General Information and Documents for ABC Viaticals, Inc.

中文 - Chinese

July 8, 2008

1. Investors were told ABC set aside separate premium reserves to continue paying premiums on these policies. Can the Receiver just use those premium reserves to pay premiums instead of selling the policies?

Contrary to what it told investors, ABC did not keep separate premium reserves for each policy. Instead, it kept a single premium escrow account that only had $279,571.89 when the Receiver seized it.

Furthermore, ABC did not collect or set aside nearly enough reserves to cover its premium obligations for all policies. As time went on, the premium shortfall worsened and funds from new investors were used to pay premium obligations for earlier investors' policies. Meanwhile, ABC continued to pay its employees, its sales agents, its brokers, and the companies from which it purchased non-existent bonds. These circumstances created a severe shortfall and, by the time the Receiver was appointed, ABC only had $4 million in cash while its premium obligations amounted to $9.6 million a year and increasing every year after that.

2. The policies should have accumulated cash values. Can those be used to pay premiums until they mature?

The Receiver closely monitors the policies and gets updated calculations of their cash values every month. Even taking cash values into account, the premium amount for all policies still totals $9.6 million a year and will increase every year after that.

3. Can the Receiver just continue paying premiums until most or all of the policies mature? Death benefits from matured policies could be used to pay premiums on the other policies.

That is exactly the course of action that the Receiver pursued in this case. Unfortunately, no policies have matured since the Receiver was appointed. There simply is not enough money left to continue paying the premiums. Furthermore, every dollar we borrow to pay premiums reduces the amount available to distribute to investors in the event there are no maturities during this receivership. Selling all of the policies right now is the only guaranteed way to avoid a total loss.

4. Has the Receiver agreed to sell all of the policies for $27.1 million?

No. As of right now, no one has purchased the policies. The Receiver has only received a bid to purchase the policies for $27.1 million. Several more events must happen before the portfolio is actually sold, as explained more fully below.

5. What was the bidding process that resulted in a bid of $27.1 million to purchase all of the policies?

Within days of filing his Unopposed Motion to Solicit Bids for Purchase of Policies and to Set Sale Procedures, the Receiver translated and posted it on his website in both English and Chinese. The Court's order approving that motion was also translated and posted within days of being entered. Together, that motion and order set the bidding procedures in this case.

Bidding takes place in two rounds. The first allowed all interested parties to pay a fee, sign a confidentiality agreement, view the documents necessary to determine their offer, and submit bids without knowing the amount offered by any other parties. That round of bidding is completed and the highest amount offered for the policies was $27.1 million. The second round of bidding will occur before the Court and allow interested parties to make offers higher than that amount. Even after the bidding process is completed, the Court still has to rule that the final bid is a reasonable amount before the sale can take place.

6. When is the second round of bidding?

The second round of bidding has not yet been set. Once the Court sets a date for it, that information will be translated and posted on the Receiver's website in both English and Chinese.

7. Who can attend the second round of bidding?

The second round of bidding is open to any interested party. However, they must be prepared at the time of the second round of bidding to present evidence of their ability to immediately pay for the portfolio. If any investors know of someone who might offer more than $27.1 million for the policies, they should notify the Receiver so we can get in touch with that person.

8. Can you explain why the Receiver would consider an offer of $27.1 million to purchase policies with a combined death benefit of $250 million?

The Receiver has considered all offers to purchase these policies. Right now, $27.1 million is the highest offer. In part, the amount of these bids reflects the high cost of maintaining these policies with annual premium obligations of $9.6 million this year and increasing every year after that.

No buyer will pay anything close to the $250 million combined death benefit for these polices. The actual market value of these polices is the combined death benefit minus the following costs:

     ·  the cost of all premiums paid until all insureds die
     ·  the interest paid on loans to purchase the policies
     ·  the interest paid on loans to pay the premiums
     ·  the time value of money
     ·  the administrative expenses for evaluating, acquiring, and maintaining the policies

As you can see, the actual market value of the policies is much less than the combined death benefit value and can only be determined through a competitive bidding process among interested bidders. While the Receiver and Examiner are still seeking the highest possible bid, they can do nothing to change the actual market value or the amount a bidder is willing to pay.

9. In Taiwan the Court would have obtained an independent third-party evaluation report to set a minimum bid for the policies. Why was that not done in this case?

Third-party evaluation reports would cost money and have little value in this case. First, they only reflect one opinion about how much interested parties might pay for the policies. Courts in the United States believe that a competitive bidding process is the only way to determine the actual value and sales price for an asset. Second, the insureds' health information is not always current enough and reliable enough for a third-party to make an accurate evaluation. The Receiver allowed bidders to examine the available health information and make their own determination about how much they would offer in comparison to other bidders.

10. Who are the parties bidding on the policies? Taiwanese investors have heard rumors that an ABC investor made the current bid for $27.1 million.

All parties participating in the first round of bidding were institutional investment companies. The current offer of $27.1 million was not made by an ABC investor.

11. Were investors' concerns heard and their interests protected in this case?

The Receiver and Examiner have made great efforts to hear the investors' concerns and protect their interests. First, the Receiver asked that the Court appoint an Examiner to appear and present the investors' interests at every step in this process. Second, both have created Chinese-language websites to explain the process and describe all documents that are filed with the Court. Third, both have been open and responsive to investor inquiries and responded with honest answers. Unfortunately, decisions have to be made on the economic realities of this case and no other workable plan has been suggested by any of the interested parties.

12. Why are the Taiwanese investors asking more questions than the U.S. and Puerto Rican investors?

It is clear that the Taiwanese investors have taken more of an interest in the bidding procedures than investors in the U.S. or Puerto Rico. It may be that investors in the U.S. and Puerto Rico generally have more confidence in the Court to protect their interests and oversee fair procedures.