<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 25, 1997.
REGISTRATION NO. 333-18531
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------
NATIONWIDE FINANCIAL SERVICES, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 6719 31-1486870
(State or other jurisdiction of (Primary Standard (I.R.S. Employer
incorporation or organization) Industrial Classification Code Number) Identification Number)
</TABLE>
ONE NATIONWIDE PLAZA
COLUMBUS, OHIO 43215
(614) 249-7111
(Address, including zip code, and telephone number,
including area code, of Registrant's principal executive offices)
-----------
W. SIDNEY DRUEN
SENIOR VICE PRESIDENT AND GENERAL COUNSEL
NATIONWIDE FINANCIAL SERVICES, INC.
ONE NATIONWIDE PLAZA
COLUMBUS, OHIO 43215
(614) 249-7640
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
-----------
COPIES TO:
ALEXANDER M. DYE/MICHAEL GROLL JEFF LIEBMANN
LEBOEUF, LAMB, GREENE & MACRAE, L.L.P. JONATHAN FREEDMAN
125 WEST 55TH STREET DEWEY BALLANTINE
NEW YORK, NEW YORK 10019-5389 1301 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019-6092
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APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE OF THE SECURITIES TO
THE PUBLIC: As soon as practicable after this Registration Statement becomes
effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
-----------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED FEBRUARY 25, 1997
[LOGO OF NATIONWIDE $300,000,000
FINANCIAL SERVICES, NATIONWIDE FINANCIAL SERVICES, INC.
INC. APPEARS HERE] % Senior Notes Due 2027
Interest Payable and Due , 2027
--------
The % Senior Notes due 2027 (the "Notes") will be redeemable in whole or in
part, at the option of Nationwide Financial Services, Inc. (the "Company"), at
any time on or after , 2007 and before , 2008 at a redemption
price equal to % of the principal amount thereof plus any accrued and
unpaid interest, if any, to the redemption date, and thereafter at the
declining redemption prices set forth herein plus, in each case, accrued and
unpaid interest, if any, to the redemption date. The Notes will not be subject
to any sinking fund. The Notes will be general unsecured obligations of the
Company and will rank pari passu in right of payment with all other senior
indebtedness of the Company and senior in right of payment to all subordinated
indebtedness of the Company. However, because the Notes will be unsecured, they
will be effectively subordinated to any secured indebtedness of the Company.
The Indenture (as defined herein) pursuant to which the Notes will be issued
does not contain any provisions which will restrict the Company from incurring,
assuming or becoming liable with respect to any indebtedness or other
obligations, whether secured or unsecured, or from paying dividends or making
other distributions on its capital stock or purchasing or redeeming its capital
stock. Further, the Indenture does not preclude the Company's subsidiaries from
issuing secured or unsecured indebtedness. At December 31, 1996, the Company
and its subsidiaries had no outstanding indebtedness. Because the Company is a
holding company, the Notes will be effectively subordinated to all existing and
future liabilities and obligations, including obligations to policyholders, of
the Company's subsidiaries, which totalled approximately $45.6 billion at
December 31, 1996. See "Description of Notes."
The Notes will be represented by one or more Global Securities (as defined
herein) registered in the name of the nominee of The Depository Trust Company
("DTC"). Except as provided herein, Notes in definitive form will not be
issued. See "Description of Notes."
Prior to the public offering of the Notes (the "Note Offering"), the Company
expects to consummate the sale of shares of its Class A Common Stock, $0.01 par
value ("Class A Common Stock"), in concurrent underwritten initial public
offerings (the "Equity Offerings"). Concurrently with the Note Offering,
Nationwide Financial Services Capital Trust, an affiliate of the Company (the
"NFS Trust"), expects to consummate the public offering of Capital Securities
(the "Capital Securities") with an aggregate liquidation amount of $100 million
(the "Capital Securities Offering"). The Equity Offerings and the Capital
Securities Offering are being made pursuant to separate prospectuses. See "The
Equity Offerings, the Note Offering and the Capital Securities Offering."
The Notes have been approved for listing on the New York Stock Exchange (the
"NYSE"), subject to official notice of issuance.
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION
WITH AN INVESTMENT IN THE NOTES, SEE "RISK FACTORS" ON PAGE 11 HEREIN.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THESECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSIONPASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS.ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS COMPANY(1)(2)
-------- ------------- -------------
<S> <C> <C> <C>
Per Note................................... % % %
Total...................................... $ $ $
</TABLE>
(1) Plus accrued interest, if any, from , 1997.
(2) Before deduction of expenses payable by the Company estimated at $ .
The Notes are offered by the several Underwriters when, as and if issued by
the Company, delivered to and accepted by the Underwriters and subject to their
right to reject orders in whole or in part. It is expected that the Notes will
be ready for delivery in book-entry form only through the facilities of DTC on
or about , 1997, against payment in immediately available funds.
CREDIT SUISSE FIRST BOSTON MORGAN STANLEY & CO.
INCORPORATED
MERRILL LYNCH & CO.
Prospectus dated , 1997.
<PAGE>
IN CONNECTION WITH THE NOTE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NYSE OR OTHERWISE. SUCH STABILIZING, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
FOR NORTH CAROLINA INVESTORS: THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE COMMISSIONER OF INSURANCE FOR THE STATE OF NORTH CAROLINA,
NOR HAS THE COMMISSIONER OF INSURANCE RULED UPON THE ACCURACY OR ADEQUACY OF
THIS DOCUMENT.
----------------
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (together with all
amendments, exhibits, schedules and supplements thereto, the "Registration
Statement") pursuant to the provisions of the Securities Act of 1933, as
amended (the "Securities Act"), and the rules and regulations promulgated
thereunder, for the registration of the Notes offered hereby. This Prospectus,
which constitutes a part of the Registration Statement, does not contain all
the information set forth in the Registration Statement, certain portions of
which have been omitted as permitted by the rules and regulations of the
Commission. For further information with respect to the Company and the Notes
offered hereby, reference is made to the Registration Statement, including
exhibits thereto and financial statements and notes filed as a part thereof.
Statements made in this Prospectus concerning the contents of any contract or
other document are not necessarily complete. With respect to each such
contract or other document filed with the Commission as an exhibit to the
Registration Statement, reference is made to the exhibit for a more complete
description of the matter involved, and each such statement shall be deemed
qualified in its entirety by such reference. The Registration Statement and
the exhibits and schedules thereto filed by the Company with the Commission
may be inspected at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 and at
the regional offices of the Commission located at Seven World Trade Center,
New York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such materials may be obtained from
the Public Reference Section of the Commission at 450 Fifth Street, N.W., Room
1024, Washington, D.C. 20549, at prescribed rates. In addition, the Commission
maintains a Web site on the Internet at http://www.sec.gov that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission.
As a result of the Equity Offerings, the Company will be subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). So long as the Company is subject to the periodic
reporting requirements of the Exchange Act, it will continue to furnish the
reports and other information required thereby to the Commission. The Company
intends to furnish the holders of the Notes with annual reports containing,
among other information, audited consolidated financial statements reported
upon by an independent public accounting firm and quarterly reports for each
of the first three quarters of each fiscal year containing unaudited condensed
consolidated financial information. The Company also intends to furnish such
other reports as it may determine or as may be required by law.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by and should be read in
conjunction with the more detailed information and financial statements
appearing elsewhere in this Prospectus. The Company was formed in November 1996
as a holding company for Nationwide Life Insurance Company and the other
companies within the Nationwide Insurance Enterprise that offer or distribute
long-term savings and retirement products. The information contained in this
Prospectus gives effect to the contribution by Nationwide Corporation to the
Company of Nationwide Life and such other companies described under "Recent
History." Except as otherwise indicated, all financial data and ratios
presented herein have been prepared using generally accepted accounting
principles ("GAAP"). See "Glossary of Selected Insurance Terms" for the
definitions of certain insurance terms used herein.
As used in this Prospectus, the "Company" means Nationwide Financial
Services, Inc. and, unless the context otherwise requires, its subsidiaries;
"Nationwide Life" means Nationwide Life Insurance Company and, unless the
context otherwise requires, Nationwide Life and Annuity Insurance Company;
"Nationwide Corp." means Nationwide Corporation; "Nationwide Mutual" means
Nationwide Mutual Insurance Company; and "Nationwide Insurance Enterprise"
means Nationwide Mutual and its subsidiaries and affiliates. Nationwide(R) is a
registered service mark of Nationwide Mutual, and The Best of America(R) is a
registered service mark of Nationwide Life.
THE COMPANY
OVERVIEW
The Company is a leading provider of long-term savings and retirement
products to retail and institutional customers throughout the United States.
The Company offers variable annuities, fixed annuities and life insurance as
well as mutual funds and pension products and administrative services. By
developing and offering a wide variety of products, the Company believes that
it has positioned itself to compete effectively in various stock market and
interest rate environments. The Company markets its products through a broad
spectrum of wholesale and retail distribution channels, including financial
planners, pension plan administrators, securities firms, banks and Nationwide
Insurance Enterprise insurance agents.
The Company is one of the leaders in the development and sale of variable
annuities. For the year ended December 31, 1996, the Company was the fourth
largest U.S. writer of individual variable annuity contracts based on sales,
according to The Variable Annuity Research & Data Service ("VARDS"). Its
principal variable annuity series, The Best of America, allows the customer to
choose from 36 investment options, including mutual funds managed by such well-
known firms as American Century, Dreyfus, Fidelity, Janus, Neuberger & Berman,
Oppenheimer, T. Rowe Price, Templeton, Vanguard and Warburg Pincus, as well as
mutual funds managed by the Company.
The Company is a member of the Nationwide Insurance Enterprise, which is
known nationally as a writer of automobile and homeowners' insurance throughout
the United States. The property/casualty insurers within the Nationwide
Insurance Enterprise are the fifth largest property/casualty insurance group in
the United States based on 1995 net premiums written, according to A.M. Best
Company, Inc. ("A.M. Best").
In the mid-1970s, to capitalize on anticipated opportunities in the growing
market for long-term savings and retirement products, the Company embarked on a
specific strategy of broadening its distribution channels and product offerings
beyond selling traditional life insurance to the automobile and homeowner
customers of the Nationwide Insurance Enterprise. Over a 20-year period, the
Company added financial planners, pension plan administrators, securities firms
and banks as new distribution channels. Such distribution channels in the
aggregate accounted for approximately 93.8% of the Company's sales in 1996.
Currently, the Company
3
<PAGE>
administers approximately 15,000 pension plans and has distribution
arrangements with 125 banks and other financial institutions, over 1,000
broker/dealers and over 30,000 registered representatives. The Company has
payroll deduction variable annuity enrollee customers in approximately 6,000
state and local government entities and 1,800 school districts, which have been
obtained principally through sponsorship relationships with the National
Association of Counties and The United States Conference of Mayors and an
exclusive contractual arrangement with The National Education Association of
the United States.
The Company has grown substantially in recent years as a result of its long-
term investment in developing the distribution channels necessary to reach its
target customers and the products required to meet the demands of these
customers. The Company believes its growth has been further enhanced by
favorable demographic trends, the growing tendency of Americans to supplement
traditional sources of retirement income with self-directed investments, such
as products offered by the Company, and the performance of the financial
markets, particularly the U.S. stock markets, in recent years. From 1992 to
1996, the Company's assets grew from $20.8 billion to $47.8 billion, a compound
annual growth rate of 23.1%. Asset growth during this period resulted from
sales of the Company's products as well as market appreciation of assets in the
Company's separate accounts and in its general account investment portfolio.
During the same period, the Company's net operating income (i.e., net income
excluding realized gains and losses on investments (net of related federal
income tax), discontinued operations and cumulative effect of accounting
changes) grew from $97.0 million to $211.3 million, a compound annual growth
rate of 21.5%. The Company's sales of variable annuities grew from $1.56
billion in 1992 to $6.50 billion in 1996, a compound annual growth rate of
42.9%. The Company's separate account assets, which are generated by the sale
of variable annuities and variable universal life insurance, grew from 29.3% of
total assets at December 31, 1992 to 56.4% of total assets at December 31,
1996. During this period of substantial growth, the Company controlled its
operating expenses by taking advantage of economies of scale and by increasing
productivity through investments in technology. From 1992 to 1996, the
Company's total assets increased by 130.1% while operating expenses increased
by only 55.1%. As a result, its ratio of operating expenses to total assets
fell from 1.10% in 1992 to 0.74% in 1996.
The Company believes that demographic trends and shifts in attitudes toward
retirement savings will continue to support increased consumer demand for its
products. According to U.S. Census Bureau projections, the number of Americans
between the ages of 45 and 64 will grow from 55.7 million in 1996 to 71.1
million in 2005, making this "preretirement" age group the fastest growing
segment of the U.S. population. The Company believes that Americans
increasingly are supplementing traditional sources of retirement income, such
as employer-provided defined benefit plans and Social Security, with self-
directed investments. Reflecting this shift, industry sales of individual
variable annuity products grew from $28.5 billion in 1992 to $73.8 billion in
1996, a compound annual growth rate of 26.9%, according to VARDS. During the
same period, industry individual variable annuity assets grew from $212 billion
to $501 billion, a compound annual growth rate of 24.0%, according to VARDS.
The Company has three product segments: Variable Annuities, Fixed Annuities
and Life Insurance. The Variable Annuities segment, which accounted for $90.3
million (or 27.5%) of the Company's operating income before federal income tax
expense in 1996, consists of annuity contracts that provide the customer with
the opportunity to invest in mutual funds managed by independent investment
managers and the Company, with investment returns accumulating on a tax-
deferred basis. The Fixed Annuities segment, which accounted for $135.4 million
(or 41.2%) of the Company's operating income before federal income tax expense
in 1996, consists of annuity contracts that generate a return for the customer
at a specified interest rate, fixed for a prescribed period, with returns
accumulating on a tax-deferred basis. Such contracts consist of single premium
deferred annuities, flexible premium deferred annuities and single premium
immediate annuities. The Fixed Annuities segment also includes the fixed option
under the Company's variable annuity contracts, which accounted for 70.5% of
the Company's fixed annuity policy reserves as of December 31, 1996. For the
year ended December 31, 1996, the average crediting rate on contracts
(including the fixed option under the
4
<PAGE>
Company's variable annuity contracts) in the Fixed Annuities segment was 6.3%.
Substantially all of the Company's crediting rates on its fixed annuity
contracts are guaranteed for a period not exceeding 15 months. See "Business--
Product Segments--Fixed Annuities." The Life Insurance segment, which accounted
for $67.2 million (or 20.5%) of the Company's operating income before federal
income tax expense in 1996, consists of insurance products, including variable
life insurance, that provide a death benefit and may also allow the customer to
build cash value on a tax-deferred basis.
BUSINESS STRATEGIES
The Company's objective is to continue its record of profitable growth by
following the strategies set forth below:
Enhance the Company's Leading Position in the Market for Variable
Annuities. The Company believes that the variable annuity business is
attractive because it generates fee income and requires significantly less
capital support than fixed annuities and life insurance. The Company also
believes, based on the aging of the U.S. population and recent increases in
sales of retirement savings products, that variable annuities will continue to
experience high rates of industry sales growth and that the Company possesses
distinct competitive advantages that will allow it to continue to benefit from
this anticipated growth. Some of the Company's most important advantages
include its innovative product offerings and strong relationships with
independent, well-known fund managers. For example, the Company's The Best of
America IV and The Best of America--America's Vision individual variable
annuity contracts allow the customer to choose from 36 investment options,
including mutual funds managed by a variety of well-known fund managers and the
Company. In the aggregate, the Company's group variable annuity products offer
over 100 underlying investment options. The Company works closely with its
investment managers and product distributors to adapt the Company's products
and services to changes in the retail and institutional marketplace.
Capture a Growing Share of Sales in all Distribution Channels. The Company's
broad distribution system permits it to offer its products across a wide range
of markets and customers. The Company continually seeks to gain a larger share
of each of its distributor's sales by offering products that are attractive to
its distributors from both a financial perspective and in helping the
distributor build relationships with its customers. In addition to providing
new products to its distributors, the Company seeks to increase sales in each
of its existing distribution channels by cross-selling those products not
currently offered through such channel. The Company also seeks to add new
distributors to its existing channels and regularly evaluates possible new
distribution channels. While many of the Company's competitors employ a variety
of distribution channels, the Company believes that few of its competitors have
a developed distribution system that is as broad as the Company's and that this
distinguishing characteristic provides the Company with an important
competitive advantage.
Maintain a Diverse Product Portfolio. The Company offers a diverse mix of
variable annuity, fixed annuity, mutual fund and life insurance products. Based
on its experience, the Company believes that demand for, and financial results
of, certain of these products are sensitive to stock market and/or interest
rate environments, while some products are relatively insensitive to such
factors. The Company emphasizes the sale and development of variable annuities,
which tend to experience higher sales growth when interest rates are low, and
fixed annuities, which tend to experience higher sales growth when interest
rates are high. The Company also sells traditional life insurance products
which it believes provide it with a stable source of revenues throughout
changing market conditions. The Company's strategy is to rely on a variety of
products, each of which may perform differently in given stock market and
interest rate environments, so that the Company will be able to grow profitably
in a variety of such environments.
Emphasize Payroll Deduction and Tax-Qualified and Group Annuities. To further
enable it to grow profitably in a variety of stock market and interest rate
environments, the Company concentrates on the sale of annuities through payroll
deductions and the sale of tax-qualified and group annuities. Annuities sold
through payroll deductions are somewhat insulated from charges in market
conditions because of the recurring nature of
5
<PAGE>
their deposits. In 1996, 38.2% of the Company's total annuity statutory
premiums and deposits were attributable to payroll deductions. Group annuities
and tax-qualified annuities are also somewhat insulated from changes in market
conditions because they usually are provided through employers as a voluntary
retirement benefit with a limited number of competing investment options. In
addition, tax-qualified annuities subject the customer to a tax penalty for
early withdrawal. Tax-qualified annuities accounted for 70.3% and group
annuities accounted for 43.6% of the Company's total annuity statutory premiums
and deposits in 1996.
Build on the Company's Brand Strength. The Company believes that the brand
names it uses in connection with its products, such as Nationwide and The Best
of America, are well-known and have a strong reputation in the financial
services market. The Company intends to extend its brand names across markets,
applying The Best of America name across many of its wholesale and retail
distribution channels. The Company believes that, as the numbers of products
and competitors in its markets grow, consumers, distributors, retirement plan
sponsors and other decision makers in the market for long-term savings and
retirement products will continue to emphasize nationally known brand names.
See "Certain Relationships and Related Transactions--New Agreements with the
Nationwide Insurance Enterprise--Intercompany Agreement."
Continue Commitment to Technological Excellence. The Company has made and is
committed to continue making significant investments in information systems to
enable it to offer innovative products, to more effectively cross-sell products
across distribution channels and to offer high quality service. The information
systems that the Company has developed for its variable products are costly to
replicate. The Company believes that these systems provide it with a
significant competitive advantage and impose a barrier to entry for new
competitors.
PRINCIPAL STOCKHOLDER
Following the Equity Offerings, Nationwide Corp. will be the controlling
stockholder of the Company. Upon completion of the Equity Offerings, Nationwide
Corp. will own all of the outstanding shares of the Class B Common Stock, $0.01
par value, of the Company ("Class B Common Stock" and, together with Class A
Common Stock, the "Common Stock"), representing 83.6% and 98.1% (81.6% and
97.8% if the Underwriters' over-allotment option is exercised in full) of the
total number of shares of Common Stock outstanding and the combined voting
power of the stockholders of the Company, respectively. Nationwide Corp. is a
subsidiary of Nationwide Mutual. Nationwide Mutual and Nationwide Mutual Fire
Insurance Company ("Nationwide Mutual Fire") are mutual companies which are the
controlling entities of the Nationwide Insurance Enterprise. The Nationwide
Insurance Enterprise is an affiliated group of over 100 companies that offers a
wide range of insurance and investment products and services. Nationwide Mutual
and Nationwide Mutual Fire control the companies within the Nationwide
Insurance Enterprise through a variety of means, including security ownership,
management contracts and common directors. Nationwide Insurance Enterprise had
$68.0 billion in total statutory assets as of December 31, 1996. See "Risk
Factors--Control by and Relationship with the Nationwide Insurance Enterprise;
Conflicts of Interest," "Recent History" and "Certain Relationships and Related
Transactions."
THE EQUITY OFFERINGS, THE NOTE OFFERING AND THE CAPITAL SECURITIES OFFERING
Prior to the Note Offering, the Company expects to consummate the Equity
Offerings, and, concurrently with the Note Offering, the NFS Trust expects to
consummate the Capital Securities Offering. The consummation of the Note
Offering is not conditioned on the completion of the Capital Securities
Offering. There can be no assurance that the Capital Securities Offering will
be consummated. See "Use of Proceeds" and "The Equity Offerings, the Note
Offering and the Capital Securities Offering." The Equity Offerings and the
Capital Securities Offering are being made pursuant to separate prospectuses.
----------------
The Company's executive offices are located at One Nationwide Plaza,
Columbus, Ohio 43215, and its telephone number is (614) 249-7111.
6
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THE NOTE OFFERING
Issue....................... $300 million aggregate principal amount of %
Senior Notes due 2027.
Maturity Date............... , 2027.
Interest Payment Dates...... Interest on the Notes will be payable in cash
semi-annually on and of each
year commencing , 1997.
Optional Redemption......... The Notes will not be redeemable at the option of
the Company at any time prior to , 2007.
Thereafter, the Notes may be redeemed in whole or
in part, at the option of the Company, at the
declining redemption prices set forth herein
plus, in each case, accrued and unpaid interest,
if any, to the redemption date. See "Description
of Notes--Optional Redemption."
Sinking Fund................ The Notes will not be subject to any sinking
fund.
Ranking..................... The Notes will be general unsecured obligations
of the Company and will rank pari passu in right
of payment with all other senior indebtedness of
the Company and senior in right of payment to all
subordinated indebtedness of the Company.
However, because the Notes will be unsecured,
they will be effectively subordinated to any
secured indebtedness of the Company. The
Indenture does not preclude the Company or the
Company's subsidiaries from issuing secured or
unsecured indebtedness. At December 31, 1996, the
Company and its subsidiaries had no outstanding
indebtedness. Because the Company is a holding
company, the Notes will be effectively
subordinated to all existing and future
liabilities and obligations, including
obligations to policyholders, of the Company's
subsidiaries, which totalled approximately $45.6
billion at December 31, 1996.
Listing..................... The Notes have been approved for listing on the
NYSE, subject to official notice of issuance.
Use of Proceeds............. The Company will contribute the $296.3 million
estimated net proceeds from the Note Offering to
the capital of Nationwide Life. Of the $426.6
million estimated net proceeds from the Equity
Offerings, the Company will contribute
approximately $371.6 million to the capital of
Nationwide Life and retain the balance for
general corporate purposes. All of the net
proceeds from the Capital Securities Offering
will be contributed by the Company to the capital
of Nationwide Life. See "Use of Proceeds" and
"The Equity Offerings, the Note Offering and the
Capital Securities Offering."
RISK FACTORS
Potential purchasers of the Notes offered hereby should carefully consider
the risk factors set forth herein under "Risk Factors" commencing on page 11,
as well as other information contained in this Prospectus.
7
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table sets forth certain summary consolidated financial data
for the Company. The consolidated income statement data set forth below for the
years ended December 31, 1992 through 1996 and the consolidated balance sheet
data as of December 31, 1992 through 1996 are derived from the consolidated
financial statements of the Company, which have been audited by KPMG Peat
Marwick LLP, independent certified public accountants. Segment and Other Data
and Pro Forma Consolidated Balance Sheet Data appearing below are unaudited.
The summary consolidated financial data set forth below should be read in
conjunction with the consolidated financial statements of the Company and notes
thereto and the other financial information, including "Management's Discussion
and Analysis of Financial Condition and Results of Operations," included
elsewhere herein.
<TABLE>
<CAPTION>
AS OF OR FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED INCOME
STATEMENT DATA:
Total revenues.......... $ 2,016.6 $ 1,837.0 $ 1,634.1 $ 1,639.3 $ 1,405.6
Total benefits and
expenses............... 1,688.5 1,555.8 1,393.7 1,363.5 1,289.2
--------- --------- --------- --------- ---------
Income from continuing
operations before
federal income tax
expense and cumulative
effect of accounting
changes................ 328.1 281.2 240.4 275.8 116.4
Federal income tax
expense................ 115.8 96.3 82.5 96.7 32.1
--------- --------- --------- --------- ---------
Income from continuing
operations before
cumulative effect of
accounting changes..... 212.3 184.9 157.9 179.1 84.3
Income from discontinued
operations, net of
federal income tax
expense................ 11.3 24.7 20.5 28.6 2.1
--------- --------- --------- --------- ---------
Income before cumulative
effect of accounting
changes................ 223.6 209.6 178.4 207.7 86.4
Cumulative effect of
accounting changes, net
of federal income tax
benefit................ -- -- -- (0.1) --
--------- --------- --------- --------- ---------
Net income.............. $ 223.6 $ 209.6 $ 178.4 $ 207.6 $ 86.4
========= ========= ========= ========= =========
CONSOLIDATED BALANCE
SHEET DATA:
General account assets.. $20,843.5 $19,915.0 $17,156.2 $15,697.5 $14,674.8
Separate account
assets................. 26,926.7 18,591.1 12,087.1 9,006.4 6,081.4
Total assets............ 47,770.2 38,506.1 29,243.3 24,703.9 20,756.2
Long-term debt.......... -- -- -- -- --
Total liabilities....... 45,638.5 35,889.4 27,382.7 23,094.3 19,358.6
Shareholder's
equity(1).............. 2,131.7 2,616.7 1,860.6 1,609.6 1,397.6
SEGMENT AND OTHER DATA:
Operating income (loss)
before income taxes by
segment(2):
Variable Annuities..... $ 90.3 $ 50.8 $ 24.6 $ 10.4 $ 13.1
Fixed Annuities........ 135.4 137.0 139.0 105.9 95.3
Life Insurance......... 67.2 67.6 53.0 49.7 46.1
Corporate and
Other(1)(3)........... 35.4 27.5 40.3 3.6 (18.7)
Policy reserves by
segment:
Variable Annuities(4).. 24,278.1 16,761.8 10,751.1 7,854.8 5,028.2
Fixed Annuities(4)..... 13,511.8 12,784.0 11,247.0 10,154.1 9,659.8
Life Insurance......... 2,938.9 2,660.5 2,425.2 2,255.0 2,084.8
Corporate and
Other(3).............. 3,302.5 2,644.3 2,252.7 2,103.9 1,823.0
Statutory premiums,
deposits and other
considerations by
product segment(5):
Variable Annuities(6).. 6,500.3 4,399.3 3,821.1 2,414.2 1,561.8
Fixed Annuities(6)..... 1,600.5 1,864.2 1,308.6 1,300.9 1,637.8
Life Insurance......... 439.3 352.4 320.8 279.4 264.7
Corporate and
Other(3).............. 502.6 182.1 148.5 205.3 91.7
Net operating
income(2).............. 211.3 184.8 168.2 109.7 97.0
Ratio of earnings to
fixed charges(7)....... 1.3x 1.3x 1.3x 1.3x 1.1x
Ratio of earnings to
fixed charges,
excluding interest
credited to
policyholder account
balances............... N/A N/A N/A N/A N/A
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996
-----------------------
(DOLLARS IN MILLIONS)
<S> <C>
PRO FORMA CONSOLIDATED BALANCE SHEET DATA(8):
General account assets.................................. $19,993.5
Separate account assets................................. 26,926.7
Total assets............................................ 46,920.2
Long-term debt.......................................... --
Total liabilities....................................... 45,638.5
Shareholder's equity(1)................................. 1,281.7
</TABLE>
- --------
(1) The Company has received cash capital contributions and declared cash
dividends over the periods presented as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
--------------------------------------
1996 1995 1994 1993 1992
------- ------ ------ ------ -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Cash capital
contributions............ $ -- $ -- $200.0 $100.0 $13.5
Cash dividends............ (52.0) (8.5) (1.0) (10.6) (4.6)
------- ------ ------ ------ -----
Net contributions......... $ (52.0) $ (8.5) $199.0 $ 89.4 $ 8.9
======= ====== ====== ====== =====
</TABLE>
The cash capital contributions and cash dividends and the related increases
and decreases to net investment income are recorded in the Corporate and
Other segment. The cash capital contributions and cash dividends had a
direct impact on the Company's shareholder's equity and the operating income
(loss) before federal income tax expense of the Corporate and Other segment.
(2) Excludes realized gains/(losses) on investments (net of related federal
income tax where applicable), discontinued operations and cumulative effect
of accounting changes.
(3) The Corporate and Other segment includes net investment income on
investments not allocated to the three product segments; all realized
investment gains and losses; investment management fees, other revenues and
operating expenses of Nationwide mutual funds other than the portion
allocated to the Variable Annuities and Life Insurance segments;
commissions and other income earned by the marketing and distribution
subsidiaries of the Company; and revenues, benefits and expenses associated
with group annuity contracts issued to Nationwide Insurance Enterprise
employee and agent benefit plans.
(4) Policy reserves related to the fixed option under the Company's variable
annuity contracts are included in Fixed Annuities. As of December 31, 1996,
1995 and 1994, such amounts were $9.52 billion, $8.83 billion and $7.27
billion, respectively.
(5) Statutory data have been derived from the Annual and Quarterly Statements
of Nationwide Life, as filed with insurance regulatory authorities and
prepared in accordance with statutory accounting practices.
(6) Statutory premiums, deposits and other considerations related to the fixed
option under the Company's variable annuity contracts are included in Fixed
Annuities. For the years ended December 31, 1996, 1995 and 1994, such
amounts were $1.24 billion, $1.57 billion and $1.05 billion, respectively.
(7) For purposes of this computation, earnings consist of income from
continuing operations before federal income tax expense and cumulative
effect of accounting changes and fixed charges. Fixed charges consist of
interest expense on debt plus interest credited to policyholder account
balances. There was no interest expense on debt for any of the periods
presented.
(8) Pro forma to give effect to the Special Dividend totalling $850.0 million
as if the Special Dividend had occurred as of December 31, 1996. The
Special Dividend will have been paid by the Company prior to the completion
of the Equity Offerings.
9
<PAGE>
SUMMARY PRO FORMA CONSOLIDATED FINANCIAL DATA
The summary pro forma consolidated financial data for the Company set forth
below give effect to the Special Dividend (as defined herein), the Equity
Offerings, the Note Offering and the Capital Securities Offering as if they had
been consummated at the beginning of the period indicated or, in the case of
the balance sheet data, as of the date indicated. The summary pro forma
consolidated financial data do not purport to reflect what the Company's
financial position or results of operations would actually have been if the
Special Dividend, the Equity Offerings, the Note Offering and the Capital
Securities Offering had in fact occurred on such dates nor should they be taken
as indicative of the future results of operations of the Company. The summary
pro forma consolidated financial data should be read in conjunction with the
consolidated financial statements of the Company and the notes thereto and the
other financial information pertaining to the Company included elsewhere
herein. See "Recent History," "Pro Forma Consolidated Financial Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
AS OF OR FOR THE YEAR ENDED
DECEMBER 31, 1996
-------------------------------
ACTUAL PRO FORMA(1)
------------- ----------------
(DOLLARS IN MILLIONS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
CONSOLIDATED INCOME STATEMENT DATA:
Income from continuing operations....... $ 212.3 $ 150.4
Income from continuing operations per
common share(2)........................ 2.03 1.20
CONSOLIDATED BALANCE SHEET DATA:
General account assets.................. $ 20,843.5 $ 20,820.1
Separate account assets................. 26,926.7 26,926.7
Total assets............................ 47,770.2 47,746.8
Long-term debt.......................... -- 300.0
Capital Securities(3)................... -- 100.0
Shareholders' equity.................... 2,131.7 1,708.3
Debt/capital ratio(4)................... -- 15.5%
Debt and Capital Securities/capital
ratio(4)............................... -- 20.7%
Book value per common share(2).......... $ 20.35 $ 13.64
Adjusted book value per common
share(2)(4)............................ 18.69 12.25
OTHER DATA:
Ratio of earnings to fixed charges(5)... 1.3x 1.2x
Ratio of earnings to fixed charges,
excluding interest credited to
policyholder account values............ N/A 8.6x
</TABLE>
- --------
(1) Pro forma to give effect to (i) the Equity Offerings (assuming net proceeds
of $426.6 million from the issuance of 20,540,000 shares of Class A Common
Stock), (ii) the Special Dividend totalling $850.0 million which will have
been paid by the Company prior to the completion of the Equity Offerings
and (iii) the Note Offering and the Capital Securities Offering (assuming
net proceeds of $394.9 million from such offerings). Results reflect the
reduction of $64.5 million of pre-tax net investment income for the year
ended December 31, 1996, as a result of the decrease in invested assets of
the Company from the Special Dividend totalling $850.0 million. If this
reduction were partially offset by net investment income on the proceeds
from the Equity Offerings, the Note Offering and the Capital Securities
Offering at an assumed reinvestment rate of 7.5%, the net adjustment would
be a reduction of $2.9 million. The $300 million aggregate principal amount
of the Notes is assumed to bear interest at a rate of 7.5% per annum for
the periods indicated. The $100 million aggregate liquidation amount of the
Capital Securities is assumed to bear a distribution rate of 8.0% per annum
for the periods indicated. There can be no assurance that these will be the
actual rates borne by such instruments. An increase of 1.0% per annum on
the assumed interest rate on the Notes and on the assumed distribution rate
on the Capital Securities would result in an increase of $4.0 million to
interest expense for the year ended December 31, 1996. Interest expense
includes amortization of deferred issuance costs.
(2) Actual is based on 104,745,000 shares of Class B Common Stock outstanding.
Pro forma is based on 125,285,000 shares outstanding, which consists of
104,745,000 shares of Class B Common Stock and 20,540,000 Shares of Class A
Common Stock assumed to be issued in the Equity Offerings.
(3) The Capital Securities will be reflected separately in the Company's
consolidated financial statements as "Company-obligated mandatorily
redeemable capital securities of the Nationwide Financial Services Capital
Trust, holding solely junior subordinated debentures of Nationwide
Financial Services, Inc." with a footnote indicating that all of the Common
Securities of the NFS Trust, which are the only voting securities of the
NFS Trust, are owned by the Company, that the sole assets of the NFS Trust
are the junior subordinated debentures (indicating the principal amount,
interest rate and maturity date thereof) and that the NFS Trust's
obligations with respect to the Capital Securities, through the Company's
Guarantee, the junior subordinated debentures and the indenture with
respect thereto and the Declaration of Trust of the NFS Trust, taken
together, are fully and unconditionally guaranteed by the Company.
(4) Adjusted to exclude net unrealized gains and losses recorded in
shareholder's equity in accordance with Statement of Financial Accounting
Standards No. 115 ("SFAS 115").
(5) For purposes of this computation, earnings consist of income from
continuing operations before federal income tax expense and fixed charges.
Fixed charges consist of interest expense on debt plus interest credited to
policyholder account balances. There was no actual interest expense on debt
for the year ended December 31, 1996.
10
<PAGE>
RISK FACTORS
Prospective purchasers of the Notes offered hereby should consider carefully
the risk factors set forth below, as well as the other information set forth
in this Prospectus.
RANKING; HOLDING COMPANY STRUCTURE
The Notes will be general unsecured obligations of the Company and will rank
pari passu with all other senior indebtedness of the Company and senior to all
subordinated indebtedness of the Company. However, because the Notes will be
unsecured, they will be effectively subordinated to all secured indebtedness
of the Company.
Because the Company is a holding company, the right of the Company to
participate in any distribution of assets of any subsidiary upon such
subsidiary's liquidation or reorganization or otherwise is subject to the
prior claims of the creditors of such subsidiary, except to the extent the
Company may itself be recognized as a creditor of such subsidiary.
Accordingly, the Notes will be effectively subordinated to all existing and
future liabilities and obligations, including obligations to policyholders, of
the Company's subsidiaries which totalled approximately $45.6 billion at
December 31, 1996. Further, the Indenture does not preclude the Company's
subsidiaries from issuing secured or unsecured indebtedness. Holders of Notes
should look only to the assets of the Company for payments on the Notes.
LEVEL OF INDEBTEDNESS
Upon the consummation of the Note Offering and the Capital Securities
Offering, the Company will have outstanding $400.0 million of indebtedness. In
addition, the Company may incur additional indebtedness from time to time. The
degree to which the Company is leveraged could have important consequences to
holders of the Notes, including the following: (i) a portion of the Company's
cash flow from operations may be dedicated to the payment of interest on its
indebtedness and would not be available for other purposes; (ii) the Company's
ability to obtain additional financing in the future for working capital,
capital expenditures or general corporate purposes may be impaired; and (iii)
a significant degree of leverage could make the Company more vulnerable to
changes in general economic conditions.
LIMITED COVENANTS
The Indenture does not contain any provisions specifically intended to
protect holders of the Notes in the event of a future highly leveraged
transaction, reorganization, restructuring, merger or similar transaction
involving the Company. The Indenture does not contain any provision which will
restrict the Company from incurring, assuming or being liable with respect to
any indebtedness or other obligations, whether secured or unsecured, or from
paying dividends or making other distributions on its capital stock or
purchasing or redeeming its capital stock. The Indenture does not contain any
financial ratios or specified levels of net worth or liquidity to which the
Company must adhere. In addition, the Indenture does not contain any provision
which would require that the Company repurchase or redeem or otherwise modify
the terms of any of the Notes upon a change of control or other events
involving the Company which may adversely affect the creditworthiness of the
Notes. See "Description of Notes."
RESTRICTIONS ON DIVIDENDS
As an insurance holding company, the Company's ability to meet debt service
obligations, including payment of principal and interest on the Notes, and pay
operating expenses and dividends depends primarily on the receipt of
sufficient funds from its principal operating subsidiary, Nationwide Life. The
inability of Nationwide Life to pay dividends to the Company in an amount
sufficient to meet debt service obligations and pay operating expenses and
dividends would have a material adverse effect on the Company. The payment of
11
<PAGE>
dividends by Nationwide Life is subject to restrictions set forth in the
insurance laws and regulations of Ohio, its domiciliary state. The Ohio
insurance laws require Ohio-domiciled life insurance companies to seek prior
regulatory approval to pay a dividend or distribution of cash or other
property if the fair market value thereof, together with that of other
dividends or distributions made in the preceding 12 months, exceeds the
greater of (i) 10% of policyholders' surplus as of the prior December 31 or
(ii) the net income of the insurer for the 12-month period ending as of the
prior December 31. The Ohio insurance laws also require insurers to seek prior
regulatory approval for any dividend paid from other than earned surplus. As a
result of the Special Dividend and the dividend by Nationwide Life of the
stock of certain subsidiaries that do not operate in the long-term savings and
retirement market, any dividend paid by Nationwide Life during the 12-month
period immediately following the Special Dividend would be an extraordinary
dividend under Ohio insurance laws. See "Recent History." Accordingly, no such
dividend could be paid without prior regulatory approval. The payment of
dividends by Nationwide Life may also be subject to restrictions set forth in
the insurance laws of New York that limit the amount of statutory profits on
Nationwide Life's participating policies (measured before dividends to
policyholders) that can inure to the benefit of the Company and its
stockholders. The Company currently does not expect such regulatory
requirements to impair its ability to pay operating expenses and stockholder
dividends and to meet its debt service obligations. The Company can give no
assurance, however, that any dividends will be declared or paid by Nationwide
Life. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital Resources" and "Business--
Regulation--Regulation of Dividends and Other Payments from Insurance
Subsidiaries."
CONTROL BY AND RELATIONSHIP WITH THE NATIONWIDE INSURANCE ENTERPRISE;
CONFLICTS OF INTEREST
Control by Nationwide Corp.
The Company has two classes of common stock with different voting rights
that enable Nationwide Corp. (the holder of all of the outstanding Class B
Common Stock) to control the Company. On all matters submitted to a
stockholder vote, each share of Class A Common Stock is entitled to one vote
per share and each share of Class B Common Stock is entitled to ten votes per
share. Both classes vote together as a single class on all matters, subject to
certain exceptions described under "Description of Capital Stock." Upon any
transfer of shares of Class B Common Stock to a person other than a member of
the Nationwide Insurance Enterprise, such shares will convert automatically
into shares of Class A Common Stock. See "Description of Capital Stock."
