Liquidator. The completion and
timing of certain information is at the total discretion of the Liquidator.
The Liquidator makes no warranty as to the accuracy of the information or
of the opinions or evaluations contained in the financial statements and
expressly disclaims any liability arising from the statements of fact,
evaluation or opinion contained in the financial statements.
<PAGE>
KENTUCKY CENTRAL LIFE INSURANCE COMPANY
IN LIQUIDATION
NOTES TO THE FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)
1. REORGANIZATION AND REINSURANCE OF THE LIFE AND HEALTH
INSURANCE ASSETS OF KENTUCKY CENTRAL LIFE INSURANCE COMPANY AND
ORDER OF LIQUIDATION - On February 12, 1993, Kentucky Central
Life Insurance Company ("Kentucky Central" or the "Company") was
placed into rehabilitation by an order of the Franklin Circuit
Court ("Court") after a determination by the Commissioner of the
Kentucky Department of Insurance that such action was necessary
for the protection of the Company's policyholders. On February
9, 1994, after a thorough investigation regarding rehabilitating
versus liquidating the Company, the Commissioner, in his capacity
as Rehabilitator of Kentucky Central, filed a motion for
reorganization and reinsurance of the Company's life and health
assets and a petition of liquidation with the Court.
On August 18, 1994, the Court issued an order approving the
motion of the Rehabilitator for Reorganization and Reinsurance of
the Company's life and health assets with Jefferson-Pilot Life
Insurance Company ("JP Life"). (The Rehabilitator's Plan of
Reorganization and Reinsurance together with the Guaranty
Association Participation Agreement By and Among the National
Organization of Life and Health Insurance Guaranty Associations
and the Participating State Life and Health Insurance Guaranty
Associations and Kentucky Central Life Insurance Company Acting
By and Through Don W. Stephens, Insurance Commissioner of the
Commonwealth of Kentucky, As Rehabilitator and Liquidator of KCL
and Jefferson Pilot Life Insurance Company are hereinafter
collectively referred to as the "Plan.") In conjunction
therewith, the Court issued an order terminating the
rehabilitation and directing the liquidation of the Company (the
"Order"). The Company was ordered into liquidation following a
determination by the Court that the Company was insolvent and
that rehabilitation of the Company was not feasible. The Order
was affirmed by the Supreme Court of Kentucky on May 11, 1995.
The key element of the Rehabilitator's Plan of
Reorganization and Reinsurance, the transfer to JP Life of most
of the Company's assets in exchange for JP Life's agreement to
assume and "enhance" the life insurance policies and annuity
contracts previously issued by the Company, was closed on May 31,
1995. All policyholders of the Company were given the right, if
they chose to do so, to keep their life insurance and annuity
contracts, and immediately become policyholders of JP Life; such
policyholders are referred to herein as "Opt-ins." Those
policyholders who elected not to have their policies transferred
are referred to herein as "Opt-outs."
In consideration for JP Life's assumption of the liabilities
for Opt-ins, the Company transferred bonds, short-term
securities, cash, policy loans and certain miscellaneous assets
with a total estimated value of $762,862,093 to JP Life on the
date of closing. Policyholders representing approximately 95% of
the total policy values in force opted into the Plan and were
transferred to JP Life on the date of closing.
The life insurance guaranty associations of the states where
the Company was licensed to do business transferred assets
consisting of cash and notes with a total value of $109,986,918
to JP Life in connection with the closing. Such assets, along
with an enhancement added by JP Life, were used to restore the
policy values of Opt-ins whose policies were covered by one of
the guaranty association funds to their full amount as recorded
by the Company as of the closing date and for uncovered
policyholders restructured account values to the extent supported
by the assets. In return for this advancement of assets on
behalf of covered policyholders, the state guaranty associations
obtained what is now a class 2 priority claim against the
Company. The shortfall on uncovered policies was calculated at
closing to be $11,231,328.
1
<PAGE>
Under the Plan, the Company retains a liability to Opt-ins
over and above the amount of their full policy value as of the
closing date. The ultimate amount of this liability, referred to
as the Reimbursable Amount, depends on the interest rates from
February 12, 1993 until a date five years from closing (i.e., May
31, 2000), and on the persistency of Opt-in policies during the
five-year period after closing.
Policyholders representing approximately 5% of the total
policy values in force opted out of the Plan. The Company is
obligated to pay these policyholders their proportionate share of
the Company's assets up to the full amount of their statutory
reserve as of February 12, 1993, plus any additions to their
policy values from premiums paid and less any deductions to their
policy values subsequent to that date. The full amount of such
obligation to Opt-outs was approximately $57 million. The Plan
calls for the Company to pay these amounts in three installments.
The first installment, equivalent to 75% of the total opt-out
amount, was due, and paid, 120 days after closing. The second
installment was paid June 23, 1997 and the final installment was
paid in June 1999.
Assets not transferred to JP Life remained with the Company
and are being liquidated by the Commissioner of the Kentucky
Department of Insurance who has been designated as the Liquidator
of the Company. The Liquidator is vested by operation of law
with the title to all of the Company's property, contracts, and
rights of action, and may recover and reduce all such assets to
possession and liquidate them in accordance with the terms of the
Order and applicable law. The court has ordered the Liquidator
to liquidate the remaining assets of the estate as rapidly and
economically as he can. As these assets are liquidated, they
will be utilized to repay the guaranty associations and to make
policyholders whole. The remaining assets of the Company, if
any, will be distributed to other creditors and shareholders in
the priority established by statute.
Pursuant to the terms of the Plan, $50,000,000 from the
assets of Kentucky Central was disbursed on February 13, 1996.
Of this amount $41,039,878 reduced the liability to the Guaranty
Associations on the Guaranty Associations' advances, $3,557,738
was applied to reduce policy benefits due uncovered policies and
$2,291,194 was applied to the Opt-in Traditional liability. The
remaining $3,111,190 was later distributed to Opt-out
policyholders.
In a similar transaction, $40,000,000 was distributed from
the assets of the Company in May and June 1997. Of this amount,
$32,890,768 reduced the liability to the Guaranty Associations on
the Guaranty Associations' advances, $2,774,651 was applied to
reduce policy benefits due uncovered policies and $1,834,469 was
applied to the Opt-in Traditional liability. The remaining
$2,500,112 was distributed to Opt-out policyholders on June 23,
1997.
In May 1998, an additional $34,880,662 was distributed from
the assets of the Company. Of this amount, $31,647,582 reduced
the liability to the Guaranty Associations on the Guaranty
Associations' advances, $3,233,080 was applied to reduce policy
benefits due uncovered policies and Opt-in Traditional liability.
In June 1999, $57,184,519 was distributed from the assets of
the Company. Of this amount, $41,081,377 reduced the liability
to the Guaranty Associations, $22,817,731 on the Guaranty
Associations' advances and $18,263,646 on the Guaranty
Associations' post closing costs. Additionally, $6,775,707 was
applied to reduce policy benefits due uncovered policies and Opt-
in amounts. The remaining $9,327,434 was distributed as the
final installment to Opt-out policyholders.
2. BASIS OF PRESENTATION - The accompanying financial
statements of Kentucky Central Life Insurance Company (In
Liquidation) are unaudited. The balance sheet has been prepared
on a modified liquidating basis, that is, assets have been
reported at their estimated market value when known, otherwise,
they are reported on the basis more particularly described
herein. The financial statements are presented generally in a
format established by the National Association of Insurance
Commissioners ("NAIC") Report on Receiverships.
2
<PAGE>
With regard to the liabilities, for the purposes of these
financial statements, the liabilities have been preliminarily
classified in accordance with the statutory scheme set forth in
Chapter 304 of the Kentucky Revised Statutes, Subtitle 33,
Section 430. The classifications and amounts are subject to
further review and change, and the Liquidator is not bound or
prejudiced by the classification of the liabilities on the
financial statements as the process for reviewing the liabilities
and claims is ongoing. Claims filed in the amount of
$1,302,380,874 are not reflected on the financial statements.
