Winn-Dixie Stores, Inc. and Subsidiaries - Page 9




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               either with the original carrier or with another                       
               carrier via a "1035" exchange, without incurring a tax                 
               liability, a negative effect on earnings, or a                         
               significant cash payment.                                              
               The memorandum outlined two proposed financial strategies              
          for structuring the purchase by petitioner of the pool of COLI              
          policies.  The first strategy was labeled "cash management".  The           
          second strategy was labeled the "zero-cash strategy" and was                
          described as follows:                                                       
               Under Strategy 2, Winn-Dixie would maximize its tax                    
               arbitrage by borrowing the first three premiums and                    
               would minimize its cash investment by withdrawing                      
               accumulated policy values to pay the next four                         
               premiums.  The policies used in this zero cash strategy                
               are specially designed to minimize cash outflows and to                
               maximize the rate of return on investment.  Thus, loads                
               are minimal, the interest rate is high, and the loan                   
               spread is limited to 40 basis points.  Because little                  
               cash is required, a higher premium can be used.  We                    
               have illustrated an average premium of $3,000 per                      
               employee.                                                              
          Petitioner elected strategy 2, the zero-cash strategy.                      
               On January 25 and 27, 1993, Mr. Buerger sent revised copies1           
          of the 1993 COLI proposal materials to Mr. McCook and Mr.                   
          Hlavacek.  The revised 1993 COLI proposals outlined two scenarios           
          for the amount of interest petitioner was to be charged for                 
          policy loans.  Both interest scenarios were based upon the zero-            




               1The above-quoted sections of the proposal remained                    
          substantially the same in each of the revised copies of the                 
          proposal.                                                                   





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