Upon completion of the Equity Offerings, Nationwide Corp. will own all of
the outstanding shares of Class B Common Stock representing 83.6% and 98.1%
(81.6% and 97.8% if the Underwriters' over-allotment option is exercised in
full) of the total number of shares of Common Stock outstanding and the
combined voting power of the stockholders of the Company, respectively. For so
long as Nationwide Corp. and its affiliates (excluding the Company and its
subsidiaries) continue beneficially to own shares of Common Stock representing
more than 50% of the combined voting power of the stockholders of the Company,
Nationwide Corp. will control the Company, will be able to elect all of the
Company's directors and will be able to determine the outcome of corporate
actions requiring stockholder approval, including, among other things, the
adoption of amendments of the Certificate of Incorporation of the Company (the
"Certificate"), the approval of mergers and sales of all or substantially all
of the Company's assets, the incurrence of indebtedness in excess of specified
amounts, the issuance of additional Common Stock or other equity securities
and, with certain specified exceptions, the payment of dividends with respect
to the Common Stock. Pursuant to an intercompany agreement (the "Intercompany
Agreement") among Nationwide Mutual, Nationwide Corp. and the Company, until
such time as Nationwide Corp. and its affiliates no longer own at least 50% of
the combined voting power of the outstanding voting stock of the Company, the
prior written consent of Nationwide Mutual is required in connection with
these and other corporate actions. See "Certain Relationships and Related
Transactions--New Agreements with the Nationwide Insurance Enterprise--
Intercompany Agreement."
Use of Nationwide Insurance Enterprise Insurance Agents
Nationwide Mutual has informed the Company that it currently intends that
the Company will be its principal affiliate in the U.S. offering variable
annuity, fixed annuity and individual universal, variable and
12
<PAGE>
traditional life insurance products. In the Intercompany Agreement, Nationwide
Mutual has agreed that the Company has the exclusive right, subject to certain
limited exceptions, to distribute such products through Nationwide Insurance
Enterprise insurance agents for at least five years following the Equity
Offerings. Thereafter, the Intercompany Agreement provides that Nationwide
Mutual will have the option to terminate such right on one year's notice if
Nationwide Corp. and its affiliates no longer own at least 50% of the combined
voting power of the outstanding voting stock of the Company. The termination
of such right could have an adverse effect on the Company's ability to
distribute certain of its life insurance products. In 1996, 5.8% of the
Company's statutory premiums and deposits were attributable to products sold
by Nationwide Insurance Enterprise insurance agents. See "Certain
Relationships and Related Transactions--New Agreements with the Nationwide
Insurance Enterprise--Intercompany Agreement--Nationwide Insurance Enterprise
Insurance Agents."
Deconsolidation and Control of Tax Matters
Beneficial ownership of at least 80% of the combined voting power and value
of the outstanding capital stock of the Company is required in order for
Nationwide Mutual to continue to include the Company in its consolidated group
for federal income tax purposes. Either a sale by Nationwide Corp. of some of
its shares of Class B Common Stock to persons other than its affiliates or the
Company's issuance of additional shares of voting stock to persons other than
Nationwide Corp. or its affiliates (except the Company and its subsidiaries)
could cause Nationwide Corp.'s ownership of the combined voting power and
value of the outstanding capital stock of the Company to fall below 80%,
resulting in the loss of the ability of the Company and its domestic
subsidiaries to join with Nationwide Mutual and its domestic subsidiaries in
the filing of a consolidated federal income tax return. Under applicable law,
each member of Nationwide Mutual's consolidated tax group, which includes the
Company and its subsidiaries, is jointly and severally liable for the federal
income tax liability of each other member of the group and is also jointly and
severally liable for pension and benefit funding and termination liabilities
of other group members, and certain benefit plan taxes. If the Company were no
longer included in Nationwide Mutual's consolidated tax group for federal tax
purposes, there is no assurance that the Company's tax position would be as
favorable as it is at present. Additionally, deconsolidation would result in
the payment by the Company of approximately $54.0 million of deferred income
taxes. The Company has recorded this amount as a deferred tax liability and
therefore the payment would have no impact on net income or shareholders'
equity. However, the payment would result in a $54.0 million decrease in
Nationwide Life's statutory surplus. See "Certain Relationships and Related
Transactions--New Agreements with the Nationwide Insurance Enterprise--Tax
Sharing Agreement."
By virtue of its control of the Company and the terms of a tax sharing
agreement (the "Tax Sharing Agreement") among Nationwide Mutual and, among
others, the Company, Nationwide Mutual effectively will control all of the
Company's tax decisions. Under the Tax Sharing Agreement, Nationwide Mutual
will have sole authority to respond to and conduct all tax proceedings
(including tax audits) relating to the Company, to file all returns on behalf
of the Company and to determine the amount of the Company's liability to (or
entitlement to payment from) Nationwide Corp. under the Tax Sharing Agreement.
This arrangement may result in conflicts of interest between the Company and
Nationwide Mutual. For example, under the Tax Sharing Agreement, Nationwide
Mutual may choose to contest, compromise or settle any adjustment or
deficiency proposed by the relevant tax authority in a manner that may be
beneficial to Nationwide Mutual and detrimental to the Company. Under the Tax
Sharing Agreement, however, Nationwide Mutual is obligated to act in good
faith with regard to all persons included in the applicable returns. See
"Certain Relationships and Related Transactions--New Agreements with the
Nationwide Insurance Enterprise--Tax Sharing Agreement."
Use of "Nationwide" Name and Certain Other Service Marks
Pursuant to the Intercompany Agreement, among other things, Nationwide
Mutual has granted to the Company and certain of its subsidiaries a non-
exclusive, non-assignable, revocable license to use the "Nationwide" name and
certain other service marks solely in connection with the Company's annuity,
pension and life insurance businesses and activities related to such
businesses. The Intercompany Agreement provides
13
<PAGE>
that, subject to Nationwide Mutual's right to revoke such license under
certain circumstances, such license will remain in effect for at least five
years following the Equity Offerings. Thereafter, the Intercompany Agreement
provides that, subject to certain exceptions, Nationwide Mutual will have the
option to revoke such license on one year's notice if Nationwide Corp. and its
affiliates no longer own at least 50% of the combined voting power of the
outstanding voting stock of the Company. Upon the revocation of such license,
the Company and any of its subsidiaries shall change their names to exclude
the word "Nationwide" and shall discontinue the use of the other licensed
service marks. The revocation of such license could have a material adverse
effect on the Company's ability to conduct its business. See "Certain
Relationships and Related Transactions--New Agreements with the Nationwide
Insurance Enterprise--Intercompany Agreement--License to Use Nationwide Name
and Service Marks." Nationwide Life owns "The Best of America" service mark
and does not license such mark from Nationwide Mutual.
Common Directors and Officers
The Company's Board of Directors currently consists of ten members, seven of
whom serve concurrently on the boards of directors of other companies within
the Nationwide Insurance Enterprise. In addition, a significant number of
officers of the Company also serve as officers of Nationwide Mutual or other
companies within the Nationwide Insurance Enterprise. Service as a director or
officer of both the Company and another company (other than a subsidiary of
the Company) within the Nationwide Insurance Enterprise could create or appear
to create potential conflicts of interest when the director or officer is
faced with decisions that could have different implications for the Company
and such other company. A conflict of interest could also exist with respect
to allocation of the time and attention of persons who are officers of both
the Company and one or more other companies within the Nationwide Insurance
Enterprise. Under Delaware law, directors and officers have a fiduciary duty
to act in good faith and in what they believe to be in the best interests of
the corporation and its stockholders. Such duties include the duty to refrain
from impermissible self-dealing and to deal fairly with respect to
transactions in which such directors or officers, or other companies with
which they are affiliated, have an interest. See "--Allocation of Corporate
Opportunities."
Intercompany Transactions
The Company has engaged in various transactions, and is party to various
arrangements, with members of the Nationwide Insurance Enterprise, certain of
which will continue after the consummation of the Note Offering. In the
future, the Company may enter into agreements with members of the Nationwide
Insurance Enterprise that will not be the result of arm's-length negotiations
between independent parties. Conflicts of interest could arise with respect to
transactions involving members of the Nationwide Insurance Enterprise, on the
one hand, and the Company, on the other hand. Any such transactions that are
material to the Company will be subject to approval by a vote of disinterested
members of the Company's Board of Directors. In addition, under Ohio insurance
holding company laws, future arrangements and agreements between the Company's
insurance subsidiaries and other members of the Nationwide Insurance
Enterprise must be fair and equitable and may be subject to the approval of
the Superintendent of Insurance of the State of Ohio. Finally, the Company's
credit facility requires that any transaction between the Company and any of
its affiliates be on an arm's-length basis on terms at least as favorable to
the Company as could have been obtained from a third party which is not an
affiliate. See "Business--Regulation," "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources," and "Certain Relationships and Related Transactions."
Allocation of Corporate Opportunities
Nationwide Mutual has informed the Company that it currently intends that
the Company will be its principal affiliate in the U.S. offering variable
annuity, fixed annuity and individual universal, variable and traditional life
insurance products. However, conflicts may exist between the Company and other
members of the Nationwide Insurance Enterprise with respect to the allocation
of corporate opportunities among the Company and such other members. The
Certificate provides that members of the Nationwide Insurance
14
<PAGE>
Enterprise have no duty to refrain from engaging in the same or similar lines
of business as the Company. The Certificate further provides that in the event
a member of the Nationwide Insurance Enterprise or a director or officer of
the Company who is also a director or officer of another member of the
Nationwide Insurance Enterprise acquires knowledge of a potential transaction
or other matter that may constitute a corporate opportunity of either or both
the Company and another member of the Nationwide Insurance Enterprise, such
member of the Nationwide Insurance Enterprise, officer or director may
allocate such opportunity among the Company and the other members of the
Nationwide Insurance Enterprise as such member, officer or director deems
appropriate under the circumstances. The Certificate specifies that none of
the foregoing members, officers or directors will be liable to the Company or
any Stockholders of the Company for breach of any fiduciary duty by reason of
such action. These provisions may limit the liability of such persons under
Delaware law. See "Description of Capital Stock--Certain Certificate and Bylaw
Provisions--Certain Provisions Relating to Corporate Opportunities."
INTEREST RATE RISK
The Company's Fixed Annuities segment is subject to several inherent risks
arising from movements in interest rates. Interest rate changes can cause
compression of the Company's net spread between interest earned on investments
and interest credited on customer deposits, thereby adversely affecting the
Company's results. Interest rate changes can also produce an unanticipated
increase in transfers to separate account (variable) options or withdrawals of
the Company's fixed annuity products which may force the Company to sell
investment assets at a loss in order to fund such transfers or withdrawals.
The Company will experience spread compression when it is unable or chooses
not to maintain the same margin between its investment earnings and its
crediting rates. When interest rates rise, the Company may not be able to
replace the assets in its investment portfolio with higher-yielding assets
that will be necessary to fund the higher crediting rates necessary to keep
the products in its Fixed Annuities segment competitive. As a result, the
Company may experience either a decrease in sales and an increase in transfers
to separate account (variable) options or withdrawals (as described below) if
it chooses to maintain its spread by not raising its crediting rates, or
spread compression if it does increase its crediting rates. Conversely, when
interest rates fall, the Company would have to reinvest the cash received from
its investments (i.e., interest and payments of principal upon maturity or
redemption) in the lower-yielding instruments then available. If the Company
were unable (e.g., due to guaranteed minimum or fixed crediting rates or
limitations on the frequency of crediting rate resets) or chose not to reduce
the crediting rate on the products in its Fixed Annuities segment or acquire
relatively higher-risk securities yielding higher rates of return, spread
compression would occur.
If, as a result of interest rate increases, the Company were unable or chose
not to raise its crediting rates to keep them competitive, the Company may
experience an increase in transfers to separate account (variable) options or
withdrawals. If the Company lacked sufficient liquidity, the Company might
have to sell investment securities to fund associated payments. Because the
value of such securities would likely have decreased in response to the
increase in interest rates, the Company would realize a loss on the sales.
Although certain of the Company's products contain market value adjustment
features which approximate and transfer such loss to the customer if the
selected time horizon for the fixed return investment is terminated prior to
maturity, there can be no assurance that the Company would be fully insulated
from realizing any losses on sales of its securities. In addition, regardless
of whether the Company realizes an investment loss, the withdrawals would
produce a decrease in invested assets, with an adverse effect on future
earnings therefrom. Finally, premature withdrawals may also cause the Company
to accelerate amortization of deferred policy acquisition costs and value of
insurance in force which would otherwise be amortized over a longer period,
but the impact of such acceleration generally would be offset to some extent
by surrender charge fees.
INVESTMENT PORTFOLIO EXPOSURE
The Company's general account investment portfolio consists primarily of
investment grade fixed maturity securities. The fair value of these and the
Company's other general account invested assets fluctuates depending
15
<PAGE>
upon general economic and market conditions and the interest rate environment.
In general, the market value of the Company's general account fixed maturity
securities portfolio increases or decreases in inverse relationship with
fluctuations in interest rates. For example, if interest rates rise, the
Company's fixed maturity investments will generally decrease in value.
Additionally, the Company's net investment income may be affected by interest
rate changes. If interest rates decline, net investment income will decrease
if high-yielding fixed maturity investments mature or are sold and the
proceeds therefrom are reinvested in securities yielding a lower rate.
Mortgage backed securities ("MBSs"), including collateralized mortgage
obligations ("CMOs"), are subject to prepayment risks that vary with, among
other things, interest rates. Such securities accounted for approximately 30%
of the carrying value of the Company's general account fixed maturity
securities as of December 31, 1996. During periods of declining interest
rates, MBSs generally prepay faster as the underlying mortgages are prepaid
and refinanced by the borrowers in order to take advantage of the lower rates.
MBSs that have an amortized cost that is greater than par (i.e., purchased at
a premium) may incur a reduction in yield or a loss as a result of such
prepayments. In addition, during such periods, the Company will generally be
unable to reinvest the proceeds of any such prepayment at comparable yields.
Conversely, during periods of rising interest rates, prepayments generally
slow. MBSs that have an amortized value that is less than par (i.e., purchased
at a discount) may incur a decrease in yield or a loss as a result of slower
prepayments.
The Company attempts to mitigate the negative impact of interest rate
changes through asset/liability management, including purchasing non-callable
bonds where practical and investing in private placement bonds, mortgage loans
and mortgage-backed securities which provide prepayment protection. There can
be no assurance, however, that management will be able to manage successfully
the negative impact of interest rate changes. See "Business--Investments."
Additionally, the Company may, from time to time, for business, regulatory or
other reasons, elect or be required to sell certain of its general account
invested assets at a time when their fair values are less than their original
cost, resulting in realized capital losses, which would reduce net income.
The risk of fluctuations in market value of substantially all of the
Company's separate account assets is borne by the policyholders. The Company's
policy charges for administering such separate account assets, however, are
generally set as a percentage of such assets. Accordingly, fluctuations in the
market value of separate account assets may result in fluctuations in the
Company's revenue from policy charges.
REGULATION
The Company's insurance subsidiaries are subject to extensive regulation and
supervision in the jurisdictions in which they do business. Such regulations,
in addition to limiting the amount of dividends and other payments that can be
paid by the Company's insurance subsidiaries without prior approval, impose
restrictions on the amount and type of investments the Company's insurance
subsidiaries may hold. These regulations also affect many other aspects of the
Company's insurance subsidiaries' businesses, including risk-based capital
requirements, the type and amount of required asset valuation reserve accounts
and policy forms. These regulations are primarily intended to protect
policyholders rather than stockholders and other investors. The Company cannot
predict the effect that any proposed or future legislation may have on the
financial condition or results of operations of the Company and its insurance
subsidiaries. See "Business--Regulation."
COMPETITION
The Company competes with a large number of other insurers as well as non-
insurance financial services companies, such as banks, broker/dealers and
mutual funds, some of which have greater financial resources, offer
alternative products and, with respect to other insurers, have higher ratings
than the Company. The Company believes that competition in the Company's lines
of business is based on price, product features, commission structure,
perceived financial strength, claims-paying ratings, service and name
recognition. National banks, with their preexisting customer bases for
financial services products, may pose increasing competition in the future to
insurers who sell annuities, including the Company, as a result of the U.S.
Supreme Court's 1994 decision in
16
<PAGE>
NationsBank of North Carolina v. Variable Annuity Life Insurance Company,
which permits national banks to sell annuity products of life insurance
companies in certain circumstances.
Several proposals to repeal or modify the Glass-Steagall Act of 1933, as
amended, and the Bank Holding Company Act of 1956, as amended, have been made
by members of Congress and the Clinton Administration. Currently, the Bank
Holding Company Act restricts banks from being affiliated with insurance
companies. None of these proposals has yet been enacted, and it is not
possible to predict whether any of these proposals will be enacted, or, if
enacted, their potential effect on the Company. See "Business--Competition."
RATINGS
Ratings with respect to claims-paying ability and financial strength have
become an increasingly important factor in establishing the competitive
position of insurance companies. Ratings are important to maintaining public
confidence in the Company and its ability to market its annuity and life
insurance products. Rating organizations continually review the financial
performance and condition of insurers, including the Company. Any lowering of
the Company's ratings could have a material adverse effect on the Company's
ability to market its products and could increase the surrender of the
Company's annuity products. Both of these consequences could, depending upon
the extent thereof, have a material adverse effect on the Company's liquidity
and, under certain circumstances, net income. Nationwide Life is rated "A+"
(Superior) by A.M. Best and its claims-paying ability is rated "Aa2"
(Excellent) by Moody's Investors Services, Inc. ("Moody's") and "AA+"
(Excellent) by Standard & Poor's Corporation ("S&P"). Moody's recently
confirmed and S&P recently affirmed Nationwide Life's claims-paying ability
rating with a negative outlook. Such ratings reflect the rating agency's
opinion of Nationwide Life's financial strength, operating performance and
ability to meet its obligations to policyholders and are not evaluations
directed toward the protection of investors. Such factors are of concern to
policyholders, agents and intermediaries. Such ratings should not be relied
upon when making a decision to invest in the Notes. See "Business--Ratings."
SALES PRACTICE LITIGATION
In recent years, life insurance companies have been named as defendants in
lawsuits, including class actions, relating to life insurance pricing and
sales practices. A number of these lawsuits have resulted in substantial jury
awards or settlements. Nationwide Life has been named as a defendant in two
lawsuits, including one in which the plaintiff seeks to represent a national
class, related to the sale of whole life policies on a "vanishing premium"
basis. There can be no assurance that any future litigation relating to
pricing and sales practices will not have a material adverse effect on the
Company. See "Business--Legal Proceedings."
FEDERAL INCOME TAX LEGISLATION
Current federal income tax laws generally permit the tax-deferred
accumulation of earnings on the premiums paid by the holders of annuities and
life insurance products. Taxes, if any, are payable on the accumulated tax-
deferred earnings when such earnings are actually paid. Congress has, from
time to time, considered possible legislation that would eliminate the
deferral of taxation on the accretion of value within certain annuities and
life insurance products. The 1994 United States Supreme Court ruling in
NationsBank of North Carolina v. Variable Annuity Life Insurance Company that
annuities are not insurance for purposes of the National Bank Act may cause
Congress to consider legislation that would eliminate such tax deferral at
least for certain annuities. Other possible legislation, including a
simplified "flat tax" income tax structure with an exemption from taxation for
investment income, could also adversely affect purchases of annuities and life
insurance if such legislation were to be enacted. There can be no assurance as
to whether legislation will be enacted which would contain provisions with
possible adverse effects on the Company's annuity and life insurance products.
See "Business--Regulation--Potential Tax Legislation."
17
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the Note Offering (after deduction of
underwriting discounts and commissions and estimated offering expenses payable
by the Company in connection therewith) are estimated to be $296.3 million.
The net proceeds to the Company from the Equity Offerings (after deduction of
underwriting discounts and commissions and estimated offering expenses payable
by the Company in connection therewith) are estimated to be $426.6 million.
The net proceeds to the Company from the sale of the Capital Securities (after
deduction of underwriting discounts and commissions and estimated offering
expenses payable by the Company in connection therewith) are estimated to be
$98.6 million. All of the net proceeds from the Note Offering will be
contributed by the Company to Nationwide Life. Of the $426.6 million estimated
net proceeds to the Company from the Equity Offerings, the Company will
contribute approximately $371.6 million to the capital of Nationwide Life and
retain the balance for general corporate purposes. The Company expects to
contribute all of the net proceeds from the Capital Securities Offering to the
capital of Nationwide Life.
RECENT HISTORY
The Company was formed in November 1996 as a holding company for Nationwide
Life and the other companies within the Nationwide Insurance Enterprise that
offer or distribute long-term savings and retirement products. On January 27,
1997, Nationwide Corp. contributed to the Company all of the outstanding
capital stock of Nationwide Life and the other companies within the Nationwide
Insurance Enterprise that offer or distribute long-term savings and retirement
products. The historical financial information contained in this Prospectus
gives effect to such contribution to the Company.
In anticipation of the Equity Offerings, Nationwide Life effected the
following transactions: (i) on September 24, 1996, the Board of Directors of
Nationwide Life declared a dividend to Nationwide Corp. consisting of the
stock of those subsidiaries of Nationwide Life that do not operate in the
long-term savings and retirement market and (ii) effective January 1, 1996,
Nationwide Life reinsured all of its accident and health and group life
insurance business to other members of the Nationwide Insurance Enterprise.
The historical financial information contained in this Prospectus does not
give effect to the dividend of such subsidiaries or such reinsurance. Such
subsidiaries and the accident and health and group life insurance business
have been accounted for herein as discontinued operations.
On December 31, 1996, Nationwide Life paid a $50.0 million cash dividend to
Nationwide Corp. In addition, prior to the consummation of the Equity
Offerings, Nationwide Life will dividend to the Company, and the Company will
subsequently dividend to Nationwide Corp., securities having an aggregate
market value of $850.0 million (the "Special Dividend"). The historical
financial information contained in this Prospectus does not give effect to the
Special Dividend, except where indicated in pro forma presentations. See
"Certain Relationships and Related Transactions--Existing Arrangements with
the Nationwide Insurance Enterprise--Organization of the Company" and "--
Modified Coinsurance Agreements."
Following the Equity Offerings, Nationwide Corp. will be the controlling
stockholder of the Company. Upon completion of the Equity Offerings,
Nationwide Corp. will own all of the outstanding shares of the Class B Common
Stock, representing 83.6% and 98.1% (81.6% and 97.8% if the Underwriters'
over-allotment option is exercised in full) of the total number of shares of
Common Stock outstanding and the combined voting power of the stockholders of
the Company. Nationwide Corp. is a subsidiary of Nationwide Mutual. Nationwide
Mutual and Nationwide Mutual Fire are mutual companies which are the
controlling entities of the Nationwide Insurance Enterprise. The Nationwide
Insurance Enterprise is an affiliated group of over 100 companies that offers
a wide range of insurance and investment products and services. Nationwide
Mutual and Nationwide Mutual Fire control the companies within the Nationwide
Insurance Enterprise through a variety of means, including security ownership,
management contracts and common directors. The Nationwide Insurance Enterprise
had $68.0 billion in total statutory assets as of December 31, 1996. See "Risk
Factors--Control by and Relationship with the Nationwide Insurance Enterprise;
Conflicts of Interest" and "Certain Relationships and Related Transactions."
18
<PAGE>
CAPITALIZATION
The following table sets forth, as of December 31, 1996, (i) the actual
capitalization of the Company, (ii) the pro forma capitalization of the
Company after giving effect to the Special Dividend, (iii) the pro forma
capitalization of the Company after giving effect to the Special Dividend and
the Equity Offerings (assuming net proceeds of $426.6 million from the
issuance of 20,540,000 shares of Class A Common Stock), (iv) the pro forma
capitalization of the Company after giving effect to the Special Dividend, the
Equity Offerings and the Note Offering, (v) the pro forma capitalization of
the Company after giving effect to the Special Dividend, the Equity Offerings
and the Capital Securities Offering and (vi) the pro forma capitalization of
the Company after giving effect to the Special Dividend, the Equity Offerings,
the Note Offering and the Capital Securities Offering. This table should be
read in conjunction with the consolidated financial statements of the Company
and the notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996
----------------------------------------------------------------
PRO FORMA
FOR THE
PRO FORMA PRO FORMA SPECIAL
FOR THE FOR THE DIVIDEND,
SPECIAL SPECIAL THE EQUITY
PRO FORMA DIVIDEND, DIVIDEND, OFFERINGS,
FOR THE THE THE EQUITY THE NOTE
SPECIAL EQUITY OFFERINGS OFFERING
PRO FORMA DIVIDEND OFFERINGS AND THE AND THE
FOR THE AND THE AND THE CAPITAL CAPITAL
SPECIAL EQUITY NOTE SECURITIES SECURITIES
ACTUAL DIVIDEND OFFERINGS OFFERING OFFERING OFFERING
-------- --------- --------- --------- ---------- ----------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Notes................... $ -- $ -- $ -- $ 300.0 $ -- $ 300.0
Company-obligated
mandatorily redeemable
capital securities of
the Nationwide
Financial Services
Capital Trust, holding
solely junior
subordinated debentures
of Nationwide Financial
Services, Inc.(1)...... -- -- -- -- 100.0 100.0
Shareholders' equity:
Preferred stock, $0.01
par value; 50,000,000
shares authorized; no
shares issued and
outstanding.......... -- -- -- -- -- --
Class A Common Stock,
$0.01 par value;
750,000,000 shares
authorized(2)........ -- -- 0.2 0.2 0.2 0.2
Class B Common Stock,
$0.01 par value;
750,000,000 shares
authorized(3) ....... 1.0 1.0 1.0 1.0 1.0 1.0
Additional paid-in
capital.............. 551.5 551.5 977.9 977.9 977.9 977.9
Unrealized gains on
securities available-
for-sale, net........ 173.6 173.6 173.6 173.6 173.6 173.6
Retained earnings..... 1,405.6 555.6 555.6 555.6 555.6 555.6
-------- -------- -------- -------- -------- --------
Total shareholders'
equity............... 2,131.7 1,281.7 1,708.3 1,708.3 1,708.3 1,708.3
-------- -------- -------- -------- -------- --------
Total capitalization.. $2,131.7 $1,281.7 $1,708.3 $2,008.3 $1,808.3 $2,108.3
======== ======== ======== ======== ======== ========
Debt/capital ratio(4)... -- % -- % -- % 16.4% -- % 15.5%
Debt and Capital
Securities/capital
ratio(4)............... -- -- -- 16.4 6.1 20.7
Book value per common
share(2)(3)............ $ 20.35 $ 12.24 $ 13.64 $ 13.64 $ 13.64 $ 13.64
Adjusted book value per
common share(2)(3)(4).. 18.69 10.58 12.25 12.25 12.25 12.25
</TABLE>
- --------
(1) The Capital Securities will be reflected separately in the Company's
consolidated financial statements as "Company-obligated mandatorily
redeemable capital securities of the Nationwide Financial Services Capital
Trust, holding solely junior subordinated debentures of Nationwide
Financial Services, Inc." with a footnote indicating that all of the
Common Securities of the NFS Trust, which are the only voting securities
of the NFS Trust, are owned by the Company, that the sole assets of the
NFS Trust are the junior subordinated debentures (indicating the principal
amount, interest rate and maturity date thereof), and that the NFS Trust's
obligations with respect to the Capital Securities, through the Company's
Guarantee, the junior subordinated debentures and the indenture with
respect thereto and the Declaration of Trust of the NFS Trust, taken
together, are fully and unconditionally guaranteed by the Company.
(2) Based on no shares of Class A Common Stock outstanding for "Actual" and
"Pro Forma for the Special Dividend" columns and 20,540,000 shares of
Class A Common Stock outstanding for all other columns.
(3) Based on 104,745,000 shares of Class B Common Stock outstanding for all
columns.
(4) Adjusted to exclude net unrealized gains on securities available-for-sale
in accordance with SFAS 115.
19
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth certain selected consolidated financial data
for the Company. The consolidated income statement data set forth below for
the years ended December 31, 1992 through 1996 and the consolidated balance
sheet data as of December 31, 1992 through 1996 are derived from the
consolidated financial statements of the Company, which have been audited by
KPMG Peat Marwick LLP, independent certified public accountants. Segment and
Other Data and Pro Forma Consolidated Balance Sheet Data appearing below are
unaudited. The selected consolidated financial data set forth below should be
read in conjunction with the consolidated financial statements of the Company
and the notes thereto and the other financial information, including
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," included elsewhere herein.
<TABLE>
<CAPTION>
AS OF OR FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED INCOME
STATEMENT DATA:
Revenues:
Policy charges......... $ 400.9 $ 286.6 $ 217.2 $ 165.5 $ 131.3
Life insurance
premiums.............. 198.6 199.1 176.7 188.4 200.2
Net investment income.. 1,357.8 1,294.0 1,210.8 1,131.2 1,049.4
Realized gains/(losses)
on investments........ (0.2) (1.7) (16.5) 106.2 (19.4)
Other income........... 59.5 59.0 45.9 48.1 44.1
--------- --------- --------- --------- ---------
Total revenues......... 2,016.6 1,837.0 1,634.1 1,639.3 1,405.6
--------- --------- --------- --------- ---------
Benefits and expenses:
Benefits and claims.... 1,160.6 1,115.4 992.7 982.2 966.3
Policyholder
dividends............. 41.0 39.9 38.8 43.0 45.7
Amortization of
deferred policy
acquisition costs..... 133.4 82.7 85.6 70.2 49.2
Operating expenses..... 353.5 317.8 276.6 268.2 228.0
--------- --------- --------- --------- ---------
Total benefits and ex-
penses................ 1,688.5 1,555.8 1,393.7 1,363.5 1,289.2
--------- --------- --------- --------- ---------
Income from continuing
operations before
federal income tax
expense and cumulative
effect of accounting
changes................ 328.1 281.2 240.4 275.8 116.4
Federal income tax
expense................ 115.8 96.3 82.5 96.7 32.1
--------- --------- --------- --------- ---------
Income from continuing
operations before
cumulative effect of
accounting changes..... 212.3 184.9 157.9 179.1 84.3
Income from discontinued
operations, net of
federal income tax
expense................ 11.3 24.7 20.5 28.6 2.1
--------- --------- --------- --------- ---------
Income before cumulative
effect of accounting
changes................ 223.6 209.6 178.4 207.7 86.4
Cumulative effect of
accounting changes, net
of federal income tax
benefit................ -- -- -- (0.1) --
--------- --------- --------- --------- ---------
Net income............. $ 223.6 $ 209.6 $ 178.4 $ 207.6 $ 86.4
========= ========= ========= ========= =========
CONSOLIDATED BALANCE
SHEET DATA:
General account assets.. $20,843.5 $19,915.0 $17,156.2 $15,697.5 $14,674.8
Separate account
assets................. 26,926.7 18,591.1 12,087.1 9,006.4 6,081.4
Total assets............ 47,770.2 38,506.1 29,243.3 24,703.9 20,756.2
Long-term debt.......... -- -- -- -- --
Total liabilities....... 45,638.5 35,889.4 27,382.7 23,094.3 19,358.6
Shareholder's
equity(1).............. 2,131.7 2,616.7 1,860.6 1,609.6 1,397.6
SEGMENT AND OTHER DATA:
Operating income (loss)
before federal income
tax expense by
segment(2):
Variable Annuities..... $ 90.3 $ 50.8 $ 24.6 $ 10.4 $ 13.1
Fixed Annuities........ 135.4 137.0 139.0 105.9 95.3
Life Insurance......... 67.2 67.6 53.0 49.7 46.1
Corporate and
Other(1)(3)........... 35.4 27.5 40.3 3.6 (18.7)
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
AS OF OR FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------
1996 1995 1994 1993 1992
--------- --------- --------- --------- --------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Policy reserves by seg-
ment:
Variable Annuities(4).. $24,278.1 $16,761.8 $10,751.1 $ 7,854.8 $5,028.2
Fixed Annuities(4)..... 13,511.8 12,784.0 11,247.0 10,154.1 9,659.8
Life Insurance......... 2,938.9 2,660.5 2,425.2 2,255.0 2,084.8
Corporate and
Other(3).............. 3,302.5 2,644.3 2,252.7 2,103.9 1,823.0
Statutory premiums,
deposits and other
considerations by
product segment(5):
Variable Annuities(6).. 6,500.3 4,399.3 3,821.1 2,414.2 1,561.8
Fixed Annuities(6)..... 1,600.5 1,864.2 1,308.6 1,300.9 1,637.8
Life Insurance......... 439.3 352.4 320.8 279.4 264.7
Corporate and Oth-
er(3)................. 502.6 182.1 148.5 205.3 91.7
Net operating
income(2).............. 211.3 184.8 168.2 109.7 97.0
Ratio of earnings to
fixed charges(7)....... 1.3x 1.3x 1.3x 1.3x 1.1x
Ratio of earnings to
fixed charges, exclud-
ing interest credited
to
policyholder account
balances............... N/A N/A N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996
-----------------------
(DOLLARS IN MILLIONS)
<S> <C>
PRO FORMA CONSOLIDATED BALANCE SHEET DATA(8):
General account assets.................................. $19,993.5
Separate account assets................................. 26,926.7
Total assets............................................ 46,920.2
Long-term debt.......................................... --
Total liabilities....................................... 45,638.5
Shareholder's equity(1)................................. 1,281.7
</TABLE>
- --------
(1) The Company has received cash capital contributions and declared cash
dividends over the periods presented as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------
1996 1995 1994 1993 1992
------ ----- ------ ------ -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Cash capital contributions.... $ -- $ -- $200.0 $100.0 $13.5
Cash dividends................ (52.0) (8.5) (1.0) (10.6) (4.6)
------ ----- ------ ------ -----
Net contributions............. $(52.0) $(8.5) $199.0 $ 89.4 $ 8.9
====== ===== ====== ====== =====
</TABLE>
The cash capital contributions and cash dividends and the related increases
and decreases to net investment income are recorded in the Corporate and
Other segment. The cash capital contributions and cash dividends had a
direct impact on the Company's shareholder's equity and the operating income
(loss) before federal income tax expense of the Corporate and Other segment.
(2) Excludes realized gains/(losses) on investments (net of related federal
income tax where applicable), discontinued operations and cumulative
effect of accounting changes.
(3) The Corporate and Other segment includes net investment income on
investments not allocated to the three product segments; all realized
investment gains and losses; investment management fees; other revenues
and operating expenses of Nationwide mutual funds other than the portion
allocated to the Variable Annuities and Life Insurance segments;
commissions and other income earned by the marketing and distribution
subsidiaries of the Company; and revenues, benefits and expenses
associated with growth annuity contracts issued to Nationwide Insurance
Enterprise employee and agent benefit plans.
(4) Policy reserves related to the fixed option under the Company's variable
annuity contracts are included in Fixed Annuities. As of December 31,
1996, 1995 and 1994, such amounts were $9.52 billion, $8.83 billion and
$7.27 billion, respectively.
(5) Statutory data have been derived from the Annual and Quarterly Statements
of Nationwide Life, as filed with insurance regulatory authorities and
prepared in accordance with statutory accounting practices.
(6) Statutory premiums, deposits and other considerations related to the fixed
option under the Company's variable annuity contracts are included in
Fixed Annuities. For the years ended December 31, 1996, 1995 and 1994,
such amounts were $1.24 billion, $1.57 billion and $1.05 billion,
respectively.
(7) For purposes of this computation, earnings consist of income from
continuing operations before federal income tax expense and cumulative
effect of accounting changes and fixed charges. Fixed charges consist of
interest expense on debt plus interest credited to policyholder account
balances. There was no interest expense on debt for any of the periods
presented.
(8) Pro forma to give effect to the Special Dividend totalling $850.0 million
as if the Special Dividend had occurred as of December 31, 1996. The
Special Dividend will have been paid by the Company prior to the
completion of the Equity Offerings.
21
<PAGE>
PRO FORMA CONSOLIDATED FINANCIAL DATA
The pro forma consolidated financial data for the Company set forth in the
tables below give effect to (i) the Special Dividend, the Equity Offerings,
the Note Offering and the Capital Securities Offering, (ii) the Special
Dividend and the Equity Offerings, (iii) the Special Dividend, the Equity
Offerings and the Note Offering and (iv) the Special Dividend, the Equity
Offerings and the Capital Securities Offering. The tables below are presented
as if each of the Special Dividend, the Equity Offerings, the Note Offering
and the Capital Securities Offering, as applicable, had been consummated at
the beginning of the period indicated or, in the case of the balance sheet
data, as of the date indicated. The pro forma financial data do not purport to
reflect what the Company's financial position or results of operations would
actually have been if any or all of the Equity Offerings, the Special
Dividend, the Note Offering and the Capital Securities Offering had in fact
occurred on such dates nor should they be taken as indicative of the future
results of operations of the Company. The pro forma consolidated financial
information should be read in conjunction with the consolidated financial
statements of the Company and the notes thereto and the other financial
information pertaining to the Company included elsewhere herein. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
PRO FORMA FOR THE SPECIAL DIVIDEND, THE EQUITY OFFERINGS, THE NOTE OFFERING
AND THE CAPITAL SECURITIES OFFERING
<TABLE>
<CAPTION>
AS OF OR FOR THE YEAR ENDED
DECEMBER 31, 1996
------------------------------------
ACTUAL ADJUSTMENTS PRO FORMA(1)
-------- ----------- ------------
(DOLLARS IN MILLIONS, EXCEPT PER
SHARE DATA)
<S> <C> <C> <C>
CONSOLIDATED INCOME STATEMENT DATA:
Revenues:
Policy charges........................... $ 400.9 $ -- $ 400.9
Life insurance premiums.................. 198.6 -- 198.6
Net investment income.................... 1,357.8 (64.5)(2) 1,293.3
Realized losses on investments........... (0.2) -- (0.2)
Other income............................. 59.5 -- 59.5
-------- ------- --------
Total revenues.......................... 2,016.6 (64.5) 1,952.1
-------- ------- --------
Benefits and Expenses:
Benefits and claims...................... 1,160.6 -- 1,160.6
Policyholder dividends................... 41.0 -- 41.0
Amortization of deferred policy acquisi-
tion costs.............................. 133.4 -- 133.4
Operating expenses....................... 353.5 -- 353.5
Interest expense......................... -- 30.7 (3) 30.7
-------- ------- --------
Total benefits and expenses............. 1,688.5 30.7 1,719.2
-------- ------- --------
Income from continuing operations before
federal income tax expense............... 328.1 (95.2) 232.9
Federal income tax expense................ 115.8 (33.3)(4) 82.5
-------- ------- --------
Income from continuing operations..... $ 212.3 $ (61.9) $ 150.4
======== ======= ========
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
AS OF OR FOR THE YEAR ENDED
DECEMBER 31, 1996
------------------------------------------------
ACTUAL ADJUSTMENTS PRO FORMA(1)
------------- -------------- ---------------
(DOLLARS IN MILLIONS, EXCEPT PER DATA)
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET
DATA:
General account assets....... $ 20,843.5 $ (23.4)(5) $ 20,820.1
Separate account assets...... 26,926.7 -- 26,926.7
Total assets................. 47,770.2 (23.4) 47,746.8
Long-term debt............... -- 300.0 (6) 300.0
Capital Securities........... -- 100.0 (7) 100.0
Shareholders' equity......... 2,131.7 (423.4)(8) 1,708.3
OTHER DATA:
Net operating income (9)..... $ 211.3 $ (61.9) $ 149.4
Realized gains/(losses) on
investments, net of tax..... 1.0 -- 1.0
------------- ---------- -------------
Income from continuing oper-
ations..................... $ 212.3 $ (61.9) $ 150.4
============= ========== =============
Income from continuing oper-
ations per common share
(10)....................... $ 2.03 $ 1.20
============= =============
Ratio of earnings to fixed
charges (11)................ 1.3x 1.2x
Ratio of earnings to fixed
charges, excluding interest
credited to policyholder ac-
count balances.............. N/A 8.6x
</TABLE>
- --------
(1) Pro forma to give effect to (i) the Equity Offerings (assuming net
proceeds of $426.6 million and the issuance of 20,540,000 shares of Class
A Common Stock), (ii) the Special Dividend totalling $850.0 million which
will have been paid by the Company prior to the completion of the Equity
Offerings and (iii) the Note Offering and the Capital Securities Offering
(assuming net proceeds of $394.9 million from such offerings).
(2) Reduction in net investment income on the Special Dividend at an assumed
rate of 7.5%. If this reduction were partially offset by net investment
income on the proceeds from the Equity Offerings, the Note Offering and
the Capital Securities Offering at an assumed reinvestment rate of 7.5%,
the net adjustment would be a reduction of $2.9 million, resulting in pro
forma net operating income of $189.5 million.
(3) The $300 million aggregate principal amount of Notes is assumed to bear
interest at a rate of 7.5% per annum for the period indicated. The $100
million aggregate liquidation amount of the Capital Securities is assumed
to bear a distribution rate of 8.0% per annum for the period indicated.