See footnote number 23(b) for additional information regarding
these claims.
The Statement of Receipts and Disbursements is prepared on a
cash basis. Since the Company has been in both rehabilitation
and liquidation, the books and records were not organized in such
a manner to facilitate the accounting of receipts and
disbursements on a cash basis from the date of rehabilitation.
The information contained in these financial statements has
been prepared by the Liquidator from information available to or
known by the Liquidator as of the date of the financial
statements. The Liquidator makes no warranty as to the accuracy
of the information or of the opinions or evaluations contained in
the financial statements and expressly disclaims any liability
arising from the statements of fact, evaluation or opinion
contained in the financial statements.
3. OWNERSHIP AND AFFILIATED COMPANIES - The common stock of
Kentucky Central consists of two classes: Voting and Class A Non-
voting. The Class A Non-voting common stock is publicly held and
was traded on the NASDAQ stock market until removed from listing
in April 1993. Further, Kentucky Central owned 100% of the
common stock of Mid-Central Investment Co., Inc. ("Mid-Central").
The Company's investment in Mid-Central was previously reported
on the financial statements of Kentucky Central on an equity
basis. However, effective September 30, 1997, the assets and
liabilities of Mid-Central were combined with the assets and
liabilities of Kentucky Central consistent with the Liquidator's
position regarding the true nature of these assets and
liabilities under the Insurers Rehabilitation and Liquidation
Law, KRS 304.33-010 et seq. The preferred stock of Mid-Central
was not owned by Kentucky Central. The owners of said stock have
filed claims with the Liquidator. The Liquidator has classified
these claims, together with the related accrued dividends, as a
Class 10 liability.
4. ORDER OF DISTRIBUTION - The order of distribution from the
assets of the Company's estate is set forth at KRS 304.33-430. By
its express terms, the statute applies and governs the priority
of distribution of assets in any proceeding to liquidate an
insurer pending on the effective date of the statute.
Accordingly, the order of distribution of Kentucky Central's
assets is governed by the statute, as amended.
The statute provides as follows:
Section 1. The order of distribution of claims from
the insurer's estate shall be as stated in this
section. The first fifty dollars ($50) of the amount
allowed on each claim in the classes under subsections
(2) to (6), inclusive, of this section, shall be
deducted from the claim and included in the class under
subsection (8) of this section. Claims may not be
cumulated by assignment to avoid application of the
fifty dollars ($50) deductible provision. Subject to
the fifty dollars ($50) deductible provision, every
claim in each class shall be paid in full or adequate
funds retained for the payment before the members of
the next class receive any payment. No subclasses
shall be established within any class. No claim by a
shareholder, policyholder, or other creditor shall be
permitted to circumvent the priority classes through
the use of equitable remedies.
(1) Administration costs. The costs and expenses of
administration, including but not limited to the
following: the actual and necessary costs of
preserving or recovering the assets of the
insurer; compensation for all services rendered in
the liquidation; any necessary filing fees; the
fees and mileage payable to witnesses; and
reasonable attorneys' fees.
3
<PAGE>
(2) Loss and unearned premium claims. Claims by
policyholders, beneficiaries, and insureds arising from
and within the coverage of and not in excess of the
applicable limits of insurance policies and insurance
contracts issued by the company, and liability claims
against insureds which claims are within the coverage
of and not in excess of the applicable limits of
insurance policies and insurance contracts issued by
the company, and claims of guaranty associations or
foreign guaranty associations. Notwithstanding the
foregoing, the following claims shall be excluded from
Class 2 priority:
(a) Obligations of the insolvent insurer arising out
of reinsurance contracts;
(b) Obligations incurred after the expiration date of
the insurance policy or after the policy has been
replaced by the insured or canceled at the
insured's request or after the policy has been
canceled as provided in this chapter.
Notwithstanding this subsection, earned premium
claims on policies, other than reinsurance
agreements, shall not be excluded;
(c) Obligations to insurers, insurance pools, or
underwriting associations and their claims for
contribution, indemnity or subrogation, equitable
or otherwise;
(d) Any claim which is in excess of any applicable
limits provided in the insurance policy issued by
the insolvent insurer;
(e) Any amount accrued as punitive or exemplary
damages unless expressly covered under the terms
of the policy; and
(f) Tort claims of any kind against the insurer, and
claims against the insurer for bad faith or
wrongful settlement practices.
(3) Claims of the federal government other than those
claims included in Class 2.
(4) Wages.
(a) Debts due to employees for services performed, not
to exceed one thousand dollars ($1,000) to each
employee which have been earned within one (1)
year before the filing of the petition for
liquidation. Officers shall not be entitled to
the benefit of this priority.
(b) This priority shall be in lieu of any other
similar priority authorized by law as to wages or
compensation of employees.
(5) Residual classification. All other claims including
claims of the federal or any state or local government,
not falling within other classes under this section.
Claims, including those of any governmental body, for a
penalty or forfeiture, shall be allowed in this class
only to the extent of the pecuniary loss sustained from
the act, transaction or proceeding out of which the
penalty or forfeiture arose, with reasonable and actual
costs occasioned thereby. The remainder of such claims
shall be postponed to the class of claims under
subsection (8) of this section.
(6) Judgments. Claims based solely on judgments. If a
claimant files a claim and bases it both on the
judgment and on the underlying facts, the claim shall
be considered by the liquidator who shall give the
judgment such weight as he deems appropriate. The
claim as allowed shall receive the
4
<PAGE>
priority it would receive in the absence of the
judgment. If the judgment is larger than the allowance
on the underlying claim, the remaining portion of the
judgment shall be treated as if it were a claim based
solely on a judgment.
(7) Interest on claims already paid. Interest at the legal
rate compounded annually on all claims in the classes
under subsections (1) to (6) of this section,
inclusive, from the date of the petition for
liquidation or the date on which the claim becomes due,
whichever is later, until the date on which the
dividend is declared. The liquidator, with the
approval of the court may make reasonable
classifications of claims for purposes of computing
interest, may make approximate computations and may
ignore certain classifications and time periods as de
minimis.
(8) Miscellaneous subordinated claims. The remaining
claims or portions of claims not already paid, with
interest as in subsection (7) of this section:
(a) The first fifty dollars ($50) of each claim in the
classes under subsections (2) to (6), inclusive,
of this section, subordinated under this section;
(b) Claims under subsection (2) of KRS 304.33-380;
(c) Claims subordinated by KRS 304.33-600;
(d) Claims filed late;
(e) Portions of claims subordinated under subsection
(5) of this section; and
(f) Claims or portions of claims, payment of which is
provided by other benefits or advantages recovered
or recoverable by the claimant.
(9) Preferred ownership claims. Surplus or contribution
notes, or similar obligations, and premium refunds on
assessable policies. Interest at the legal rate shall
be added to each claim, as in subsections (7) and (8)
of this section.
(10) Proprietary claims. The claims of shareholders or
other owners.
Section 2. Section 1 of this Act shall apply to and govern
the priority of the distribution of assets in any proceeding
to liquidate an insurer pending on or commenced on or after
the effective date of the Act.
The liabilities on the accompanying balance sheet are presented
in accordance with the order of distribution set forth in the
amended statute.
5. CASH - As of September 30, 1999, Kentucky Central had cash
on deposit in banks of $ 1,565,074 of which $34,184 was
restricted as tenant security deposits on real estate owned by
the Company.
6. SHORT-TERM INVESTMENTS - Short-term investments consisted of
the following: certificates of deposit in the amount of $713,227,
money market accounts in the amount of $60,640, U.S. Treasury
bills and Treasury Obligations equal to $39,031,872. Certificates
of deposit for $366,864 are held as collateral to secure letters
of credit which guarantee contract performance on properties
owned by the Company.
7. BONDS - Bonds in the amount of $33,301,360 are principally
stated at their market value as obtained from published
information concerning the market value of such bonds. The bond
values are NOT based upon valuations
5
<PAGE>
published by the NAIC Committee on Valuation of Securities. The
Kentucky Development Finance Authority bonds with a par value of
$5,000,000 are included in the total at their book value of
$5,000,000 as their market value is not readily ascertainable.
8. NOTE RECEIVABLE - As part of the settlement of George
Nichols III v. Wallace and Martha Wilkinson, Franklin Circuit
Court, Civil Action No. 93-CI-00196-AP-3, the Liquidator obtained
a note in the amount of $6,880,810. The note bears interest at
5.5% per annum. As of September 30, 1999 this note including
interest has been paid in full.
9. MORTGAGE LOANS - Mortgage loans on real estate are NOT
stated at their market value as of September 30, 1999, but are
stated at the lower of their unpaid principal balance or at the
appraised value of the underlying collateral. The appraisals
being used were primarily obtained on varying dates in 1998 and
early 1999. Further, the mortgage loans are reported net of
$143,431, the estimated costs to dispose of the loans.
10. REAL ESTATE - Real estate is stated at its estimated market
value as of September 30, 1999, based on appraisals obtained
between 1997 and 1999. Additionally, the total of the real estate
is reported less estimated disposition costs of $1,990,800.
11. INVESTMENT IN M-C REALTY, INC. - At September 30, 1999, the
Company owned 100% of the common stock of M-C Realty, Inc.
("M-C"). M-C owns 100% of the common stock of Wilkinson Hotel
Enterprises, Inc. ("WHE"). WHE is a 1% general partner and M-C
is a 99% limited partner in Wilkinson Hotels, Ltd. Wilkinson
Hotels Ltd. is the owner and operator of the Capital Plaza Hotel
in Frankfort, Kentucky.
The Company's investment in M-C is reported on an equity
basis. The primary asset of M-C is the hotel and its furniture
and fixtures. As of May 3, 1999, the hotel and its furniture and
fixtures had an appraised value equal to $7,152,500.
The primary liabilities of M-C include bonds which were
payable at December 15, 1997 in the amount of $5,000,000, a
second mortgage in the amount of $244,041 held by Kentucky
Economic Development Finance Authority and $461,734 due on a
Community Development Block Grant issued by the City of
Frankfort. The Company holds the bonds while Central Bank &
Trust Company is the Trustee. The Liquidator has entered into an
agreement with the Trustee of the bonds and the holder of the
second mortgage which permits Wilkinson Hotels, Ltd. to continue
to make interest and other payments on the bonds and the mortgage
through December 15, 1999.
In August 1996, M-C and certain current and former
affiliates of M-C filed refund claims for corporate taxes paid to
the Commonwealth of Kentucky for the 1991-94 tax years. The
total amount of refunds sought is $1,132,166. The probability of
collection of the refunds is unknown at this time. Accordingly,
the refund claims are not reflected on the balance sheet as of
this date.
12. FEDERAL INCOME TAX RECOVERABLE - The Company filed amended
federal income tax returns on September 13, 1996 for the 1989-91
tax years requesting refunds of $18,502,455 plus interest. The
amended returns were filed on the basis that certain Treasury
Regulations were invalid. The Treasury Regulations at issue
prevent the carryback of life subgroup losses to offset nonlife
subgroup income on a consolidated return. The Company filed suit
in the United States District Court for the Eastern District of
Kentucky on May 5, 1997 in order to collect the refund claims.
On July 17, 1998, the Court entered summary judgment in favor of
the United States. The Liquidator has appealed to the Sixth
Circuit Court of Appeals. The probability of collection of the
refund claims is unknown at this time. Accordingly, no amount is
shown for the refund claims on the balance sheet as of this date.
6
<PAGE>
13. MISCELLANEOUS ASSETS - This amount consists of a utility
deposit of $2,000 for property owned by the Company in Frankfort,
Kentucky.
No value has been reflected on the balance sheet
for Agents Debit Balances, Furniture & Fixtures and Other
Receivables and Prepaid Expenses due to the fact that realization
of the value of the accounts is unlikely. However, collection
activities continue on all accounts due the Company and any
unused fixed assets will be disposed of at the appropriate time.
The net book value of the accounts as of September 30, 1999 was
as follows: Agents Debit Balances - $6,040,508 Furniture &
Fixtures - $49,175 and Other Receivables and Prepaid Expenses -
$15,290,860.
The Company is also a 99% partner in two rental property
ventures styled Fred Burns Limited Partnerships I and II. The
value to the Company of these investments, if any, is dependent
upon the outcome of pending litigation. Due to the inherent
uncertainty involved with litigation, it was deemed inappropriate
to place any value upon these interests at this time.
14. RESERVE FOR KENTUCKY CENTRAL RETIREMENT PLAN - This is an
estimate of the amount which may be necessary to accomplish a
standard termination of the Kentucky Central Retirement Plan. By
order date September 23, 1997, the Franklin Circuit Court
authorized the Liquidator to pay up to seven million dollars to
effectuate a standard termination of the Plan.
15. GUARANTY ASSOCIATIONS' REIMBURSABLE COSTS UNDER THE PLAN -
This is an estimate by the guaranty associations of their
administrative costs under the Plan. This amount has not been
agreed to by the Liquidator and is subject to change.
16. OPT-IN AMOUNTS - This liability is a combination of the
following: reimbursement for the reduced account values
resulting from the difference in the rate credited to
policyholders from February 12, 1993 to May 31, 1995 versus the
new money rate as described in the Plan, reimbursement for the
reduced account values resulting from non-contractual expenses
charged by JP Life during the moratorium period subsequent to the
closing as required by the Plan and reimbursement of reduced
account values resulting from lower than market credited interest
rates applied by JP Life during the moratorium period subsequent
to the closing as required under the Plan.
17. GUARANTY ASSOCIATIONS' POST-CLOSING COSTS - This is an
estimate of the guaranty associations continuing support costs
through the five-year Plan period, together with accrued interest
at the rate set forth in the plan.
18. GENERAL CREDITORS - This liability consists primarily of
amounts due to agents under a deferred compensation agreement
formerly maintained by the Company.
19. OTHER EQUITY CLAIMS - The amounts reflected as Class 10
claims include the book value of the shareholders' common stock
and additional paid-in-capital ($13,414,830), the outstanding
dividends and fractional shares related to the common stock
($666,224), the book value of the preferred stock of Mid-Central
($8,799,900) and the related accrued dividends ($2,375,973).
20. LOSSES/BENEFIT PAYMENTS - This amount includes payments made
to policyholders with claims occurring prior to May 31, 1995 and
continuing claims on credit insurance.
21. INVESTMENT EXPENSES - This expense is generally related to
the operation and maintenance of the Company's investments in
bonds and real estate.
22. LIABILITY TO OPT-IN POLICYHOLDERS - The Plan creates a
liability to policyholders for the difference between
7
<PAGE>
policyholder account values as calculated before and after
restructuring. The liability to Opt-in policyholders was reduced
at closing by amounts paid to JP Life for the benefit of the
policyholders by the guaranty associations on behalf of Kentucky
Central (and such reduction is currently shown as a liability to
the guaranty associations). The Plan also calls for a discharge
of the liability to Opt-in policyholders upon an order by the
Court after several events have occurred. It is currently
anticipated that the entire amount of this liability
(approximately $249 million) will ultimately be discharged by the
Court. Therefore, no dollar amount is included in the financial
statement.
23. CONTINGENT LIABILITIES
(a) INCOME TAXES - The Company may have a tax liability for
Phase III taxable income. Phase III taxable income results from
certain reductions to the Company's "policyholders' surplus
account." The policyholders' surplus account is an untaxed
income account that was accumulated under prior tax law. It is
the Company's contention, supported by tax case law, that the
Company will not have any federal tax liability related to
reductions in this account. If a liability is found to exist,
the tax is estimated to be between $2.1 and $2.6 million.
Additionally, any such tax liability will increase the amount by
which the Company's liabilities exceed its assets.