There can be no assurance that these will be the actual rates borne by
such instruments. An increase of 1.0% per annum on the assumed interest
rate on the Notes and on the assumed distribution rate on the Capital
Securities would result in an increase of $4.0 million to interest expense
for the year ended December 31, 1996. Interest expense includes
amortization of deferred issuance costs.
(4) Income tax effect of the pro forma adjustments at the statutory rate.
(5) The excess of the Special Dividend over the proceeds from the Equity
Offerings, the Note Offering and the Capital Securities Offering. Also
included are capitalized issuance costs.
(6) Represents aggregate principal amount of Notes.
(7) The Capital Securities will be reflected separately in the Company's
consolidated financial statements as "Company-obligated mandatorily
redeemable capital securities of the Nationwide Financial Services Capital
Trust, holding solely junior subordinated debentures of Nationwide
Financial Services, Inc." with a footnote indicating that all of the
Common Securities of the NFS Trust, which are the only voting securities
of the NFS Trust, are owned by the Company, that the sole assets of the
NFS Trust are the junior subordinated debentures (indicating the principal
amount, interest rate and maturity date thereof) and that the NFS Trust's
obligations with respect to the Capital Securities, through the Company's
Guarantee, the junior subordinated debentures and the indenture with
respect thereto and the Declaration of Trust of the NFS Trust, taken
together are fully and unconditionally guaranteed by the Company.
(8) The excess of the Special Dividend over the proceeds from the Equity
Offerings.
(9) Excludes realized gains/(losses) on investments (net of related federal
income tax) and discontinued operations.
(10) Actual based on 104,745,000 shares of Class B Common Stock outstanding.
Pro forma is based on 125,285,000 shares outstanding, which consists of
104,745,000 shares of Class B Common Stock and 20,540,000 shares of Class
A Common Stock assumed to be issued in the Equity Offerings.
(11) For purposes of this computation, earnings consist of income from
continuing operations before federal income tax expense and fixed
charges. Fixed charges consist of interest expense on debt plus interest
credited to policyholder account balances. There was no actual interest
expense on debt for the year ended December 31, 1996.
23
<PAGE>
PRO FORMA FOR THE SPECIAL DIVIDEND AND THE EQUITY OFFERINGS
<TABLE>
<CAPTION>
AS OF OR FOR THE YEAR ENDED
DECEMBER 31, 1996
-------------------------------------
ACTUAL ADJUSTMENTS PRO FORMA(1)
--------- ----------- ------------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
CONSOLIDATED INCOME
STATEMENT DATA:
Revenues:
Policy charges......... $ 400.9 $ -- $ 400.9
Life insurance premi-
ums................... 198.6 -- 198.6
Net investment income.. 1,357.8 (63.7)(2) 1,294.1
Realized losses on in-
vestments............. (0.2) -- (0.2)
Other income........... 59.5 -- 59.5
--------- ------- ---------
Total revenues........ 2,016.6 (63.7) 1,952.9
--------- ------- ---------
Benefits and Expenses:
Benefits and claims.... 1,160.6 -- 1,160.6
Policyholder divi-
dends................. 41.0 -- 41.0
Amortization of de-
ferred policy acquisi-
tion costs............ 133.4 -- 133.4
Operating expenses..... 353.5 -- 353.5
Interest expense....... -- -- --
--------- ------- ---------
Total benefits and ex-
penses............... 1,688.5 -- 1,688.5
--------- ------- ---------
Income from continuing
operations before fed-
eral income tax ex-
pense.................. 328.1 (63.7) 264.4
Federal income tax ex-
pense.................. 115.8 (22.3)(3) 93.5
--------- ------- ---------
Income from continuing
operations .......... $ 212.3 $ (41.4) $ 170.9
========= ======= =========
CONSOLIDATED BALANCE
SHEET DATA:
General account assets.. $20,843.5 $(423.4)(4) $20,420.1
Separate account as-
sets................... 26,926.7 -- 26,926.7
Total assets............ 47,770.2 (423.4) 47,346.8
Long-term debt.......... -- -- --
Capital Securities...... -- -- --
Shareholders' equity.... 2,131.7 (423.4)(4) 1,708.3
OTHER DATA:
Net operating income
(5).................... $ 211.3 $ (41.4) $ 169.9
Realized gains/(losses)
on investments, net of
tax.................... 1.0 -- 1.0
--------- ------- ---------
Income from continuing
operations........... $ 212.3 $ (41.4) $ 170.9
========= ======= =========
Income from continuing
operations per common
share (6)............ $ 2.03 $ 1.36
========= =========
Ratio of earnings to
fixed charges (7)...... 1.3x 1.3x
Ratio of earnings to
fixed charges, exclud-
ing interest credited
to policyholder account
balances............... N/A N/A
</TABLE>
- --------
(1) Pro forma to give effect to (i) the Equity Offerings (assuming net
proceeds of $426.6 million and the issuance of 20,540,000 shares of Class
A Common Stock) and (ii) the Special Dividend totalling $850.0 million
which will have been paid by the Company prior to the completion of the
Equity Offerings.
(2) Reduction in net investment income on the Special Dividend at an assumed
rate of 7.5%. If this reduction were partially offset by net investment
income on the proceeds from the Equity Offerings at an assumed
reinvestment rate of 7.5%, the net adjustment would be a reduction of
$31.8 million, resulting in net operating income of $190.6 million.
(3) Income tax effect of the pro forma adjustments at the statutory rate.
(4) The excess of the Special Dividend over the proceeds from the Equity
Offerings.
(5) Excludes realized gains/(losses) on investments (net of related federal
income tax) and discontinued operations.
(6) Actual is based on 104,745,000 shares of Class B Common Stock outstanding.
Pro forma based on 125,285,000 shares outstanding, which consists of
104,745,000 shares of Class B Common Stock and 20,540,000 shares of Class
A Common Stock assumed to be issued in the Equity Offerings.
(7) For purposes of this computation, earnings consist of income from
continuing operations before federal income tax expense and fixed charges.
Fixed charges consist of interest expense on debt plus interest credited
to policyholder account balances. There was no actual interest expense on
debt for the year ended December 31, 1996.
24
<PAGE>
PRO FORMA FOR THE SPECIAL DIVIDEND, THE EQUITY OFFERINGS AND THE NOTE OFFERING
<TABLE>
<CAPTION>
AS OF OR FOR THE YEAR ENDED
DECEMBER 31, 1996
------------------------------------------------------
ACTUAL ADJUSTMENTS PRO FORMA(1)
--------------- ---------------- -----------------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
CONSOLIDATED INCOME
STATEMENT DATA:
Revenues:
Policy charges......... $ 400.9 $ -- $ 400.9
Life insurance
premiums.............. 198.6 -- 198.6
Net investment income.. 1,357.8 (64.3)(2) 1,293.5
Realized losses on
investments........... (0.2) -- (0.2)
Other income........... 59.5 -- 59.5
--------------- ------------- ---------------
Total revenues....... 2,016.6 (64.3) 1,952.3
--------------- ------------- ---------------
Benefits and Expenses:
Benefits and claims.... 1,160.6 -- 1,160.6
Policyholder
dividends............. 41.0 -- 41.0
Amortization of
deferred policy
acquisition costs..... 133.4 -- 133.4
Operating expenses..... 353.5 -- 353.5
Interest expense....... -- 22.6 (3) 22.6
--------------- ------------- ---------------
Total benefits and
expenses............ 1,688.5 22.6 1,711.1
--------------- ------------- ---------------
Income from continuing
operations before
federal income tax
expense................ 328.1 (86.9) 241.2
Federal for income tax
expense................ 115.8 (30.4)(4) 85.4
--------------- ------------- ---------------
Income from
continuing
operations.......... $ 212.3 $ (56.5) $ 155.8
=============== ============= ===============
CONSOLIDATED BALANCE
SHEET DATA:
General account assets.. $ 20,843.5 $ (123.4)(5) $ 20,720.1
Separate accounts
assets................. 26,926.7 -- 26,926.7
Total assets............ 47,770.2 (123.4) 47,646.8
Long-term debt.......... -- 300.0 (6) 300.0
Capital Securities...... -- -- --
Shareholders' equity.... 2,131.7 (423.4)(7) 1,708.3
OTHER DATA:
Net operating income
(8).................... $ 211.3 $ (56.5) $ 154.8
Realized gains/(losses)
on investments, net of
tax.................... 1.0 -- 1.0
--------------- ------------- ---------------
Income from continu-
ing operations...... $ 212.3 $ (56.5) $ 155.8
=============== ============= ===============
Income from
continuing
operations per
common share (9).... $ 2.03 $ 1.24
=============== ===============
Ratio of earnings to
fixed charges (10)..... 1.3x 1.2x
Ratio of earnings to
fixed charges, exclud-
ing interest credited
to policyholder account
balances............... N/A 11.7x
</TABLE>
- --------
(1) Pro forma to give effect to (i) the Equity Offerings (assuming net
proceeds of $426.6 million from the issuance of 20,540,000 shares of
Class A Common Stock), (ii) the Special Dividend totalling $850.0 million
which will have been paid by the Company prior to the completion of the
Equity Offerings and (iii) the Note Offering (assuming net proceeds of
$296.3 million).
(2) Reduction in net investment income on the Special Dividend at an assumed
rate of 7.5%. If this reduction were partially offset by net investment
income on the proceeds from the Equity Offerings and the Note Offering at
an assumed reinvestment rate of 7.5%, the net adjustment would be a
reduction of $10.1 million, resulting in pro forma net operating income
of $190.0 million.
(3) The $300 million aggregate principal amount of the Notes is assumed to
bear interest at a rate of 7.5% per annum for the period indicated. There
can be no assurance that this will be the actual rate borne by the Notes.
An increase of 1.0% per annum in the assumed interest rate on the Notes
would result in an increase of $3.0 million to interest expense for the
year ended December 31, 1996. Interest expense includes amortization of
deferred issuance costs.
(4) Income tax effect of the pro forma adjustments at the statutory rate.
(5) The excess of the Special Dividend over the proceeds from the Equity
Offerings and Note Offering. Also included are capitalized issuance
costs.
(6) Represents aggregate principal amount of Notes
(7) The excess of the Special Dividend over the proceeds from the Equity
Offerings.
(8) Excludes realized gains/(losses) on investments (net of related federal
income tax) and discontinued operations.
(9) Actual is based on 104,745,000 shares of Class B Common Stock
outstanding. Pro forma is based on 125,285,000 shares outstanding, which
consists of 104,745,000 shares of Class B Common Stock and 20,540,000
shares of Class A Common Stock assumed to be issued in the Equity
Offerings.
(10) For purposes of this computation, earnings consist of income from
continuing operations before federal income tax expense and fixed
charges. Fixed charges consist of interest expense on debt plus interest
credited to policyholder account balances. There was no actual interest
expense on debt for the year ended December 31, 1996.
25
<PAGE>
PRO FORMA FOR THE SPECIAL DIVIDEND, THE EQUITY OFFERINGS AND THE CAPITAL
SECURITIES OFFERING
<TABLE>
<CAPTION>
AS OF OR FOR THE YEAR ENDED
DECEMBER 31, 1996
-------------------------------------
ACTUAL ADJUSTMENTS PRO FORMA(1)
--------- ----------- ------------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
CONSOLIDATED INCOME
STATEMENT DATA:
Revenues:
Policy charges........... $ 400.9 $ -- $ 400.9
Life insurance premiums.. 198.6 -- 198.6
Net investment income.... 1,357.8 (64.0)(2) 1,293.8
Realized losses on
investments............. (0.2) -- (0.2)
Other income............. 59.5 -- 59.5
--------- ------- ---------
Total revenues.......... 2,016.6 (64.0) 1,952.6
--------- ------- ---------
Benefits and Expenses:
Benefits and claims...... 1,160.6 -- 1,160.6
Policyholder dividends... 41.0 -- 41.0
Amortization of deferred
policy acquisition
costs................... 133.4 -- 133.4
Operating expenses....... 353.5 -- 353.5
Interest expense......... -- 8.0 (3) 8.0
--------- ------- ---------
Total benefits and
expenses............... 1,688.5 8.0 1,696.5
--------- ------- ---------
Income from continuing
operations before federal
income tax expense....... 328.1 (72.0) 256.1
Federal income tax
expense.................. 115.8 (25.2)(4) 90.6
--------- ------- ---------
Income from continuing
operations............. $ 212.3 $ (46.8) $ 165.5
========= ======= =========
CONSOLIDATED BALANCE SHEET
DATA:
General account assets.... $20,843.5 $(323.4)(5) $20,520.1
Separate account assets... 26,926.7 -- 26,926.7
Total assets.............. 47,770.2 (323.4) 47,446.8
Long-term debt............ -- -- --
Capital securities........ -- 100.0 (6) 100.0
Shareholders' equity...... 2,131.7 (423.4)(7) 1,708.3
OTHER DATA:
Net operating income(8)... $ 211.3 $ (46.8) $ 164.5
Realized gains/(losses) on
investments, net of tax.. 1.0 -- 1.0
--------- ------- ---------
Income from continuing
operations............. $ 212.3 $ (46.8) $ 165.5
========= ======= =========
Income from continuing
operations per common
share(9)............... $ 2.03 $ 1.32
========= =========
Ratio of earnings to fixed
charges(10).............. 1.3x 1.3x
Ratio of earnings to fixed
charges, excluding inter-
est credited to policy-
holder account
balances................. N/A 33.0x
</TABLE>
- --------
(1) Pro forma to give effect to (i) the Equity Offerings (assuming net
proceeds of $426.6 million from the issuance of 20,540,000 shares of
Class A Common Stock), (ii) the Special Dividend totalling $850.0 million
which will have been paid by the Company prior to the completion of the
Equity Offerings and (iii) the Capital Securities Offering (assuming net
proceeds of $98.6 million).
(2) Reduction in net investment income on the Special Dividend at an assumed
rate of 7.5%. If this reduction were partially offset by net investment
income on the proceeds from the Equity Offerings and the Capital
Securities Offering at an assumed reinvestment rate of 7.5%, the net
adjustment would be a reduction of $24.6 million, resulting in pro forma
net operating income of $190.1 million.
(3) The $100 million aggregate liquidation amount of the Capital Securities
is assumed to bear a distribution rate of 8.0% per annum for the period
indicated. There can be no assurance that this will be the actual rate
borne by the Capital Securities. An increase of 1.0% per annum on the
assumed distribution rate on the Capital Securities would result in an
increase of $1.0 million to interest expense for the year ended December
31, 1996. Interest expense includes amortization of deferred issuance
costs.
(4) Income tax effect of the pro forma adjustments at the statutory rate.
(5) The excess of the Special Dividend over the proceeds from the Equity
Offerings and Capital Securities Offering. Also included are capitalized
issuance costs.
(6) The Capital Securities will be reflected separately in the Company's
consolidated financial statements as "Company-obligated mandatorily
redeemable capital securities of the Nationwide Financial Services
Capital Trust, holding solely junior subordinated debentures of
Nationwide Financial Services, Inc." with a footnote indicating that all
of the Common Securities of the NFS Trust, which are the only voting
securities of the NFS Trust, are owned by the Company, that the sole
assets of the NFS Trust are the junior subordinated debentures (including
the principal amount, interest rate and maturity date thereof), and that
the NFS Trust's obligations with respect to the Capital Securities,
through the Company's Guarantee, the junior subordinated debentures and
the indenture with respect thereto and the Declaration of Trust of the
NFS Trust, taken together, are fully and unconditionally guaranteed by
the Company.
(7) The excess of the Special Dividend over the proceeds from the Equity
Offerings.
(8) Excludes realized gains/(losses) on investments (net of related federal
income tax) and discontinued operations.
(9) Actual is based on 104,745,000 shares of Class B Common Stock
outstanding. Pro forma is based on 125,285,000 shares outstanding, which
consists of 104,745,000 shares of Class B Common Stock and 20,540,000
shares of Class A Common Stock assumed to be issued in the Equity
Offerings.
(10) For purposes of this computation, earnings consist of income from
continuing operations before federal income tax expense and fixed
charges. Fixed charges consist of interest expense on debt plus interest
credited to policyholder account balances. There was no actual interest
expense on debt for the year ended December 31, 1996.
26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The following analysis of consolidated results of operations and financial
condition of the Company should be read in conjunction with "Selected
Consolidated Financial Data," "Pro Forma Consolidated Financial Data" and the
Consolidated Financial Statements and related footnotes included elsewhere in
this Prospectus.
The Company was formed in November 1996 as a holding company for Nationwide
Life and the other companies within the Nationwide Insurance Enterprise that
offer or distribute long-term savings and retirement products. The
consolidated financial information discussed below includes the results of
operations of Nationwide Life and the related marketing and distribution
companies as though they had been consolidated with the Company for all
periods presented. See "Recent History," "Certain Relationships and Related
Transactions--Existing Arrangements with the Nationwide Insurance Enterprise--
Organization of the Company" and "--Modified Coinsurance Agreements."
RESULTS OF OPERATIONS
Policy Charges. Policy charges include asset fees, which are primarily
earned from separate account assets generated from sales of variable
annuities; administration fees, which include fees charged per contract on a
variety of the Company's products and premium loads on universal life
insurance products; surrender fees, which are charged as a percentage of
assets withdrawn during a specified period (usually the first seven years) of
annuity and certain life insurance contracts; and cost-of-insurance ("COI")
charges earned on universal life insurance products. For 1996, policy charges
were $400.9 million, a 39.9% increase from $286.6 million in 1995. Policy
charges increased 32.0% in 1995 from $217.2 million in 1994. Increases in
policy charges have resulted primarily from increases in separate account
assets and the resulting higher levels of asset fees, as well as a moderate
increase in all of the fees discussed above due to the growth in customer
accounts.
Life Insurance Premiums. Life insurance premiums are earned primarily from
traditional life insurance in the Life Insurance segment, but are also earned
from the sale of life-contingent immediate annuities in the Fixed Annuities
segment. Life insurance premiums from traditional life insurance policies are
recognized as revenue when due from the policyholder. For life-contingent
immediate annuities, net premium (i.e., the portion of the premium which
covers benefits and expenses) is recognized as revenue when received. Any
premium received in excess of the net premium is deferred and recognized as
revenue over the expected benefit period. Traditional life insurance products
accounted for 87.9%, 83.5% and 88.6% of the total life insurance premiums in
1996, 1995 and 1994, respectively. Life insurance premiums were $198.6 million
for 1996, a 0.3% decrease from $199.1 million for 1995. The slight decrease in
1996 was due to an $8.7 million decrease in sales of life-contingent immediate
annuities offset by an $8.3 million increase in traditional life insurance
premiums. Life insurance premiums increased 12.7% in 1995 from $176.7 million
in 1994. The 1995 increase in life insurance premiums resulted from an
increase in traditional life insurance in-force in the Life Insurance segment
and growth in the Fixed Annuities segment.
Net Investment Income. Net investment income includes the gross investment
income earned on investments supporting fixed annuities and certain life
insurance products as well as the yield on the Company's general account
invested assets which are not allocated to product segments. Net investment
income was $1.36 billion in 1996, $1.29 billion in 1995 and $1.21 billion in
1994. Net investment income has increased as a result of growth in the
Company's general account invested assets. General account invested assets
were $18.32 billion, $17.83 billion and $15.23 billion as of December 31,
1996, 1995 and 1994, respectively.
Realized Gains/(Losses) on Investments. Realized gains on investments are
not considered by the Company to be a recurring source of earnings. The
Company makes decisions concerning the sale of invested assets based on a
variety of market, business, tax and other factors. All realized gains and
losses are reported in
27
<PAGE>
the Corporate and Other segment. Net realized losses on investments were $0.2
million in 1996, $1.7 million in 1995 and $16.5 million in 1994.
Other Income. Other income consists of investment management fees earned by
a subsidiary of the Company from the management of Nationwide mutual funds, as
well as commission and other income earned by the Company's marketing and
distribution subsidiaries. Net investment management fees earned on Nationwide
mutual fund assets selected as investment options for variable annuity
products and variable life insurance products are reported in the Variable
Annuities segment and Life Insurance segment, respectively. The Company also
sells its mutual fund products separately, and investment management fees from
these assets are included in the Corporate and Other segment. Other income was
$59.5 million in 1996, a 0.8% increase from 1995. Other income increased 28.8%
to $59.0 million in 1995 from $45.9 million in 1994. The increase in other
income in 1996 and 1995 resulted primarily from an increase in commission
income.
Benefits and Claims. Benefits and claims consist primarily of interest
credited on fixed annuity products and life insurance benefits in the Life
Insurance segment. Benefits and claims increased 4.0% to $1.16 billion in 1996
from 1995. Benefits and claims increased 12.4% to $1.12 billion in 1995 from
$992.7 million in 1994. The changes in benefits and claims from year to year
are primarily attributable to the changes in interest credited which are
discussed in the Fixed Annuities segment results below. Life insurance
benefits have remained consistent over the periods.
Policyholder Dividends. Policyholder dividends are paid on certain
participating policies, primarily in the Life Insurance segment. Policyholder
dividends were $41.0 million in 1996, a 2.8% increase over 1995. Policyholder
dividends increased 2.8% to $39.9 million in 1995 from $38.8 million in 1994.
Amortization of DAC. Amortization of deferred policy acquisition costs
("DAC") results from the capitalization of commissions and other costs of
acquiring new contracts and the amortization of these costs over the estimated
life of the contract. Amortization of DAC was $133.4 million in 1996, a 61.3%
increase over 1995. Amortization of DAC decreased 3.4% to $82.7 million in
1995 from $85.6 million in 1994. The increase in 1996 was primarily
attributable to growth in all product segments while the decrease in 1995
resulted from a decrease in the amortization rate for variable and fixed
individual annuities due to lower than anticipated lapse rates and strong
separate account asset performance.
Operating Expenses. Operating expenses were $353.5 million in 1996, an 11.3%
increase from 1995. Operating expenses increased 14.9% to $317.8 million in
1995 from $276.6 million in 1994. These increases were primarily due to the
increasing number of individual and group annuity contracts in-force and the
related increase in administrative processing costs. The Company has
controlled its operating expenses by taking advantage of economies of scale
and by increasing productivity through investments in technology. As a result,
the ratio of operating expenses to total assets declined to 0.74% in 1996 from
0.83% in 1995 and 0.95% in 1994.
Federal Income Tax Expense. Federal income tax expense was $115.8 million,
$96.3 million and $82.5 million, representing effective tax rates of 35.3%,
34.3% and 34.3%, for 1996, 1995 and 1994, respectively. The increase in the
1996 effective tax rate is the result of greater benefits in 1995 and 1994
from charitable donations of appreciated securities.
Net Operating Income. Net operating income is net income, excluding realized
gains and losses on investments (net of related federal income tax) and
discontinued operations. Net operating income for 1996 was $211.3 million, a
14.3% increase from 1995. The Company's net operating income increased 9.9% to
$184.8 million in 1995 from $168.2 million in 1994.
Discontinued Operations. Discontinued operations include the results of (i)
the three Nationwide Life subsidiaries whose outstanding capital stock, on
September 24, 1996, was declared as a dividend to Nationwide Corp. and (ii)
all of the Company's accident and health and group life business which was
ceded to affiliates effective January 1, 1996. Income from discontinued
operations was $11.3 million, $24.7 million and $20.5 million in 1996, 1995
and 1994, respectively. The Company did not recognize any gain or loss on the
disposal of these subsidiaries or discontinuance of the accident and health
and group life insurance business.
28
<PAGE>
EFFECT OF SPECIAL DIVIDEND, THE NOTE OFFERING AND THE CAPITAL SECURITIES
OFFERING
Prior to the Note Offering, the Company expects to consummate the Equity
Offerings, and, concurrently with the Note Offering, the NFS Trust expects to
consummate the Capital Securities Offering. The consummation of the Note
Offering is not conditioned on the completion of the Capital Securities
Offering. There can be no assurance that the Capital Securities Offering will
be consummated. See "Use of Proceeds," "Recent History" and "The Equity
Offerings, the Note Offering and the Capital Securities Offering." The Equity
Offerings and the Capital Securities Offering are being made pursuant to
separate prospectuses.
The proceeds from the Capital Securities Offering will be used by the NFS
Trust to purchase junior subordinated debentures of the Company (the
"Debentures"). The proceeds received by the Company from the sale of the
Debentures, together with proceeds from the Note Offering, will be contributed
to the capital of Nationwide Life. Prior to the consummation of the Equity
Offerings, Nationwide Life will dividend to the Company, and the Company will
subsequently dividend to Nationwide Corp., securities having an aggregate
market value of $850.0 million. Together with the effect of the proceeds of
the Equity Offerings, these transactions are expected to result in a net
decrease in invested assets of the Company of $28.5 million, which is expected
to result in a slight decrease in net investment income in the future.
Interest expense generated by the securities sold in the Note Offering and the
Capital Securities Offering is expected to be approximately $30.7 million per
year. See Note 3 to "Pro Forma Consolidated Financial Data--Pro Forma for the
Special Dividend, the Equity Offerings, the Note Offering and the Capital
Securities Offering."
The Debentures are expected to mature approximately 40 years from the date
of issuance, with interest payable semi-annually. Interest on the Debentures
will be deferrable, from time to time, for up to 10 consecutive semi-annual
periods, during which time the Company may not pay dividends on its Common
Stock or make other specified payments. Interest on the Debentures will be
cumulative. The Debentures are expected to be optionally redeemable, in whole
or in part, by the Company at any time at a redemption price equal to the
aggregate principal amount plus accrued and unpaid interest plus a premium
based on the value of future interest discounted at a rate based on prevailing
Treasury security rates. The Debentures will not require any sinking fund
payments. The Company will issue a guarantee covering the obligations of the
NFS Trust (to the extent of funds held by the NFS Trust) under the Capital
Securities. Through the guarantee and certain back-up obligations, consisting
of obligations of the Company to provide certain indemnities in respect of,
and pay and be responsible for, certain expenses, costs, liabilities and debts
of the NFS Trust, the Company will fully and unconditionally guarantee all of
the NFS Trust's obligations under the Capital Securities.
29
<PAGE>
RESULTS OF OPERATIONS BY PRODUCT SEGMENT
The Company has three product segments: Variable Annuities, Fixed Annuities
and Life Insurance. In addition, the Company reports corporate income and
expenses and investments and related investment income supporting capital not
specifically allocated to its product segments in a Corporate and Other
segment. All information set forth below relating to the Company's Variable
Annuities segment excludes the fixed option under the Company's variable
annuity contracts. Such information is included in the Company's Fixed
Annuities segment.
The table below presents summary financial data for the Company by segment.
<TABLE>
<CAPTION>
AS OF OR FOR THE
YEAR ENDED
DECEMBER 31,
-------------------------------
1996 1995 1994
--------- --------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
REVENUES:
Variable Annuities(1)......................... $ 284.6 $ 189.0 $ 132.7
Fixed Annuities(1)............................ 1,092.6 1,052.0 939.9
Life Insurance................................ 435.6 409.1 383.1
Corporate and Other........................... 204.0 188.6 194.9
--------- --------- ---------
Total operating revenues.................... 2,016.8 1,838.7 1,650.6
Realized losses on investments................ (0.2) (1.7) (16.5)
--------- --------- ---------
Total revenues.............................. $ 2,016.6 $ 1,837.0 $ 1,634.1
========= ========= =========
INCOME FROM CONTINUING OPERATIONS BEFORE
FEDERAL INCOME TAX EXPENSE:
Variable Annuities............................ $ 90.3 $ 50.8 $ 24.6
Fixed Annuities............................... 135.4 137.0 139.0
Life Insurance................................ 67.2 67.6 53.0
Corporate and Other........................... 35.4 27.5 40.3
--------- --------- ---------
Total operating income...................... 328.3 282.9 256.9
Realized losses on investments................ (0.2) (1.7) (16.5)
--------- --------- ---------
Total income from continuing operations
before federal income tax expense.......... $ 328.1 $ 281.2 $ 240.4
========= ========= =========
POLICY RESERVES:
Variable Annuities(2)......................... $24,278.1 $16,761.8 $10,751.1
Fixed Annuities(2)............................ 13,511.8 12,784.0 11,247.0
Life Insurance................................ 2,938.9 2,660.5 2,425.2
Corporate and Other........................... 3,302.5 2,644.3 2,252.7
--------- --------- ---------
Total policy reserves(3).................... $44,031.3 $34,850.6 $26,676.0
========= ========= =========
</TABLE>
- --------
(1) Revenues related to the fixed option under the Company's variable annuity
contracts are included in Fixed Annuities.
(2) Policy reserves related to the fixed option under the Company's variable
annuity contracts are included in Fixed Annuities. As of December 31,
1996, 1995 and 1994, such policy reserves represented $9.52 billion, $8.83
billion and $7.27 billion, respectively.
(3) Total policy reserves as presented here differ from the amounts set forth
in the Company's financial statements because the presented amounts
exclude (i) accident and health and group life insurance business ceded to
other members of the Nationwide Insurance Enterprise and (ii) the fixed
annuity policy reserves ceded to Franklin Life Insurance Company
("Franklin Life"). See "Business--Reinsurance" and "Certain Relationships
and Related Transactions--Existing Arrangements with the Nationwide
Insurance Enterprise--Modified Coinsurance Agreements."
30
<PAGE>
Variable Annuities
Revenues. Revenues in the Variable Annuities segment consist of policy
charges and other income. Policy charges consist of asset fees, which are
generally a percentage of separate account assets deposited for the purchase
of variable annuities; administration fees, which are generally a specific
dollar amount per contract; and surrender fees, which are charged against
assets withdrawn during a specified period (generally the first seven years)
of variable annuity contracts. The separate account assets generated by the
Variable Annuities segment do not contribute to net investment income of the
Company because the customer receives the investment benefit and bears the
investment risk of these assets. Other income includes net investment
management fees earned on separate account assets held in mutual funds managed
by a subsidiary of the Company.
Revenues were $284.6 million in 1996, a 50.6% increase from 1995. Revenues
increased 42.4% to $189.0 million in 1995 from $132.7 million in 1994.
Revenues have increased primarily as a result of growth in separate account
assets related to this segment and the corresponding growth in asset fees,
which were $261.8 million, $172.8 million and $120.4 million in 1996, 1995
and 1994, respectively. Asset fees as a percentage of variable annuity
separate account assets have remained relatively stable during the periods
presented, reflecting minimal changes in the levels of asset fees charged on
most variable annuity products.
Income from Continuing Operations Before Federal Income Tax Expense. Income
from continuing operations before federal income tax expense was $90.3 million
in 1996, a 77.8% increase from 1995. Income from continuing operations before
federal income tax expense increased 106.5% to $50.8 million in 1995 from
$24.6 million in 1994. Increases have primarily resulted from growth in
variable annuity separate account assets and the corresponding increases in
asset fees combined with expense levels which have decreased as a percentage
of revenues. Total expenses were $189.7 million, $135.4 million and $105.8
million, or 66.7%, 71.6% and 79.7% of total revenues, for 1996, 1995 and 1994,
respectively. During the period, the Company has controlled its operating
expenses by taking advantage of economies of scale and by increasing
productivity through investments in technology.
Policy Reserves. Variable annuity policy reserves increased 44.9% from
$16.76 billion as of December 31, 1995 to $24.28 billion as of December 31,
1996. Of this increase, $2.72 billion was due to market appreciation of
separate account assets, while $6.50 billion of statutory premiums and
deposits offset by $1.70 billion of withdrawals and policy charges resulted in
the remainder of the increase. Variable annuity policy reserves increased
55.9% to $16.76 billion as of December 31, 1995 from $10.75 billion as of
December 31, 1994, which was a 36.8% increase from $7.86 billion as of
December 31, 1993. Market appreciation accounted for $2.93 billion of the
increase in 1995 while market depreciation accounted for an $84.0 million
decrease in 1994. Statutory premiums and deposits were $4.40 billion and $3.82
billion, while withdrawals and policy charges were $1.32 billion and
$840.0 million, in 1995 and 1994, respectively.
Fixed Annuities
Revenues. Revenues in the Fixed Annuities segment consist mainly of net
investment income, which is earned on invested assets allocated to support
fixed annuity policy reserves and shareholders' equity allocated to such
segment. Total revenues were $1.09 billion, $1.05 billion and $939.9 million
in 1996, 1995 and 1994, respectively. Net investment income was $1.05 billion,
$1.00 billion and $903.7 million, representing average pre-tax yields on the
assets supporting this segment of 8.22%, 8.50% and 8.59%, in 1996, 1995 and
1994, respectively. The increase in net investment income for each period
presented is the result of the increases in policy reserves discussed below
and the corresponding increase in invested assets.
Interest Credited. Interest credited on account balances was $805.0 million,
$775.7 million and $680.9 million, representing crediting rates of 6.30%,
6.58% and 6.47%, for 1996, 1995 and 1994, respectively. The differential
between net investment income and interest credited on account balances
resulted in spreads of $245.6 million, $227.1 million and $222.8 million, or
1.92%, 1.92% and 2.12%, in 1996, 1995 and 1994, respectively. Spreads vary
depending on crediting rates offered by competitors, performance of the
investment portfolio and other factors. The higher spread in 1994 is primarily
the result of declining interest rates in late 1993 and early 1994 which
resulted in lower crediting rates.
31
<PAGE>
Income from Continuing Operations Before Federal Income Tax Expense. Income
from continuing operations before federal income tax expense was $135.4
million in 1996, a 1.2% decrease from 1995. Income from continuing operations
before federal income tax expense decreased 1.4% to $137.0 million in 1995
from $139.0 million in 1994. Narrowing spreads, offset by asset growth, caused
1996 and 1995 earnings to decline from 1994.
Policy Reserves. Fixed annuity policy reserves increased 5.7% to $13.51
billion as of December 31, 1996, from $12.78 billion as of December 31, 1995.
Statutory premiums and deposits of $1.60 billion and interest credited of
$805.0 million were offset by $1.68 billion of withdrawals, annuity benefits
and policy charges. Policy reserves increased 13.6% to $12.78 billion as of
December 31, 1995 from $11.25 billion as of December 31, 1994. Statutory
premiums and deposits were $1.86 billion and $1.31 billion, while interest
credited was $775.7 million and $680.9 million in 1995 and 1994, respectively.
Withdrawals and policy charges were $1.10 billion and $895.0 million in 1995
and 1994, respectively.
Life Insurance
Revenues. Revenues in the Life Insurance segment consist of the life
insurance premiums and policy charges, as well as net investment income. Total
revenues were $435.6 million, $409.1 million and $383.1 million for 1996, 1995
and 1994, respectively. The increases are attributed to increases in life
insurance in-force with the majority of the growth coming from the variable
universal life product.
Income from Continuing Operations Before Federal Income Tax Expense. Income
from continuing operations before federal income tax expense was $67.2 million
in 1996, a 0.6% decrease from $67.6 million for 1995. The decrease is
attributable to the increased amount of amortization of DAC due to increased
volume and higher general expenses due to increased sales offset by an
increase in revenues from the variable universal product. Income from
continuing operations before federal income tax expense increased 27.5% to
$67.6 million in 1995 from $53.0 million in 1994. The increase is due to
growth in insurance in-force, particularly variable universal life, combined
with only minimal increases in expenses.
Life Insurance In-Force. Life insurance in-force was $37.72 billion, $33.41
billion and $30.13 billion as of December 31, 1996, 1995 and 1994,
respectively. Nearly two-thirds of the growth of life insurance in-force is in
variable universal life and term insurance policies.
Corporate and Other
Revenues. Revenues in the Corporate and Other segment consist of net
investment income on invested assets not allocated to the three product
segments, all realized investment gains and losses, investment management fees
and other revenues earned from Nationwide mutual funds other than the portion
allocated to the Variable Annuities and Life Insurance segments, commissions
and other income earned by the marketing and distribution subsidiaries of the
Company and net investment income and policy charges from group annuity
contracts issued to Nationwide Insurance Enterprise employee and agent benefit
plans. Total revenues excluding realized gains and losses were $204.0 million
for 1996, an 8.2% increase from 1995. The increase in 1996 is the result of an
increase in investment income, investment management fees and commissions
earned. Total revenues excluding realized gains and losses were $188.6 million
and $194.9 million in 1995 and 1994, respectively. The decrease is a result of
a reduction of $155.0 million of invested assets discussed below. Effective
December 31, 1994, the Company transferred $155.0 million of invested assets
from the Corporate and Other segment for the purchase of Employers Life.
Realized losses on investments were $0.2 million, $1.7 million and $16.5
million in 1996, 1995 and 1994, respectively.
Income from Continuing Operations Before Federal Income Tax Expense. Income
from continuing operations before federal income tax expense excluding
realized gains and losses was $35.4 million, $27.5 million and $40.3 million
in 1996, 1995 and 1994, respectively. The changes between years are primarily
attributed to the changes in revenues discussed above. Interest expense
related to the Note Offering and the Capital Securities Offering will be
recorded in the Corporate and Other segment which will reduce income from
continuing operations before federal income tax expense for the Corporate and
Other segment in periods after the completion of such offerings.
32
<PAGE>
INTERCOMPANY AGREEMENTS
The Company has existing arrangements with Nationwide Mutual and other
affiliates that address the sharing of federal income taxes, the leasing of
office space and the sharing of certain operational and administrative
services. These arrangements have been in effect for all periods for which
financial data is presented herein. See "Certain Relationships and Related
Transactions--Existing Arrangements with the Nationwide Insurance Enterprise."
The Company does not believe that expenses recognized under the intercompany
arrangements are materially different from expenses that would have been
recognized had the Company operated on a stand-alone basis.
Nationwide Mutual and its U.S. subsidiaries, including the Company and its
subsidiaries, file a consolidated federal income tax return. The members of
the consolidated group currently have a tax sharing arrangement which provides
for each member to bear essentially the same federal income tax liability as
if separate tax returns were filed. For the years ended December 31, 1996,
1995 and 1994, the Company made federal income tax payments under the tax
sharing arrangement of $117.3 million, $58.1 million and $84.9 million,
respectively. See "Certain Relationships and Related Transactions--Existing
Arrangements with the Nationwide Insurance Enterprise--Federal Income Taxes."
The Company leases 512,000 square feet of office space at a current market
rate of $19.53 per square foot, with limited exceptions, from Nationwide
Mutual and certain of its subsidiaries. For the years ended December 31, 1996,
1995 and 1994, the Company made lease payments to Nationwide Mutual and its
subsidiaries of $10.0 million, $9.9 million and $9.0 million, respectively.
See "Certain Relationships and Related Transactions--Existing Arrangements
with the Nationwide Insurance Enterprise--Lease."
Pursuant to a cost sharing agreement among Nationwide Mutual and certain of
its direct and indirect subsidiaries, including the Company, Nationwide Mutual
provides certain operational and administrative services, such as sales
support, advertising, personnel and general management services, to those
subsidiaries. Expenses covered by such agreement are subject to allocation
among Nationwide Mutual and such subsidiaries. Amounts allocated to the
Company were $101.6 million, $107.1 million and $100.6 million for the years
ended December 31, 1996, 1995 and 1994, respectively. Under the cost sharing
agreement, expenses are allocated in accordance with NAIC guidelines and are
based on standard allocation techniques and procedures acceptable under
general cost accounting practices. Measures used to allocate expenses include
individual employee estimates of time spent, special cost studies, salary
expense, commissions expense and other measures that are agreed to by the
participating companies and are within regulatory and industry guidelines and
practices. The cost sharing agreement will remain in effect following the
Equity Offerings until terminated upon the consent of both Nationwide Mutual
and the Company. See "Certain Relationships and Related Transactions--Existing
Arrangements with the Nationwide Insurance Enterprise--Cost Sharing
Agreement."
Upon consummation of the Equity Offerings, certain other intercompany
agreements will become effective, including the revised Tax Sharing Agreement,
a lease agreement (the "Lease Agreement") and the Intercompany Agreement. The
Company will be subject to the Tax Sharing Agreement until such time as
Nationwide Mutual no longer beneficially owns at least 80% of the combined
voting power and value of the outstanding capital stock of the Company. The
initial term of the Lease Agreement is for 12 months and automatically renews
upon the same terms and conditions unless either Nationwide Mutual or the
Company gives 30 days' written notice to the other party prior to the end of
such 12-month period. Neither the Tax Sharing Agreement nor the Lease
Agreement may be amended without the prior written consent of the Company. See
"Certain Relationships and Related Transactions--New Agreements with the
Nationwide Insurance Enterprise."
The Intercompany Agreement will govern, among other things, the use by the
Company of certain trade names and service marks owned by Nationwide Mutual,
Nationwide Mutual's approval of certain extraordinary transactions involving
the Company, Nationwide Corp.'s preemptive and registration rights, certain
indemnification matters and the use by the Company of Nationwide Insurance
Enterprise insurance agents. The Intercompany Agreement may not be amended
without the prior written consent of the Company and certain material
provisions thereof may not be amended without the approval of a majority of
the directors of the
33
<PAGE>
Company who are not officers or directors of members of the Nationwide
Insurance Enterprise other than the Company and its subsidiaries. See "Certain
Relationships and Related Transactions--New Agreements with the Nationwide
Insurance Enterprise--Intercompany Agreement."