(b) CLAIMS FILED - Claims in the amount of $1,302,380,874
have been filed against Kentucky Central pursuant to the claims
process required under KRS 304 Subtitle 33. The majority of
these claims are not reflected in the financial statements as
they are in the process of being reviewed. However, a few of the
known claims are reflected. While a number of the claims may be
rejected and disallowed, to the extent these claims are proven
valid, they will have the effect of increasing the amount by
which the Company's liabilities exceed its assets for the claims
which are not already recorded as liabilities. Additionally,
interest will accrue at the legal rate on those claims which are
proven valid; such interest is a class 7 liability.
The Liquidator cautions that under KRS 304.33-360(2),
certain claimants may assert valid claims after the expiration of
the claims bar date. Further, under KRS 304.33-360(1), certain
claims - specifically, preferred ownership and proprietary claims
under subsections (9) and (10) of KRS 304.33-430 and claims for
unearned premiums and cash surrender values or other investment
values in life insurance and annuities - are not required to be
filed. Thus, total claims asserted against the Liquidator may
actually be in excess of the amounts set forth above. The extent
of any such additional liability is uncertain at this time.
(c) PENDING LITIGATION - A summary of the litigation in
which the Company is a party is included in each Report to the
Court filed on a periodic basis in Franklin Circuit Court. The
claims of litigants against the Company have not been analyzed
for financial reporting purposes. Accordingly, no judgment has
been made as to whether the Company will have any liability to
the litigants or the amount, if any, of such liability.
8
<PAGE>
KENTUCKY CENTRAL LIFE INSURANCE COMPANY
(IN LIQUIDATION)
AS OF SEPTEMBER 30, 1999
(UNAUDITED)
<TABLE>
CASH
----
AMOUNT
------
<S> <C>
UNRESTRICTED:
REAL ESTATE PROPERTY MANAGER ACCOUNTS 231,819
OPERATING ACCOUNTS 1,299,071
----------
TOTAL $1,530,890
----------
RESTRICTED:
FALCON CREST CONDOS, TENANT SECURITY DEPOSIT $ 15,000
BLUEBONNET VILLAS, TENANT SECURITY DEPOSIT 1,533
BLUEBONNET OFFICE BLDG, TENANT SECURITY DEPOSIT 2,365
BLUEBONNET FLEX BLDG, TENANT SECURITY DEPOSIT 15,285
----------
TOTAL $ 34,184
----------
$1,565,074
==========
</TABLE>
The accompanying notes are an integral part of these financial
--------------------------------------------------------------
statements.
-----------
<PAGE>
KENTUCKY CENTRAL LIFE INSURANCE COMPANY
(IN LIQUIDATION)
SEPTEMBER 30, 1999
(UNAUDITED)
<TABLE>
SHORT-TERM INVESTMENTS
----------------------
AMOUNT
------
<S> <C>
UNRESTRICTED:
GOLDMAN SACHS MONEY MARKET FUND, CENTRAL BANK 60,640
FIFTH THIRD BANK U.S.TREAS. OBLIGATION FUND D $19,455,417
U.S. TREASURY BILL-MATURES 04/27/00 9,737,160
U.S. TREASURY BILL-MATURES 2/03/00 9,839,295
CERTIFICATE OF DEPOSIT 346,363
-----------
TOTAL 39,438,875
===========
RESTRICTED:
CERTIFICATE OF DEPOSIT - SECURING LETTER OF CREDIT $ 16,864
CERTIFICATES OF DEPOSIT - AS PER FRANCHISE AGREEMENT 350,000
-----------
TOTAL $ 366,864
===========
$39,805,739
===========
</TABLE>
The accompanying notes are an integral part of these financial
--------------------------------------------------------------
statements.
-----------
<PAGE>
KENTUCKY CENTRAL LIFE INSURANCE COMPANY
(IN LIQUIDATON)
BONDS
AS OF SEPTEMBER 30, 1999
(UNAUDITED)
<TABLE>
UNRESTRICTED:
MATURITY PAR
CUSIP # ISSUER RATE DATE VALUE
<C> <S> <C> <C> <C>
49126NAC9 KENTUCKY DEV. FINANCE AUTH.B 5.340 12/15/97 5,000,000
528908AM8 LEXINGTON-FAYETTE URBAN CO 5.000 02/01/18 548,556
9128272L5 U.S. TREASURY NOTE 6.250 02/28/02 10,000,000
9128274E9 U.S. TREASURY NOTE 5.625 5/15/01 10,000,000
31331HZF7 FEDERAL FARM CREDIT 5.875 7/2/01 2,000,000
912833JX9 U.S. TREASURY STRIP 11/15/11 2,250,000
912833DD9 U.S. TREASURY STRIP 2/15/13 3,250,000
912833KF6 U.S. TREASURY STRIP 11/15/15 2,575,000
912833FY1 U.S. TREASURY STRIP 5/15/20 3,750,000
912803BH6 U.S. TREASURY STRIP 8/15/26 1,625,000
912803BM4 U.S. TREASURY STRIP 11/15/27 5,750,000
-----------
TOTAL 46,748,556
MARKET VALUE $33,301,360
===========
</TABLE>
The accompanying notes are an integral part of these financial
--------------------------------------------------------------
statements.
-----------
<PAGE>
KENTUCKY CENTRAL LIFE INSURANCE COMPANY
IN LIQUIDATION
AMENDED BALANCE SHEET
AS OF DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
ASSETS Notes
-----
<S> <C> <C> <C>
Cash: 5
Unrestricted $ 1,626,099
Restricted 72,114
------------
$ 1,698,213
Short-term investments: 6
Unrestricted 74,737,777
Restricted 3,641,078
------------
78,378,855
Bonds: 7
Unrestricted 24,082,222
Restricted 800,391
------------
24,882,613
Kincaid Tower Building 18,000,000
Mortgage loans 8 5,846,460
Real estate 9 33,373,000
Investment in M-C Realty, Inc. 10 (119,271)
Other invested assets 11 0
Federal income tax recoverable 12 0
Miscellaneous assets 13 2,000
Accrued investment income 245,165
------------
Total Assets $162,307,035
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
--------------------------------------------------------------------------
DISCLAIMER
----------
The information contained in these financial statements has been prepared
by the Liquidator from information available to or known by the Liquidator
as of the date of the financial statements; and is based upon records,
information or books available to the Liquidator. The completion and
timing of certain information is at the total discretion of the Liquidator.
The Liquidator makes no warranty as to the accuracy of the information or
of the opinions or evaluations contained in the financial statements and
expressly disclaims any liability arising from the statements of fact,
evaluation or opinion contained in the financial statements.
<PAGE>
KENTUCKY CENTRAL LIFE INSURANCE COMPANY
IN LIQUIDATION
BALANCE SHEET
AS OF DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
LIABILITIES Notes
-----
<S> <C> <C> <C>
Class 1
Reserve for Kentucky Central
Retirement Plan 14 7,000,000
Guaranty associations' reimbursable
costs under the Plan 1,15 $ 3,200,000
Accrued administrative expenses 4,413,733
------------
$ 14,613,733
Class 2
Policy benefits 1 3,910,174
Opt-in amounts 1,16 109,267,279
Guaranty associations' advances 1,17 20,044,720
Guaranty associations' post-closing
costs 1,18 48,184,140
Opt-out amounts 1,19 9,305,749
------------
190,712,062
Class 3
Claims of the federal government 26(a) 0
Class 4
Not evaluated
Class 5
General creditors 21 9,669,775
Escheat funds 488,118
Taxes payable 4,497,750
------------
14,655,643
Class 6
Not evaluated
Class 7
Not evaluated
Class 8 4
Policyholder deductible 17,206,052
General creditor deductible 33,127
Escheat funds deductible 2,500
Taxes payable deductible 2,250
------------
17,243,929
Class 9
Not evaluated
Class 10 22
Shareholder outstanding dividends
and fractional shares 666,224
Common capital stock:
Voting - par value, $100 per sh. 100,000
Class A non-voting - par value,
$1 per sh. 13,314,830
Preferred dividends, Mid-Central 3 2,111,976
Preferred stock, Mid-Central 3 8,799,900
------------
24,992,930
Other Liabilities 26
Tenant security deposits 5 72,114
------------
72,114
------------
Total Liabilities $262,290,411
(Deficiency) of Assets Over Liabilities (99,983,376)
------------
Total Liabilities and (Deficiency) $162,307,035
============
</TABLE>
The accompanying notes are an integral part of these financial statements.
--------------------------------------------------------------------------
DISCLAIMER
----------
The information contained in these financial statements has been prepared
by the Liquidator from information available to or known by the Liquidator
as of the date of the financial statements; and is based upon records,
information or books available to the Liquidator. The completion and
timing of certain information is at the total discretion of the Liquidator.
The Liquidator makes no warranty as to the accuracy of the information or
of the opinions or evaluations contained in the financial statements and
expressly disclaims any liability arising from the statements of fact,
evaluation or opinion contained in the financial statements.
<PAGE>
KENTUCKY CENTRAL LIFE INSURANCE COMPANY
IN LIQUIDATION
STATEMENT OF RECEIPTS AND DISBURSEMENTS
FOR THE THREE AND TWELVE MONTHS ENDED DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
Notes
-----
<S> <C> <C> <C>
RECEIPTS 2 10/1-12/31/98 YTD 12/31/98
-------- ------------- ------------
Premium receipts $ 134 (8,596)
Rental receipts 1,049,327 11,141,099
Mortgage loans:
(a) Principal 0 79,460
(b) Interest 55,500 515,837
Proceeds from:
(a) Mortgage loans 0 6,200,422
(b) Real estate 10,907,991 20,405,177
(c) Other invested assets 0 26,432
Agents' balances received 23,697 123,051
Collection of subsidiaries receivables 0
609,320
Recovery of taxes previously paid 0 16,054
Other miscellaneous receipts and changes 0 16,215
------------ ------------
Receipts before Investment Activities 12,036,649 39,124,471
------------ ------------
Interest and dividend receipts 5,057,295 9,553,493.00
Proceeds from Sales:
(a) Short-term investments 37,805,969 85,368,508
(b) Bonds 228,517,847 280,724,579
(c) Stocks 0 0
------------ ------------
Receipts from Investment Activities 271,381,111 375,646,580
------------ ------------
Tenant-In-Possession receipts 1,105,184 2,259,926
------------ ------------
Total Cash Receipts $284,522,944 417,030,977
============ ============
</TABLE>
The accompanying notes are an integral part of these financial
--------------------------------------------------------------
statements.
-----------
DISCLAIMER
----------
The information contained in these financial statements has been prepared
by the Liquidator from information available to or known by the Liquidator
as of the date of the financial statements; and is based upon records,
information or books available to the Liquidator. The completion and
timing of certain information is at the total discretion of the Liquidator.
The Liquidator makes no warranty as to the accuracy of the information or
of the opinions or evaluations contained in the financial statements and
expressly disclaims any liability arising from the statements of fact,
evaluation or opinion contained in the financial statements.
<PAGE>
KENTUCKY CENTRAL LIFE INSURANCE COMPANY
IN LIQUIDATION
STATEMENT OF RECEIPTS AND DISBURSEMENTS
FOR THE THREE AND TWELVE MONTHS ENDED DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
Notes
-----
<S> <C> <C> <C>
DISBURSEMENTS 2 10/1-12/31/98 YTD 12/31/98
------------- ------------- ------------
Losses/benefit payments 23 $ 0 105,148
LAE payments 33,334 267,570
Legal fees 1,416,678 5,788,025
Accounting fees 66,594 100,692
Receivers fees 33,030 143,147
Consulting fees 617,815 4,555,213
Commissions (157) (7,641)
Salaries 182,652 688,234
Employee benefits 7,218 230,407
Real estate taxes 505,114 1,002,346
Payroll and other taxes 56,669 92,005
Rent and related expenses 32,968 723,289
Office expenses and miscellaneous 67,133 466,187
ABN Amro Bank payment 20 62,903,463 62,903,463
Interest expense 0 0
------------ ------------
Total Disbursements 65,922,511 77,058,085
------------ ------------
Distributions:
(a) Distributions of assets 1 0 34,880,662
(b) Early access distributions 0 0
------------ ------------
Distributions 0 34,880,662
------------ ------------
Disbursements & Distributions
Before Investment Activities 65,922,511 111,938,747
------------ ------------
Investment expenses 24 0 514,119
Purchase of:
(a) Short-term investments 47,870,346 129,743,532
(b) Bonds 168,653,240 174,322,558
(c) Stocks 0 0
(d) Mortgage loans 0 0
(e) Real estate 0 47,688
------------ ------------
Disbursements for Investment Activities 216,523,586 304,113,778
------------ ------------
Tenant-In-Possession disbursements 1,663,820 2,375,926
------------ ------------
Total Cash Disbursements 284,109,917 418,942,570
============ ============
Net Increase (Decrease) in Cash 413,027 (1,911,593)
Cash at September 30 and January 1, 1998 1,285,186 3,609,806
------------ ------------
Cash at December 31, 1998 5 $ 1,698,213 1,698,213
============ ============
</TABLE>
The accompanying notes are an integral part of these financial
--------------------------------------------------------------
statements.
-----------
DISCLAIMER
----------
The information contained in these financial statements has been prepared
by the Liquidator from information available to or known by the Liquidator
as of the date of the financial statements; and is based upon records,
information or books available to the Liquidator. The completion and
timing of certain information is at the total discretion of the Liquidator.
The Liquidator makes no warranty as to the accuracy of the information or
of the opinions or evaluations contained in the financial statements and
expressly disclaims any liability arising from the statements of fact,
evaluation or opinion contained in the financial statements.
<PAGE>
KENTUCKY CENTRAL LIFE INSURANCE COMPANY
IN LIQUIDATION
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1998
(UNAUDITED)
1. REORGANIZATION AND REINSURANCE OF THE LIFE AND HEALTH
INSURANCE ASSETS OF KENTUCKY CENTRAL LIFE INSURANCE COMPANY AND
ORDER OF LIQUIDATION - On February 12, 1993, Kentucky Central
Life Insurance Company ("Kentucky Central" or the "Company") was
placed into rehabilitation by an order of the Franklin Circuit
Court ("Court") after a determination by the Commissioner of the
Kentucky Department of Insurance that such action was necessary
for the protection of the Company's policyholders. On February
9, 1994, after a thorough investigation regarding rehabilitating
versus liquidating the Company, the Commissioner, in his capacity
as Rehabilitator of Kentucky Central, filed a motion for
reorganization and reinsurance of the Company's life and health
assets and a petition of liquidation with the Court.
On August 18, 1994, the Court issued an order approving the
motion of the Rehabilitator for Reorganization and Reinsurance of
the Company's life and health assets with Jefferson-Pilot Life
Insurance Company ("JP Life"). (The Rehabilitator's Plan of
Reorganization and Reinsurance together with the Guaranty
Association Participation Agreement By and Among the National
Organization of Life and Health Insurance Guaranty Associations
and the Participating State Life and Health Insurance Guaranty
Associations and Kentucky Central Life Insurance Company Acting
By and Through Don W. Stephens, Insurance Commissioner of the
Commonwealth of Kentucky, As Rehabilitator and Liquidator of KCL
and Jefferson Pilot Life Insurance Company are hereinafter
collectively referred to as the "Plan.") In conjunction
therewith, the Court issued an order terminating the
rehabilitation and directing the liquidation of the Company (the
"Order"). The Company was ordered into liquidation following a
determination by the Court that the Company was insolvent and
that rehabilitation of the Company was not feasible. The Order
was affirmed by the Supreme Court of Kentucky on May 11, 1995.