The Company does not believe its results of operations will be materially
adversely affected as a result of any of the new intercompany agreements that
will become effective upon the consummation of the Equity Offerings.
REINSURANCE
The Company follows the customary industry practice of reinsuring ("ceding")
a portion of its life insurance and annuity risks with other companies in
order to reduce net liability on individual risks, to provide protection
against large losses and to obtain greater diversification of risks. The
ceding of risk does not discharge the original insurer from its primary
obligation to the policyholder. The Company has entered into a reinsurance
contract to cede a portion of its general account individual annuity reserves
to Franklin Life. Total recoveries due from Franklin Life were $240.5 million
and $245.3 million as of December 31, 1996 and 1995, respectively. Under the
terms of the contract, Franklin Life has established a trust as collateral for
the recoveries. The trust assets are invested in investment grade securities,
the market value of which must at all times be greater than or equal to 102%
of the reinsured reserves. The Company has no other material reinsurance
arrangements with unaffiliated reinsurers.
The only material reinsurance agreements which the Company has with
affiliates are the modified coinsurance agreements pursuant to which
Nationwide Life reinsured all of its accident and health and group life
insurance business to Employers Life and Nationwide Mutual. See "Certain
Relationships and Related Transactions--Existing Arrangements with the
Nationwide Insurance Enterprise--Modified Coinsurance Agreements." Nationwide
Life entered into these reinsurance agreements because its accident and health
and group life insurance business was unrelated to the Company's long-term
savings and retirement products. Accordingly, all accident and health and
group life insurance business is accounted for as discontinued operations.
Under the modified coinsurance agreements, invested assets are retained by the
ceding company and investment earnings are paid to the reinsurer. Under the
terms of such agreements, the investment risk associated with changes in
interest rates is borne by Employers Life or Nationwide Mutual, as the case
may be. Risk of asset default is retained by the Company, although a fee is
paid by Employers Life or Nationwide Mutual, as the case may be, to the
Company for the Company's retention of such risk. The contracts will remain in
force until all policy obligations are settled. However, with respect to the
agreement between Nationwide Life and Nationwide Mutual, either party may
terminate the contract on January 1 of any year with prior notice. The Company
believes that the terms of such modified coinsurance agreements are consistent
in all material respects with what the Company could have obtained with
unaffiliated parties.
Total premiums ceded under the intercompany reinsurance agreements were
$321.6 million during 1996. The effect of the reinsurance agreements was an
increase in the Company's income from discontinued operations before federal
income tax expense of $4.5 million during 1996. The Company does not expect
the intercompany reinsurance agreements to have any material adverse effect on
the Company's future operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company is an insurance holding company whose principal asset is the
common stock of Nationwide Life. The principal sources of funds for the
Company to pay principal, interest, dividends and operating expenses are
dividends from Nationwide Life and other subsidiaries and payments from
Nationwide Life under the Tax Sharing Agreement.
State insurance laws generally restrict the ability of insurance companies
to pay cash dividends in excess of certain prescribed limitations without
prior approval. The ability of Nationwide Life to pay dividends is subject to
restrictions set forth in the insurance laws and regulations of Ohio, its
domiciliary state. The Ohio insurance laws require life insurance companies to
seek prior regulatory approval to pay a dividend or distribution of cash or
other property if the fair market value thereof, together with that of other
dividends or distributions made in
34
<PAGE>
the preceding 12 months, exceeds the greater of (i) 10% of policyholders'
surplus as of the prior December 31 or (ii) the net income of the insurer for
the 12-month period ending as of the prior December 31. The Ohio insurance
laws also require insurers to seek prior regulatory approval for any dividend
paid from other than earned surplus. The payment of dividends by Nationwide
Life may also be subject to restrictions set forth in the insurance laws of
New York that limit the amount of statutory profits on Nationwide Life's
participating policies (measured before dividends to policyholders) that can
inure to the benefit of the Company and its stockholders. The Company
currently does not expect such regulatory requirements to impair its ability
to pay operating expenses and dividends in the future. However, the Company
can give no assurance that dividends will be declared or paid by the Company.
As a result of the Special Dividend and the dividend by Nationwide Life of
the stock of certain subsidiaries that do not operate in the long-term savings
and retirement market, any dividend paid by Nationwide Life during the 12-
month period immediately following the Special Dividend would be an
extraordinary dividend under Ohio insurance laws. See "Recent History."
Accordingly, no such dividend could be paid without prior regulatory approval.
The Company has no reason to believe that any reasonably forseeable dividend
to be paid by Nationwide Life would not receive the required approval.
However, in order to increase liquidity at the holding company level, the
Company will retain approximately $55.0 million from the net proceeds of the
Equity Offerings. The $55.0 million, which will be invested in short-term
interest-bearing securities, will be available initially to pay interest
associated with the Note Offering and the Capital Securities Offering,
stockholder dividends, and expenses.
Nationwide Life's statutory capital and surplus was $1.00 billion at
December 31, 1996. Nationwide Life will pay the Special Dividend of $850.0
million prior to the consummation of the Equity Offerings. The Company will
contribute to Nationwide Life approximately $371.6 million of the net proceeds
from the Equity Offerings. The Company believes that after the Special
Dividend and such contribution of the proceeds from the Equity Offerings,
Nationwide Life will have adequate statutory capital and surplus to satisfy
all regulatory requirements and to support its growth over the following year.
In addition, any proceeds from the Note Offering and the Capital Securities
Offering will be contributed to Nationwide Life, providing it with additional
capital resources.
Nationwide Life will pay the Special Dividend by transferring primarily
fixed maturity investments with an aggregate market value on the date of
transfer of $850.0 million from the Corporate and Other segment. The Company
may recognize a gain or loss on the transfer of the securities. The related
tax impact of any gain or loss would be recognized but would not be paid as
long as the securities are held by Nationwide Mutual and the Company remains
within the consolidated federal tax return of Nationwide Mutual.
Nationwide Life's principal sources of funds are premiums and other
considerations paid, contract charges earned, net investment income received
and proceeds from investments called, redeemed or sold. The principal uses of
these funds are the payment of benefits on annuity contracts and life
insurance policies, operating expenses and the purchase of investments. Net
cash provided by operating activities (reflecting principally (i) premiums and
contract charges collected, less (ii) benefits paid on life insurance
products, plus (iii) income collected on invested assets, less (iv)
commissions and other general expenses paid) was $341.6 million, $192.8
million and $77.9 million for the years ended December 31, 1996, 1995 and
1994, respectively. Net cash used by investing activities (principally
reflecting investments purchased less investments called, redeemed or sold)
was $765.9 million, $1.73 billion and $1.43 billion in the years ended
December 31, 1996, 1995 and 1994, respectively. Net cash provided by financing
activities (principally reflecting deposits to investment product and
universal life insurance product account balances less withdrawals from such
account balances and capital contributions less dividends paid) was $457.5
million, $1.54 billion and $1.33 billion for the years ended December 31,
1996, 1995 and 1994, respectively.
A primary liquidity concern with respect to life insurance and annuity
products is the risk of early policyholder and contractholder withdrawal. The
Company closely evaluates and manages this risk. The
35
<PAGE>
following table summarizes the Company's annuity policy reserves as of
December 31, 1996 and 1995 by the contractholder's ability to withdraw funds.
<TABLE>
<CAPTION>
AS OF
AS OF DECEMBER 31, 1996 DECEMBER 31, 1995
------------------------ ------------------
POLICY POLICY
RESERVES % RESERVES %
------------------------ ------------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Not subject to discretionary
withdrawal........................ $ 1,139.5 2.8% $ 1,087.2 3.4%
Subject to discretionary withdrawal
with adjustment:
With market value adjustment..... 35,463.2 86.3 27,312.1 84.8
At contract value, less surrender
charge of 5% or more............ 1,046.6 2.5 992.1 3.1
------------- ---------- ---------- -------
37,649.3 91.6 29,391.4 91.3
Subject to discretionary withdrawal
at contract value with no
surrender charge or surrender
charge less than 5%............... 3,443.2 8.4 2,798.7 8.7
------------- ---------- ---------- -------
Total annuity policy reserves.. $ 41,092.5 100.0% $32,190.1 100.0%
============= ========== ========== =======
</TABLE>
Life insurance policies are also subject to withdrawal. However, they are
less susceptible to withdrawal than are annuity contracts because
policyholders may incur surrender charges and undergo a new underwriting
process in order to obtain a new insurance policy.
Nationwide Life's principal sources of liquidity to meet unexpected cash
outflows are its portfolio of liquid assets and its net operating cash flow.
See "Business--Investments."
The short- and long-term liquidity requirements of the Company are monitored
regularly to match cash inflows with cash requirements. The Company
periodically reviews its short- and long-term projected sources and uses of
funds and the asset/liability, investment and cash flow assumptions underlying
these projections. Adjustments are made periodically with respect to the
Company's investment policies to reflect changes in the Company's short- and
long-term cash needs and changing business and economic conditions.
The Company employs an asset/liability management approach tailored to the
specific requirements of each of its product lines. The Company's general
account investment assets are primarily managed in a number of pools that are
separated by weighted average maturity of the assets acquired by the pools. On
bonds and mortgages, the weighted average maturity is based on repayments
which are scheduled to occur under the terms of the asset. For mortgage backed
securities, repayments are determined using the current rate of repayment of
the underlying pool of mortgages and the terms of the securities. Each product
line has an investment strategy based on the specific characteristics of such
product line. The strategy establishes asset duration, quality and other
guidelines. The Company's actuaries determine the amount of new investments
needed for each line to arrive at the amount of new investments needed for
each pool by month. The investments acquired for each pool are shared on a
proportional basis by each of the lines requesting investments in the pool
based on their actual investment needs. See "Business--Investments."
For all business having future benefits which cannot be changed at the
option of the policyholder, the underlying assets are managed in a separate
pool. The duration of assets and liabilities in this pool are kept as close
together as possible. For assets, the repayment cash flows, plus anticipated
coupon payments, are used in calculating asset duration. Future benefits and
expenses are used for liabilities. On December 31, 1996, the average duration
of assets in this pool was 6.80 years and the average duration of the
liabilities was 7.44 years. Policy reserves on this business were $1.30
billion as of December 31, 1996.
Because the timing of the payment of future benefits on the majority of the
Company's business can be changed by the policyholder, the Company employs
cash flow testing techniques as a final step in its asset/liability management
process. Annually, the Company's annuity and insurance business is analyzed to
determine the adequacy of the reserves supporting such business. This analysis
is accomplished by projecting under a number of possible future interest rate
scenarios the anticipated cash flows from such business and the assets
required to support such business. The first seven of these scenarios are
required by state insurance laws. Projections are also made using thirteen
additional scenarios which involve more extreme fluctuations in future
interest rates. Finally, to get a statistical analysis of possible results and
to minimize any bias in the twenty predetermined scenarios, additional
projections are made using 200 randomly generated interest rate scenarios. The
values produced by each projection are used to determine future gains or
losses from the Company's annuity
36
<PAGE>
and insurance business, which, in turn, are used to quantify the adequacy of
the Company's reserves over the entire projection period. The results of the
Company's cash flow testing for year end 1995 (the most recent year for which
results are available) indicated that the Company's reserves were adequate at
December 31, 1995. The Company has no reason to believe that the Company's
reserves at December 31, 1996 will not be adequate, although cash flow testing
has not yet been completed with respect to such reserves.
The Company manages its investment portfolio in part to reduce its exposure
to interest rate fluctuations. In general, the market value of the Company's
fixed maturity portfolio increases or decreases in inverse relationship with
fluctuations in interest rates. For example, if interest rates rise, the
Company's fixed maturity investments will generally decrease in value.
Additionally, the Company's net investment income may be affected by interest
rate changes. If interest rates decline, net investment income will decrease
if high-yielding fixed maturity investments mature or are sold and the
proceeds therefrom are reinvested in securities yielding a lower rate.
On August 12, 1996, Nationwide Life and Nationwide Mutual entered into a
Credit Facility (the "Credit Facility") which provides for a $600.0 million
loan over a five-year term on a fully revolving basis with a group of banks
led by Morgan Guaranty Trust Company of New York. The Credit Facility provides
for several and not joint liability with respect to any amount drawn by either
Nationwide Life or Nationwide Mutual. To date, neither Nationwide Life nor
Nationwide Mutual has drawn down any amount under the Credit Facility. The
Credit Facility provides for several borrowing options including interest at a
spread over LIBOR, money market auction, CD or base rate. The Credit Facility
also provides covenants, including, but not limited to, restrictions on
decreases in the statutory surplus of Nationwide Mutual below $2.75 billion,
mergers and sales of assets if a default has occurred and is continuing,
transactions with affiliates (which must be on an arm's-length basis on terms
at least as favorable to Nationwide Life or Nationwide Mutual as could have
been obtained from a third party who was not affiliated with Nationwide Life
or Nationwide Mutual) and restrictions on the creation, assumption or
suffering to exist of liens. In addition, the Credit Facility provides for
customary representations, warranties and events of default. Pursuant to the
terms of the Credit Facility, Nationwide Life may not declare or pay a
dividend if it is, or if the payment thereof would cause it to be, in default
under such facility. Events of default under the Credit Facility include,
among others, the failure of Nationwide Mutual and its affiliates to maintain
beneficial ownership of more than 50% of the combined voting power of
Nationwide Life's outstanding voting stock and the failure of Nationwide Life
to maintain statutory surplus in excess of $875.0 million. Amounts borrowed
under the Credit Facility may be used for, among other things, general
corporate purposes.
Given the Company's historic cash flow and current financial results,
management of the Company believes that the cash flow from the operating
activities of the Company over the next year will provide sufficient liquidity
for the operations of the Company, as well as provide sufficient funds to
enable the Company to make dividend payments, satisfy debt service obligations
and pay other operating expenses. Although the Company currently anticipates
that it will be able to make dividend payments and pay other operating and
capital expenses for the foreseeable future, the Company can give no
assurances as to whether the net cash provided primarily by dividends from
Nationwide Life and its other subsidiaries will provide sufficient funds for
the Company to do so.
INFLATION
Many of the Company's assets and liabilities are monetary in nature and
sensitive to the interest rate environment which can be affected by inflation.
The Company is exposed to the risk of a reduction in interest spread or profit
margins when interest rates fluctuate. Bond calls, mortgage prepayments,
contract surrenders and withdrawals of annuities and life insurance policies
are influenced by the interest rate environment. In general, the fair value of
the Company's fixed maturities portfolio increases or decreases inversely with
fluctuations in interest rates. For example, if interest rates rise, the
Company's fixed maturity investments will generally decrease in value.
Additionally, the Company's net investment income may be affected by interest
rate changes. If interest rates decline, net investment income will decrease
if high-yielding fixed maturity investments mature or are sold and the
proceeds therefrom are reinvested in securities yielding a lower rate.
Management attempts to mitigate the negative impact of interest rate changes
through asset/liability management, product design, management of crediting
rates, relatively high surrender charges and management of mortality charges
and dividend scales with respect to its in-force life insurance policies, but
there can be no assurance that such attempts will be completely successful.
Extreme changes in the interest rate environment could cause net interest
margins to fluctuate from historical levels.
37
<PAGE>
BUSINESS
OVERVIEW
The Company is a leading provider of long-term savings and retirement
products to retail and institutional customers throughout the United States.
The Company offers variable annuities, fixed annuities and life insurance as
well as mutual funds and pension products and administrative services. By
developing and offering a wide variety of products, the Company believes that
it has positioned itself to compete effectively in various stock market and
interest rate environments. The Company markets its products through a broad
spectrum of wholesale and retail distribution channels, including financial
planners, pension plan administrators, securities firms, banks and Nationwide
Insurance Enterprise insurance agents.
The Company is one of the leaders in the development and sale of variable
annuities. For the year ended December 31, 1996, the Company was the fourth
largest U.S. writer of individual variable annuity contracts based on sales,
according to VARDS. Its principal variable annuity series, The Best of
America, allows the customer to choose from 36 investment options, including
mutual funds managed by such well-known firms as American Century, Dreyfus,
Fidelity, Janus, Neuberger & Berman, Oppenheimer, T. Rowe Price, Templeton,
Vanguard and Warburg Pincus, as well as mutual funds managed by the Company.
The Company has grown substantially in recent years as a result of its long-
term investment in developing the distribution channels necessary to reach its
target customers and the products required to meet the demands of these
customers. The Company believes its growth has been enhanced further by
favorable demographic trends, the growing tendency of Americans to supplement
traditional sources of retirement income with self-directed investments, such
as products offered by the Company, and the performance of the financial
markets, particularly the U.S. stock markets, in recent years. From 1992 to
1996, the Company's assets grew from $20.8 billion to $47.8 billion, a
compound annual growth rate of 23.1%. During the same period, the Company's
net operating income grew from $97.0 million to $211.3 million, a compound
annual growth rate of 21.5%. Asset growth during this period resulted from
sales of the Company's products as well as market appreciation of assets in
the Company's separate accounts and in its general account investment
portfolio. The Company's sales of variable annuities grew from $1.56 billion
in 1992 to $6.50 billion in 1996, a compound annual growth rate of 42.9%. The
Company's separate account assets, which are generated by the sale of variable
annuities and variable universal life insurance, grew from 29.3% of total
assets at December 31, 1992 to 56.4% of total assets at December 31, 1996.
During this period of substantial growth, the Company controlled its operating
expenses by taking advantage of economies of scale and by increasing
productivity through investments in technology. From 1992 to 1996, the
Company's total assets increased by 130.1% while operating expenses increased
by only 55.1%. As a result, its ratio of operating expenses to total assets
fell from 1.10% in 1992 to 0.74% in 1996.
The Company believes that demographic trends and shifts in attitudes toward
retirement savings will continue to support increased consumer demand for its
products. According to U.S. Census Bureau projections, the number of Americans
between the ages of 45 and 64 will grow from 55.7 million in 1996 to 71.1
million in 2005, making this "preretirement" age group the fastest growing
segment of the U.S. population. The Company believes that Americans
increasingly are supplementing traditional sources of retirement income, such
as employer-provided defined benefit plans and Social Security, with self-
directed investments. Reflecting this shift, industry sales of individual
variable annuity products grew from $28.5 billion in 1992 to $73.8 billion in
1996, a compound annual growth rate of 26.9%, according to VARDS. During the
same period, industry individual variable annuity assets grew from $212
billion to $501 billion, a compound annual growth rate of 24.0%, according to
VARDS.
PRODUCT SEGMENTS
The Company has three product segments: Variable Annuities, Fixed Annuities
and Life Insurance. The Variable Annuities segment, which accounted for $90.3
million (or 27.5%) of the Company's operating income
38
<PAGE>
before federal income tax expense for 1996, consists of annuity contracts that
provide the customer with the opportunity to invest in mutual funds managed by
independent investment managers and the Company, with investment returns
accumulating on a tax-deferred basis. The Fixed Annuities segment, which
accounted for $135.4 million (or 41.2%) of the Company's operating income
before federal income tax expense for 1996, consists of annuity contracts that
generate a return for the customer at a specified interest rate, fixed for a
prescribed period, with returns accumulating on a tax-deferred basis. Such
contracts consist of single premium deferred annuities, flexible premium
deferred annuities and single premium immediate annuities. The Fixed Annuities
segment also includes the fixed option under the Company's variable annuity
contracts, which accounted for 70.5% of the Company's fixed annuity policy
reserves as of December 31, 1996. For the year ended December 31, 1996, the
average crediting rate on contracts (including the fixed option under the
Company's variable contracts) in the Fixed Annuities segment was 6.3%.
Substantially all of the Company's crediting rates on its fixed annuity
contracts are guaranteed for a period not exceeding 15 months. See "--Product
Segments--Fixed Annuities." The Life Insurance segment, which accounted for
$67.2 million (or 20.5%) of the Company's operating income before federal
income tax expense for 1996, consists of insurance products, including
variable life insurance products, that provide a death benefit and may also
allow the customer to build cash value on a tax-deferred basis. In addition,
the Company reports corporate income and expenses not specifically allocated
to its product segments in a Corporate and Other segment, which accounted for
$35.4 million (or 10.7%) of the Company's operating income before federal
income tax expense for 1996. After giving pro forma effect to the Special
Dividend, the Equity Offerings, the Note Offering and the Capital Securities
Offering as if each had been consummated at January 1, 1996, and assuming the
aggregate proceeds of the Equity Offerings, the Note Offering and the Capital
Securities Offering had been invested to earn a return of 7.5%, the Variable
Annuities, Fixed Annuities, Life Insurance and Corporate and Other segments
would have represented 30.6%, 46.0%, 22.8% and 0.6%, respectively, of the
Company's operating income before federal income tax expense for 1996. See
"Pro Forma Consolidated Financial Data."
Variable Annuities
The Company is one of the leaders in the development and sale of individual
and group variable annuity products. For the year ended December 31, 1996, the
Company was the fourth largest U.S. writer of individual variable annuity
contracts based on sales, according to VARDS. The Company believes that
demographic trends and shifts in attitudes toward retirement savings will
continue to support increased consumer demand for its variable annuity
products.
The Company believes that it possesses distinct competitive advantages in
the market for variable annuities. Some of the Company's most important
advantages include its innovative product offerings and strong relationships
with independent, well-known fund managers. For example, the Company's The
Best of America IV and The Best of America--America's Vision individual
variable annuity contracts allow the customer to choose from 36 investment
options, including mutual funds managed by a variety of well-known fund
managers and the Company. In the aggregate, the Company's group variable
annuity products offer over 100 underlying investment options.
The Company markets its variable annuity products through a broad spectrum
of channels, including broker/dealers, financial planners, banks and
Nationwide Insurance Enterprise insurance agents. See "--Marketing and
Distribution." The Company seeks to capture a growing share of variable
annuity sales in these channels by working closely with its investment
managers and product distributors to adapt the Company's products and services
to changes in the retail and institutional marketplace in order to enhance its
leading position in the market for variable annuities. The Company is
following a strategy of extending The Best of America brand name to more of
its products and distribution channels in an effort to build upon its brand
name recognition.
39
<PAGE>
The wide array of investment options available under the Company's variable
annuity contracts include mutual funds managed by the nationally recognized
money managers set forth below:
<TABLE>
<S> <C>
AIM Advisors, Inc. Neuberger & Berman Management Incorporated
American Century Investors Oppenheimer Management Corporation
Research Corporation Phoenix Investment Counsel, Inc.
Banc One Investment Advisers Putnam Investment Management, Inc.
Corporation SEI Financial Management
Capital Research and Management Corporation
Company Smith Barney Advisers, Inc.
Davis Selected Advisors, L.P. Smith Barney Mutual Funds
Delaware Management Company, Inc. Management, Inc.
Evergreen Asset Management Corp. Strong Capital Management, Inc.
Federated Advisers T. Rowe Price-Flemington
Fidelity Management & Research International, Inc.
Company Templeton Global Advisors Limited
INVESCO Funds Group, Inc. Templeton Investment Counsel, Inc.
J&W Seligman & Co. Incorporated Tiffany Capital Advisors, Inc. (The
Janus Capital Corporation Dreyfus Socially Responsible
Lexington Management Corporation Growth Fund, Inc.)
Massachusetts Financial Service Van Eck Associates Corporation
Company (MFS(R) Variable Van Kampen American Capital Asset
Insurance Trust) Management, Inc.
Mellon Equity Associates The Vanguard Group, Inc.
(Dreyfus Stock Index Fund, Inc.) Warburg Pincus Counsellors, Inc.
Miller Anderson & Sherrerd Weiss, Peck & Greer, L.L.C.
</TABLE>
The Company believes that the variable annuity business is attractive
because it generates fee income. In addition, because the investment risk on
variable annuities is borne principally by the customer and not the Company,
the variable annuity business requires significantly less capital support than
fixed annuity and traditional life insurance businesses. The Company receives
income from variable annuity contracts primarily in the form of asset and
administration fees. In addition, most of the Company's variable annuity
products provide for a contingent deferred sales charge, also known as a
"surrender charge" or "back-end load," that is assessed against customer
withdrawals in excess of specified amounts made during a specified period,
usually the first seven years of the contract. Surrender charges are intended
to protect the Company from withdrawals early in the contract period, before
the Company has had the opportunity to recover its sales expenses. Generally,
surrender charges on variable annuity products are 7% of premiums withdrawn
during the first year, scaling ratably to 0% for the eighth year and each year
thereafter.
The Company's variable annuity products consist almost entirely of flexible
premium deferred variable annuity ("FPVA") contracts. FPVA contracts are
distributed through broker/dealers, financial planners, banks, pension plan
administrators and Nationwide Insurance Enterprise insurance agents. Such
contracts are savings vehicles in which the customer makes a single deposit or
a series of deposits. The customer has the flexibility to invest in mutual
funds managed by independent investment managers and the Company. Deposits may
be made at regular or irregular intervals and in regular or irregular amounts.
The value of the annuity fluctuates in accordance with the investment
experience of the mutual funds chosen by the customer. The customer is
permitted to withdraw all or part of the accumulated value of the annuity,
less a surrender charge for withdrawals during an initial penalty period of
generally seven years. As specified in the FPVA contract, the customer
generally can elect from a number of payment options that provide either fixed
or variable benefit payments.
40
<PAGE>
The following table summarizes certain selected unaudited financial data for
the Company's Variable Annuities segment for the periods indicated.
VARIABLE ANNUITIES SELECTED FINANCIAL DATA(1)
<TABLE>
<CAPTION>
AS OF OR FOR THE
YEAR ENDED DECEMBER 31,
----------------------------
1996 1995 1994
-------- -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Policy charges................................... $ 293.5 $ 196.8 $ 137.9
Net investment income and other income(2)........ (8.9) (7.8) (5.2)
-------- -------- --------
Total revenues................................. 284.6 189.0 132.7
-------- -------- --------
Benefits and claims.............................. 4.6 2.9 2.3
Amortization of deferred policy acquisition
costs........................................... 57.4 26.3 22.1
Operating expenses............................... 132.3 109.0 83.7
-------- -------- --------
Total benefits and expenses.................... 194.3 138.2 108.1
-------- -------- --------
Operating income before federal income tax
expense..................................... $ 90.3 $ 50.8 $ 24.6
======== ======== ========
OTHER DATA:
Statutory premiums, deposits and other
considerations(3)............................... $6,500.3 $4,399.3 $3,821.1
Withdrawals...................................... 1,697.3 1,071.6 684.8
Policy reserves at period end.................... 24,278.1 16,761.8 10,751.1
Ratio of policy charges/average policy reserves.. 1.43% 1.44% 1.48%
</TABLE>
- --------
(1) Excludes the fixed option under the Company's variable annuity contracts
which is reported in the Company's Fixed Annuities segment.
(2) The Company's method of allocating net investment income results in a
charge (negative net investment income) to this segment which is
recognized as net investment income in the Corporate and Other segment.
The charge relates to non-invested assets which support this segment on a
statutory basis.
(3) Statutory data have been derived from the Annual and Quarterly Statements
of Nationwide Life, as filed with insurance regulatory authorities and
prepared in accordance with statutory accounting practices.
The Company offers individual variable annuities under The Best of America
brand name. In addition to The Best of America individual variable annuities,
the Company markets employer-sponsored variable annuities to both public
sector employees and teachers for use in connection with plans described under
Sections 457 and 403(b) of the Internal Revenue Code (the "IRC"), and to
private sector employees for use in connection with IRC Section 401(k) plans.
These employer-sponsored variable annuities are marketed under several brand
names, including Group Best of America. The Company also markets variable
annuities as "private label" products. Such products are offered through banks
and are also offered to members of The National Education Association of the
United States (the "NEA") under The NEA Valuebuilder brand name.
The Best of America. The Company's principal FPVA contracts are sold under
the brand names The Best of America--America's Vision and The Best of America
IV. These two brand name variable annuities accounted for $3.50 billion (or
53.8%) of the Company's variable annuity sales in 1996, and $13.97 billion (or
57.5%) of the Company's variable annuity policy reserves as of December 31,
1996. The Company's The Best of America--America's Vision product is intended
to appeal to distributors in the market for large initial deposits. The
contract requires a minimum initial deposit of $15,000. The Company's The Best
of America IV product is intended primarily for the tax-qualified, payroll
deduction market, where initial deposits are often smaller. The Best of
America IV generally pays a lower up-front commission to distributors but
requires only $1,500 as an initial deposit. Both products generate an annual
asset fee and annual administration fees for the Company.
41
<PAGE>
Group Best of America. These group variable annuity products accounted for
$1.62 billion (or 25.0%) of the Company's variable annuity sales in 1996, and
$4.37 billion (or 18.0%) of the Company's variable annuity policy reserves as
of December 31, 1996. Group Best of America products are typically offered
only on a tax-qualified basis. These products may be structured with a variety
of features which may be arranged in over 600 combinations of front-end loads,
back-end loads and asset-based fees.
Section 457 Contracts. These products accounted for $799.3 million (or
12.3%) of the Company's variable annuity sales in 1996, and $4.10 billion (or
16.9%) of the Company's variable annuity policy reserves as of December 31,
1996. The Company offers a variety of group variable annuity contracts that
are designed primarily for use in conjunction with plans described under IRC
Section 457. Section 457 permits employees of state and local governments to
defer a certain portion of their yearly income and invest such income on a
tax-deferred basis. These contracts typically generate an annual asset fee and
may also generate annual administration fees for the Company.
Private Label Variable Annuities. These products accounted for $487.8
million (or 7.5%) of the Company's variable annuity sales in 1996, and $1.65
billion (or 6.8%) of the Company's variable annuity policy reserves as of
December 31, 1996. The Company has developed several private label variable
annuity products in conjunction with other financial intermediaries, including
Bank One, Fidelity Asset Management Corporation and First Union Bank. These
products allow financial intermediaries to market products with substantially
the same features as The Best of America IV to their own customer bases under
their own brand names. The Company believes these private label products
strengthen the Company's ties to certain significant distributors of the
Company's products. These contracts generate an annual asset fee and may also
generate annual administration fees for the Company.
The NEA Valuebuilder. This product accounted for $89.5 million (or 1.4%) of
the Company's variable annuity sales in 1996, and $196.8 million (or 0.8%) of
the Company's variable annuity account balances as of December 31, 1996. The
Company offers individual variable annuity contracts to the Teacher Market
under Section 403(b) of the IRC. Section 403(b) permits teachers and other
employees of educational organizations to defer a certain portion of their
yearly income and invest such income on a tax-deferred basis. These contracts
generate an annual asset fee and may also generate annual administration fees
for the Company.
Fixed Annuities
The Company has sought to maintain its ability to grow profitably in a
variety of market environments. The Company believes that periods of rising
interest rates, that tend to cause lower sales growth in its Variable
Annuities segment, make its fixed annuity products more attractive to
consumers. In addition to providing balance to the Company's variable annuity
business, its fixed annuity business allows the Company to offer a
comprehensive portfolio of savings alternatives to its customers and
distributors as the Company seeks to capture a growing share of sales in all
distribution channels. The Fixed Annuities segment includes the fixed option
under the Company's variable annuity products. Customers who purchase variable
annuities are able to designate some or all of their deposits to fixed options
which, like the Company's fixed annuity contracts, offer a guarantee of
principal and a guaranteed interest rate for a specified period of time. The
Company includes such business in its Fixed Annuities segment because of its
similar characteristics. The fixed option under the Company's variable annuity
products accounted for $1.24 billion (or 77.3%) of the Company's fixed annuity
sales in 1996, and $9.52 billion (or 70.5%) of the Company's fixed annuity
policy reserves as of December 31, 1996.
Fixed annuity products are marketed to individuals who choose to allocate
long-term savings to products that provide a guarantee of principal, a stable
net asset value and a guarantee of the interest rate to be credited to the
principal amount for some period of time. The Company's fixed annuity products
are offered both to individuals and as group products to employers for use in
employee benefit programs. The Company's individual fixed annuity products are
distributed through its wholesale and retail channels and include single
premium deferred annuity contracts, flexible premium deferred annuity
contracts and single premium immediate annuity contracts. The Company's group
fixed annuity contracts are also distributed through its wholesale and retail
42
<PAGE>
channels. The Company invests fixed annuity customer deposits in its general
account investment portfolio. See "--Investments." Unlike variable annuity
assets that are held in the Company's separate account, the Company bears the
investment risk on assets held in its general account. The Company attempts to
earn a spread by investing a customer's deposits for higher yields than the
interest rate it credits to the customer's fixed annuity contract.
For the year ended December 31, 1996, the average crediting rate on
contracts (including the fixed option under the Company's variable contracts)
in the Fixed Annuities segment was 6.3%. Substantially all of the Company's
crediting rates on the Company's fixed annuity contracts are guaranteed for a
period not exceeding 15 months.
The following table summarizes certain selected unaudited financial data for
the Company's Fixed Annuities segment for the periods indicated.
FIXED ANNUITIES SELECTED FINANCIAL DATA(1)
<TABLE>
<CAPTION>
AS OF OR FOR THE
YEAR ENDED DECEMBER 31,
-----------------------------
1996 1995 1994
--------- --------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Policy charges.......................... $ 18.0 $ 16.4 $ 16.1
Life insurance premiums................. 24.0 32.8 20.1
Net investment income................... 1,050.6 1,002.8 903.7
--------- --------- ---------
Total revenues........................ 1,092.6 1,052.0 939.9
--------- --------- ---------
Benefits and claims..................... 838.5 805.0 702.1
Policyholder dividends.................. 0.3 0.2 (1.0)
Amortization of deferred policy
acquisition costs...................... 38.6 29.5 29.9
Operating expenses...................... 79.8 80.3 69.9
--------- --------- ---------
Total benefits and expenses........... 957.2 915.0 800.9
--------- --------- ---------
Operating income before federal
income tax expense................. $ 135.4 $ 137.0 $ 139.0
========= ========= =========
OTHER DATA:
Statutory premiums, deposits and other
considerations(2)...................... $ 1,600.5 $ 1,864.2 $ 1,308.6
Interest credited....................... 805.0 775.7 680.9
Withdrawals and benefits................ 1,375.4 1,151.6 906.8
Policy reserves at period end........... 13,511.8 12,784.0 11,247.0
Net spread earned (basis points)........ 192 192 212
</TABLE>
- --------
(1) Includes the fixed option under the Company's variable annuity contracts.
(2) Statutory data have been derived from the Annual and Quarterly Statements
of Nationwide Life, as filed with insurance regulatory authorities and
prepared in accordance with statutory accounting practices.
Fixed Option Under Variable Annuity Contracts. Fixed options under variable
annuity contracts accounted for $1.24 billion (or 77.3%) of the Company's
fixed annuity sales in 1996, and $9.52 billion (or 70.5%) of the Company's
fixed annuity policy reserves as of December 31, 1996. Fixed options are
available to customers who purchase certain of the Company's variable
annuities by designation of some or all of their deposits to such options. A
fixed option offers the customer a guarantee of principal and a guaranteed
interest rate for a specified period of time. Substantially all crediting
rates on fixed options under variable annuity contracts are guaranteed for a
period not exceeding 15 months. Such contracts have no maturity date and
remain in force until the customer elects to take the proceeds of the annuity
as a single payment or as a specified income for life or for a fixed number of
years. The Company reports its fixed option business in its Fixed Annuities
segment because the characteristics of such business are similar to those of
its fixed annuity business. Although the customer may elect, subject to
limitations for certain products, to transfer balances from the fixed option
to other investment options, it is the Company's experience that historically
few have made such election.
43
<PAGE>
Single Premium Deferred Annuity ("SPDA") Contracts. SPDA contracts accounted
for $211.0 million (or 13.2%) of the Company's fixed annuity sales in 1996,
and $1.74 billion (or 12.9%) of the Company's fixed annuity policy reserves as
of December 31, 1996. SPDA contracts are distributed through broker/dealers,
financial planners, banks and Nationwide Insurance Enterprise insurance
agents. An SPDA contract is a savings vehicle in which the customer makes a
single deposit with the Company. The Company guarantees the customer's
principal and credits the customer's account with earnings at an interest rate
that is stated and fixed for an initial period, typically at least one year.
Thereafter, the Company resets, typically annually, the interest rate credited
to the contract based upon market and other conditions. SPDA contracts have no
maturity date and remain in force until the customer elects to take the
proceeds of the annuity as a single payment or as a specified income for life
or for a fixed number of years. No front-end sales charges are imposed for the
Company's SPDA contracts. All such contracts, however, provide for the
imposition of certain surrender charges, which are assessed against
withdrawals in excess of specified amounts and which occur during the
surrender charge period. The surrender charges are typically set within the
range of 7% and 0% and typically decline from year to year, disappearing after
seven contract years.
Flexible Premium Deferred Annuity ("FPDA") Contracts. FPDA contracts
accounted for $96.8 million (or 6.0%) of the Company's fixed annuity sales for
1996, and $1.22 billion (or 9.0%) of the Company's fixed annuity policy
reserves as of December 31, 1996. FPDA contracts are distributed through
broker/dealers, financial planners, banks and Nationwide Insurance Enterprise
insurance agents. FPDA contracts are typically marketed to teachers and
employees of tax-exempt organizations as tax-qualified retirement programs.
Under these contracts, the Company accepts a single deposit or a series of
deposits. Deposits may be paid at intervals which are either regular or
irregular. FPDA contracts contain substantially the same guarantee of
principal and interest rate terms included in the Company's SPDA contracts.
Surrender charges are typically set within the range of 7% and 0% and
typically decline from year to year, disappearing after seven contract years.
Single Premium Immediate Annuity ("SPIA") Contracts. SPIA contracts
accounted for $55.3 million (or 3.5%) of the Company's fixed annuity sales for
1996, and $1.03 billion (or 7.6%) of the Company's fixed annuity policy
reserves as of December 31, 1996. The Company's SPIA contracts are offered
through its retail and wholesale distribution channels and are offered as
either direct purchases or as fixed annuity options under the Company's
various individual and group annuity contracts. An SPIA is an annuity that
requires a one-time deposit in exchange for guaranteed, periodic annuity
benefit payments, often for the contract holder's lifetime. SPIA contracts are
often purchased by persons at or near retirement age who desire a steady
stream of future income.
The following table sets forth policy reserves as of December 31, 1996 for
the Company's fixed annuity contracts by crediting rates in effect on such
date. Substantially all of the Company's fixed annuity contracts are
guaranteed for a period not exceeding 15 months.
FIXED ANNUITY POLICY RESERVES BY CREDITING RATES
<TABLE>
<CAPTION>
AMOUNT OF
CREDITING RATES POLICY RESERVES(1)
- --------------- ---------------------
(DOLLARS IN MILLIONS)
<S> <C>
up to 4.75%............................................... $ 257.0
4.76 to 5.75%............................................. 4,136.2
5.76 to 6.75%............................................. 5,196.3
6.76 to 7.75%............................................. 2,982.0
7.76 to 8.75%............................................. 23.7
8.76 to 9.75%............................................. 5.9
greater than 9.75%........................................ 910.7
---------
Total Policy Reserves................................... $13,511.8
=========
</TABLE>
- --------
(1) Policy reserves are net of reinsurance of $240.5 million.
44
<PAGE>
Life Insurance
The Company's Life Insurance segment is composed of a wide range of whole
life, universal life, term life and variable universal life products. In
recent years, the Company has placed particular emphasis within this segment
on the sale of variable life insurance products that offer multiple investment
options. From 1992 to 1996, first year premiums related to the Company's
variable universal life insurance products grew from $16.5 million to $140.7
million, a compound annual growth rate of 70.9%. The Company distributes its
variable universal life insurance products through its wholesale distribution
channels as well as through Nationwide Insurance Enterprise insurance agents.
The Company's target markets for its life insurance products include the
holders of personal automobile and homeowners' insurance policies issued by
members of the Nationwide Insurance Enterprise and select customers to whom
the accumulation of cash values is of paramount importance. As of December 31,
1996, approximately 10% of the Nationwide Insurance Enterprise's 7.7 million
property/casualty policyholders also owned at least one of the Company's life
insurance products. The Company distributes its traditional and universal life
insurance products through Nationwide Insurance Enterprise insurance agents.
See "Certain Relationships and Related Transactions--New Agreements with the
Nationwide Insurance Enterprise--Intercompany Agreement--Nationwide Insurance
Enterprise Insurance Agents." During 1996, approximately 24.9% of first year
premiums were provided by Nationwide Insurance Enterprise insurance agents and
approximately 75.1% were provided by the Company's wholesale distribution
channels.
The following table summarizes certain selected unaudited financial data for
the Company's Life Insurance segment for the periods indicated.
LIFE INSURANCE SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
AS OF OR FOR THE
YEAR ENDED DECEMBER 31,
-----------------------------
1996 1995 1994
--------- --------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Policy charges.................................... $ 86.6 $ 71.3 $ 60.2
Life insurance premiums........................... 174.6 166.3 156.6
Net investment income............................. 174.0 171.3 166.3
Other income...................................... 0.4 0.2 --
--------- --------- ---------
Total revenues.................................. 435.6 409.1 383.1
--------- --------- ---------
Benefits and claims............................... 211.4 202.0 191.0
Policyholder dividends............................ 40.7 39.7 39.8
Amortization of deferred policy acquisition
costs............................................ 37.4 31.0 29.5
Operating expenses................................ 78.9 68.8 69.8
--------- --------- ---------
Total benefits and expenses..................... 368.4 341.5 330.1
--------- --------- ---------
Operating income before federal income tax
expense...................................... $ 67.2 $ 67.6 $ 53.0
========= ========= =========
OTHER DATA:
First year premiums (sales):
Traditional life................................. $ 35.1 $ 31.9 $ 32.1
Universal life/variable universal life........... 149.1 95.4 87.2
Life insurance in force:
Traditional life................................. 19,098.5 17,657.9 16,381.6
Universal life/variable universal life........... 18,621.1 15,748.5 13,745.9
</TABLE>
Traditional Life Insurance Products. The Company offers whole life and term
life insurance. Whole life insurance combines a death benefit with a savings
plan that increases gradually in amount over a period of years. The customer
pays a level premium over the customer's expected lifetime. The customer may
borrow against the savings and also has the option of surrendering the policy
and receiving the accumulated cash value rather
45
<PAGE>
than the death benefit. Term life insurance provides only a death benefit
without any savings component. These traditional life insurance products are
distributed on a retail basis by Nationwide Insurance Enterprise insurance
agents.
Universal Life and Variable Universal Life Insurance Products. The Company
offers universal life and variable universal life insurance products including
both flexible premium and single premium designs. These products provide life
insurance under which the benefits payable upon death or surrender depend upon
the policyholder's account value. Universal life insurance provides whole life
insurance with flexible premiums and adjustable death benefits. For universal
life, the policyholder's account value is credited based on an adjustable rate
of return set by the Company relating to current interest rates. For variable
universal life, the policyholder's account value is credited with the
investment experience of the mutual funds chosen by the customer. The variable
universal life products also typically include a general account guaranteed
interest investment option. All of the Company's variable universal life
insurance products are marketed under the Company's The Best of America--Life
Planning Series brand name and have the same wide range of investment options
as the Company's variable annuity products. These products are distributed on
a retail basis by Nationwide Insurance Enterprise insurance agents as well as
through wholesale distribution channels by broker/dealers, financial planners
and banks.
MARKETING AND DISTRIBUTION
The Company defines wholesale channels of distribution as channels in which
an unaffiliated company, such as a securities broker/dealer, pension plan
administrator, bank or other financial institution, sells the Company's
products to its own customer base. The Company defines retail channels as
those in which the Company's representatives, such as Nationwide Insurance
Enterprise insurance agents, agents of the Company's sales subsidiaries and
affiliates or individual financial planners, market products directly to a
customer base identified by the Company. The Company provides, through both
its retail and wholesale channels, the means for employers sponsoring tax-
favored retirement plans (such as those described in IRC Sections 401(k),
403(b) and 457) to allow their employees to make contributions to such plans
through payroll deductions. Typically, the Company receives the right from an
employer to market products to employees and arrange to deduct periodic
deposits from the employees' regular paychecks. The Company believes that the
payroll deduction market is characterized by more predictable levels of sales
than other markets because these customers are less likely, even in times of
market volatility, to stop making annuity deposits than customers in other
markets. In addition, the Company believes that payroll deduction access to
customers provides significant insulation from competition by providing the
customer with a convenient, planned method of periodic saving. In both the
Pension Market, where the Company's products are distributed primarily on a
wholesale basis, and in the Public Sector and Teacher Markets, where the
Company's products are distributed primarily on a retail basis, payroll
deduction is the primary method used for collecting premiums and deposits.
46
<PAGE>
The following table summarizes certain selected unaudited financial data for
the Company's distribution channels.
STATUTORY PREMIUMS, DEPOSITS AND OTHER CONSIDERATIONS
BY DISTRIBUTION CHANNEL(1)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------
1996 1995 1994
-------------- -------------- --------------
$ % $ % $ %
-------- ----- -------- ----- -------- -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Wholesale channels:
Investment dealers..... $3,627.2 40.1% $2,835.4 41.7% $2,279.0 40.7%
Pension market......... 1,911.2 21.1 1,573.7 23.1 1,366.5 24.4
Financial
institutions.......... 947.2 10.5 515.4 7.6 324.3 5.8
-------- ----- -------- ----- -------- -----
Total wholesale
channels............. 6,486.6 71.7 4,924.5 72.4 3,969.8 70.9
-------- ----- -------- ----- -------- -----
Retail channels:
Public sector and
teacher markets....... 1,528.0 16.9 1,244.9 18.3 1,104.4 19.8
Nationwide Insurance
Enterprise insurance
agents................ 525.5 5.8 446.5 6.6 376.3 6.7
-------- ----- -------- ----- -------- -----
Total retail
channels............. 2,053.5 22.7 1,691.4 24.9 1,480.7 26.5
-------- ----- -------- ----- -------- -----
Other(2)................ 502.5 5.6 182.1 2.7 148.5 2.6
-------- ----- -------- ----- -------- -----
Total statutory
premiums, deposits and
other considerations.. $9,042.6 100.0% $6,798.0 100.0% $5,599.0 100.0%
======== ===== ======== ===== ======== =====
</TABLE>
- --------
(1) Statutory data have been derived from the Annual and Quarterly Statements
of Nationwide Life, as filed with insurance regulatory authorities and
prepared in accordance with statutory accounting practices.
(2) Statutory premiums, deposits and other considerations from Nationwide
Insurance Enterprise employee and agent benefit plans.
Wholesale Channels
Investment Dealers. The Company sells individual and group variable
annuities, fixed annuities and variable life insurance through broker/dealers
in all 50 states and the District of Columbia. The Company has access to over
1,000 broker/dealers and over 30,000 registered representatives. Target
markets include retirement planning for individuals, retirement planning for
institutions of higher education and 501(c)(3) hospitals, participant-directed
401(k) plans covering less than 1,000 lives, small business life insurance
(fewer than 500 employees) and IRA rollovers and tax-sheltered annuity
transfers. The Company historically has focused on distributing through mid-
sized regional broker/dealers and financial planning firms. The Company
believes that it has strong broker/dealer relationships based on its diverse
product mix, large selection of fund options and administrative technology. In
addition to such relationships, the Company believes its financial strength
and The Best of America brand name are competitive advantages in this
distribution channel. The Company regularly seeks to add new broker/dealers to
its distribution network.
Pension Market. The Company defines the Pension Market as defined
contribution plans pursuant to Section 401 of the IRC sponsored by employers
as part of employee retirement programs. The Company markets group variable
annuities, group fixed annuities and record-keeping services to these plan
sponsors primarily through over 200 regional pension plan administrators
located in 45 states. The Company targets employers having between 25 and
2,000 employees because it believes that these plan sponsors tend to require
more extensive record-keeping services from pension plan administrators and
therefore tend to become long-term customers. As of December 31, 1996, 401(k)
plans administered by the Company included over 280,000 participants. These
participants generally make deposits through payroll deductions. The Company
believes, based on industry survey data, that it is the third largest
administrator of 401(k) plans based on total number of plans.
47
<PAGE>
Financial Institutions. The Company markets individual variable annuities
(under its brand names and on a private-label basis), individual fixed
annuities and variable universal life insurance through financial
institutions, consisting primarily of banks and their subsidiaries. The
Company seeks to establish marketing relationships with financial institutions
having assets of $500.0 million or more. From January 1, 1991 to December 31,
1996, the number of financial institutions through which the Company
distributes its products increased from 7 to 125. The Company is actively
seeking to increase the number of financial institutions with which it has
distribution arrangements. The Company believes that its expertise in training
financial institution personnel to sell annuities, its breadth of product
offerings, its financial strength and the Nationwide and The Best of America
brand names are competitive advantages in this distribution channel. See
"Certain Relationships and Related Transactions--New Agreement with the
Nationwide Insurance Enterprise--Intercompany Agreement--License to Use
Nationwide Name and Service Marks."
Retail Channels
Public Sector and Teacher Markets. The Company markets various products and
services on a retail basis through several subsidiary sales organizations to
both the Public Sector and Teacher Markets. With respect to the Public Sector
Market, the Company markets group variable annuities and fixed annuities to
state and local governments for use in their IRC Section 457 retirement
programs. Section 457 permits employees of state and local government entities
and certain tax-exempt organizations to defer receipt of up to 33% of their
taxable income, not to exceed $7,500 per year, and have such amounts
accumulate on a tax-deferred basis until received. The Company currently
markets such products to, and administers Section 457 retirement programs for,
approximately 6,000 state and local government entities in 48 states. The
Company believes that its existing relationships with state and local
government entities and the Company's sponsorship by such entities as the
National Association of Counties ("NACO") and The United States Conference of
Mayors ("USCM") provide it with distinct competitive advantages in this
market. NACO sponsorship, which began in 1980 and has been renewed three
times, expires on December 31, 2005, and USCM sponsorship, which began in 1979
and has been renewed twice, expires on December 31, 2004.
With respect to the Teacher Market, the Company has an exclusive contractual
arrangement with the NEA to offer and sell certain products to its 2.2 million
members. Under The NEA Valuebuilder brand name, the Company markets both
qualified and non-qualified (under IRC Section 403(b)) individual variable
annuity contracts. The Company also offers IRAs in this market. The Teacher
Market is primarily serviced by the Company's network of approximately 140
representatives known as Valuebuilder Investment Professionals. As of December
31, 1996, the Company administers plans for over 1,800 school districts in 48
states. Section 403(b) permits teachers and employees of certain tax-exempt
organizations to defer receipt of a portion of their taxable income, not to
exceed $9,500 per year, and invest the amount deferred in tax-deferred annuity
products. The Company's marketing approach to these customers emphasizes
educational seminars and other targeted communication channels such as direct
mail. The NEA exclusive contractual arrangement, which began in 1990,
automatically renewed on July 26, 1995 for an additional 5-year period.
Nationwide Insurance Enterprise Insurance Agents. The Company sells
traditional life, universal life and variable universal life insurance
products and individual annuities through approximately 4,500 licensed
Nationwide Insurance Enterprise insurance agents who primarily target the
holders of personal automobile and homeowners' insurance policies issued by
the Nationwide Insurance Enterprise. As of December 31, 1996, approximately
10% of the Nationwide Insurance Enterprise's 7.7 million property/casualty
policyholders also owned at least one of the Company's life insurance
products. The Nationwide Insurance Enterprise insurance agents sell
exclusively Nationwide Insurance Enterprise products and may not offer
products which compete with those of the Company. See "Certain Relationships
and Related Transactions--New Agreements with Nationwide Insurance
Enterprise--Intercompany Agreement--Nationwide Insurance Enterprise Insurance
Agents."
Mutual Funds
Nationwide Mutual Funds. In addition to including Company-managed mutual
funds among the investment options for its variable products, the Company
markets 10 public, open-end mutual funds through Nationwide
48
<PAGE>
Insurance Enterprise insurance agents and directly to Nationwide Insurance
Enterprise employees and their families. These products employ the existing
investment management, shareholder services, accounting and administrative
capabilities developed by the Company to support its variable annuity
products. As of December 31, 1996, these mutual funds had $6.0 billion of
assets under management, of which $3.9 billion related to variable annuities
and variable life insurance and $2.1 billion related to retail mutual fund
customers.
CORPORATE AND OTHER SEGMENT
The Corporate and Other segment includes net investment income on
investments not allocated to the three product segments; all realized
investment gains and losses; investment management fees, other revenues and
operating expenses of Nationwide mutual funds other than the portion allocated
to the Variable Annuities and Life Insurance segments; commissions and other
income earned by the marketing and distribution subsidiaries of the Company;
and revenues, benefits and expenses associated with group annuity contracts
issued to Nationwide Insurance Enterprise employee and agent benefit plans.
The following table summarizes certain selected unaudited financial data for
the Company's Corporate and Other segment for the periods indicated.
CORPORATE AND OTHER SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
AS OF OR FOR THE
YEAR ENDED DECEMBER 31,
--------------------------
1996 1995 1994
-------- -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Net investment income........................ $ 154.7 $ 137.6 $ 154.2
Other income................................. 49.3 51.0 40.7
-------- -------- --------
Total revenues............................. 204.0 188.6 194.9
-------- -------- --------
Interest credited............................ 106.1 105.6 97.3
Operating expenses........................... 62.5 55.5 57.3
-------- -------- --------
Total benefits and expenses................ 168.6 161.1 154.6
-------- -------- --------
Operating income before federal income
tax expense(1).......................... $ 35.4 $ 27.5 $ 40.3
======== ======== ========
OTHER DATA(2):
Nationwide mutual fund assets................ $2,136.2 $2,113.9 $1,665.6
</TABLE>
- --------
(1) Excludes realized gains (losses) on investments and discontinued
operations.
(2) Excludes mutual funds selected as investment options under the Company's
variable annuity and variable universal life insurance contracts and
mutual funds selected as investment options under Nationwide Insurance
Enterprise employee and agent benefit plans.
Interest expense related to the Note Offering and the Capital Securities
Offering will be recorded in the Corporate and Other segment which will reduce
income before taxes for the Corporate and Other segment in periods after the
completion of such offerings.
LIFE INSURANCE UNDERWRITING
Life insurance policies are individually underwritten based on standardized
underwriting guidelines and procedures. After initial processing, each file is
reviewed and additional information (such as medical examinations, doctors'
statements and special medical tests) is obtained to make an underwriting
decision. The Company follows detailed, uniform underwriting procedures
designed to assess and quantify insurance risks before issuing life insurance
policies to individuals.
49
<PAGE>
LIFE INSURANCE AND ANNUITY RESERVES
In accordance with applicable insurance regulations, the Company records in
its statutory financial statements actuarially determined reserves that are
calculated to meet future obligations under outstanding insurance contracts.
The reserves are based on statutorily recognized methods using prescribed
morbidity and mortality tables and interest rates. Reserves include unearned
premiums, premium deposits, claims that have been reported but are not yet
paid, claims that have been incurred but have not been reported and claims in
the process of settlement. The Company's reserves satisfy applicable statutory
requirements.
The reserves reflected in the consolidated financial statements of the
Company are calculated based on GAAP. These reserves are based upon the
Company's best estimates of mortality, persistency, expenses and investment
income with appropriate provisions for adverse statistical deviation and the
use of the net level premium method for all non-interest-sensitive products
and the retrospective deposit method for interest-sensitive products. GAAP
reserves differ from statutory reserves due to the use of different
assumptions regarding mortality and interest rates and the introduction of
lapse assumptions into the GAAP reserve calculation.
REINSURANCE
The Company follows the customary industry practice of reinsuring a portion
of its life insurance and annuity risks with other companies in order to
reduce net liability on individual risks, to provide protection against large
losses and to obtain greater diversification of risks. The maximum amount of
individual ordinary life insurance retained by the Company on any one life is
$500,000, which amount will increase to $1.0 million effective April 1, 1997.
The Company cedes insurance primarily on an automatic basis, under which risks
are ceded to a reinsurer on specific blocks of business where the underlying
risks meet certain predetermined criteria, and on a facultative basis, under
which the reinsurer's prior approval is required for each risk reinsured. The
Company also cedes insurance on a case-by-case basis particularly where the
Company may be writing new risks or is unwilling to retain the full costs
associated with new lines of business. The ceding of risk does not discharge
the original insurer from its primary obligation to the policyholder. The
Company has entered into a reinsurance contract to cede a portion of its
general account individual annuity reserves to Franklin Life. Total recoveries
due from Franklin Life were $240.5 million and $245.3 million as of December
31, 1996 and 1995, respectively. Under the terms of the contract, Franklin
Life has established a trust as collateral for the recoveries. The trust
assets are invested in investment grade securities, the market value of which
must at all times be greater than or equal to 102% of the reinsured reserves.
The Company has no other material reinsurance arrangements with unaffiliated
reinsurers. The only material reinsurance agreements the Company has with
affiliates are the modified coinsurance agreements pursuant to which
Nationwide Life reinsured all of its accident and health and group life
insurance business to other members of the Nationwide Insurance Enterprise.
See "Certain Relationships and Related Transactions--Existing Arrangements
with Nationwide Insurance Enterprise--Modified Coinsurance Agreements."
Premiums and policy reserves ceded to unaffiliated reinsurers were 0.3% of
statutory premiums and considerations in 1996 and 0.8% of policy reserves as
of December 31, 1996. The Company's principal unaffiliated reinsurers of
individual life insurance and annuity policies at December 31, 1995 (and their
corresponding A.M. Best ratings) were: American United Life Insurance Company
(A+), Reinsurance Group of America (A+), Lincoln National Life Insurance
Company (A+), Franklin Life (A+), and Indianapolis Life Insurance Company
(A+). See "--Ratings."
INVESTMENTS
General
The Company's assets are divided between separate account and general
account assets. As of December 31, 1996, $26.9 billion (or 56%) of the
Company's total assets were held in separate accounts and $20.8 billion (or
44%) were held in the Company's general account, including $18.3 billion of
general account investments. Separate account assets consist primarily of
deposits from the Company's variable annuity business. Most separate account
assets are invested in various mutual fund options available within the
variable annuity products sold by the Company. All of the investment risk in
the Company's separate account assets is borne by the Company's customers,
with the exception of $280.2 million of policy reserves as of December 31,
1996 ($205.7
50
<PAGE>
million as of December 31, 1995) for which the Company bears the investment
risk. General account assets consist mainly of investments generated by
premiums on life insurance products and deposits in the Company's Fixed
Annuities segment. The Company generates profits on these products, in part,
based on the spread between the yield on general account invested assets and
crediting rates on these products.
The Company's general account investment policies emphasize high credit
quality, diversification across asset classes and individual investment risks,
and a buy and hold strategy. As noted in the table below, the Company's
general account assets are invested primarily in fixed maturity securities and
commercial mortgage loans. The Company has a general policy of diversifying
investments within asset categories. Additionally, the Company's investment
policy provides that fixed maturity investments are limited to purchases of
investment grade securities or unrated securities which, in the opinion of the
Company, should qualify for such rating. The Company monitors its exposure to
individual borrowers, credit risks, industries or property types and
geographic locations. The Company's investments are subject to suitability and
diversification requirements under applicable insurance laws. See "Business--
Regulation." The Investment Committee of the Board of Directors of Nationwide
Life, which is comprised of the Chairman and five outside directors, meets ten
times a year. Such committee approves investment policy and strategy, approves
all mortgage loans and large private placements and reviews and ratifies all
other investments. In relation to the life insurers reporting to the American
Council of Life Insurance ("ACLI"), the Company's general account investment
portfolio has achieved (i) higher net investment yields, (ii) lower bond
default rates and (iii) lower mortgage delinquency rates, in each case in each
of the five years ended December 31, 1995 (with ACLI data not yet available
for the year ended December 31, 1996).
The following table summarizes the Company's consolidated invested assets by
asset category as of December 31, 1996 and December 31, 1995.
CONSOLIDATED INVESTED ASSETS
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996 AS OF DECEMBER 31, 1995
------------------------- -------------------------
% OF % OF
CARRYING GENERAL ACCOUNT CARRYING GENERAL ACCOUNT
VALUE INVESTED ASSETS VALUE INVESTED ASSETS
--------- --------------- --------- ---------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Fixed maturities(1):
Public.................... $ 8,395.6 45.8% $ 8,609.8 48.3%
Private................... 3,914.9 21.4 3,891.8 21.8
Mortgage loans, net:
Commercial................ 5,269.4 28.8 4,624.3 25.9
Residential............... 2.7 -- 3.1 --
Real estate, net........... 265.8 1.5 229.4 1.3
Policy loans............... 371.8 2.0 336.4 1.9
Equity securities(1)....... 59.1 0.3 37.5 0.2
Other long-term
investments............... 28.7 0.2 62.0 0.4
Short-term investments..... 9.3 -- 42.7 0.2
--------- ----- --------- -----
Total general account
invested assets......... $18,317.3 100.0% $17,837.0 100.0%
========= ===== ========= =====
Total separate account
assets.................. $26,926.7 $18,591.1
========= =========
</TABLE>
- --------
(1) As of December 31, 1996, all fixed maturities and equity securities are
classified as available-for-sale and are carried at fair value.
The Company employs an asset/liability management approach tailored to the
specific requirements of each of its product lines. The Company's general
account investment assets are primarily managed in a number of pools that are
separated by weighted average maturity of the assets acquired by the pools. On
bonds and mortgages, the weighted average maturity is based on repayments
which are scheduled to occur under the terms
51
<PAGE>
of the asset. For mortgage backed securities, repayments are determined using
the current rate of repayment of the underlying pool of mortgages and the
terms of the securities. Each product line has an investment strategy based on
the specific characteristics of such product line. The strategy establishes
asset duration, quality and other guidelines. The Company's actuaries
determine the amount of new investments needed for each line to arrive at the
amount of new investments needed for each pool by month. The investments
acquired for each pool are shared on a proportional basis by each of the lines
requesting investments in the pool based on their actual investment needs.
For all business having future benefits which cannot be changed at the
option of the policyholder, the underlying assets are managed in a separate
pool. The duration of assets and liabilities in this pool are kept as close
together as possible. For assets, the repayment cash flows, plus anticipated
coupon payments, are used in calculating asset duration. Future benefits and
expenses are used for liabilities. On December 31, 1996, the average duration
of assets in this pool was 6.80 years and the average duration of the
liabilities was 7.44 years. Policy reserves on this business were $1.30
billion as of December 31, 1996.
Because the timing of the payment of future benefits on the majority of the
Company's business can be changed by the policyholder, the Company employs
cash flow testing techniques as a final step in its asset/liability management
process. Annually, the Company's annuity and insurance business is analyzed to
determine the adequacy of the reserves supporting such business. This analysis
is accomplished by projecting under a number of possible future interest rate
scenarios the anticipated cash flows from such business and the assets
required to support such business. The first seven of these scenarios are
required by state insurance laws. Projections are also made using thirteen
additional scenarios which involve more extreme fluctuations in future
interest rates. Finally, to get a statistical analysis of possible results and
to minimize any bias in the twenty predetermined scenarios, additional
projections are made using 200 randomly generated interest rate scenarios. The
values produced by each projection are used to determine future gains or
losses from the Company's annuity and insurance business, which, in turn, are
used to quantify the adequacy of the Company's reserves over the entire
projection period. The results of the Company's cash flow testing for year end
1995 (the most recent year for which results are available) indicated that the
Company's reserves were adequate at December 31, 1995. The Company has no
reason to believe that the Company's reserves at December 31, 1996 will not be
adequate, although cash flow testing has not yet been completed with respect
to such reserves.
The Company manages its investment portfolio in part to reduce its exposure
to interest rate fluctuations. In general, the market value of the Company's
fixed maturity portfolio increases or decreases in inverse relationship with
fluctuations in interest rates. For example, if interest rates rise, the
Company's fixed maturity investments will generally decrease in value.
Additionally, the Company's net investment income may be affected by interest
rate changes. If interest rates decline, net investment income will decrease
if high-yielding fixed maturity investments mature or are sold and the
proceeds therefrom are reinvested in securities yielding a lower rate.
The following table summarizes the net investment yield of the Company's
general account invested assets relative to that of the life insurers
reporting to the ACLI.
NET INVESTMENT YIELD
<TABLE>
<CAPTION>
THE BASIS POINT
YEAR COMPANY ACLI(1) DIFFERENCE
- ---- ------- ------- -----------
<S> <C> <C> <C>
1991................................................ 9.34% 9.09% 25
1992................................................ 8.93 8.58 35
1993................................................ 8.57 8.07 50
1994................................................ 8.37 7.63 74
1995................................................ 8.21 7.90 31
1996................................................ 8.00 -- --
</TABLE>
- --------
(1) Source: ACLI Statistical Bulletin #97-1 (January 8, 1997) entitled
"Revised Rate of Investment Income of U.S. Legal Reserve Life Insurance
Companies." ACLI data for the year ended December 31, 1996 are not yet
available.
52
<PAGE>
Fixed Maturity Securities
As of December 31, 1996, general account fixed maturity securities were
$12.3 billion (or 67.2%) of the carrying value of consolidated general account
invested assets. As of such date, public and private fixed maturity securities
constituted $8.4 billion (or 68.3%) and $3.9 billion (or 31.7%), respectively,
of total general account fixed maturity securities. The Company's general
account fixed maturity securities portfolio consists primarily of investment
grade corporate fixed maturity securities, high-quality mortgage-backed
securities and U.S. government and agency obligations.
The following table summarizes the composition of the Company's general
account fixed maturity securities by category as of December 31, 1996.
GENERAL ACCOUNT FIXED MATURITY SECURITIES -- COMPOSITION
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996
--------------------------
CARRYING
VALUE % OF TOTAL
------------- ------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
U.S. government/agencies............................ $ 285.0 2.3%
Foreign governments................................. 102.0 0.9
State and political subdivisions.................... 6.6 --
Mortgage-backed securities:
U.S. government/agencies........................... 3,665.3 29.8
Non-government/agencies............................ -- --
Corporate........................................... 8,251.6 67.0
------------- ---------
Total............................................. $ 12,310.5 100.0%
============= =========
</TABLE>
The following table sets forth scheduled maturities for the Company's
general account fixed maturity securities as of December 31, 1996.
GENERAL ACCOUNT FIXED MATURITY SECURITIES -- SCHEDULED MATURITIES(1)
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996
--------------------------
CARRYING
VALUE % OF TOTAL
------------- ------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Due in one year or less............................. $ 444.2 3.6%
Due after one year through five years............... 4,059.1 33.0
Due after five years through 10 years............... 2,871.8 23.3
Due after 10 years.................................. 1,270.1 10.3
Mortgage-backed securities.......................... 3,665.3 29.8
------------- ---------
Total fixed maturity securities................... $ 12,310.5 100.0%
============= =========
</TABLE>
- --------
(1) General account fixed maturity securities with call dates are classified
on their earliest call date.
The average duration and average maturity of the Company's general account
fixed maturity securities as of December 31, 1996 were approximately 3.75 and
7.97 years, respectively. As a result, the market value of the Company's
general account investments may fluctuate significantly in response to changes
in interest rates. In addition, the Company may also be likely to experience
investment losses to the extent its liquidity needs require the disposition of
general account fixed maturity securities in unfavorable interest rate
environments.
The Company's portfolio of general account investment grade fixed maturity
securities is diversified by number and type of issuer. As of December 31,
1996, general account investment grade fixed maturity securities included the
securities of over 548 issuers, with no issuer, other than the U.S. government
or its agencies,
53
<PAGE>
representing more than 0.6% of the carrying value of general account
investment grade fixed maturity securities. As of December 31, 1996, one
investment with a value of $0.5 million had been restructured and is currently
performing.
Below investment grade fixed maturity securities in the Company's general
account as of December 31, 1996 included the securities of 23 issuers
representing approximately 1.8% of the carrying value of total fixed maturity
securities. The Company's investment policy provides that fixed maturity
investments are limited to purchases of investment grade securities or unrated
securities which, in the opinion of the Company, should qualify for such
rating. All of the below grade fixed maturity securities held in the Company's
general account as of December 31, 1996 were investment grade securities when
purchased by the Company.
The NAIC assigns securities quality ratings and uniform valuations called
"NAIC Designations" which are used by insurers when preparing their annual
statements. The NAIC assigns designations to publicly traded as well as
privately placed securities. The designations assigned by the NAIC range from
class 1 to class 6, with a designation in class 1 being of the highest
quality. Of the Company's general account fixed maturity securities, 98.2% by
the carrying value were in the highest two NAIC Designations as of December
31, 1996.
The following tables set forth an analysis of the credit quality, as
determined by NAIC Designation, of the Company's general account fixed
maturity securities portfolio and general account public fixed maturity
securities portfolio as of December 31, 1996 and December 31, 1995.
GENERAL ACCOUNT FIXED MATURITY SECURITIES -- CREDIT QUALITY
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996 AS OF DECEMBER 31, 1995
-------------------------- --------------------------
NAIC RATING AGENCY CARRYING CARRYING
DESIGNATION(1) EQUIVALENT DESIGNATION(2) VALUE % OF TOTAL VALUE % OF TOTAL
-------------- ------------------------- ------------- ------------ ------------- ------------
(DOLLARS IN MILLIONS)
<C> <S> <C> <C> <C> <C>
1 Aaa/Aa/A................. $ 8,453.4 68.7% $ 8,659.9 69.3%
2 Baa...................... 3,629.9 29.5 3,562.9 28.5
3 Ba....................... 166.6 1.3 224.1 1.8
4 B........................ 49.7 0.4 44.9 0.4
5 Caa and lower............ 10.9 0.1 2.8 --
6 In or near default....... -- -- 7.0 --
Redeemable preferred stock and other.... -- -- -- --
------------- ---------- ------------- ----------
Total................................ $ 12,310.5 100.0% $ 12,501.6 100.0%
============= ========== ============= ==========
</TABLE>
- --------
(1) NAIC Designations are assigned no less frequently than annually. Some
designations for securities shown as of December 31, 1996 have been
assigned to securities not yet assigned an NAIC Designation in a manner
approximating equivalent public rating categories.
(2) Comparisons between NAIC and Moody's designations are published by the
NAIC. In the event no Moody's rating is available, the Company has
assigned internal ratings corresponding to the public rating.
54
<PAGE>
GENERAL ACCOUNT PUBLIC FIXED MATURITY SECURITIES -- CREDIT QUALITY
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996 AS OF DECEMBER 31, 1995
------------------------- -------------------------
NAIC RATING AGENCY CARRYING CARRYING
DESIGNATION(1) EQUIVALENT DESIGNATION(2) VALUE % OF TOTAL VALUE % OF TOTAL
-------------- ------------------------- ------------ ------------ ------------ ------------
(DOLLARS IN MILLIONS)
<C> <S> <C> <C> <C> <C>
1 Aaa/Aa/A................. $ 6,540.4 77.9% $ 6,730.2 78.2%
2 Baa...................... 1,776.6 21.2 1,811.0 21.0
3 Ba....................... 52.7 0.6 49.0 0.6
4 B........................ 25.9 0.3 19.6 0.2
5 Caa and lower............ -- -- -- --
6 In or near default....... -- -- -- --
Redeemable preferred stock and other.... -- -- -- --
------------ ---------- ------------ ----------
Total................................ $ 8,395.6 100.0% $ 8,609.8 100.0%
============ ========== ============ ==========
</TABLE>
- --------
(1) NAIC Designations are assigned no less frequently than annually. Some
designations for securities shown as of December 31, 1996 have been
assigned to securities not yet assigned an NAIC Designation in a manner
approximating equivalent public rating categories.
(2) Comparisons between NAIC and Moody's designations are published by the
NAIC. In the event no Moody's rating is available, the Company has
assigned internal ratings corresponding to the public rating.
The Company invests in private fixed maturity securities because of the (i)
generally higher nominal yield available compared to comparably rated public
fixed maturity securities, (ii) more restrictive financial and business
covenants available in private fixed maturity security loan agreements and
(iii) stronger prepayment protection. Although private fixed maturity
securities are not registered with the Commission and generally are less
liquid than public fixed maturity securities, restrictive financial and
business covenants included in private fixed maturity security loan agreements
generally are designed to compensate for the impact of increased liquidity
risk. A significant majority of the private fixed maturity securities that the
Company holds are participations in issues that are also owned by other
investors. In addition, some of the private fixed maturity securities are
rated by nationally recognized rating agencies and substantially all have been
assigned a rating designation by the NAIC.
The following table sets forth an analysis of the credit quality, as
determined by NAIC Designation, of the Company's general account private fixed
maturity securities portfolio as of December 31, 1996 and December 31, 1995.
GENERAL ACCOUNT PRIVATE FIXED MATURITY SECURITIES -- CREDIT QUALITY
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996 AS OF DECEMBER 31, 1995
-------------------------- --------------------------
NAIC RATING AGENCY CARRYING CARRYING
DESIGNATION(1) EQUIVALENT DESIGNATION(2) VALUE % OF TOTAL VALUE % OF TOTAL
-------------- ------------------------- ------------- ------------ ------------- ------------
(DOLLARS IN MILLIONS)
<C> <S> <C> <C> <C> <C>
1 Aaa/Aa/A................. $ 1,913.0 48.9% $ 1,929.7 49.6%
2 Baa...................... 1,853.4 47.3 1,751.9 45.0
3 Ba....................... 113.9 2.9 175.1 4.5
4 B........................ 23.7 0.6 25.3 0.6
5 Caa and lower............ 10.9 0.3 2.8 0.1
6 In or near default....... -- -- 7.0 0.2
Redeemable preferred stock and other.... -- -- -- --
------------- ---------- ------------- ----------
Total................................ $ 3,914.9 100.0% $ 3,891.8 100.0%
============= ========== ============= ==========
</TABLE>
- --------
(1) NAIC Designations are assigned no less frequently than annually. Some
designations for securities shown as of December 31, 1996 have been
assigned to securities not yet assigned an NAIC Designation in a manner
approximating equivalent public rating categories.
(2) Comparisons between NAIC and Moody's designations are published by the
NAIC. In the event no Moody's rating is available, the Company has
assigned internal ratings corresponding to the public rating.
55
<PAGE>
The following table sets forth the bond default rates for the Company and
the life insurers reporting to the ACLI for the periods indicated.
COMPANY AND LIFE INDUSTRY
BOND DEFAULT RATES
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------
1996 1995 1994 1993 1992
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Company................................. 0.00% 0.04% 0.03% 0.01% 0.03%
ACLI(1)................................. -- 0.09 0.19 0.28 0.60
</TABLE>
- --------
(1) Source: ACLI Statistical Bulletins entitled "Quality Distribution of Bond
Holdings of U.S. Legal Reserve Life Insurance Companies:" Bulletin #'s 96-
2, 95-7, 94-5 and 93-5, dated May 15, 1996, July 24, 1995, July 28, 1994
and August 3, 1993, respectively. ACLI data for the year ended December
31, 1996 are not yet available.
The Company maintains significant general account investments in MBSs. The
Company's general account MBS investments include residential MBSs and
commercial MBSs. As of December 31, 1996, MBSs were $3.67 billion (or 29.8%)
of the carrying value of the general account fixed maturity securities, all of
which were guaranteed by the U.S. government or an agency of the U.S.
government.
The Company believes that general account MBS investments add
diversification, liquidity, credit quality and additional yield to its general
account fixed maturity securities portfolio. The objective of the Company's
general account MBS investments is to provide reasonable cash flow stability
and increased yield. General account MBS investments include CMOs and
mortgage-backed pass- through securities. The Company's general account MBS
investments do not include interest-only securities or principal-only
securities or other MBSs which may exhibit extreme market value volatility.
Prepayment risk is an inherent risk of holding MBSs. However, the degree of
prepayment risk is particular to the type of MBS held. The Company limits its
exposure to prepayments by purchasing less volatile types of MBSs. As of
December 31, 1996, $2.97 billion (or 81.0%) of the carrying value of the
general account MBS portfolio was invested in planned amortization class CMOs
("PACs"). PACs are securities whose cash flows are designed to remain constant
over a variety of mortgage prepayment environments. Other classes in the CMO
security are structured to accept the volatility of mortgage prepayment
changes, thereby insulating the PAC class. Of the remaining general account
MBS portfolio, $2.5 million (or 0.1%) was invested in mortgage-backed pass-
throughs or sequential CMOs. Pass-throughs are securities in which the monthly
cash flows of principal and interest (both scheduled and prepayments)
generated by the underlying mortgages are distributed on a pro rata basis to
the holders of securities. A sequential MBS is structured to divide the CMO
security into sequentially ordered classes. Receipt of principal payments are
made currently on all classes. While these securities are more sensitive to
prepayment risk than PACs, the Company does not consider them highly volatile
securities.
The following table sets forth the distribution by investment type of the
Company's general account MBS portfolio as of December 31, 1996.
GENERAL ACCOUNT MORTGAGE-BACKED SECURITIES -- INVESTMENT TYPE(1)
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996
--------------------------
CARRYING
VALUE % OF TOTAL
------------- ------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Accrual............................................ $ 41.4 1.1%
PAC................................................ 2,970.6 81.0
Sequential......................................... 2.5 0.1
Scheduled.......................................... 167.2 4.6
TAC................................................ 87.7 2.4
VADM............................................... 395.9 10.8
------------- ----------
Total............................................ $ 3,665.3 100.0%
============= ==========
</TABLE>
- --------
(1) All general account mortgage-backed securities are agency-backed.
56
<PAGE>
Pursuant to the Company's investment policies, the Company does not invest
in derivative securities other than MBSs.
Mortgage Loans
As of December 31, 1996, general account mortgage loans were $5.27 billion
(or 28.8%) of the carrying value of consolidated general account invested
assets. As of such date, commercial mortgage loans constituted substantially
all (99.9%) of total general account mortgage loans with the remainder being
76 residual residential loans originated prior to 1981 with a principal
balance of $2.7 million. These mortgages, substantially all of which are made
on a non-recourse basis, consist primarily of fixed rate mortgages on existing
income-producing properties. As of December 31, 1996, there were two second
mortgages totaling $2.6 million and no construction loans, participating or
convertible mortgages or land development loans. Commitments to fund mortgage
loans of $327.5 million extending into 1997 were outstanding as of December
31, 1996.
The following tables set forth the distribution by property type and region
of the Company's commercial mortgages as of December 31, 1996 and December 31,
1995.
GENERAL ACCOUNT COMMERCIAL MORTGAGE
LOAN PORTFOLIO -- PROPERTY TYPE
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996 AS OF DECEMBER 31, 1995
----------------------------- -----------------------------
% OF TOTAL % OF TOTAL
NUMBER PRINCIPAL PRINCIPAL NUMBER PRINCIPAL PRINCIPAL
OF LOANS BALANCE BALANCE OF LOANS BALANCE BALANCE
-------- --------- ---------- -------- --------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Property Type(1):
Apartment......... 192 $1,216.0 22.8% 159 $ 995.8 21.3%
Retail............ 426 2,337.6 43.9 396 2,237.3 47.8
Office............ 153 891.0 16.7 131 785.8 16.8
Industrial........ 190 864.3 16.2 159 660.9 14.1
Hotel/motel....... 5 18.6 0.4 2 1.5 --
Other............. 2 0.3 -- 3 0.9 --
--- -------- ----- --- -------- -----
Total........... 968 $5,327.8 100.0% 850 $4,682.2 100.0%
=== ======== ===== === ======== =====
</TABLE>
- --------
(1) As defined by the ACLI.
57
<PAGE>
GENERAL ACCOUNT COMMERCIAL MORTGAGE
LOAN PORTFOLIO -- REGION
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996 AS OF DECEMBER 31, 1995
----------------------------- -----------------------------
% OF TOTAL % OF TOTAL
NUMBER PRINCIPAL PRINCIPAL NUMBER PRINCIPAL PRINCIPAL
OF LOANS BALANCE BALANCE OF LOANS BALANCE BALANCE
-------- --------- ---------- -------- --------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Region(1):
New England............ 35 $ 238.9 4.5% 30 $ 197.5 4.2%
Middle Atlantic........ 62 362.5 6.8 57 350.0 7.5
East North Central..... 180 1,022.2 19.2 160 930.9 19.9
West North Central..... 33 244.5 4.6 36 262.4 5.6
South Atlantic......... 225 1,103.4 20.7 187 901.4 19.3
East South Central..... 65 319.1 6.0 63 307.1 6.5
West South Central..... 105 725.7 13.6 91 618.4 13.2
Mountain............... 51 247.5 4.6 45 203.8 4.4
Pacific and other...... 212 1,064.0 20.0 181 910.7 19.4
--- -------- ----- --- -------- -----
Total................ 968 $5,327.8 100.0% 850 $4,682.2 100.0%
=== ======== ===== === ======== =====
</TABLE>
- --------
(1) The ACLI defines each of the regions set forth above as follows: (i) New
England includes Connecticut, Maine, Massachusetts, New Hampshire, Rhode
Island and Vermont; (ii) Middle Atlantic includes New York, New Jersey and
Pennsylvania; (iii) East North Central includes Illinois, Indiana,
Michigan, Ohio and Wisconsin; (iv) West North Central includes Iowa,
Kansas, Minnesota, Missouri, Nebraska, North Dakota and South Dakota; (v)
South Atlantic includes Delaware, District of Columbia, Florida, Georgia,
Maryland, North Carolina, South Carolina, Virginia and West Virginia; (vi)
East South Central includes Alabama, Kentucky, Mississippi and Tennessee;
(vii) West South Central includes Arkansas, Louisiana, Oklahoma and Texas;
(viii) Mountain includes Arizona, Colorado, Idaho, Montana, Nevada, New
Mexico, Utah and Wyoming; and (ix) Pacific and other includes Alaska,
California, Hawaii, Oregon, Washington, Puerto Rico, U.S. Territories and
Possessions, Canada, and other foreign jurisdictions.