The key element of the Rehabilitator's Plan of
Reorganization and Reinsurance, the transfer to JP Life of most
of the Company's assets in exchange for JP Life's agreement to
assume and "enhance" the life insurance policies and annuity
contracts previously issued by the Company, was closed on May 31,
1995. All policyholders of the Company were given the right, if
they chose to do so, to keep their life insurance and annuity
contracts, and immediately become policyholders of JP Life; such
policyholders are referred to herein as "Opt-ins." Those
policyholders who elected not to have their policies transferred
are referred to herein as "Opt-outs."
In consideration for JP Life's assumption of the liabilities
for Opt-ins, the Company transferred bonds, short-term
securities, cash, policy loans and certain miscellaneous assets
with a total estimated value of $762,862,093 to JP Life on the
date of closing. Policyholders representing approximately 95% of
the total policy values in force opted into the Plan and were
transferred to JP Life on the date of closing.
The life insurance guaranty associations of the states where
the Company was licensed to do business transferred assets
consisting of cash and notes with a total value of $109,986,918
to JP Life in connection with the closing. Such assets, along
with an enhancement added by JP Life, were used to restore the
policy values of Opt-ins whose policies were covered by one of
the guaranty association funds to their full amount as recorded
by the Company as of the closing date and for uncovered
policyholders restructured account values to the extent supported
by the assets. In return for this advancement of assets on
behalf of covered policyholders, the state guaranty associations
obtained what is now a class 2 priority claim against the
Company. The shortfall on uncovered policies was calculated at
closing to be $11,231,328.
1
<PAGE>
Under the Plan, the Company retains a liability to Opt-ins
over and above the amount of their full policy value as of the
closing date. The ultimate amount of this liability, referred to
as the Reimbursable Amount, depends on the interest rates from
February 12, 1993 until a date five years from closing (i.e., May
31, 2000), and on the persistency of Opt-in policies during the
five-year period after closing.
Policyholders representing approximately 5% of the total
policy values in force opted out of the Plan. The Company is
obligated to pay these policyholders their proportionate share of
the Company's assets up to the full amount of their statutory
reserve as of February 12, 1993, plus any additions to their
policy values from premiums paid and less any deductions to their
policy values subsequent to that date. The full amount of such
obligation to Opt-outs was approximately $57 million. The Plan
calls for the Company to pay these amounts in three installments.
The first installment, equivalent to 75% of the total opt-out
amount, was due, and paid, 120 days after closing. The second
installment was paid June 23, 1997.
Assets not transferred to JP Life remained with the Company
and are being liquidated by the Commissioner of the Kentucky
Department of Insurance who has been designated as the Liquidator
of the Company. The Liquidator is vested by operation of law
with the title to all of the Company's property, contracts, and
rights of action, and may recover and reduce all such assets to
possession and liquidate them in accordance with the terms of the
Order and applicable law. The court has ordered the Liquidator
to liquidate the remaining assets of the estate as rapidly and
economically as he can. As these assets are liquidated, they
will be utilized to repay the guaranty associations and to make
policyholders whole. The remaining assets of the Company, if
any, will be distributed to other creditors and shareholders in
the priority established by statute.
Pursuant to the terms of the Plan, $50,000,000 from the
assets of Kentucky Central was disbursed on February 13, 1996.
Of this amount $41,039,878 reduced the liability to the Guaranty
Associations on the Guaranty Associations' advances, $3,557,738
was applied to reduce policy benefits due uncovered policies and
$2,291,194 was applied to the Opt-in Traditional liability. The
remaining $3,111,190 was later distributed to Opt-out
policyholders.
In a similar transaction, $40,000,000 was distributed from
the assets of the Company in May and June 1997. Of this amount,
$32,890,768 reduced the liability to the Guaranty Associations on
the Guaranty Associations' advances, $2,774,651 was applied to
reduce policy benefits due uncovered policies and $1,834,469 was
applied to the Opt-in Traditional liability. The remaining
$2,500,112 was distributed to Opt-out policyholders on June 23,
1997.
In May 1998, an additional $34,880,662 was distributed from
the assets of the Company. Of this amount, $31,647,582 reduced
the liability to the Guaranty Associations on the Guaranty
Associations' advances, $3,233,080 was applied to reduce policy
benefits due uncovered policies and Opt-in Traditional liability.
2. BASIS OF PRESENTATION - The accompanying financial
statements of Kentucky Central Life Insurance Company (In
Liquidation) are unaudited. The balance sheet has been prepared
on a modified liquidating basis, that is, assets have been
reported at their estimated market value when known, otherwise,
they are reported on the basis more particularly described
herein. The financial statements are presented generally in a
format established by the National Association of Insurance
Commissioners ("NAIC") Report on Receiverships.
With regard to the liabilities, for the purposes of these
financial statements, the liabilities have been preliminarily
classified in accordance with the statutory scheme set forth in
Chapter 304 of the Kentucky Revised Statutes, Subtitle 33,
Section 430. The classifications and amounts are subject to
further review and change, and the Liquidator is not bound or
prejudiced by the classification of the liabilities on the
financial statements as the process for reviewing the liabilities
and claims is ongoing. Claims filed in the amount of
$1,422,112,785 are not reflected
2
<PAGE>
on the financial statements. See footnote number 29(b) for
additional information regarding these claims.
The Statement of Receipts and Disbursements is prepared on a
cash basis. Since the Company has been in both rehabilitation
and liquidation, the books and records were not organized in such
a manner to facilitate the accounting of receipts and
disbursements on a cash basis from the date of rehabilitation.
The information contained in these financial statements has
been prepared by the Liquidator from information available to or
known by the Liquidator as of the date of the financial
statements. The Liquidator makes no warranty as to the accuracy
of the information or of the opinions or evaluations contained in
the financial statements and expressly disclaims any liability
arising from the statements of fact, evaluation or opinion
contained in the financial statements.
3. OWNERSHIP AND AFFILIATED COMPANIES - The common stock of
Kentucky Central consists of two classes: Voting and Class A Non-
voting. The Class A Non-voting common stock is publicly held and
was traded on the NASDAQ stock market until removed from listing
in April 1993. Further, Kentucky Central owned 100% of the
common stock of Mid-Central Investment Co., Inc. ("Mid-Central").
The Company's investment in Mid-Central was previously reported
on the financial statements of Kentucky Central on an equity
basis. However, effective September 30, 1997, the assets and
liabilities of Mid-Central were combined with the assets and
liabilities of Kentucky Central consistent with the Liquidator's
position regarding the true nature of these assets and
liabilities under the Insurers Rehabilitation and Liquidation
Law, KRS 304.33-010 et seq. The preferred stock of Mid-Central
was not owned by Kentucky Central. The owners of said stock have
filed claims with the Liquidator. The Liquidator has classified
these claims, together with the related accrued dividends, as a
Class 10 liability.
4. ORDER OF DISTRIBUTION - The order of distribution from the
assets of the Company's estate is set forth at KRS 304.33-430. An
amendment of the statute went into effect July 15, 1996. By its
express terms, the statute applies and governs the priority of
distribution of assets in any proceeding to liquidate an insurer
pending on the effective date of the statute. Accordingly, the
order of distribution of Kentucky Central's assets is governed by
the statute, as amended.
The statute, as amended, provides as follows:
Section 1. The order of distribution of claims from
the insurer's estate shall be as stated in this
section. The first fifty dollars ($50) of the amount
allowed on each claim in the classes under subsections
(2) to (6), inclusive, of this section, shall be
deducted from the claim and included in the class under
subsection (8) of this section. Claims may not be
cumulated by assignment to avoid application of the
fifty dollars ($50) deductible provision. Subject to
the fifty dollars ($50) deductible provision, every
claim in each class shall be paid in full or adequate
funds retained for the payment before the members of
the next class receive any payment. No subclasses
shall be established within any class. No claim by a
shareholder, policyholder, or other creditor shall be
permitted to circumvent the priority classes through
the use of equitable remedies.