As of December 31, 1996, the Company's largest mortgage loan exposure to any
borrowing group was $95.7 million, or 1.8% of the Company's general account
mortgage portfolio.
58
<PAGE>
The following table sets forth the composition of the Company's general
account commercial mortgage loan portfolio by loan size as of December 31,
1996 and December 31, 1995.
GENERAL ACCOUNT COMMERCIAL MORTGAGE LOAN PORTFOLIO -- LOAN SIZE
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996 AS OF DECEMBER 31, 1995
----------------------------- -----------------------------
% OF TOTAL % OF TOTAL
NUMBER PRINCIPAL PRINCIPAL NUMBER PRINCIPAL PRINCIPAL
SIZE OF LOANS BALANCE BALANCE OF LOANS BALANCE BALANCE
---- -------- --------- ---------- -------- --------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Under $5 million........ 559 $1,393.4 26.1% 482 $1,195.4 25.5%
$5 million to $9.9
million................ 273 1,911.7 35.9 251 1,771.3 37.9
$10 million to $19.9
million................ 121 1,582.0 29.7 106 1,387.5 29.6
$20 million to $29.9
million................ 10 238.8 4.5 7 168.4 3.6
Over $30 million........ 5 201.9 3.8 4 159.6 3.4
--- -------- ----- --- -------- -----
Total................. 968 $5,327.8 100.0% 850 $4,682.2 100.0%
=== ======== ===== === ======== =====
</TABLE>
The Company's investment policy with regard to the origination of new
mortgage loans involves a review of the economics of the property being
financed, adherence to guidelines that provide for diversification of the
mortgage portfolio by property type and location, a review of industry lending
practices prevailing from time to time and diversification of the Company's
total general account investment portfolio. Guidelines for new mortgage loans
generally require a loan-to-value ratio of not greater than 75% at the time of
origination.
Substantially all of the general account commercial mortgage loans were
originated by the Company and not purchased from third parties. The Company
originates general account commercial mortgage loans through a national
network of mortgage banking correspondent companies which represent the
Company in many of the major metropolitan areas of the United States.
Typically, a correspondent company is an independent business which has a
staff of experienced specialists in property finance who are highly
knowledgeable about the real estate market in the company's local or regional
area. The correspondent company is an expert in the appraisal, underwriting
and servicing of commercial mortgage loans. Typically, the correspondent
company is the Company's one representative through which all mortgage
investment opportunities in the particular market must originate. The
correspondent company presents commercial mortgage loan opportunities to the
Company on property types and with respect to borrowers that meet the
Company's stringent underwriting requirements. After a mortgage loan is made,
the correspondent company services the loans for the Company by, among other
things, collecting all mortgage payments as well as amounts escrowed for the
payment of any taxes and insurance premiums. For its services, the
correspondent company receives from the Company an annual fee generally
ranging between .0625% and .125% of the mortgage balance.
Currently, the Company is represented by 24 correspondent companies that
originate commercial mortgage investment opportunities and service the general
account mortgage loans. In addition, the Company is represented by another 10
companies that service general account mortgage loans but do not originate
mortgage loan investment opportunities.
The general account commercial mortgage loan portfolio includes both
amortizing and balloon loans. The Company defines balloon loans to be
mortgages with periodic installments of principal and interest that do not
fully amortize the loan. The balance is due at a specified date in the future
which represents the end of the loan term.
59
<PAGE>
The following table sets forth the maturity and principal repayment schedule
for the Company's general account mortgage loan portfolio as of December 31,
1996 and December 31, 1995.
GENERAL ACCOUNT MORTGAGE LOAN PORTFOLIO -- SCHEDULED MATURITIES
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996 AS OF DECEMBER 31, 1995
--------------------------------- ---------------------------------
AGGREGATE AGGREGATE
PRINCIPAL BALANCE % OF PRINCIPAL BALANCE % OF
OF MORTGAGE TOTAL PRINCIPAL OF MORTGAGE TOTAL PRINCIPAL
LOANS MATURING BALANCE LOANS MATURING BALANCE
----------------- --------------- ----------------- ---------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
1996.................... $ -- 0.0% $ 254.9 5.4%
1997.................... 162.0 3.0 210.4 4.5
1998.................... 210.2 3.9 230.2 4.9
1999.................... 349.3 6.6 347.3 7.4
2000.................... 519.5 9.7 564.6 12.1
2001.................... 357.1 6.7 367.1 7.8
2002.................... 429.8 8.1 439.1 9.4
2003.................... 490.0 9.2 303.5 6.5
2004.................... 378.5 7.1 369.4 7.9
2005.................... 686.7 12.9 694.6 14.8
2006.................... 453.5 8.5 103.3 2.2
After 2006.............. 1,293.9 24.3 800.9 17.1
-------- ------ -------- ------
$5,330.5 100.0% $4,685.3 100.0%
======== ====== ======== ======
</TABLE>
The Company monitors all of the mortgage loans in its general account
mortgage loan portfolio on an ongoing basis and identifies mortgage loans
that, because of certain objective or subjective characteristics, cause
management to conclude that such loans require additional investigation. Among
criteria that cause a loan to be so identified are (i) borrower bankruptcies,
(ii) bankruptcies of major tenants of mortgaged properties, (iii) requests
from borrowers for loan restructuring or relief, (iv) known or suspected cash
flow deficiencies, (v) lateness of payments, (vi) noncompliance with
covenants, (vii) known or suspected loan-to-value imbalances, (viii) lease
rollovers affecting debt service coverage or property value, (ix) property
vacancy rates, (x) maturing loans identified as potential refinancing risks
and (xi) other subjective factors relating to the borrower or the mortgaged
property.
60
<PAGE>
The Company and the ACLI define problem mortgage loans as loans which are 60
or more days delinquent and/or are in foreclosure. The following tables set
forth as of December 31, 1996 and 1995 the distribution by property type and
region of the Company's commercial mortgage loans that were delinquent or in
the process of foreclosure as compared to the life insurers reporting to the
ACLI.
COMMERCIAL MORTGAGE LOANS DELINQUENT OR IN THE
PROCESS OF FORECLOSURE BY PROPERTY TYPE
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996 AS OF DECEMBER 31, 1995
---------------------------------------- ----------------------------------------
COMPANY ACLI(1) COMPANY ACLI(2)
---------------------------- ----------- ---------------------------- -----------
DELINQUENCY DELINQUENCY DELINQUENCY DELINQUENCY
NUMBER AND AND NUMBER AND AND
OF PRINCIPAL FORECLOSURE FORECLOSURE OF PRINCIPAL FORECLOSURE FORECLOSURE
LOANS BALANCE RATE(3) RATE LOANS BALANCE RATE(3) RATE
------ --------- ----------- ----------- ------ --------- ----------- -----------
(DOLLARS IN MILLIONS) (DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Property Type(4):
Apartment.............. -- $ -- -- % -- % -- $ -- -- % 0.23%
Retail................. 4 26.3 0.49 -- 5 29.5 0.63 0.43
Office................. 3 15.8 0.30 -- -- -- -- 1.20
Industrial............. -- -- -- -- -- -- -- 0.21
Hotel/motel............ -- -- -- -- -- -- -- 0.14
Mixed Use.............. -- -- -- -- -- -- -- 0.01
Other Commercial
Property.............. -- -- -- -- -- -- -- 0.13
--- ----- ---- --- --- ----- ---- ----
Total................. 7 $42.1 0.79% -- % 5 $29.5 0.63% 2.35%
=== ===== ==== === === ===== ==== ====
</TABLE>
- --------
(1) ACLI data as of December 31, 1996 are not yet available.
(2) Source: ACLI Investment Bulletin entitled "Quarterly Survey of Mortgage
Loan Delinquencies and Foreclosures," Number 1326, dated February 28,
1996.
(3) Reflects, by individual property types, commercial mortgage loans that are
delinquent 60 days or more or in the process of foreclosure as a
percentage of composite total loans.
(4) As defined by the ACLI.
61
<PAGE>
COMMERCIAL MORTGAGE LOANS DELINQUENT OR IN THE
PROCESS OF FORECLOSURE BY REGION
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996 AS OF DECEMBER 31, 1995
---------------------------------------- ----------------------------------------
COMPANY ACLI(1) COMPANY ACLI(2)
---------------------------- ----------- ---------------------------- -----------
DELINQUENCY DELINQUENCY DELINQUENCY DELINQUENCY
NUMBER AND AND NUMBER AND AND
OF PRINCIPAL FORECLOSURE FORECLOSURE OF PRINCIPAL FORECLOSURE FORECLOSURE
LOANS BALANCE RATE(3) RATE LOANS BALANCE RATE(3) RATE
------ --------- ----------- ----------- ------ --------- ----------- -----------
(DOLLARS IN MILLIONS) (DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Region(4):
New England............ 2 $14.6 0.27% -- % 2 $14.8 0.32% 0.17%
Middle Atlantic........ 1 10.5 0.20 -- -- -- -- 0.51
East North Central..... 2 9.5 0.18 -- -- -- -- 0.36
West North Central..... -- -- -- -- -- -- -- 0.04
South Atlantic......... 1 3.1 0.06 -- 2 9.1 0.19 0.34
East South Central..... -- -- -- -- -- -- -- 0.05
West South Central..... -- -- -- -- -- -- -- 0.14
Mountain............... -- -- -- -- -- -- -- 0.06
Pacific................ 1 4.4 0.08 -- 1 5.6 0.12 0.60
Other.................. -- -- -- -- -- -- -- 0.08
--- ----- ---- --- --- ----- ----- -----
Total................. 7 $42.1 0.79% -- % 5 $29.5 0.63% 2.35%
=== ===== ==== === === ===== ===== =====
</TABLE>
- --------
(1) ACLI data as of December 31, 1996 are not yet available.
(2) Source: ACLI Investment Bulletin entitled "Quarterly Survey of Mortgage
Loan Delinquencies and Foreclosures," Number 1326, dated February 28,
1996.
(3) Reflects, by region, commercial mortgage loans that are delinquent 60 days
or more or in the process of foreclosure as a percentage of composite
total loans.
(4) The ACLI defines each of the regions set forth above as follows: (i) New
England includes Connecticut, Maine, Massachusetts, New Hampshire, Rhode
Island and Vermont; (ii) Middle Atlantic includes New York, New Jersey and
Pennsylvania; (iii) East North Central includes Illinois, Indiana,
Michigan, Ohio and Wisconsin; (iv) West North Central includes Iowa,
Kansas, Minnesota, Missouri, Nebraska, North Dakota and South Dakota; (v)
South Atlantic includes Delaware, District of Columbia, Florida, Georgia,
Maryland, North Carolina, South Carolina, Virginia and West Virginia; (vi)
East South Central includes Alabama, Kentucky, Mississippi and Tennessee;
(vii) West South Central includes Arkansas, Louisiana, Oklahoma and Texas;
(viii) Mountain includes Arizona, Colorado, Idaho, Montana, Nevada, New
Mexico, Utah and Wyoming; (ix) Pacific includes Alaska, California,
Hawaii, Oregon and Washington and (x) Other includes Puerto Rico, U.S.
Territories and Possessions, Canada and other foreign jurisdictions.
In certain situations delinquent mortgages may be restructured or modified.
As of December 31, 1996, the amortized cost of restructured mortgages totaled
$57.5 million, as compared with $66.0 million and $77.0 million as of December
31, 1995 and 1994, respectively.
The Company aggressively seeks to manage and resolve its troubled commercial
mortgage loans. Commercial mortgage loans are placed into default by the
Company immediately following the Company failing to receive a payment when
due. With respect to a delinquent mortgage loan, the Company seeks to enforce
the assignment of rents clause in order to gain control of the rental income
from the property shortly following the default in payment. The foreclosure
process with respect to a delinquent mortgage loan is generally initiated by
the Company prior to the second mortgage payment becoming delinquent. Over the
last five years, the Company has recovered approximately 74% of the unpaid
principal of all of its mortgage loans in default.
62
<PAGE>
The following table sets forth the delinquency, foreclosure and restructured
commercial mortgage loan experience for the Company and for the life insurers
reporting to the ACLI for the periods indicated.
THE COMPANY AND LIFE INSURANCE INDUSTRY
PROBLEM LOAN COMPARISON
<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995 DECEMBER 31, 1994 DECEMBER 31, 1993 DECEMBER 31, 1992
--------------------- ------------------- ------------------- ------------------- -------------------
COMPANY ACLI(1) COMPANY ACLI(2) COMPANY ACLI(2) COMPANY ACLI(2) COMPANY ACLI(2)
---------- --------- --------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Delinquent(3)...... 0.79% --% 0.63% 2.35% 0.48% 3.38% 0.80% 4.54% 1.41% 6.62%
In foreclosure(4).. 0.79 -- 0.63 1.45 0.48 1.80 0.80 2.17 1.41 3.16
Restructured(5).... 1.11 -- 1.48 8.27 1.95 9.58 1.87 9.35 1.25 7.44
---------- -------- -------- --------- -------- --------- -------- --------- -------- ---------
Subtotal.......... 1.90 -- 2.11 10.62 2.43 12.96 2.67 13.89 2.66 14.06
Foreclosed--year to
date.............. 0.35 -- 0.74 1.75 1.18 2.52 1.48 3.21 3.33 3.31
---------- -------- -------- --------- -------- --------- -------- --------- -------- ---------
Total............. 2.25% --% 2.85% 12.37% 3.61% 15.48% 4.15% 17.10% 5.99% 17.37%
========== ======== ======== ========= ======== ========= ======== ========= ======== =========
</TABLE>
- --------
(1) ACLI data for the year ended December 31, 1996 are not yet available.
(2) Source: ACLI Investment Bulletins entitled "Quarterly Survey of Mortgage
Loan Delinquencies and Foreclosures," numbers 1326, 1289, 1253 and 1213,
dated February 28, 1996, March 9, 1995, March 1, 1994 and March 2, 1993,
respectively.
(3) Commercial mortgage loans are classified by the Company and the ACLI as
delinquent when they are 60 days or more past due.
(4) Delinquent includes loans in foreclosure; therefore, subtotal and total
lines exclude "In foreclosure" amounts.
(5) Commercial mortgage loans are classified by the Company and the ACLI as
restructured when they are in good standing, but the basic terms have been
modified as a result of an actual or anticipated delinquency.
The following table shows credit-related realized and unrealized gains and
losses before taxes on the Company's general account commercial mortgage loans
for the periods indicated. Realized losses on general account commercial
mortgage loans are generally a result of delinquent loans 30 days or more past
due. The following table focuses on credit losses and does not reflect gains
from prepayment penalties of $4.5 million, $3.2 million, $6.4 million, $5.2
million and $1.3 million in 1996, 1995, 1994, 1993 and 1992, respectively.
GENERAL ACCOUNT COMMERCIAL MORTGAGE LOAN
CREDIT-RELATED LOSSES
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------
1996 1995 1994 1993 1992
----- ----- ------ ------ ------
<S> <C> <C> <C> <C> <C>
Realized losses......................... $ 4.1 $ 7.1 $ 20.4 $ 28.2 $ 36.1
Unrealized losses....................... -- -- -- -- --
----- ----- ------ ------ ------
Total................................. $ 4.1 $ 7.1 $ 20.4 $ 28.2 $ 36.1
===== ===== ====== ====== ======
Percentage of beginning of year
portfolio.............................. 0.09% 0.17% 0.53% 0.79% 1.12%
</TABLE>
Real Estate
As of December 31, 1996, equity real estate assets were $265.8 million, or
1.5% of the carrying value of general account invested assets. The equity real
estate category consists of retail, office, industrial and other properties.
Retail properties constitute the largest component of the category and are
primarily grocery store-anchored neighborhood shopping centers.
Policy Loans
The Company held $371.8 million of general account policy loans as of
December 31, 1996. Of such policy loans, 56.6% were on traditional life
policies and 43.4% were on universal life policies and annuities. Policy
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<PAGE>
loans are permitted to the extent of a policy's contractual limits and are
collateralized fully by policy cash values. Loan rates are fixed in the
contracts and range from 5% to 8%. For policies with variable rate provisions,
the loan interest rates were tied to external indices. The weighted average
policy loan interest rate was 7.39% as of December 31, 1996.
Equity Securities
As of December 31, 1996, the Company held general account equity securities
of $59.1 million, or 0.3% of general account consolidated invested assets. The
Company's general account equity security investments consist of a diversified
portfolio primarily of publicly traded common stocks.
Other Long-Term Investments
As of December 31, 1996, other long-term investments were $28.7 million, or
0.2% of the carrying value of general account invested assets. Such
investments primarily consist of joint ventures and limited partnership
interests in real estate.
Short-Term Investments
As of December 31, 1996, short-term investments were $9.3 million, or 0.05%
of the carrying value of general account invested assets. Such short-term
investments comprised cash and cash equivalents. The Company invests in U.S.
Treasury bills, commercial paper and certificates of deposit.
RATINGS
Ratings with respect to claims-paying ability and financial strength have
become an increasingly important factor in establishing the competitive
position of insurance companies. Ratings are important to maintaining public
confidence in the Company and its ability to market its annuity and life
insurance products. Rating organizations continually review the financial
performance and condition of insurers, including the Company. Any lowering of
the Company's ratings could have a material adverse effect on the Company's
ability to market its products and could increase the surrender of the
Company's annuity products. Both of these consequences could, depending upon
the extent thereof, have a material adverse effect on the Company's liquidity
and, under certain circumstances, net income. Nationwide Life is rated "A+"
(Superior) by A.M. Best and its claims-paying ability is rated "Aa2"
(Excellent) by Moody's and "AA+" (Excellent) by S&P. Moody's recently
confirmed and S&P recently affirmed Nationwide Life's claims-paying ability
rating with a negative outlook.
A.M. Best's ratings for insurance companies currently range from "A++" to
"F," and some companies are not rated. A.M. Best publications indicate that
"A++" and "A+" ratings are assigned to those companies that in A.M. Best's
opinion have achieved superior overall performance when compared to the norms
of the life insurance industry and generally have demonstrated a strong
ability to meet their policyholder and other contractual obligations.
Moody's rating for insurance companies currently range from "Aaa" to "Caa."
S&P ratings for insurance companies range from "AAA" to "CCCq." In evaluating
a company's financial and operating performance, Moody's and S&P review its
profitability, leverage and liquidity as well as its book of business, the
adequacy and soundness of its reinsurance, the quality and estimated market
value of its assets, the adequacy of its policy reserves and the experience
and competency of its management.
The foregoing ratings reflect each rating agency's opinion of Nationwide
Life's financial strength, operating performance and ability to meet its
obligations to policyholders and are not evaluations directed toward the
protection of investors. Such factors are of concern to policyholders, agents
and intermediaries. Such ratings should not be relied upon when making a
decision to invest in the Notes.
COMPETITION
The Company competes with a large number of other insurers as well as non-
insurance financial services companies, such as banks, broker/dealers and
mutual funds, some of whom have greater financial resources, offer
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<PAGE>
alternative products and, with respect to other insurers, have higher ratings
than the Company. The Company believes that competition in the Company's lines
of business is based on price, product features, commission structure,
perceived financial strength, claims paying ratings, service and name
recognition. National banks, with their preexisting customer bases for
financial services products, may pose increasing competition in the future to
insurers who sell annuities, including the Company, as a result of the U.S.
Supreme Court's 1994 decision in NationsBank of North Carolina v. Variable
Annuity Life Insurance Company, which permits national banks to sell annuity
products of life insurance companies in certain circumstances.
Several proposals to repeal or modify the Glass-Steagall Act of 1933, as
amended, and the Bank Holding Company Act of 1956, as amended, have been made
by members of Congress and the Clinton administration. Currently, the Bank
Holding Company Act restricts banks from being affiliated with insurance
companies. None of these proposals has yet been enacted, and it is not
possible to predict whether any of these proposals will be enacted, or if
enacted, their potential effect on the Company.
REGULATION
General Regulation at State Level
As an insurance holding company, the Company is subject to regulation by the
states in which its insurance subsidiaries are domiciled and/or transact
business. Most states have enacted legislation that requires each insurance
holding company and each insurance company in an insurance holding company
system to register with the insurance regulatory authority of the insurance
company's state of domicile and, annually, to furnish financial and other
information concerning the operations of companies within the holding company
system that may materially affect the operations, management or financial
condition of the insurers within such system. The Company is subject to the
insurance holding company laws in Ohio. Under such laws, all transactions
within an insurance holding company system affecting insurers must be fair and
equitable and each insurer's policyholder surplus following any such
transaction must be both reasonable in relation to its outstanding liabilities
and adequate for its needs. The Ohio insurance holding company laws also
require prior notice or regulatory approval of the change of control of an
insurer or its holding company and of material intercorporate transfers of
assets within the holding company structure. Generally, under such laws, a
state insurance authority must approve in advance the direct or indirect
acquisition of 10% or more of the voting securities of an insurance company
domiciled in its state.
In addition, the laws of the various states establish regulatory agencies
with broad administrative powers to approve policy forms, grant and revoke
licenses to transact business, regulate trade practices, license agents,
require statutory financial statements and prescribe the type and amount of
investments permitted. In recent years, a number of life and annuity insurers
have been the subject of regulatory proceedings and litigation relating to
alleged improper life insurance pricing and sales practices. Some of these
insurers have incurred or paid substantial amounts in connection with the
resolution of such matters. In addition, state insurance regulatory
authorities regularly make inquiries, hold investigations and administer
market conduct examinations with respect to insurers' compliance with
applicable insurance laws and regulations. None of the Company's insurance
subsidiaries is the subject of any such investigation by any regulatory
authority or any such market conduct examination in any state at this time.
The Company's subsidiaries continuously monitor sales, marketing and
advertising practices and related activities of their agents and personnel and
provide continuing education and training in an effort to ensure compliance
with applicable insurance laws and regulations.
Insurance companies are required to file detailed annual and quarterly
financial statements with state insurance regulators in each of the states in
which they do business, and their business and accounts are subject to
examination by such agencies at any time. In addition, insurance regulators
periodically examine an insurer's financial condition, adherence to statutory
accounting practices and compliance with insurance department rules and
regulations. Applicable state insurance laws, rather than federal bankruptcy
laws, apply to the liquidation or the restructuring of insurance companies.
65
<PAGE>
As part of their routine regulatory oversight process, state insurance
departments conduct detailed examinations periodically (generally once every
three years) of the books, records and accounts of insurance companies
domiciled in their states. Such examinations are generally conducted in
cooperation with the departments of two or three other states under guidelines
promulgated by the NAIC. Nationwide Life's last examination occurred during
1993 for the three-year period ended December 31, 1992. Final reports of these
examinations have been issued by each of the Ohio, California and Delaware
insurance departments, and none of such reports raised any significant issues
or adjustments.
Regulation of Dividends and Other Payments from Insurance Subsidiaries
As an insurance holding company, the Company's ability to meet debt service
obligations and pay operating expenses and dividends depends primarily on the
receipt of sufficient funds from its primary operating subsidiary, Nationwide
Life. The inability of Nationwide Life to pay dividends to the Company in an
amount sufficient to meet debt service obligations and pay operating expenses
and dividends would have a material adverse effect on the Company. The payment
of dividends by Nationwide Life is subject to restrictions set forth in the
insurance laws and regulations of Ohio, its domiciliary state. The Ohio
insurance laws require Ohio-domiciled life insurance companies to seek prior
regulatory approval to pay a dividend or distribution of cash or other
property if the fair market value thereof, together with that of other
dividends or distributions made in the preceding 12 months, exceeds the
greater of (i) 10% of policyholders' surplus as of the prior December 31 or
(ii) the net income of the insurer for the 12-month period ending as of the
prior December 31. The Ohio insurance laws also require insurers to seek prior
regulatory approval for any dividend paid from other than earned surplus.
Earned surplus is defined under the Ohio insurance laws as the amount equal to
the Company's unassigned funds as set forth in its most recent statutory
financial statements, including net unrealized capital gains and losses or
revaluation of assets. Additionally, following any dividend, an insurer's
policyholder surplus must be reasonable in relation to the insurer's
outstanding liabilities and adequate for its financial needs. As a result of
the Special Dividend and the dividend by Nationwide Life of the stock of
certain subsidiaries that do not operate in the long-term savings and
retirement market, any dividend paid by Nationwide Life during the 12-month
period immediately following the Special Dividend would be an extraordinary
dividend under Ohio insurance laws. See "Recent History." Accordingly, no such
dividend could be paid without prior regulatory approval. The payment of
dividends by Nationwide Life may also be subject to restrictions set forth in
the insurance laws of New York that limit the amount of statutory profits on
Nationwide Life's participating policies (measured before dividends to
policyholders) that can inure to the benefit of the Company and its
stockholders. The Company currently does not expect such regulatory
requirements to impair its ability to pay operating expenses and dividends and
to meet its debt service obligations in the future.
NAIC IRIS Ratios
In the 1970s, the NAIC developed a set of financial relationships or "tests"
known as the Insurance Regulatory Information System ("IRIS") that was
designed for early identification of companies which may require special
attention by insurance regulatory authorities. There are separate but similar
tests for property/casualty companies and life and health companies. Insurance
companies submit data annually to the NAIC, which in turn analyzes the data by
utilizing, in the case of life insurance companies, 13 ratios, each with
defined "usual ranges." An insurance company may fall out of the usual range
for one or more ratios because of specific transactions that are in themselves
immaterial or eliminated at the consolidated level. Generally, an insurance
company will become subject to regulatory scrutiny if it falls outside the
usual ranges of four or more of the ratios, and regulators may then act, if
the company has insufficient capital, to constrain the company's underwriting
capacity. No ratios for the Company's insurance subsidiaries currently fall
outside the usual range for any of the ratios.
Risk-Based Capital Requirements
In order to enhance the regulation of insurer solvency, the NAIC has adopted
a model law to implement risk-based capital ("RBC") requirements for life
insurance companies. The requirements are designed to
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<PAGE>
monitor capital adequacy and to raise the level of protection that statutory
surplus provides for policyholders. The model law measures four major areas of
risk facing life insurers: (i) the risk of loss from asset defaults and asset
value fluctuation; (ii) the risk of loss from adverse mortality and morbidity
experience; (iii) the risk of loss from mismatching of asset and liability
cash flow due to changing interest rates and (iv) business risks. Insurers
having less statutory surplus than required by the RBC model formula will be
subject to varying degrees of regulatory action depending on the level of
capital inadequacy.
The RBC formula provides a mechanism for the calculation of an insurance
company's Authorized Control Level RBC and its total adjusted capital. The
model law sets forth the points at which a superintendent of insurance is
authorized and expected to take regulatory action. The first level is known as
the Company Action Level RBC, which is set at twice the Authorized Control
Level RBC. The second level is the Regulatory Action Level RBC, set at 1.5
times the Authorized Control Level RBC. The third is the Authorized Control
Level RBC, and the fourth is the Mandatory Control Level RBC, set at 70
percent of the Authorized Control Level RBC.
If an insurance company's adjusted capital is higher than the Regulatory
Action Level but below the Company Action Level, the insurance company must
submit to its superintendent of insurance a comprehensive financial plan. If
an insurance company's adjusted capital is higher than the Authorized Control
Level but lower than the Regulatory Action Level, the superintendent of
insurance shall perform such examination or analysis as he or she deems
necessary of the insurer's business and operations and issue any appropriate
corrective orders to address the insurance company's financial problems. If an
insurer's adjusted capital is higher than the Mandatory Control Level but
lower than the Authorized Control Level, the superintendent may place the
insurer under regulatory control. If the insurance company's adjusted capital
falls below the Mandatory Control Level, the superintendent will be required
to place the insurer under regulatory control. Based on the formula adopted by
the NAIC, Nationwide Life exceeded the Company Action Level by a substantial
amount as of December 31, 1995. After giving pro forma effect to the Special
Dividend and the contribution to Nationwide Life by the Company of $766.5
million of proceeds from the Equity Offerings, the Note Offering and the
Capital Securities Offering, Nationwide Life exceeded the Company Action Level
by a substantial amount as of December 31, 1996. See "Use of Proceeds,"
"Recent History" and "The Equity Offerings, the Note Offering and the Capital
Securities Offering."
Assessments Against Insurers
Insurance guaranty association laws exist in all states, the District of
Columbia and Puerto Rico. Insurers doing business in any of these
jurisdictions can be assessed for policyholder losses incurred by insolvent
insurance companies. The amount and timing of any future assessment on the
Company's insurance subsidiaries under these laws cannot be reasonably
estimated and are beyond the control of the Company and its insurance
subsidiaries. Recent regulatory actions against certain large life insurers
encountering financial difficulty have prompted the various state insurance
guaranty associations to begin assessing life insurance companies for the
deemed loss. Most of these laws do provide, however, that an assessment may be
excused or deferred if it would threaten an insurer's solvency and further
provide for annual limits on such assessments. A large part of the assessments
paid by the Company's insurance subsidiaries pursuant to these laws may be
used as credits for a portion of the Company's insurance subsidiaries' premium
taxes. Based on the best information presently available, the Company believes
the total assessments will not be material to its operating results or
financial position. For the years ended December 31, 1996, 1995 and 1994, the
Company paid $4.5 million, $7.5 million and $5.3 million, respectively, in
assessments pursuant to state insurance guaranty association laws.
General Regulation at Federal Level
Although the federal government generally does not directly regulate the
insurance business, federal initiatives often have an impact on the business
in a variety of ways. Current and proposed federal measures that may
significantly affect the insurance business include limitations on antitrust
immunity, minimum solvency requirements and the removal of barriers
restricting banks from engaging in the insurance and mutual fund business.
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<PAGE>
Securities Laws
Certain of the Company's insurance subsidiaries and certain policies and
contracts offered by them are subject to regulation under the federal
securities laws administered by the Commission and under certain state
securities laws. Certain separate accounts of the Company's insurance
subsidiaries are registered as investment companies under the Investment
Company Act of 1940, as amended (the "Investment Company Act"). Separate
account interests under certain variable annuity contracts and variable
insurance policies issued by the Company's insurance subsidiaries are also
registered under the Securities Act. Certain other subsidiaries of the Company
are registered as broker/dealers under the Exchange Act and are members of,
and subject to regulation by, the National Association of Securities Dealers.
Certain of the Company's subsidiaries are investment advisors registered
under the Investment Advisers Act of 1940, as amended. The investment
companies managed by such subsidiaries are registered with the Commission
under the Investment Company Act and the shares of certain of these entities
are qualified for sale in certain states in the United States and the District
of Columbia. A subsidiary of the Company is registered with the Commission as
a transfer agent. Certain subsidiaries of the Company are also subject to the
Commission's net capital rules.
All aspects of the Company's subsidiaries' investment advisory activities
are subject to various federal and state laws and regulations in jurisdictions
in which they conduct business. These laws and regulations are primarily
intended to benefit investment advisory clients and investment company
shareholders and generally grant supervisory agencies broad administrative
powers, including the power to limit or restrict the carrying on of business
for failure to comply with such laws and regulations. In such event, the
possible sanctions which may be imposed include the suspension of individual
employees, limitations on the activities in which the investment advisor may
engage, suspension or revocation of the investment advisor's registration as
an advisor, censure and fines.
ERISA Considerations
On December 13, 1993, the United States Supreme Court issued its opinion in
John Hancock Mutual Life Insurance Company v. Harris Trust and Savings Bank
holding that certain assets in excess of amounts necessary to satisfy
guaranteed obligations held by John Hancock in its general account under a
participating group annuity contract are "plan assets" and therefore subject
to certain fiduciary obligations under the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), which specify that fiduciaries must perform
their duties solely in the interest of ERISA plan participants and
beneficiaries. The Court limited the imposition of ERISA fiduciary obligations
in these instances to assets in an insurer's general account that were not
reserved to pay benefits of guaranteed benefit policies (i.e., benefits whose
value would not fluctuate in accordance with the insurer's investment
experience). The Secretary of Labor is required to issue proposed regulations
not later than June 30, 1997, providing guidance for the purpose of
determining, in cases where an insurer issues one or more policies backed by
the insurer's general account to or for the benefit of an employee benefit
plan, which assets of the insurer constitute plan assets for purposes of ERISA
and the IRC. Final regulations, after a notice and comment period, must be
issued by December 31, 1997. The regulations will apply only with respect to a
policy issued by an insurer on or before December 31, 1998. In the case of
such a policy, the regulations will take effect at the end of the 18-month
period following the date such regulations become final. Generally, no person
will be liable under ERISA or the IRC for conduct occurring prior to the end
of such 18-month period, where the basis of a claim is that insurance company
general account assets constitute plan assets. New policies issued after
December 31, 1998 which are not guaranteed benefit policies will be subject to
the fiduciary obligations under ERISA.
The regulations should indicate the requirements that must be met in order
to satisfy ERISA's fiduciary standards. A review of Nationwide Life's
procedures with respect to its general account contracts will be required to
ensure compliance with the regulations.
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Potential Tax Legislation
Congress has, from time to time, considered possible legislation that would
eliminate the deferral of taxation on the accretion of value within certain
annuities and life insurance products. The 1994 United States Supreme Court
ruling in NationsBank of North Carolina v. Variable Annuity Life Insurance
Company that annuities are not insurance for purposes of the National Bank Act
may cause Congress to consider legislation that would eliminate such tax
deferral at least for certain annuities. Other possible legislation, including
a simplified "flat tax" income tax structure with an exemption from taxation
for investment income, could also adversely affect purchases of annuities and
life insurance if such legislation were to be enacted. There can be no
assurance as to whether legislation will be enacted which would contain
provisions with possible adverse effects on the Company's annuity and life
insurance products.
PROPERTIES
The Company's principal executive offices are located in Columbus, Ohio. The
Company leases its home office complex, consisting of approximately 512,000
square feet, from Nationwide Mutual and its subsidiaries at One Nationwide
Plaza, Two Nationwide Plaza and Three Nationwide Plaza, Columbus, Ohio. See
"Certain Relationships and Related Transactions."
The Company believes that its present facilities are adequate for the
anticipated needs of the Company.
LEGAL PROCEEDINGS
From time to time the Company is a party to litigation and arbitration
proceedings in the ordinary course of its business, none of which is expected
to have a material adverse effect on the Company.
In recent years, life insurance companies have been named as defendants in
lawsuits, including class action lawsuits, relating to life insurance pricing
and sales practices. A number of these lawsuits have resulted in substantial
jury awards or settlements. In October 1996, a policyholder of Nationwide Life
filed a complaint in Alabama state court against Nationwide Life and an agent
of Nationwide Life (Wayne M. King v. Nationwide Life Insurance Company and
Danny Nix) related to the sale of a whole life policy on a "vanishing premium"
basis and seeking unspecified compensatory and punitive damages. In February
1997, Nationwide Life was named as a defendant in a lawsuit filed in New York
Supreme Court also related to the sale of whole life policies on a "vanishing
premium" basis (John H. Snyder v. Nationwide Mutual Insurance Company,
Nationwide Mutual Insurance Co. and Nationwide Life Insurance Co.). The
plaintiff in such lawsuit seeks to represent a national class of Nationwide
Life policyholders and claims unspecified compensatory and punitive damages.
This lawsuit is in an early stage and has not been certified as a class
action. Nationwide Life intends to defend these lawsuits vigorously. There can
be no assurance that any future litigation relating to pricing and sales
practices will not have a material adverse effect on the Company.
EMPLOYEES
As of December 31, 1996, the Company had approximately 3,550 employees. None
of the employees of the Company is covered by a collective bargaining
agreement, and the Company believes that its employee relations are
satisfactory.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table provides information regarding the executive officers
and directors of the Company. Of such executive officers, Messrs. Gasper,
Brock, Galloway, Karas, B. Barnes and Easley work exclusively for the Company.
The other executive officers perform duties for the Company and other members
of the Nationwide Insurance Enterprise.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
<C> <C> <S>
Dimon Richard McFerson(1)........ 59 Chairman and Chief Executive Officer--
Nationwide Insurance Enterprise and
Director
Joseph J. Gasper................. 53 President and Chief Operating Officer and
Director
Galen R. Barnes.................. 49 Executive Vice President
Richard D. Crabtree.............. 56 Executive Vice President
Gordon E. McCutchan.............. 61 Executive Vice President--Law and
Corporate Services and Secretary
Robert A. Oakley................. 50 Executive Vice President--Chief Financial
Officer
Robert J. Woodward, Jr........... 55 Executive Vice President--Chief
Investment Officer
James E. Brock................... 49 Senior Vice President--Company Operations
W. Sidney Druen.................. 54 Senior Vice President and General Counsel
Harvey S. Galloway, Jr........... 63 Senior Vice President--Chief Actuary--
Life and Annuities
Richard A. Karas................. 54 Senior Vice President--Sales--Financial
Services
Bruce C. Barnes.................. 49 Vice President--Information Systems
Dennis W. Click.................. 58 Vice President and Assistant Secretary
David A. Diamond................. 41 Vice President--Controller
Matthew S. Easley................ 40 Vice President--Marketing and
Administrative Services
Mark R. Thresher................. 40 Vice President--Finance and Treasurer
Charles L. Fuellgraf, Jr.(1)(2).. 65 Director
Henry S. Holloway(1)............. 64 Director
Lydia Micheaux Marshall(3)....... 48 Director
Donald L. McWhorter(2)(3)........ 61 Director
David O. Miller(1)(2)............ 58 Director
James F. Patterson(1)............ 55 Director
Gerald D. Prothro(3)............. 54 Director
Arden L. Shisler(1).............. 55 Director
</TABLE>
- --------
(1) Member of Executive Committee.
(2) Member of Compensation Committee.
(3) Member of Audit Committee.
Biographical information for each of the individuals listed in the above
table is set forth below.
DIMON RICHARD MCFERSON has been Chief Executive Officer of the Nationwide
Insurance Enterprise since December 1992. He has been Chairman and Chief
Executive Officer--Nationwide Insurance Enterprise of the Company since
December 1996 and a director of the Company since November 1996. Mr. McFerson
has been a director of Nationwide Life and Nationwide Mutual since April 1988
and Chairman and Chief Executive Officer--Nationwide Insurance Enterprise of
Nationwide Life and Nationwide Mutual since April 1996. Previously he was
elected Chief Executive Officer of Nationwide Life in December 1992, and
President and Chief Executive Officer--Nationwide Insurance Enterprise of
Nationwide Life in December 1993. He was President and General Manager of
Nationwide Mutual from April 1988 to April 1991; President and Chief Operating
Officer of Nationwide Mutual from April 1991 to December 1992; and President
and Chief Executive Officer of Nationwide Mutual from December 1992 to April
1996. Mr. McFerson has been with the Nationwide Insurance Enterprise for 17
years.
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JOSEPH J. GASPER has been President and Chief Operating Officer of the
Company since December 1996 and a director of the Company since November 1996.
Mr. Gasper has been President and Chief Operating Officer of Nationwide Life
since April 1996. Previously, he was Executive Vice President--
Property/Casualty Operations of Nationwide Mutual from April 1995 to April
1996. He was Senior Vice President--Property/Casualty Operations of Nationwide
Mutual from September 1993 to April 1995. Prior to that time, Mr. Gasper held
numerous positions within the Nationwide Insurance Enterprise. Mr. Gasper has
been with the Nationwide Insurance Enterprise for 30 years.
GALEN R. BARNES has been Executive Vice President of the Company since
December 1996. Mr. Barnes has been President of the Nationwide Insurance
Enterprise since April 1996. Previously, he was President and Chief Operating
Officer of the Wausau Insurance Companies, members of the Nationwide Insurance
Enterprise, from May 1993 to September 1996 and was Senior Vice President of
the Nationwide Insurance Enterprise from May 1993 to April 1996. Prior to that
time, Mr. Barnes held several positions within the Nationwide Insurance
Enterprise. Mr. Barnes has been with the Nationwide Insurance Enterprise for
21 years.
RICHARD D. CRABTREE has been Executive Vice President of the Company since
December 1996. Mr. Crabtree has been a director and President and Chief
Operating Officer of Nationwide Mutual, Nationwide Mutual Fire and Nationwide
Property and Casualty Insurance Company since April 1996. Previously, he was
Executive Vice President--Property/Casualty Operations of the Nationwide
Insurance Enterprise from April 1995 to April 1996. Prior to that time, Mr.
Crabtree held various positions within the Nationwide Insurance Enterprise.
Mr. Crabtree has been with the Nationwide Insurance Enterprise for 31 years.
GORDON E. MCCUTCHAN has been Executive Vice President--Law and Corporate
Services and Secretary of the Company since December 1996. Mr. McCutchan has
been Executive Vice President--Law and Corporate Services and Secretary of the
Nationwide Insurance Enterprise since September 1994. Previously, he was
Executive Vice President, General Counsel and Secretary of the Nationwide
Insurance Enterprise from November 1989 to September 1994. Prior to that time,
Mr. McCutchan held several positions within the Nationwide Insurance
Enterprise. Mr. McCutchan has been with the Nationwide Insurance Enterprise
for 33 years.
ROBERT A. OAKLEY has been Executive Vice President--Chief Financial Officer
of the Company since December 1996. Mr. Oakley has been Executive Vice
President--Chief Financial Officer of the Nationwide Insurance Enterprise
since April 1995. Previously, he was Senior Vice President--Chief Financial
Officer of the Nationwide Insurance Enterprise from October 1993 to April
1995. Prior to that time, Mr. Oakley held several positions within the
Nationwide Insurance Enterprise. Mr. Oakley has been with the Nationwide
Insurance Enterprise for 21 years.
ROBERT J. WOODWARD, JR. has been Executive Vice President--Chief Investment
Officer of the Company since December 1996. Mr. Woodward has been Executive
Vice President--Chief Investment Officer of the Nationwide Insurance
Enterprise since August 1995. Previously, he was Senior Vice President--Fixed
Income Investments of the Nationwide Insurance Enterprise from March 1991 to
August 1995. Prior to that time, Mr. Woodward held several positions within
the Nationwide Insurance Enterprise. Mr. Woodward has been with the Nationwide
Insurance Enterprise for 32 years.
JAMES E. BROCK has been Senior Vice President--Company Operations of the
Company since December 1996. Mr. Brock has been Senior Vice President--Life
Company Operations of Nationwide Life since April 1996. Previously, he was
Senior Vice President--Investment Product Operations of Nationwide Life from
November 1990 to April 1996. Prior to that time, Mr. Brock held several
positions within the Nationwide Insurance Enterprise. Mr. Brock has been with
the Nationwide Insurance Enterprise for 27 years.
W. SIDNEY DRUEN has been Senior Vice President and General Counsel of the
Company since December 1996. Mr. Druen has been Senior Vice President and
General Counsel and Assistant Secretary of the Nationwide Insurance Enterprise
since September 1994. Previously, he was Vice President, Deputy General
Counsel and Assistant Secretary of the Nationwide Insurance Enterprise from
October 1989 to September 1994. Prior to that time, Mr. Druen held several
positions within the Nationwide Insurance Enterprise. Mr. Druen has been with
the Nationwide Insurance Enterprise for 27 years.
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<PAGE>
HARVEY S. GALLOWAY, JR. has been Senior Vice President--Chief Actuary--Life
and Annuities of the Company since December 1996. Mr. Galloway has been Senior
Vice President--Chief Actuary--Life, Health and Annuities of the Nationwide
Insurance Enterprise since April 1993. Previously, he was Senior Vice
President and Chief Actuary of the Nationwide Insurance Enterprise from
January 1983 to April 1993. Prior to that time, Mr. Galloway held several
positions within the Nationwide Insurance Enterprise. Mr. Galloway has been
with the Nationwide Insurance Enterprise for 27 years.
RICHARD A. KARAS has been Senior Vice President--Sales--Financial Services
of the Company since December 1996. Mr. Karas has been Senior Vice President--
Sales--Financial Services of the Nationwide Insurance Enterprise since March
1993. Previously, he was Vice President--Sales--Financial Services of the
Nationwide Insurance Enterprise from February 1989 to March 1993. Prior to
that time, Mr. Karas held several positions within the Nationwide Insurance
Enterprise. Mr. Karas has been with the Nationwide Insurance Enterprise for 32
years.
BRUCE C. BARNES has been Vice President--Information Systems of the Company
since February 1997. Mr. Barnes has been Vice President--Life Systems of the
Nationwide Insurance Enterprise since May 1996. Previously, he was Vice
President--Investment Product Systems of the Nationwide Insurance Enterprise
from April 1995 to May 1996. Prior to that time, Mr. Barnes was Vice
President--Individual Investment Products/Common Systems of the Nationwide
Insurance Enterprise from May 1994 to April 1995 and Associate Vice
President--Individual Investment Products/Common Systems of Nationwide Life
from May 1992 to May 1994. Mr. Barnes was Vice President--Information Services
of PHP Benefits Systems, Inc. from January 1987 to January 1992. Mr. Barnes
has been with the Nationwide Insurance Enterprise for 5 years.
DENNIS W. CLICK has been Vice President and Assistant Secretary of the
Company since December 1996. Mr. Click has been Vice President and Assistant
Secretary of the Nationwide Insurance Enterprise since August 1994.
Previously, he was Associate Vice President and Assistant Secretary of the
Nationwide Insurance Enterprise from August 1989 to August 1994. Prior to that
time, he held several positions within the Nationwide Insurance Enterprise.
Mr. Click has been with the Nationwide Insurance Enterprise for 36 years.
DAVID A. DIAMOND has been Vice President--Controller of the Company since
December 1996. Mr. Diamond has been Vice President--Enterprise Controller of
the Nationwide Insurance Enterprise since August 1996. Previously, he was Vice
President--Controller of Nationwide Life from October 1993 to August 1996.
Prior to that time, Mr. Diamond held several positions within the Nationwide
Insurance Enterprise. Mr. Diamond has been with the Nationwide Insurance
Enterprise for 8 years.
MATTHEW S. EASLEY has been Vice President--Marketing and Administrative
Services of the Company since December 1996. Mr. Easley has been Vice
President--Life Marketing and Administrative Services of the Nationwide
Insurance Enterprise since May 1996. Previously, he was Vice President--
Annuity and Pension Actuarial of the Nationwide Insurance Enterprise from
August 1989 to May 1996. Prior to that time, Mr. Easley held several positions
within the Nationwide Insurance Enterprise. Mr. Easley has been with the
Nationwide Insurance Enterprise for 14 years.
MARK R. THRESHER has been Vice President--Finance and Treasurer of the
Company since February 1997. Mr. Thresher has been Vice President--Controller
of Nationwide Life since August 1996. He was Vice President and Treasurer of
the Company from November 1996 to February 1997. Previously, he was Vice
President and Treasurer of the Nationwide Insurance Enterprise from June 1996
to August 1996. Prior to joining the Nationwide Insurance Enterprise, Mr.
Thresher served as a partner with KPMG Peat Marwick LLP since July 1988.
CHARLES L. FUELLGRAF, JR. has been a director of the Company since November
1996. Mr. Fuellgraf has been Chief Executive Officer of Fuellgraf Electric
Company, an electrical contractor, of Butler, Pennsylvania, and Nashville,
Tennessee, since 1986. He is Chairman of the Board of Nationwide
Communications Inc. and serves on the board of directors of several members of
the Nationwide Insurance Enterprise.
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<PAGE>
HENRY S. HOLLOWAY has been a director of the Company since November 1996.
Mr. Holloway has been a farm owner and operator in Darlington, Maryland, since
1959. He is Chairman of the Board of Nationwide Life, Nationwide Life and
Annuity Insurance Company and Nationwide Corp. and serves on the board of
directors of several members of the Nationwide Insurance Enterprise. He is
also a director of the National Cooperative Business Association and the
Forest Hill State Bank.
LYDIA MICHEAUX MARSHALL has been a director of the Company since February
1997. Mrs. Marshall has been Executive Vice President, Marketing of the
Student Loan Marketing Association ("Sallie Mae"), in Washington D.C., since
November 1993. Previously, she was Senior Vice President, Marketing of Sallie
Mae from January 1991 to November 1993. Prior to that time, Mrs. Marshall held
several positions with Sallie Mae. She is Chair of the Board of CARE
(Cooperative for American Relief Everywhere) and a trustee of the Greater
Washington Board of Trade's Greater Washington Initiative.
DONALD L. MCWHORTER has been a director of the Company since February 1997.
Mr. McWhorter retired from Banc One Corporation in April 1995, after serving
as President and Chief Operating Officer of Banc One Corporation since April
1992. Previously, he was Chairman and Chief Executive Officer of Banc One Ohio
from July 1989 to April 1992. Prior to that time, Mr. McWhorter held several
positions with Banc One Corporation.
DAVID O. MILLER has been a director of the Company since November 1996. Mr.
Miller has been a farm owner and land developer since 1962. He is the
President of the Owen Potato Farm Inc., the owner of The Berry Barn and is a
partner of M&M Enterprises in Licking County, Ohio. He is Chairman of the
Board of the Wausau Insurance Companies and serves on the board of directors
of several members of the Nationwide Insurance Enterprise. He is also a
director of the National Cooperative Business Association.
JAMES F. PATTERSON has been a director of the Company since November 1996.
Mr. Patterson has operated the Patterson Fruit Farm in Chesterland, Ohio,
since 1964 and has been the President of Patterson Farms, Inc. since December
1991. He is Chairman of the Board of Nationwide Mutual Fire Insurance Company
and serves on the board of directors of several members of the Nationwide
Insurance Enterprise. He is also a trustee of The Ohio State University and
serves on the board of directors of the University Hospitals Health System in
Cleveland, Ohio, and Geauga Hospital, Inc. in Chardon, Ohio.
GERALD D. PROTHRO has been a director of the Company since February 1997.
Mr. Prothro has been Vice President and IBM Chief Information Officer of
International Business Machines Corporation since April 1994. Previously, he
was IBM Vice President, Information and Telecommunications Systems of
International Business Machines Corporation from June 1992 to April 1994.
Prior to that time, Mr. Prothro held several positions with International
Business Machines Corporation. He is a director of National Technological
University and a member of the Review and Priority Board of Lehigh
University/Iacocca Institute. He is also a trustee of Howard University.
ARDEN L. SHISLER has been a director of the Company since November 1996. Mr.
Shisler has been President and Chief Executive Officer of K & B Transport,
Inc., a trucking firm in Dalton, Ohio, since January 1992. Previously, he was
Chief Operating Officer of K&B Transport, Inc. from April 1986 to January
1992. Prior to that time, Mr. Shisler held several positions with K&B
Transport, Inc. He is Chairman of the Board of Nationwide Mutual Insurance
Company and serves on the board of directors of several members of the
Nationwide Insurance Enterprise. He is also a director of the National
Cooperative Business Association.
The Company's Board of Directors currently consists of ten directors,
divided into three classes. The initial term of the first class will expire at
the annual meeting of stockholders to be held in 1998, the initial term of the
second class will expire at the annual meeting of stockholders in 1999 and the
initial term of the third class will expire at the annual meeting of
stockholders in 2000. Messrs. Holloway, Patterson and Prothro are members of
the first class, Messrs. Fuellgraf, McFerson, McWhorter and Shisler are
members of the second class and Messrs. Gasper and Miller and Ms. Marshall are
members of the third class. At each annual meeting of stockholders, directors
will be elected for a three-year term to succeed the directors whose terms are
then to expire. Officers of the Company are elected annually and serve until
their retirement, resignation or removal.
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<PAGE>
The Company's Board of Directors has an Audit Committee currently consisting
of three directors, none of whom is an officer or employee of the Company. Ms.
Marshall and Messrs. McWhorter and Prothro are the members of such committee.
The Audit Committee recommends to the Board of Directors the selection of
independent certified public accountants to audit annually the books and
records of the Company, reviews the activities and the reports of the
independent certified public accountants and reports the results of such
review to the Board of Directors. The Audit Committee also considers the
adequacy of the Company's internal controls and internal auditing methods and
procedures. The Board of Directors has a Compensation Committee currently
consisting of three directors, none of whom is an officer or employee of the
Company, which, as authorized by the Board of Directors, makes determinations
with respect to non-cash compensation to officers, directors and employees of
the Company, including grants, option and awards under the Company's 1996
Long-Term Equity Compensation Plan. Messrs. Fuellgraf, McWhorter and Miller
are the members of such committee. The Board of Directors has an Executive
Committee currently consisting of six directors, which, to the extent
authorized by the Board of Directors, exercises all the powers and authority
of the Board of Directors in the management of the business and affairs of the
Company. Messrs. Fuellgraf, Holloway, McFerson, Miller, Paterson and Shisler
are the members of such committee.
DIRECTOR COMPENSATION
Directors of the Company who are not employees of the Company or its
affiliates will receive an annual retainer of $50,000. Pursuant to the
Nationwide Financial Services, Inc. Stock Retainer Plan for Non-Employee
Directors, the annual retainer will be paid (i) $25,000 in cash and (ii) in
shares of Class A Common Stock having an aggregate market value of $25,000 as
of the date of payment. In addition, the Company will reimburse directors for
reasonable travel expenses incurred in attending meetings of the Board of
Directors and committees thereof.
In addition, directors of the Company who are not employees of the Company
or its affiliates also receive compensation for service on the boards of
directors of Nationwide Life and Nationwide Life and Annuity Insurance
Company. For the fiscal year ended December 31, 1996, Messrs. Fuellgraf,
Holloway, Miller, Patterson and Shisler received $8,820, $14,059, $13,783,
$10,949 and $13,621, respectively, for service to such companies.
Directors' Deferred Compensation Program
Nationwide Mutual and certain of its subsidiaries and affiliates, including
Nationwide Life, maintain a deferred compensation program applicable to
nonemployee members of their boards of directors (the "Directors' Deferred
Compensation Program"). Each director who has been elected to the board of
directors at least twice and has served for at least 3 years on the board of
directors of a participating company is entitled to monthly payments,
following termination of his or her service on the board of directors, of a
monthly amount equal to the monthly director's fee being received by that
director at the time of his or her retirement from the board of directors. The
number of monthly payments will equal the number of months the individual
served on the board of directors (other than months in which he or she was
also a salaried officer of the participating company). Messrs. Fuellgraf,
Holloway, Miller, Patterson and Shisler, the nonemployee members of the Board
of Directors of the Company, are also nonemployee members of the board of
directors of Nationwide Life.
Directors' Stock Retainer Plan
The Company has established the Nationwide Financial Services, Inc. Stock
Retainer Plan for Non-Employee Directors. As a means of solidifying the common
interests of the Company and its directors, pursuant to such plan, each
director of the Company will be paid half of the annual retainer fee in cash
and the other half in the form of shares of Class A Common Stock having an
equivalent fair market value as of the date of payment.
EXECUTIVE COMPENSATION
The Company was incorporated in November 1996. Pursuant to a cost sharing
agreement, the salaries and benefits of certain of the officers and employees
of the Company and its subsidiaries, including the Named Executive Officers
(as defined below), will be paid by Nationwide Mutual and reimbursed in
accordance with the terms of such agreement. See "Certain Relations and
Related Transactions--Existing Arrangements with the Nationwide Insurance
Enterprise--Cost Sharing Agreement."
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The following summary compensation table sets forth information regarding
the compensation of the Chief Executive Officer and the other five most highly
compensated executive officers of the Company (collectively, the "Named
Executive Officers") for the fiscal year ended December 31, 1996 solely for
services rendered to the Company and its subsidiaries.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
-------------------------------- ------------
OTHER ANNUAL LTIP ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION PAYOUTS COMPENSATION
- --------------------------- -------- ------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Dimon Richard
McFerson(1)............. $324,790 $80,058(2) $ -- (3) $149,803(4) $13,363(5)
Chairman and Chief
Executive
Officer--Nationwide
Insurance Enterprise
Joseph J. Gasper(6)...... 232,959 -- (2) -- (3) -- (4) 10,650(5)
President and Chief
Operating Officer
Harvey S. Galloway, Jr... 247,520 69,901(2) -- (3) 74,100(4) 11,973(5)
Senior Vice President--
Chief Actuary--Life and
Annuities
Robert J. Woodward,
Jr.(1).................. 222,784 59,399(2) -- (3) 64,698(4) 10,610(5)
Executive Vice
President--Chief
Investment Officer
James E. Brock........... 217,520 59,620(2) -- (3) 65,100(4) 10,492(5)
Senior Vice President--
Company Operations
Richard A. Karas......... 216,905 52,312(2) -- (3) 57,750(4) 10,059(5)
Senior Vice President--
Sales--Financial
Services
</TABLE>
- --------
(1) Figures in the table represent compensation received by such person solely
for his services rendered to the Company and its subsidiaries as allocated
pursuant to a cost sharing agreement. See "Certain Relationships and
Related Transactions--Existing Arrangements with the Nationwide Insurance
Enterprise--Cost Sharing Agreement."
(2) Represents the amount received by the Named Executive Officer under the
Management Incentive Plan in 1996 for the 1995 award year. See "--
Incentive Plans--Management Incentive Plan." Payout under such plan for
the 1996 award year is not available as of the date of this Prospectus.
(3) Aggregate perquisites and other personal benefits are less than the lower
of $50,000 or 10% of combined salary and bonus.
(4) Represents the amount received by the Named Executive Officer under the
Executive Incentive Plan in 1996 for the award period 1993 to 1995. See
"--Incentive Plans--Executive Incentive Plan." No payouts were made in
1996 under the Sustained Performance Incentive Plan. See "--Incentive
Plans--Sustained Performance Incentive Plan."
(5) Represents contributions made or credited by the Company in 1996 under the
Savings Plan (as defined herein) and the DC Supplemental Plan (as defined
herein). See "--Savings Plans."
(6) Represents compensation received by Mr. Gasper solely for his services
rendered to the Company in 1996 as allocated pursuant to a cost sharing
agreement. Prior to April 1996, Mr. Gasper was the Executive Vice
President--Property/Casualty Operations of Nationwide Mutual and received
compensation from Nationwide Mutual and its property/casualty insurance
subsidiaries for services rendered to such companies. Such compensation is
not reflected in the table.
75
<PAGE>
INCENTIVE PLANS
Sustained Performance Incentive Plan
Prior to 1997, Nationwide Mutual and certain of its subsidiaries and
affiliates, including Nationwide Life, maintained the Sustained Performance
Incentive Plan (the "SPIP"). Under the SPIP, payments were made to the Named
Executive Officers and other senior officers of the participating companies in
each odd numbered calendar year based on the achievement of measures tied to
the performance of the Nationwide Insurance Enterprise over the preceding four
years. Performance measures were based on profitability, growth and strategic
objectives for the Nationwide Insurance Enterprise which were established in
advance by the boards of directors of the participating companies. Under the
SPIP, participants were granted target incentive amounts that represented a
percentage (10% to 20% depending on the participant's position within the
participating company) of the sum of the participant's base salary for the
last two years of the performance cycle. The actual amount received by the
participant ranged from zero to twice the target incentive amount, depending
solely on the achievement of the performance measures.
Nationwide Mutual and the participating subsidiaries and affiliates
terminated the SPIP at the close of calendar year 1996. If a payment under the
SPIP is made in 1997, covering performance measured for the period from 1993
to 1996, such payment will be made in cash as provided in the SPIP. To
facilitate the termination of the SPIP, the performance measurement period for
1995 to 1998 was closed at the end of calendar 1996. If a payment under the
SPIP is made in 1997, covering the performance measurement period which would
have ended in 1998, such payment will be made in restricted stock of the
Company, equal in value at the time of the payment to the cash payment it is
replacing.
Executive Incentive Plan
Nationwide Mutual and certain of its subsidiaries and affiliates, including
Nationwide Life, maintain the Executive Incentive Plan (the "EIP"). Under the
EIP, annual payments are made to the Named Executive Officers and certain
other officers of the participating companies based on the achievement of
measures tied to the performance of the Nationwide Insurance Enterprise and
the relevant operating company over the preceding three years. Performance
measures are based on profitability and growth objectives which are
established in advance by the Board of Directors of the participating company.
Under the EIP, the participant will be granted a target incentive amount that
represents a percentage (from 5% to 25% depending on the participant's
position within the participating company) of the participant's base salary.
The actual amount received by the participant will range from zero to twice
the target incentive amount, depending solely on the achievement of the
performance measures.
Management Incentive Plan
Nationwide Mutual and certain of its subsidiaries and affiliates, including
Nationwide Life, maintain the Management Incentive Plan (the "MIP"). Under the
MIP, annual payments are made to the Named Executive Officers and certain
other management employees of the participating companies based on the
achievement of measures tied to the performance of the Nationwide Insurance
Enterprise, the relevant operating company, the relevant business unit and the
individual participant over the preceding year. Performance measures are based
on profitability, growth, expense management and key strategic objectives
which are established in advance. Under the MIP, the participant will be
granted a target incentive amount that represents a percentage (from 5% to 15%
depending on the participant's position within the participating company) of
the participant's base salary. The actual amount received by the participant
under the MIP will range from zero to twice the target incentive amount,
depending solely on the achievement of the performance measures.
PENSION PLANS
Retirement Plan
Nationwide Mutual and certain of its subsidiaries and affiliates, including
Nationwide Life, maintain a qualified defined benefit plan, the Nationwide
Insurance Enterprise Retirement Plan (the "Retirement Plan"). In general, a
participant's annual retirement benefit under the Retirement Plan will be
equal to the sum of (i) 1.25% of the participant's Final Average Compensation
times years of service (to a maximum of 35 years) and (ii) 0.50% of the
participant's Final Average Compensation in excess of Social Security Covered
Compensation times years of service (to a maximum of 35 years). Final Average
Compensation, for the portion of the
76
<PAGE>
participant's benefit which is attributable to service on or after January 1,
1996, is the average of the highest five consecutive covered compensation
amounts of the participant in the participant's last 10 years of service. For
the portion of a participant's benefit attributable to service prior to
January 1, 1996, Final Average Compensation is the average of the highest 3
consecutive covered compensation amounts of the participant in the
participant's last 10 years of service. Covered compensation, for purposes of
determining Final Average Compensation under either method, is calculated on a
calendar year basis and includes compensation from any member of the
Nationwide Insurance Enterprise. With respect to Messrs. Gasper, Galloway,
Brock and Karas, because each such officer's compensation is allocated solely
to the Company and its subsidiaries, covered compensation includes the
compensation listed under the headings Salary, Bonus and LTIP Payouts and a
portion of the compensation that is included under the heading Other Annual
Compensation shown in the Summary Compensation Table. Covered compensation for
Messrs. McFerson and Woodward includes the amounts set forth under such
headings and additional compensation amounts received for services rendered to
other members of the Nationwide Insurance Enterprise. Social Security Covered
Compensation means the average of the social security wage bases in effect
during the 35 year period ending with the last day of the year the participant
attains social security retirement age. The portion of a participant's benefit
attributable to years of service credited prior to 1996 is also subject to
post-retirement increases following the commencement of benefits or the
participant's attainment of age 65, whichever is later.
A participant becomes fully vested after the completion of five years of
vesting service. The Retirement Plan generally provides for payments to or on
behalf of each vested participant upon such participant's retirement on his or
her normal retirement date or later, although provision is made for payment of
early retirement benefits on a reduced basis commencing at age 55 for those
participants with 15 or more years of vesting service or at age 62 for those
with 5 or more years of vesting service. The normal retirement date under the
Retirement Plan is the later of the date the participant attains age 65 or
completes five years of vesting service. Death benefits are payable to a
participant's spouse or, under certain circumstances, the named beneficiary of
a participant who dies with a vested benefit under the Retirement Plan or
while an employee. The Retirement Plan also provides for the funding of
retiree medical benefits under Section 401(h) of the IRC.
Excess and Supplemental Plans
Nationwide Mutual and certain of its subsidiaries and affiliates, including
Nationwide Life, maintain an unfunded, nonqualified defined benefit excess
benefit plan, the Nationwide Insurance Enterprise Excess Benefit Plan (the
"Excess Plan") and an unfunded, nonqualified defined benefit supplemental
benefit plan pursuant to which certain participants may receive a supplemental
retirement benefit, the Nationwide Insurance Enterprise Supplemental
Retirement Plan (the "Supplemental Plan"). Any participant whose benefits are
limited under the Retirement Plan by reason of limitations under Section 415
of the IRC on the maximum benefit that may be paid under the Retirement Plan
will receive, under the Excess Plan, that portion of the benefit that he or
she would have been entitled to receive under the Retirement Plan in the
absence of such limitations. Officers who earn in excess of $160,000 annually,
have at least 5 years of vesting service and whose benefits under the
Retirement Plan are limited by reason of other certain limitations under the
IRC, may receive benefits under the Supplemental Plan. Benefits under the
Supplemental Plan will be the sum of (i) 1.25% of the participant's Final
Average Compensation times years of service (up to a maximum of 40 years) and
(ii) 0.75% of the participant's Final Average Compensation in excess of Social
Security Covered Compensation times years of service (up to a maximum of 40
years) reduced by benefits accrued under the Retirement Plan and the Excess
Plan. The benefits under the Excess and Supplemental Plans vest at the same
time as benefits vest under the Retirement Plan.
The chart below indicates the estimated maximum annual retirement benefits
that a hypothetical participant would be entitled to receive under the
Retirement Plan (including payments made under the Excess and Supplemental
Plans as a result of limitations imposed by the IRC) computed on a straight-
life annuity basis, if retirement occurred at age 65 and the number of
credited years of service and Final Average Compensation equaled the amounts
indicated. For purposes of the chart, it is assumed that the Final Average
Compensation is the same whether measured over the three-year averaging period
that applies to service accumulated prior to 1996 or the five-year period that
applies to service accumulated after 1995. In actual operation, the total
benefit
77
<PAGE>
received under the Retirement Plan (including payments made under the Excess
and Supplemental Plans) would be the total of the benefit determined based on
years of service earned under each method.
<TABLE>
<CAPTION>
YEARS OF SERVICE
--------------------------------------------
FINAL AVERAGE
COMPENSATION 15 20 25 30 35
- -------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$125,000........................... $ 30,744 $ 40,992 $ 51,241 $ 61,489 $ 71,737
150,000........................... 41,898 55,864 69,830 83,795 97,761
175,000........................... 49,398 65,864 82,330 98,795 115,261
200,000........................... 56,898 75,864 94,830 113,795 132,761
225,000........................... 64,398 85,864 107,330 128,795 150,261
250,000........................... 71,898 95,864 119,830 143,795 167,761
300,000........................... 86,898 115,864 144,830 173,795 202,761
400,000........................... 116,898 155,864 194,830 233,795 272,761
450,000........................... 131,898 175,864 219,830 263,795 307,761
500,000........................... 146,898 194,864 244,830 293,795 342,761
</TABLE>
All Named Executive Officers have a portion of their benefit calculated
based on the post-1995 definition of Final Average Compensation. As of
December 31, 1995, the number of credited years of service under the
Retirement Plan for Messrs. McFerson, Gasper, Woodward, Galloway, Brock and
Karas was 23 years, 29.5 years, 32.7 years, 26.5 years, 26.5 years and 31.5
years, respectively. Mr. McFerson's credited years of service include,
pursuant to an agreement with Nationwide Mutual, 8.17 years in excess of those
actually earned through employment by the Nationwide Insurance Enterprise. The
benefit attributable to those additional years will be paid by Nationwide
Mutual (not the Retirement Plan) and is reduced by the benefit payable under
the retirement plan of Mr. McFerson's previous employer. Each of the Named
Executive Officers earned an additional year of service in 1996 and their
benefit for such year and all future years will be calculated under the new
definition of Final Average Compensation. Covered compensation paid by the
Company for the fiscal year ended December 31, 1996 for Messrs. McFerson,
Gasper, Woodward, Galloway, Brock and Karas was $444,217, $349,412, $348,003
$392,313, $343,167 and $328,513, respectively.
SAVINGS PLANS
Savings Plan
Nationwide Mutual and certain of its subsidiaries and affiliates, including
Nationwide Life, maintain the Nationwide Insurance Enterprise Savings Plan
(the "Savings Plan"), a qualified profit sharing plan including a qualified
cash or deferred arrangement covering eligible employees of participating
companies within the Nationwide Insurance Enterprise. Under the Savings Plan,
participants who are not residents of Puerto Rico may elect to contribute
between 1% and 16% of their compensation to accounts established on their
behalf under the Savings Plan in the form of voluntary salary reductions on a
pre-tax basis and participants who are residents of Puerto Rico may make
contributions on an after-tax basis. The participating companies are obligated
to make matching employer contributions, for the benefit of their
participating employees, at the rate of 70% of the first 2% of compensation
deferred or contributed to the Savings Plan by each employee, and 40% of the
next 4% of compensation deferred or contributed by each employee to the
Savings Plan. All amounts contributed to the Savings Plan are held in a
separate account for each participant and are invested in one or more funds
made available under the Savings Plan and selected by the participant.
Normally, a participant receives the value of his or her account upon
termination of employment, although a participant may withdraw all or a part
of the amounts credited to his or her accounts during employment under certain
circumstances including attainment of age 59 1/2 or receive a loan of a
portion of his or her account balance. Under the Savings Plan, a participant
is immediately vested in all amounts credited to his or her account as a
result of salary deferrals (and earnings on those deferrals) or after-tax
contributions (and earnings on those contributions), as applicable. A
participant is vested in amounts attributable to employer matching
contributions and earnings on those contributions over a period of five years.
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Supplemental Defined Contribution Plan
Nationwide Mutual and certain of its subsidiaries and affiliates, including
Nationwide Life, maintain an unfunded, nonqualified defined contribution
supplemental benefit plan, the Nationwide Insurance Enterprise Supplemental
Defined Contribution Plan (the "DC Supplemental Plan"), which provides
benefits, equal to employer matching contributions that would have been made
under the Savings Plan for the participants, in the absence of the IRC
limitations on compensation that can be considered and amounts that can be
deferred under the Savings Plan less actual matching contributions to the
Savings Plan in the absence of the limitations under IRC Sections 401(a)(17)
and 402(g), reduced by actual employer contributions made to the Savings Plan.
Participants are limited to those officers earning in excess of $160,000
annually. Benefits under the DC Supplemental Plan vest at the same time as
employer matching contributions vest under the Savings Plan.
DEFERRED COMPENSATION PROGRAM
Nationwide Mutual and certain of its subsidiaries and affiliates, including
Nationwide Life, maintain a deferred compensation program (the "Officers'
Deferred Compensation Program") pursuant to which officers of participating
companies may elect to defer payment of amounts otherwise payable to them. In
addition, participants receive credit for employer matching contributions
which were not made under the Savings Plan or DC Supplemental Plan and any
reduction in benefits under the Retirement Plan, Supplemental Plan or Excess
Plan as a result of salary or other deferrals under the Deferred Compensation
Program. An eligible officer is permitted to enter into a deferral agreement
pursuant to which such officer may annually elect to defer a portion of his or
her salary or his or her incentive compensation earned under the Management
Incentive Plan or Executive Incentive Plan during the following year. Any such
election is effective prospectively. Amounts deferred under the Officers'
Deferred Compensation Program will generally be payable in annual installments
beginning in January of the calendar year following the calendar year in which
the officer terminates employment. Amounts deferred under the Officers'
Deferred Compensation Program are credited with interest. The interest rate is
based on the fixed rate option in the Savings Plan.
SEVERANCE PAY PLAN
Nationwide Mutual and certain of its subsidiaries and affiliates, including
Nationwide Life, maintain the Nationwide Salaried Employees Severance Pay Plan
(the "Severance Plan"), an unfunded plan which provides severance benefits to
employees whose employment is involuntarily terminated due to unsatisfactory
job performance or job elimination without an offer of replacement employment
within the Nationwide Insurance Enterprise or with a successor employer.
Employees will not be entitled to benefits, if their employment is terminated
as a result of theft, absenteeism, insubordination and other similar problems.
The benefit provided is a lump sum payment determined on the basis of years of
service completed (a minimum of 6 months of service is required) and salary,
with a maximum benefit of 8 weeks of salary plus an additional week of salary
for each full or partial year of service in excess of 11.
LONG-TERM EQUITY COMPENSATION PLAN
General
The Board of Directors of the Company has adopted, and Nationwide Corp., as
the sole stockholder of the Company, has approved, the Nationwide Financial
Services, Inc. 1996 Long-Term Equity Compensation Plan (the "LTEP"). The
purpose of the LTEP is to benefit the stockholders of the Company by
encouraging high levels of performance by selected officers, directors and
employees of the Company and certain of its affiliates, attracting and
retaining the services of such individuals and aligning the interests of such
individuals with those of the stockholders.
The LTEP grants the Compensation Committee of the Board of Directors of the
Company, which will administer the LTEP, flexibility in creating the terms and
restrictions deemed appropriate for particular awards as facts and
circumstances warrant. The LTEP is intended to constitute a nonqualified,
unfunded, unsecured plan
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for incentive and deferred compensation and is not intended to be subject to
any requirements of ERISA. The LTEP is intended to satisfy the requirements of
Section 16b-3 of the Exchange Act, and awards under the LTEP which are
performance-based are intended to qualify as "performance-based compensation"
for purposes of Section 162(m) of the IRC.
Types of Awards
The LTEP provides for the grant of any or all of the following types of
awards: (i) stock options, including incentive stock options and non-qualified
stock options, for shares of Class A Common Stock; (ii) stock appreciation
rights ("SARs"), either in tandem with stock options or freestanding; (iii)
restricted stock; and (iv) performance awards. Any stock option granted in the
form of an incentive stock option must satisfy the applicable requirements of
Section 422 of the IRC. Awards may be made to the same person on more than one
occasion and may be granted singly, in combination or in tandem as determined
by the Compensation Committee.
Term
The LTEP was effective as of December 11, 1996. No awards may be granted
under the LTEP after December 11, 2006, and the LTEP may be terminated by the
Board of Directors of the Company prior to such date. In the event of
expiration or earlier termination of the LTEP, the LTEP will remain in effect
until such time as all awards granted thereunder have been satisfied or have
expired. No new awards may by made under the LTEP after its expiration or
termination.
Administration
The LTEP will be administered by the Compensation Committee of the Board of
Directors of the Company. The Company intends that each member of the
Compensation Committee shall be a "nonemployee director" within the meaning and
for purposes of Rule 16b-3 under the Exchange Act and an "outside director"
within the meaning and for purposes of Section 162(m) of the IRC. Under the
LTEP, the Compensation Committee will have authority (i) to select the
employees, officers and directors of the Company and its affiliates to receive
awards; (ii) to determine the timing, form, amount or value and terms of grants
and awards, and the terms and conditions, if any, subject to which grants and
awards will be made and become payable under the LTEP, (iii) to construe the
LTEP and to prescribe rules and regulations with respect to the administration
of the LTEP and (iv) to make such other determinations authorized under the
LTEP as the Compensation Committee deems necessary or appropriate.
Eligibility
All employees, officers and directors of the Nationwide Insurance Enterprise
are eligible to participate.
Shares Subject to the LTEP
The number of shares of Class A Common Stock which may be issued under the
LTEP, or as to which SARs or other awards may be granted, may not exceed 2.6
million.
In the event of any increases or decreases in the number of issued and
outstanding shares of Class A Common Stock pursuant to stock splits, mergers,
reorganizations, recapitalizations, stock dividends or other
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events described under the terms of the LTEP, the Compensation Committee shall
make appropriate adjustments to the aggregate number of shares available for
issuance under the LTEP and the number of shares subject to outstanding grants
or awards, to the exercise price per share of outstanding stock options and to
the number or kinds of shares which may be distributed under the LTEP. The
terms of stock options, SARs, restricted stock and performance awards may also
be subject to adjustments by the Compensation Committee to reflect changes in
the Company's capitalization.
Stock Options
The Compensation Committee may grant awards in the form of options to
purchase shares of Class A Common Stock. The Compensation Committee shall,
with regard to each stock option, determine the number of shares subject to
the option and the manner and time of the option's exercise; provided,
however, that the maximum number of shares of Class A Common Stock that may be
subject to stock options granted under the LTEP to an individual optionee
during any calendar year cannot exceed 100,000 shares (subject to appropriate
adjustment in the event of stock dividends, stock splits and certain other
events). The exercise price of a stock option may not be less than the fair
market value of the Class A Common Stock on the date the option is granted.
The Committee will designate each option as a non-qualified or an incentive
stock option. The option price upon exercise may, at the discretion of the
Committee, be paid by a participant in cash, shares of Class A Common Stock, a
"cashless exercise" or a combination thereof.
Prior to the consummation of the Equity Offerings, stock options will be
granted under the LTEP to the following Named Executive Officers at an
exercise price equal to the initial public offering price in the following
amounts:
<TABLE>
<CAPTION>
NAMED NUMBER OF SHARES
EXECUTIVE OFFICER SUBJECT TO OPTION
----------------- -----------------
<S> <C>
Dimon Richard McFerson 40,000
Joseph J. Gasper 30,000
Robert J. Woodward, Jr. 10,000
Richard A. Karas 10,000
Harvey S. Galloway, Jr. 7,500
James E. Brock 7,500
</TABLE>
Additionally, 196,500 and 26,000 stock options will be granted in the
aggregate under the LTEP to other officers and directors, respectively, of the
Company and its subsidiaries.
Stock Appreciation Rights
The LTEP also authorizes the Compensation Committee to grant SARs either
independent of, or in connection with, a stock option. If granted with a stock
option, exercise of the SAR will result in the surrender of the right to
purchase the shares under the option to which the SAR was exercised. Upon
exercising an SAR, the holder receives for each share with respect as to which
the SAR is exercised, an amount equal to the difference between the exercise
price and the fair market value of Class A Common Stock on the date of
exercise. Payment of such amount may be made in shares of Class A Common
Stock, cash, or a combination thereof, as determined by the Compensation
Committee. The maximum number of shares of Class A Common Stock that may be
subject to SARs granted under the LTEP to an individual grantee during any
calendar year cannot exceed 100,000 shares (subject to appropriate adjustment
in the event of stock dividends, stock splits and certain other events).
Restricted Stock
The LTEP provides that shares of Class A Common Stock subject to certain
restrictions including restrictions on transferability may be awarded from
time to time as determined by the Compensation Committee. The Compensation
Committee will determine the nature and extent of the restrictions on such
shares, the duration
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of such restrictions and any circumstance under which restricted shares will
be forfeited by the participant. Subject to such restrictions as the
Compensation Committee shall determine, participants holding shares of
restricted stock may exercise full voting rights with respect to such shares
and may receive dividends payable to holders of such shares. The maximum
number of shares of Class A Common Stock that may be granted in the form of
restricted shares to an individual grantee during any calendar year cannot
exceed 100,000 shares (subject to appropriate adjustment in the event of stock
dividends, stock splits and certain other events).
Prior to the consummation of the Equity Offerings, restricted stock will be
granted under the LTEP to the following officers of the Company in the
following amounts:
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF RESTRICTED STOCK
EXECUTIVE OFFICER (3 YEAR RESTRICTION)
----------------- --------------------
<S> <C>
Dimon Richard McFerson 15,000
Joseph J. Gasper 10,000
Richard A. Karas 4,000
Robert J. Woodward, Jr. 3,500
Harvey S. Galloway, Jr. 3,000
James E. Brock 3,000
</TABLE>
Additionally, 69,750 and 8,000 shares of restricted stock will be granted in
the aggregate under the LTEP to other officers and directors, respectively, of
the Company and its subsidiaries.
Performance Awards
The LTEP provides for the Compensation Committee to grant performance
awards, consisting of performance units and/or performance shares to eligible
persons under the LTEP from time to time. The beginning value of performance
units is set by the Compensation Committee at the time of grant, while the
beginning value of performance shares is equal to the fair market value of the
shares of the Class A Common Stock at the time of grant. A performance award
will be contingent upon future performance by the Company or any subsidiary,
division or department thereof. The Compensation Committee shall establish at
the time of grant the relevant performance criteria. Performance periods may
overlap and participants may be awarded performance units and performance
shares having different performance criteria. Unless the Compensation
Committee otherwise determines, in the event of a participant's termination as
an employee or director before the end of any relevant performance period
(other than due to death, disability or retirement), the participant will not
be entitled to any performance award related to such period. Subject to the
discretion of the Compensation Committee, participants who have earned shares
of Class A Common Stock in connection with grants of performance awards may
exercise full voting rights with respect to such shares and may receive
dividends payable to holders of such shares. Payment of a performance award
may be made in cash, Class A Common Stock or a combination thereof, as
determined by the Committee. The benefit to the grantee of a performance award
is the difference between its beginning value and its value at the end of the
performance period. The maximum performance award that may be granted to an
individual grantee during any calendar year cannot exceed the value of 100,000
shares of Class A Common Stock (subject to appropriate adjustment in the event
of stock dividends, stock splits and certain other events).