(1) Administration costs. The costs and expenses of
administration, including but not limited to the
following: the actual and necessary costs of
preserving or recovering the assets of the
insurer; compensation for all services rendered in
the liquidation; any necessary filing fees; the
fees and mileage payable to witnesses; and
reasonable attorneys' fees.
(2) Loss and unearned premium claims. Claims by
policyholders, beneficiaries, and insureds arising from
and within the coverage of and not in excess of the
applicable limits of insurance policies and insurance
contracts issued by the company, and liability claims
against insureds which claims
3
<PAGE>
are within the coverage of and not in excess of the
applicable limits of insurance policies and insurance
contracts issued by the company, and claims of guaranty
associations or foreign guaranty associations.
Notwithstanding the foregoing, the following claims
shall be excluded from Class 2 priority:
(a) Obligations of the insolvent insurer arising out
of reinsurance contracts;
(b) Obligations incurred after the expiration date of
the insurance policy or after the policy has been
replaced by the insured or canceled at the
insured's request or after the policy has been
canceled as provided in this chapter.
Notwithstanding this subsection, earned premium
claims on policies, other than reinsurance
agreements, shall not be excluded;
(c) Obligations to insurers, insurance pools, or
underwriting associations and their claims for
contribution, indemnity or subrogation, equitable
or otherwise;
(d) Any claim which is in excess of any applicable
limits provided in the insurance policy issued by
the insolvent insurer;
(e) Any amount accrued as punitive or exemplary
damages unless expressly covered under the terms
of the policy; and
(f) Tort claims of any kind against the insurer, and
claims against the insurer for bad faith or
wrongful settlement practices.
(3) Claims of the federal government other than those
claims included in Class 2.
(4) Wages.
(a) Debts due to employees for services performed, not
to exceed one thousand dollars ($1,000) to each
employee which have been earned within one (1)
year before the filing of the petition for
liquidation. Officers shall not be entitled to
the benefit of this priority.
(b) This priority shall be in lieu of any other
similar priority authorized by law as to wages or
compensation of employees.
(5) Residual classification. All other claims including
claims of the federal or any state or local government,
not falling within other classes under this section.
Claims, including those of any governmental body, for a
penalty or forfeiture, shall be allowed in this class
only to the extent of the pecuniary loss sustained from
the act, transaction or proceeding out of which the
penalty or forfeiture arose, with reasonable and actual
costs occasioned thereby. The remainder of such claims
shall be postponed to the class of claims under
subsection (8) of this section.
(6) Judgments. Claims based solely on judgments. If a
claimant files a claim and bases it both on the
judgment and on the underlying facts, the claim shall
be considered by the liquidator who shall give the
judgment such weight as he deems appropriate. The
claim as allowed shall receive the priority it would
receive in the absence of the judgment. If the
judgment is larger than the allowance on the underlying
claim, the remaining portion of the judgment shall be
treated as if it were a claim based solely on a
judgment.
(7) Interest on claims already paid. Interest at the legal
rate compounded annually on all claims in the
4
<PAGE>
classes under subsections (1) to (6) of this section,
inclusive, from the date of the petition for
liquidation or the date on which the claim becomes due,
whichever is later, until the date on which the
dividend is declared. The liquidator, with the
approval of the court may make reasonable
classifications of claims for purposes of computing
interest, may make approximate computations and may
ignore certain classifications and time periods as de
minimis.
(8) Miscellaneous subordinated claims. The remaining
claims or portions of claims not already paid, with
interest as in subsection (7) of this section:
(a) The first fifty dollars ($50) of each claim in the
classes under subsections (2) to (6), inclusive,
of this section, subordinated under this section;
(b) Claims under subsection (2) of KRS 304.33-380;
(c) Claims subordinated by KRS 304.33-600;
(d) Claims filed late;
(e) Portions of claims subordinated under subsection
(5) of this section; and
(f) Claims or portions of claims, payment of which is
provided by other benefits or advantages recovered
or recoverable by the claimant.
(9) Preferred ownership claims. Surplus or contribution
notes, or similar obligations, and premium refunds on
assessable policies. Interest at the legal rate shall
be added to each claim, as in subsections (7) and (8)
of this section.
(10) Proprietary claims. The claims of shareholders or
other owners.
Section 2. Section 1 of this Act shall apply to and govern
the priority of the distribution of assets in any proceeding
to liquidate an insurer pending on or commenced on or after
the effective date of the Act.
The liabilities on the accompanying balance sheet are presented
in accordance with the order of distribution set forth in the
amended statute.
5. CASH - As of December 31, 1998, Kentucky Central had cash on
deposit in banks of $ 1,698,213 of which $72,114 was restricted
as tenant security deposits on real estate owned by the Company.
6. SHORT-TERM INVESTMENTS - Short-term investments consisted of
the following: certificates of deposit in the amount of $366,864,
money market accounts in the amount of $451,694, U.S. Treasury
bills and Treasury Obligations equal to $77,560,297. Money market
accounts in the amount of $289,838 and $1,294,481 of the T-bills
are being held by or on behalf of various state departments of
insurance. Certificates of deposit for $366,864 are held as
collateral to secure letters of credit which guarantee contract
performance on properties owned by the Company.
7. BONDS - Bonds in the amount of $24,882,613 are principally
stated at their market value as obtained from published
information concerning the market value of such bonds. The bond
values are NOT based upon valuations published by the NAIC
Committee on Valuation of Securities. Certain Fayette County and
Kentucky Development Finance Authority bonds with a par value of
$16,400,000 are included in the total at their book value of
$16,400,000 as their market value is not readily ascertainable.
Additionally, bonds with a market value of $800,391
5
<PAGE>
are being held by the state department of insurance of South
Carolina.
8. MORTGAGE LOANS - Mortgage loans on real estate are NOT
stated at their market value as of December 31, 1998, but are
stated at the lower of their unpaid principal balance or at the
appraised value of the underlying collateral. The appraisals
being used were primarily obtained on varying dates in 1998.
Further, the mortgage loans are reported net of $221,431, the
estimated costs to dispose of the loans.
9. REAL ESTATE - Real estate is stated at its estimated market
value as of December 31, 1998, based on appraisals obtained
between 1993 and 1998. Additionally, the total of the real estate
is reported less estimated disposition costs of $2,902,000.
10. INVESTMENT IN M-C REALTY, INC. - At December 31, 1998, the
Company owned 100% of the common stock of M-C Realty, Inc. ("M-
C"). M-C owns 100% of the common stock of Wilkinson Hotel
Enterprises, Inc. ("WHE"). WHE is a 1% general partner and M-C
is a 95% limited partner in Wilkinson Hotels, Ltd. Wilkinson
Hotels Ltd. is the owner and operator of the Capital Plaza Hotel
in Frankfort, Kentucky.
The Company's investment in M-C is reported on an equity
basis. The primary asset of M-C is the hotel and its furniture
and fixtures. As of December 31, 1998, the hotel and its
furniture and fixtures had an appraised value equal to
$8,500,000.
The primary liabilities of M-C include bonds which were
payable at December 15, 1997 in the amount of $5,000,000, a
second mortgage in the amount of $244,041 held by Kentucky
Economic Development Finance Authority and $461,734 due on a
Community Development Block Grant issued by the City of
Frankfort. The Company holds the bonds while Central Bank &
Trust Company is the Trustee. The Liquidator has entered into an
agreement with the Trustee of the bonds and the holder of the
second mortgage which permits Wilkinson Hotels, Ltd. to continue
to make interest and other payments on the bonds and the mortgage
through December 15, 1999.
In August 1996, M-C and certain current and former
affiliates of M-C filed refund claims for corporate taxes paid to
the Commonwealth of Kentucky for the 1991-94 tax years. The
total amount of refunds sought is $1,132,166. The probability of
collection of the refunds is unknown at this time. Accordingly,
the refund claims are not reflected on the balance sheet as of
this date.
11. OTHER INVESTED ASSETS - The Company is also a 99% partner in
two rental property ventures styled Fred Burns Limited
Partnerships I and II. The value to the Company of these
investments, if any, is dependent upon the outcome of pending
litigation. Due to the inherent uncertainty involved with
litigation, it was deemed inappropriate to place any value upon
these interests at this time.
12. FEDERAL INCOME TAX RECOVERABLE - The Company filed amended
federal income tax returns on September 13, 1996 for the 1989-91
tax years requesting refunds of $18,502,455 plus interest. The
amended returns were filed on the basis that certain Treasury
Regulations were invalid. The Treasury Regulations at issue
prevent the carryback of life subgroup losses to offset nonlife
subgroup income on a consolidated return. The Company filed suit
in the United States District Court for the Eastern District of
Kentucky on May 5, 1997 in order to collect the refund claims.
On July 17, 1998, the Court entered summary judgment in favor of
the United States. The Liquidator has appealed to the Sixth
Circuit Court of Appeals. The probability of collection of the
refund claims is unknown at this time. Accordingly, no amount is
shown for the refund claims on the balance sheet as of this date.
13. MISCELLANEOUS ASSETS - This amount consists of a utility
deposit of $2,000 for property owned by the Company in Frankfort,
Kentucky.
No value has been reflected on the balance sheet for Agents Debit
Balances, Furniture & Fixtures and Other
6
<PAGE>
Receivables and Prepaid Expenses due to the fact that realization
of the value of the accounts is unlikely. However, collection
activities continue on all accounts due the Company and any
unused fixed assets will be disposed of at the appropriate time.
The net book value of the accounts as of December 31, 1998 was as
follows: Agents Debit Balances - $6,134,385 Furniture & Fixtures
- $49,175 and Other Receivables and Prepaid Expenses -
$15,290,860.
14. RESERVE FOR KENTUCKY CENTRAL RETIREMENT PLAN - This is an
estimate of the amount which may be necessary to accomplish a
standard termination of the Kentucky Central Retirement Plan. By
order date September 23, 1997, the Franklin Circuit Court
authorized the Liquidator to pay up to seven million dollars to
effectuate a standard termination of the Plan.
15. GUARANTY ASSOCIATIONS' REIMBURSABLE COSTS UNDER THE PLAN -
This is an estimate by the guaranty associations of their
administrative costs under the Plan. The Guaranty Associations
have incurred additional costs since submitting this estimate
which are also reimbursable under the Plan. The additional costs
are likely to be several million dollars and will be reflected in
the financial statements when the additional expenses have been
reviewed and agreed to by the Liquidator.
16. OPT-IN AMOUNTS - This liability is a combination of the
following: reimbursement for the reduced account values
resulting from the difference in the rate credited to
policyholders from February 12, 1993 to May 31, 1995 versus the
new money rate as described in the Plan, reimbursement for the
reduced account values resulting from non-contractual expenses
charged by JP Life during the moratorium period subsequent to the
closing as required by the Plan and reimbursement of reduced
account values resulting from lower than market credited interest
rates applied by JP Life during the moratorium period subsequent
to the closing as required under the Plan.
17. GUARANTY ASSOCIATIONS' ADVANCES - This amount, together with
accrued interest at the rate set forth in the Plan, is the amount
that the guaranty associations paid JP Life on behalf of Kentucky
Central to cover the short-fall in assets that were transferred
to JP Life at closing.
18. GUARANTY ASSOCIATIONS' POST-CLOSING COSTS - This is an
estimate of the guaranty associations continuing support costs
through the five-year Plan period, together with accrued interest
at the rate set forth in the plan.
19. OPT-OUT AMOUNTS - On May 31, 1995, policyholders which
elected to opt-out of the Plan surrendered their policies to
Kentucky Central. The calculation of policy account values for
opt-out liabilities was prepared pursuant to the Plan approved by
the Court. The first payment (75% of the opt-out payment) was
made within 120 days of Closing. The second payment (12.5% of
the opt-out payment) was made two years after closing. The
balance (12.5% of the opt-out payment) is to be disbursed with
interest four years after closing. Included in this liability is
the difference between the amounts scheduled to be paid to Opt-
out policyholders using the opt-out percentage as defined in the
Plan versus 100% of the statutory reserve as of February 12, 1993
adjusted for policy loans and interim period amounts.
20. ABN AMRO BANK - This amount represents the principal of
$50,323,634 and interest of $12,579,829 due ABN Amro Bank, N.V.,
("ABN") as a result of a sale lease back transaction, the subject
of which was Kentucky Central's home office building and related
properties.
21. GENERAL CREDITORS - This liability consists primarily of
amounts due to agents under a deferred compensation agreement
formerly maintained by the Company.
22. OTHER EQUITY CLAIMS - The amounts reflected as Class 10
claims include the book value of the shareholders'
7
<PAGE>
common stock and additional paid-in-capital ($13,414,830), the
outstanding dividends and fractional shares related to the common
stock ($666,224), the book value of the preferred stock of Mid-
Central ($8,799,900) and the related accrued dividends
($2,111,976).
23. LOSSES/BENEFIT PAYMENTS - This amount includes payments made
to policyholders with claims occurring prior to May 31, 1995 and
continuing claims on credit insurance.
24. INVESTMENT EXPENSES - This expense is generally related to
the operation and maintenance of the Company'
investments in bonds and real estate.
25. LIABILITY TO OPT-IN POLICYHOLDERS - The Plan creates a
liability to policyholders for the difference between
policyholder account values as calculated before and after
restructuring. The liability to Opt-in policyholders was reduced
at closing by amounts paid to JP Life for the benefit of the
policyholders by the guaranty associations on behalf of Kentucky
Central (and such reduction is currently shown as a liability to
the guaranty associations). The Plan also calls for a discharge
of the liability to Opt-in policyholders upon an order by the
Court after several events have occurred. It is currently
anticipated that the entire amount of this liability
(approximately $249 million) will ultimately be discharged by the
Court. Therefore, no dollar amount is included in the financial
statement.
26. CONTINGENT LIABILITIES
(a) INCOME TAXES - The Company may have a tax liability for
Phase III taxable income. Phase III taxable income results from
certain reductions to the Company's "policyholders' surplus
account." The policyholders' surplus account is an untaxed
income account that was accumulated under prior tax law. It is
the Company's contention, supported by tax case law, that the
Company will not have any federal tax liability related to
reductions in this account. If a liability is found to exist,
the tax is estimated to be between $2.1 and $2.6 million.
Additionally, any such tax liability will increase the amount by
which the Company's liabilities exceed its assets.
(b) CLAIMS FILED - Claims in the amount of $1,422,112,785
have been filed against Kentucky Central pursuant to the claims
process required under KRS 304 Subtitle 33. The majority of
these claims are not reflected in the financial statements as
they are in the process of being reviewed. However, a few of the
known claims are reflected. While a number of the claims may be
rejected and disallowed, to the extent these claims are proven
valid, they will have the effect of increasing the amount by
which the Company's liabilities exceed its assets for the claims
which are not already recorded as liabilities. Additionally,
interest will accrue at the legal rate on those claims which are
proven valid; such interest is a class 7 liability.
The Liquidator cautions that under KRS 304.33-360(2),
certain claimants may assert valid claims after the expiration of
the claims bar date. Further, under KRS 304.33-360(1), certain
claims - specifically, preferred ownership and proprietary claims
under subsections (9) and (10) of KRS 304.33-430 and claims for
unearned premiums and cash surrender values or other investment
values in life insurance and annuities - are not required to be
filed. Thus, total claims asserted against the Liquidator may
actually be in excess of the amounts set forth above. The extent
of any such additional liability is uncertain at this time.
(c) PENDING LITIGATION - A summary of the litigation in
which the Company is a party is included in each Report to the
Court filed on a periodic basis in Franklin Circuit Court. The
claims of litigants against the Company have not been analyzed
for financial reporting purposes. Accordingly, no judgment has
been made as to whether the Company will have any liability to
the litigants or the amount, if any, of such liability.
8