Award Agreements
Each award under the LTEP will be evidenced by an agreement in such form and
containing such provisions consistent with the provisions of the LTEP as the
Compensation Committee from time to time approves. In applicable situations,
such agreements may include provisions to qualify as an incentive stock
option, or providing for the payment of the option price, in whole or in part,
by the delivery of a number of shares of Class A Common Stock (plus cash if
necessary) having a fair market value equal to option price. Such agreements
may also include provisions relating to (i) vesting, (ii) tax matters
(including provisions covering any applicable employee wage withholding
requirements), and (iii) any other matters not inconsistent with the terms and
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provisions of the LTEP that the Compensation Committee in its sole discretion
determines. The terms and conditions of award agreements need not to be
identical.
Amendment
The Board of Directors of the Company may at any time terminate or amend the
LTEP in any respect; provided, however, that no amendment which requires
stockholder approval in order for the LTEP to comply with Rule 16b-3 under the
Exchange Act shall be effective unless such amendment is approved by the
requisite number of stockholders of the Company entitled to vote thereon. No
amendment or termination of the LTEP shall, without the consent of the
optionee or participant in the LTEP, alter or impair the rights of such person
under any options or other awards theretofore granted under the LTEP.
Change of Control
Upon the occurrence of a Change in Control (as defined in the LTEP), (i) the
exercisability and vesting of stock appreciation rights and stock options
shall be accelerated, (ii) the restrictions and limitations applicable to any
restricted stock shall lapse, (iii) the target payout opportunities attainable
under all outstanding awards of restricted stock, performance units and
performance shares shall be deemed to have been fully earned for the entire
performance period, (iv) the vesting of restricted stock and performance
awards denominated in shares of Class A Common Stock will be accelerated and
(v) within 30 days following the effective date of the Change in Control, a
pro rata amount of any outstanding performance awards will be paid in cash to
participants, based upon an assumed achievement of all relevant performance
goals and upon the portion of the performance period which has elapsed prior
to the Change in Control.
OWNERSHIP OF CAPITAL STOCK
Prior to the consummation of the Equity Offerings, all of the outstanding
shares of Common Stock of the Company will be owned by Nationwide Corp. After
the Equity Offerings, Nationwide Corp. will own all of the outstanding shares
of the Class B Common Stock and none of the outstanding shares of the Class A
Common Stock. Such shares of the Class B Common Stock will represent 83.6% and
98.1% (81.6% and 97.8% if the Underwriters' over-allotment option is exercised
in full) of the total number of shares of Common Stock outstanding and the
combined voting power of the stockholders of the Company, respectively,
following the Equity Offerings.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
EXISTING ARRANGEMENTS WITH THE NATIONWIDE INSURANCE ENTERPRISE
Organization of the Company
The Company was formed in November 1996 as a holding company for Nationwide
Life and the other companies within the Nationwide Insurance Enterprise that
offer or distribute long-term savings and retirement products. On September
24, 1996, Nationwide Life declared a dividend to Nationwide Corp. consisting
of the stock of those subsidiaries of Nationwide Life that do not operate in
the long-term savings and retirement market. On January 27, 1997, Nationwide
Corp. contributed to the Company all of the outstanding capital stock of
Nationwide Life and the other companies within the Nationwide Insurance
Enterprise that offer or distribute long-term savings and retirement products.
On December 31, 1996, Nationwide Life paid a $50.0 million cash dividend to
Nationwide Corp. In addition, prior to the consummation of the Equity
Offerings, Nationwide Life will dividend to the Company, and the Company will
subsequently dividend to Nationwide Corp., securities having an aggregate
market value of $850.0 million.
Effective as of January 1, 1996, Nationwide Life entered into a 100%
modified coinsurance agreement with Employers Life pursuant to which all of
Nationwide Life's nonvariable group and wholesale life insurance business and
group and franchise health insurance business was reinsured by Employers Life.
Nationwide Life also entered into a 100% modified coinsurance agreement with
Nationwide Mutual effective as of January 1, 1996, pursuant to which all of
Nationwide Life's individual accident and health insurance business was
reinsured by Nationwide Mutual. See "--Modified Coinsurance Agreements."
Following the Equity Offerings, Nationwide Corp. will be the controlling
stockholder of the Company. Upon completion of the Equity Offerings,
Nationwide Corp. will own all of the outstanding shares of the Class B Common
Stock representing 83.6% and 98.1% (81.6% and 97.8% if the Underwriters' over-
allotment option is exercised in full) of the total number of shares of Common
Stock outstanding and the combined voting power of the stockholders of the
Company.
Federal Income Taxes
Nationwide Mutual and its U.S. subsidiaries, including the Company and its
subsidiaries, file a consolidated federal income tax return. The members of
the consolidated group currently have a tax sharing arrangement which
provides, in effect, for each member to bear essentially the same federal
income tax liability as if separate tax returns were filed. For the years
ended December 31, 1996 and 1995, the Company made federal income tax payments
under the tax sharing arrangement of $117.3 million and $58.1 million,
respectively.
Legal Services
The attorneys in the Office of General Counsel of Nationwide Mutual also
operate as the law firm of Druen, Rath & Dietrich. Pursuant to a partnership
agreement, the firm limits its representation to the members of the Nationwide
Insurance Enterprise. The partnership was formed to assure compliance with
Ohio law that prohibits corporations from practicing law. Through a retainer
arrangement, an annual retainer fee is paid by each member of the Nationwide
Insurance Enterprise based upon an estimate of time spent by each attorney
working on legal matters related to the respective member during the previous
year. W. Sidney Druen, Senior Vice President and General Counsel of the
Company, is the senior partner in such firm, and all attorneys and other
employees of the firm are salaried employees of Nationwide Mutual. The firm
applies all of its retainer fees toward office overhead under a rental and
office expense agreement with Nationwide Mutual. For the years ended December
31, 1996 and 1995, the Company paid the firm $2.0 million and $1.7 million,
respectively, for legal services rendered to the Company which amounts were
immediately remitted to Nationwide Mutual.
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Lease
Pursuant to an arrangement between Nationwide Mutual and certain of its
subsidiaries, the Company leases approximately 512,000 square feet of office
space at One Nationwide Plaza, Two Nationwide Plaza and Three Nationwide
Plaza, Columbus, Ohio, at a current market rate of $19.53 per square foot,
with limited exceptions. Under the arrangement, the Company determines the
amount of office space necessary to conduct its operations and leases such
space from Nationwide Mutual, subject to availability. For the years ended
December 31, 1996 and 1995, the Company made payments to Nationwide Mutual and
its subsidiaries totaling $10.0 million and $9.9 million, respectively, under
such arrangement.
Modified Coinsurance Agreements
Effective as of January 1, 1996, Nationwide Life entered into a 100%
modified coinsurance agreement with Employers Life. Under the agreement,
Nationwide Life cedes to Employers Life, and Employers Life assumes,
Nationwide Life's nonvariable group and wholesale life insurance business and
group and franchise health insurance business and any ceded or assumed
reinsurance applicable to such group business. For the year ended December 31,
1996, Nationwide Life ceded $224.3 million of premium to Employers Life.
Effective as of January 1, 1996, Nationwide Life also entered into a 100%
modified coinsurance agreement with Nationwide Mutual. Under the agreement,
Nationwide Life cedes to Nationwide Mutual, and Nationwide Mutual assumes,
Nationwide Life's individual accident and health insurance business and any
ceded or assumed reinsurance applicable to such business. For the year ended
December 31, 1996, Nationwide Life ceded $97.3 million of premium to
Nationwide Mutual.
Nationwide Life entered into these reinsurance agreements because the
accident and health and group life insurance business was unrelated to the
Company's long-term savings and retirement products. Under the modified
coinsurance agreements, invested assets are retained by the ceding company and
investment earnings are paid to the reinsurer. Under the terms of such
agreements, the investment risk associated with changes in interest rates is
borne by Employers Life or Nationwide Mutual, as the case may be. Risk of
asset default is retained by the Company, although a fee is paid by Employers
Life or Nationwide Mutual, as the case may be, to the Company for the
Company's retention of such risk. The contracts will remain in force until all
policy obligations are settled. However, with respect to the agreement between
Nationwide Life and Nationwide Mutual, either party may terminate the contract
on January 1 of any year with prior notice. The Company believes that the
terms of such modified coinsurance contracts are consistent in all material
respects with what the Company could have obtained with unaffiliated parties.
Total premiums ceded under the reinsurance agreements were $321.6 million,
during 1996. The effect of the reinsurance agreements was an increase in the
Company's income before federal income tax expense of $4.5 million during
1996.
Cost Sharing Agreement
Pursuant to a cost sharing agreement among Nationwide Mutual and certain of
its direct and indirect subsidiaries, including the Company, Nationwide Mutual
provides certain operational and administrative services, such as sales
support, advertising, personnel and general management services, to those
subsidiaries. Expenses covered by such agreement are subject to allocation
among Nationwide Mutual and such subsidiaries. Under such agreement, for the
years ended December 31, 1996 and 1995, the Company made payments to
Nationwide Mutual totaling $101.6 million and $107.1 million, respectively.
Under the cost sharing agreement, expenses are allocated in accordance with
NAIC guidelines and are based on standard allocation techniques and procedures
acceptable under general cost accounting practices. Measures used to allocate
expenses include individual employee estimates of time spent, special cost
studies, salary expense, commissions expense and other measures that are
agreed to by the participating companies and are within regulatory and
industry guidelines and practices. The cost sharing agreement will remain in
effect following the Equity Offerings until terminated upon the consent of
both Nationwide Mutual and the Company.
Cash Management Agreements
Nationwide Mutual has entered into separate Investment Agency Agreements
with California Cash Management Company ("CCMC") and Nationwide Cash
Management Company ("NCMC"), each an affiliate
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of the Company. Pursuant to the terms of such agreements, CCMC and NCMC make,
hold and administer short-term investments (those maturing in one year or
less) for Nationwide Mutual and certain of its affiliates, including
Nationwide Life and certain of the Company's other subsidiaries. Under each
agreement, expenses of CCMC or NCMC, as the case may be, are allocated pro
rata among the participants based upon the participant's ownership percentage
of total assets held by CCMC or NCMC. For the years ended December 31, 1996
and 1995, the Company paid CCMC and NCMC fees and expenses totaling $0.5
million and $0.5 million, respectively, under such agreements.
Benefit Plans
The Company participates in the common employee benefit programs with
Nationwide Mutual and its subsidiaries. Included in these programs are
accident and health benefits, disability income benefits and life insurance
benefits. The Company ultimately pays for all benefits provided to its
employees under the benefit program plus an administrative processing fee,
reduced by employee contributions. The administrative processing fee paid by
the Company approximated $1.0 million and $0.7 million for the years ended
December 31, 1996 and 1995, respectively.
The Company also participates, along with Nationwide Mutual and its
subsidiaries and affiliates, in life insurance and health care benefit plans
for qualifying retirees. Such plans are funded in amounts determined at the
discretion of management of the Company based on current and anticipated
future costs. Contributions to the plan by the participating companies are
primarily invested in group annuity contracts of Nationwide Life.
Contributions by the Company approximated $1.6 million and $1.4 million for
the years ended December 31, 1996 and 1995, respectively.
Repurchase Agreement
Nationwide Life and certain of the Company's other subsidiaries are party to
a master repurchase agreement pursuant to which securities or other financial
instruments are transferred between parties against the transfer of funds by
the transferee for a period of time ending on a specific date or upon the
demand of the transferor.
NEW AGREEMENTS WITH THE NATIONWIDE INSURANCE ENTERPRISE
Set forth below are descriptions of certain agreements between the Company
and other members of the Nationwide Insurance Enterprise that will become
effective upon the consummation of the Equity Offerings.
Tax Sharing Agreement
The Company is, and after the Note Offering will continue to be, included in
the consolidated United States federal income tax return for which Nationwide
Mutual is the common parent and the Company's tax liability will be included
in the consolidated federal income tax liability of Nationwide Mutual. The
Company also may be included in certain state and local tax returns of
Nationwide Mutual or its subsidiaries.
The Company will enter into the Tax Sharing Agreement with Nationwide Mutual
which will become effective for 1996 and subsequent years, as long as the
Company is included in Nationwide Mutual's consolidated federal income tax
return. It will also be effective for any year in which the Company is
included in a consolidated or combined state or local tax return. Under the
Tax Sharing Agreement, Nationwide Mutual will compute its federal tax on a
consolidated basis, and its state and/or local taxes on a combined basis (in
those states or other jurisdictions in which Nationwide Mutual files a
combined return for such year). Each corporation that is included in the
consolidated and/or combined return shall compute its federal, state, and/or
local tax liability on a separate basis, and the federal, state, and/or local
tax liability of each corporation shall be determined by applying the
Percentage Method for allocating tax liability, all as set forth in Treas.
Reg. 1.1502-33(d)(3), using a fixed percentage of 100%. Pursuant to that
regulation, each corporation's federal income tax liability will be equal to
the consolidated federal income tax liability (including any amounts
determined to be due as a result of a redetermination of the tax liability of
the consolidated group of which Nationwide Mutual is the common parent,
whether arising from any audit or otherwise, but in all instances without
regard to the
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alternative minimum tax) of Nationwide Mutual times a fraction, the numerator
of which is the federal tax liability of such corporation determined on a
separate basis, and the denominator of which is the aggregated federal tax
liability of all corporations in the consolidated group, determined on a
separate basis. Any corporation that has no federal income tax liability when
computed on a separate basis is ignored for purposes of allocating the
consolidated tax liability. The state and local tax liability, in those states
or other jurisdictions in which a combined return is filed, shall be
determined in a manner consistent with the foregoing description. The Company
will pay its tax liability, as computed above, to Nationwide Mutual. The
Company will be responsible for all taxes, including assessments, if any, for
prior years with respect to all other taxes payable by the Company or any of
its subsidiaries, and for all other federal, state and local taxes that may be
imposed upon the Company and that are not addressed in the Tax Sharing
Agreement.
By virtue of its control of the Company and the terms of the Tax Sharing
Agreement, Nationwide Mutual effectively will control all of the Company's tax
decisions. Under the Tax Sharing Agreement, Nationwide Mutual will have sole
authority to respond to and conduct all tax proceedings (including tax audits)
relating to the Company, to file all returns on behalf of the Company and to
determine the amount of the Company's liability to (or entitlement to payment
from) Nationwide Corp. under the Tax Sharing Agreement. This arrangement may
result in conflicts of interest between the Company and Nationwide Mutual. For
example, under the Tax Sharing Agreement, Nationwide Mutual may choose to
contest, compromise or settle any adjustment or deficiency proposed by the
relevant tax authority in a manner that may be beneficial to Nationwide Mutual
and detrimental to the Company. Under the Tax Sharing Agreement, however,
Nationwide Mutual is obligated to act in good faith with regard to all persons
included in the applicable returns.
The Tax Allocation Agreement may not be amended without the prior written
consent of the Company.
Intercompany Agreement
The Company, Nationwide Mutual and Nationwide Corp. will enter into the
Intercompany Agreement, certain provisions of which are summarized below. As
used herein, "Nationwide Mutual" means Nationwide Mutual collectively with its
subsidiaries and affiliates (other than the Company and its subsidiaries).
Nationwide Mutual Consent to Certain Events. The Intercompany Agreement will
provide that until Nationwide Mutual and its affiliates cease to control at
least 50% of the combined voting power of the outstanding voting stock of the
Company, the prior written consent of Nationwide Mutual will be required for:
(i) any consolidation or merger of the Company or any of its subsidiaries with
any person (other than with a wholly owned subsidiary); (ii) any sale, lease,
exchange or other disposition or acquisition of assets by the Company or any
of its subsidiaries (other than transactions to which the Company and its
subsidiaries are the only parties), or any series of related dispositions or
acquisitions, involving consideration in excess of $250 million; (iii) any
change in the authorized capital stock of the Company or the creation of any
additional class or series of capital stock of the Company; (iv) any issuance
by the Company or any subsidiary of the Company of any equity securities or
rights, warrants or options to purchase such equity securities, except (a) up
to 2.6 million shares of Class A Common Stock pursuant to employee and
director stock option, profit sharing and other benefit plans of the Company
and its subsidiaries and any options exercisable therefor, (b) shares of Class
A Common Stock issued upon the conversion of any Class B Common Stock, (c) the
issuance of shares of capital stock of a wholly owned subsidiary of the
Company to the Company or another wholly owned subsidiary of the Company and
(d) in the Equity Offerings; (v) the dissolution, liquidation or winding up of
the Company; (vi) the amendment of the Certificate and certain provisions of
the Bylaws affecting corporate governance; (vii) the election, removal or
filling of a vacancy in the office of the Chairman or Chief Executive Officer
or President of the Company; (viii) the declaration of dividends on any class
or series of capital stock of the Company, except dividends not in excess of
the most recent regular cash dividend or any dividend per share not in excess
of 15% of the then current per share market price of the Class A Common Stock;
(ix) capital expenditures or series of related capital expenditures of the
Company or any of its subsidiaries in excess of $250 million during any period
of 12 consecutive months; (x) the creation, incurrence or guaranty by the
Company or any of its subsidiaries of indebtedness for borrowed money in
excess of $100 million, except the Note Offering and the Capital Securities
Offering; and (xi) any change in the number of directors on the Board of
Directors of the Company, the
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determination of members of the Board of Directors or any committee thereof
and the filling of newly created memberships and vacancies on the Board of
Directors or any committee thereof.
License to Use Nationwide Name and Service Marks. Pursuant to the
Intercompany Agreement, Nationwide Mutual will grant to the Company and
certain of its subsidiaries a non-exclusive, non-assignable, revocable license
to use the "Nationwide" trade name and certain other service marks
specifically identified in the Intercompany Agreement (collectively, the
"Service Marks") solely for the purpose of identifying and advertising the
Company's long-term savings and retirement business and activities related to
such business. The Intercompany Agreement will provide, among other things,
that, subject to Nationwide Mutual's ability to revoke such license in the
circumstances described below, such license will remain in effect for at least
five years following the Equity Offerings. Thereafter, the Intercompany
Agreement provides that, subject to certain exceptions, Nationwide Mutual will
only have the option to revoke such license on one year's notice if Nationwide
Corp. and its affiliates no longer own at least 50% of the combined voting
power of the outstanding capital stock of the Company. Upon revocation of such
license, the Company and its subsidiaries will be required to discontinue use
of the Service Marks and to change the Company's name to exclude the word
"Nationwide." In addition, the Intercompany Agreement will provide that the
Company and its subsidiaries will not, without the prior written consent of
Nationwide Mutual, take any action with respect to (i) any litigation or
proceeding involving the Service Marks, (ii) any change in the Company's
names, logos and other identifications that might reasonably be expected to
adversely affect the Service Marks or (iii) any advertising campaigns or
strategies that use the Service Marks or that refer to any member of the
Nationwide Insurance Enterprise that are inconsistent with Nationwide Mutual's
guidelines and standards. Nationwide Mutual has the right to revoke the
license under certain circumstances relating to advertising, promotion or use
of the Service Marks in a manner contrary to Nationwide Mutual guidelines and
standards. In addition, Nationwide Mutual can revoke any of the Company's
subsidiaries' use of the Service Marks if there is a change of control of any
such subsidiary of the Company that is licensed to use the Service Marks. A
revocation by Nationwide Mutual of the license to use the Service Marks could
have a material adverse effect on the Company.
Equity Purchase Rights. The Company will agree that, to the extent permitted
by the NYSE and so long as Nationwide Mutual controls at least 50% of the
combined voting power of the outstanding voting stock of the Company,
Nationwide Corp. may purchase its pro rata share (based on its then current
percentage voting interest in the Company) of any voting equity securities to
be issued by the Company (excluding any such securities offered pursuant to
employee stock options or other benefit plans, divided reinvestment plans and
other offerings other than for cash) (the "Equity Purchase Rights").
Registration Rights. The Company will grant to Nationwide Corp. certain
demand and "piggyback" registration rights with respect to shares of Common
Stock owned by it. Nationwide Corp. has the right to request up to two demand
registrations in each calendar year, but not more than four in any five-year
period. Nationwide Corp. will also have the right, which it may exercise at
any time and from time to time, to include the shares of Common Stock held by
it in any registration of common equity securities of the Company initiated by
the Company on its own behalf or on behalf of any other stockholders of the
Company. These rights will be subject to certain "blackout" provisions. Such
registration rights will be transferable by Nationwide Corp. The Company will
agree to pay all costs and expenses in connection with each such registration,
except underwriting discounts and commissions applicable to the shares of
Common Stock sold by Nationwide Corp. The Intercompany Agreement will contain
customary terms and provisions with respect to, among other things,
registration procedures and certain rights to indemnification granted by
parties thereunder in connection with the registration of Common Stock on
behalf of Nationwide Mutual.
Indemnification. The Intercompany Agreement will provide that the Company
will indemnify Nationwide Mutual and its respective officers, directors,
employees and agents (collectively, the "Indemnitees") against losses based
on, arising out of or resulting from (i) the use of the Service Marks and (ii)
any acts or omissions arising out of performances of the Intercompany
Agreement by the Company and its subsidiaries. In addition, the Company will
agree to indemnify the Indemnitees against certain civil liabilities,
including liabilities under the Securities Act, relating to misstatements in
or omissions from the Registration Statement of which this
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Prospectus forms a part and any other registration statement that the Company
files under the Securities Act (other than misstatements or omissions made in
reliance on information relating to and furnished by any member of Nationwide
Mutual for use in the preparation thereof, against which Nationwide Mutual has
agreed to indemnify the Company). Nationwide Mutual also will agree to
indemnify the Company and its subsidiaries and each of their respective
officers, directors, employees and agents against losses based on, arising out
of or resulting from any breach by Nationwide Corp. or Nationwide Mutual of
the Intercompany Agreement and certain other specifically identified matters.
Nationwide Insurance Enterprise Insurance Agents. In the Intercompany
Agreement, Nationwide Mutual will agree to allow the Company to distribute its
variable annuity, fixed annuity and individual universal, variable and
traditional life insurance products through Nationwide Insurance Enterprise
insurance agents. Such right is exclusive to the Company, subject to the
limited right of certain other members of the Nationwide Insurance Enterprise
to sell such products through the agency force, for at least five years
following the Equity Offerings. Thereafter, the Intercompany Agreement
provides that Nationwide Mutual will only have the option to terminate the
Company's right to distribute products through Nationwide Insurance Enterprise
insurance agents on one year's notice if Nationwide Corp. and its affiliates
no longer own at least 50% of the combined voting power of the outstanding
voting stock of the Company. The termination of such right could have an
adverse effect on the Company's ability to distribute certain of its products.
In 1996, 5.8% of the Company's statutory premiums and deposits were
attributable to products sold by Nationwide Insurance Enterprise insurance
agents.
Amendment. The Intercompany Agreement may not be amended without the prior
written consent of the Company and certain material provisions thereof may not
be amended without the approval of a majority of the directors of the Company
who are not officers or directors of members of the Nationwide Insurance
Enterprise other than the Company and its subsidiaries.
Lease Agreement
The Company will enter into a Lease Agreement with Nationwide Mutual which
will provide that Nationwide Mutual will continue to lease to the Company the
premises currently occupied by the Company on terms consistent with prior
allocation practices. See "--Existing Arrangements with the Nationwide
Insurance Enterprise--Lease." The initial term of the Lease Agreement is for
12 months and automatically renews upon the same terms and conditions unless
either Nationwide Mutual or the Company gives 30 days' written notice to the
other party prior to the end of such 12-month period. The Lease Agreement may
not be amended without the prior written consent of the Company.
FUTURE TRANSACTIONS WITH THE NATIONWIDE INSURANCE ENTERPRISE
In the future, the Company may enter into agreements with members of the
Nationwide Insurance Enterprise that will not be the result of arm's-length
negotiations between independent parties. Conflicts of interest could arise in
the future with respect to transactions involving members of the Nationwide
Insurance Enterprise, on the one hand, and the Company, on the other hand. Any
such transactions that are material to the Company will be subject to approval
by a vote of disinterested members of the Company's Board of Directors. In
addition, under the Ohio insurance holding company laws, arrangements and
agreements between the Company's insurance subsidiaries and other members of
the Nationwide Insurance Enterprise must be fair and equitable and may be
subject to the approval of the Superintendent of Insurance of the State of
Ohio. The Credit Facility requires that any transaction between the Company
and any of its affiliates be on an arm's-length basis on terms at least as
favorable to the Company as could have been obtained from a third party which
is not an affiliate. See "Business--Regulation."
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DESCRIPTION OF NOTES
GENERAL
The following description sets forth material terms and provisions of the
Notes. The Notes are to be issued under an Indenture, dated as of ,
1997 (the "Indenture"), between the Company and Wilmington Trust Company, as
Trustee (the "Trustee"), the form of which is filed as an exhibit to the
Registration Statement of which this Prospectus is a part. The statements
under this caption are brief summaries of the material provisions of the
Indenture and do not purport to be complete and are subject to, and are
qualified in their entirety by reference to, all of the provisions of the
Indenture, including the definitions therein of certain terms. Section and
article references used under this caption are references to sections and
articles of the Indenture. Whenever particular sections, articles or defined
terms of the Indenture are referred to, it is intended that such sections,
articles or defined terms shall be incorporated herein by reference.
Capitalized terms used under this caption and not otherwise defined in this
Prospectus shall have the respective meanings ascribed thereto in the
Indenture.
PRINCIPAL AMOUNT, MATURITY AND INTEREST
The Notes offered hereby will mature on , 2027 and will be limited
to $300 million aggregate principal amount, which represents the total amount
that may be offered pursuant to the terms of the Indenture. The Notes will
bear interest at the rate of % per annum from , or from the
most recent Interest Payment Date to which interest has been paid or duly
provided for, payable semiannually in arrears on and of
each year, commencing , 1997, to the Persons in whose names the Notes
(or any predecessor Notes) are registered at the close of business on the
or , as the case may be, next preceding such Interest Payment
Date. Interest on the Notes will be computed on the basis of a 360-day year of
twelve 30-day months. Except with respect to a Global Note (as defined below),
principal of and interest on the Notes will be payable, and the Notes will be
exchangeable and transfers thereof will be registrable, at the office or
agency of Wilmington Trust Company in the Borough of Manhattan, the City of
New York, except that, at the option of the Company, interest may be paid by
mailing a check to the Person entitled thereto at the address for such Person
as it appears in the Security Register. (Sections 301, 305, 307 and 310).
The Notes will be issued only in registered form without coupons and in
denominations of $1,000 and integral multiples thereof. (Section 302). No
service charge will be made for any registration of transfer or exchange of
the Notes, but the Company may require payment of a sum sufficient to cover
any tax or other governmental charge payable in connection therewith. (Section
305). The Company has initially appointed the Trustee as the Security
Registrar and paying agent for the Notes and has designated the offices of the
Trustee in New York, New York as the office or agency where notices and
demands to or upon the Company may be served.
RANKING
The Notes will be general unsecured obligations of the Company and will rank
pari passu in right of payment with all other senior indebtedness of the
Company and senior in right of payment to all subordinated indebtedness of the
Company. However, because the Notes will be unsecured, they will be
effectively subordinated to any secured indebtedness of the Company. The
Indenture does not preclude the Company or the Company's subsidiaries from
issuing secured or unsecured indebtedness. Because the Company is a holding
company, the right of the Company to participate in any distribution of assets
of any subsidiary upon such subsidiary's liquidation or reorganization or
otherwise is subject to the prior claims of creditors of the subsidiary,
except to the extent the Company may itself be recognized as a creditor of
that subsidiary. Accordingly, the Notes will be effectively subordinated to
all existing and future liabilities and obligations, including obligations to
policyholders, of the Company's subsidiaries, which totalled approximately
$45.6 billion at December 31, 1996. Holders of Notes should look only to the
assets of the Company for payments on the Notes.
As a holding company, the Company's principal source of liquidity to pay its
obligations (including the Notes) is distributions from its subsidiaries. The
rights of the Company to participate in any distribution of
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earnings or assets of any of its subsidiaries (and thus the ability of the
Company to use earnings and assets of its subsidiaries to pay principal and
interest on the Notes) are subject to state insurance regulatory and other
statutory restrictions, including limitations on the amount of dividends that
may be paid by the Company's insurance subsidiaries in any year without the
prior approval of the state regulatory authorities, as more fully described
above under "Business--Regulation--Regulation of Dividends and Other Payments
from Insurance Subsidiaries."
OPTIONAL REDEMPTION
The Notes are not subject to redemption by the Company prior to ,
2007. Thereafter, the Notes will be redeemable in whole or in part, at the
option of the Company at any time on or after , 2007 at the following
redemption prices (expressed as a percentage of the principal amount thereof)
if redeemed during the 12-month period ending of the years indicated
below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2008........................................................... %
2009...........................................................
2010...........................................................
2011...........................................................
2012...........................................................
2013...........................................................
2014...........................................................
2015...........................................................
2016...........................................................
2017...........................................................
</TABLE>
and, thereafter, at 100% of the principal amount thereof plus, in each case,
accrued and unpaid interest thereon, if any, to the redemption date.
Holders of Notes that are being redeemed by the Company will receive notice
thereof by first-class mail sent to their registered address at least 20 and
not more than 60 days prior to the date fixed for such redemption.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
optional redemption of the Notes or any related offers by the Company to
acquire Notes.
SINKING FUND
There will be no sinking fund payments for the Notes.
GLOBAL NOTES: FORM, EXCHANGE AND TRANSFER
The Notes will be represented by one or more permanent global notes (each, a
"Global Note") deposited with, or on behalf of, the Depositary and registered
in the name of the Depositary's nominee. Except as set forth below, (i) owners
of beneficial interests in a Global Note will not be entitled to have Notes
represented by such Global Note registered in their names, will not receive or
be entitled to receive physical delivery of Notes in definitive form except as
provided below and will not be considered the owners or Holders thereof under
the Indenture and (ii) each Global Note may be transferred, in whole and not
in part, only to another nominee of the Depositary or to a successor of the
Depositary or its nominee. Accordingly, beneficial interests in the Notes will
be shown on, and transfers thereof will be effected only through, records
maintained by the Depositary and its participants. The laws of some states
require certain purchasers of securities to take physical delivery thereof in
definitive form. The depositary arrangements described above and such laws may
preclude such purchasers from acquiring beneficial interests in a Global Note.
Owners of beneficial interests in any Global Note will not be entitled to
receive Notes in definitive form and will not be considered Holders of Notes
unless (1) the Depositary
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notifies the Company that it is unwilling or unable to continue as Depositary
for such Global Note or if at any time the Depositary ceases to be a clearing
agency registered under the Exchange Act or any other applicable statute or
regulation and a successor Depositary is not appointed by the Company within
90 days, (2) the Company determines that individual Notes issued in the form
of one or more Global Notes will no longer be represented by such Global Note
or Global Notes or (3) the Depositary surrenders a Global Note in exchange in
whole or in part for individual Notes on such terms as are acceptable to the
Company and the Depositary. In such circumstances, upon surrender by the
Depositary or a successor depositary of any Global Note, Notes in definitive
form will be issued to each person that the Depositary or a successor
depositary identifies as the beneficial owner of the related Notes. Upon such
issuance, the Trustee is required to register such Notes in the name of, and
cause such Notes to be delivered to, such person or persons (or nominees
thereof). Such Notes would be issued in fully registered form, without
coupons, in denominations of $1,000 and integral multiples thereof. (Sections
302 and 305).
The Depositary has advised the Company and the Underwriters as follows: The
Depositary is a limited-purpose trust company organized under the laws of the
State of New York, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code, and a
"clearing agency" registered pursuant to the provisions of section 17A of the
Exchange Act. The Depositary was created to hold securities for its
participants ("Participants") and to facilitate the clearance and settlement
of securities transactions among its participants in such securities through
electronic book-entry changes in accounts of the Participants, thereby
eliminating the need for physical movement of securities certificates. The
Depositary's direct Participants include securities brokers and dealers
(including the Underwriters), banks, trust companies, clearing corporations,
and certain other organizations, some of whom (and/or their representatives)
own the Depositary. Access to the Depositary's book-entry system is also
available to others ("Indirect Participants"), such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship
with a Participant, either directly or indirectly. The Depositary agrees with
and represents to its Participants that it will administer its book-entry
system in accordance with its rules and by-laws and requirements of law.
Principal and interest payments on Notes registered in the name of or held
by the Depositary or its nominee will be made to the Depositary or its
nominee, as the case may be, as the registered owner of the Global Note
representing such Notes. Under the terms of the Indenture, the Company and the
Trustee will treat the persons in whose names the Notes are registered as the
Holders of such Notes for the purpose of receiving payment of principal and
interest on such Notes and for all other purposes whatsoever. Therefore,
neither the Company, the Trustee nor any paying agent has any direct
responsibility or liability for the payment of principal of or interest on the
Notes to owners of beneficial interests in any Global Note. The Depositary has
advised the Company and the Trustee that its current practice is to credit the
accounts of Participants with payments of principal or interest on the date
payable in amounts proportionate to their respective holdings in principal
amount of beneficial interests in a Global Note as shown in the records of the
Depositary, unless the Depositary has reason to believe that it will not
receive payment on such date. Payments by Participants and Indirect
Participants to owners of beneficial interests in a Global Note will be
governed by standing instructions and customary practices, as is now the case
with securities held for the accounts of customers in bearer form or
registered in "street name" and will be the responsibility of the Participants
and Indirect Participants.
The Depositary has advised the Company that it will take any action
permitted to be taken by an owner or Holder of Notes only at the direction of
one or more Participants to whose account with the Depositary such Holder's
Notes are credited. Additionally, the Depositary has advised the Company that
it will take such actions with respect to any percentage of the beneficial
interest of Holders who hold Notes through Participants only at the direction
of and on behalf of Participants whose account Holders include undivided
interests that satisfy any such percentage. The Depositary may take
conflicting actions with respect to other undivided interests to the extent
that such actions are taken on behalf of Participants whose account Holders
include such undivided interests.
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PAYMENT
All payments of principal and interest will be made by the Company to the
registered Holders of the Notes in immediately available funds. For
information regarding the payment of principal of or interest on the Notes to
owners of beneficial interests in any Global Note, see "--Global Notes: Form,
Exchange and Transfer."
CERTAIN COVENANTS OF THE COMPANY
The Indenture contains, among others, the following covenants:
Limitation on Liens. The Company has agreed that it will not, and will
not permit any Subsidiary to, incur, issue, assume or guaranty any
indebtedness if such indebtedness is secured by a pledge of, lien on, or
security interest in any shares of Voting Stock of any Significant
Subsidiary, whether such Voting Stock is now owned or is hereafter
acquired, without providing that the Notes (together with, if the Company
shall so determine, any other indebtedness or obligations of the Company or
any Subsidiary ranking equally with such Notes and then existing or
thereafter created) shall be secured equally and ratably with such
indebtedness. The foregoing limitation shall not apply to (i) indebtedness
secured by a pledge of, lien on or security interest in any shares of
Voting Stock of any corporation if such pledge, lien or security interest
is made or granted prior to or at the time such corporation becomes a
Significant Subsidiary, (ii) liens or security interests securing
indebtedness of a Significant Subsidiary to the Company or another
Significant Subsidiary or (iii) the extension, renewal or replacement (or
successive extensions, renewals or replacements), in whole or in part, of
any lien or security interest referred to in the foregoing clauses (i) and
(ii) but only if the principal amount of indebtedness secured by the liens
or security interests immediately prior thereto is not increased and the
lien or security interest is not extended to other property. (Section
1009).
Limitation on Mergers and Sales of Assets. The Company has agreed that it
will not enter into a merger or consolidation with another corporation or
sell other than for cash or lease all or substantially all its assets to
another corporation, or purchase all or substantially all the assets of
another corporation unless (i) either the Company is the continuing
corporation, or the successor corporation (if other than the Company)
expressly assumes by supplemental indenture the obligations evidenced by
the Notes (in which case, except in the case of such a lease, the Company
will be discharged therefrom), and (ii) immediately thereafter, the Company
or the successor corporation (if other than the Company) would not be in
default in the performance of any covenant or condition of the Indenture.
(Sections 801).
Under the laws of the State of New York, which govern the Indenture,
there is no established meaning of the phrase "all or substantially all"
with regard to a company's assets or property, and the interpretation of
such phrase is very fact-intensive. Due to such uncertainty, it may be
difficult for Holders of the Notes to ascertain whether a viable claim
exists under the Indenture with respect to any given transaction.
Limitations on Disposition of Stock of Significant Subsidiaries. The
Indenture provides that the Company will not, and will not permit any
Subsidiary to, sell, transfer or otherwise dispose of any shares of capital
stock of any Significant Subsidiary (or of any Subsidiary having direct or
indirect control of any Significant Subsidiary) except for, subject to the
covenant relating to mergers and sales of assets described in the
immediately preceding paragraph, (i) a sale, transfer or other disposition
of any capital stock of any Significant Subsidiary (or of any Subsidiary
having direct or indirect control of any Significant Subsidiary) to a
wholly owned Subsidiary of the Company or (ii) a sale, transfer or other
disposition of any capital stock of any Significant Subsidiary (or of any
Subsidiary having direct or indirect control of any Significant Subsidiary)
held by the Company and its Subsidiaries for at least fair value (as
determined by the Board of Directors of the Company acting in good faith).
(Section 1010).
The Company is not required pursuant to the Indenture to repurchase the
Notes, in whole or in part, with the proceeds of any sale, transfer or other
disposition of any shares of capital stock of any Subsidiary (or of any
Subsidiary having direct or indirect control of any other Subsidiary).
Furthermore, the Indenture does not provide for any restrictions on the
Company's use of any such proceeds.
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The Indenture does not contain any provisions specifically intended to
protect holders of the Notes in the event of a highly leveraged transaction,
reorganization, restructuring, merger or similar transaction involving the
Company. The Indenture does not contain any provisions which will restrict the
Company from incurring, assuming or becoming liable with respect to any
indebtedness or other obligations, whether secured or unsecured, or from
paying dividends or making other distributions on its capital stock or
purchasing or redeeming its capital stock. The Indenture does not contain any
financial ratios or specified levels of net worth or liquidity to which the
Company must adhere. In addition, the Indenture does not contain any provision
which would require that the Company repurchase or redeem or otherwise modify
the terms of any of the Notes upon a change in control or other events
involving the Company which may adversely affect the creditworthiness of the
Notes.
Certain Definitions
"Significant Subsidiary" means a Subsidiary, including its Subsidiaries,
which meets any of the following conditions (in each case determined in
accordance with generally accepted accounting principles): (i) the Company's
and its other Subsidiaries' investment in and advances to the Subsidiary
exceed 10% of the total assets of the Company and its Subsidiaries
consolidated as of the end of the most recently completed fiscal year; (ii)
the Company's and its other Subsidiaries' proportion share of the total assets
(after intercompany eliminations) of the Subsidiary exceeds 10% of the total
assets of the Company and its Subsidiaries consolidated as of the end of the
most recently completed fiscal year; or (iii) the Company's and its other
Subsidiaries' equity interest in the income from continuing operations before
income taxes, extraordinary items and cumulative effect of a change in
accounting principles of the Subsidiary exceed ten percent of such income of
the Company and its Subsidiaries consolidated for the most recently completed
fiscal year.
"Subsidiary" means a corporation more than 50% of the outstanding Voting
Stock of which is owned, directly or indirectly, by the Company, one or more
Subsidiaries, or the Company and one or more Subsidiaries.
"Voting Stock" means capital stock the holders of which have general voting
power under ordinary circumstances to elect at least a majority of the board
of directors of a corporation; provided that, for the purposes of such
definition, capital stock which carries only the right to vote conditioned on
the happening of an event shall not be considered voting stock whether or not
such event shall have happened. (Section 101).
MODIFICATION AND WAIVERS
The Indenture contains provisions permitting the Company and the Trustee,
with the consent of the Holders of a majority in principal amount of the Notes
at the time outstanding, by executing supplemental indentures, to modify the
rights of Holders of the Notes, amend or eliminate any of the provisions of
the Indenture, provided that no such modification, amendment or elimination
will, without the consent of the Holders of each outstanding Note affected
thereby, (i) change the stated maturity of the principal of, or any
installment of interest on, any Note, (ii) reduce the principal amount of, or
the rate of interest on, or any premium payable upon redemption of, any Note,
(iii) change the currency of payment of principal of, or premium, if any, or
interest on, any Note, (iv) impair the right to institute suit for the
enforcement of any payment on or with respect to any Note on or after the
stated maturity or redemption date in the case of redemption of any Note, (v)
reduce the percentage of outstanding Notes necessary to modify or amend the
Indenture or (vi) reduce the aggregate principal amount of outstanding Notes
necessary for waiver of compliance with certain provisions of the Indenture or
for waiver of certain defaults. (Sections 513, 902 and 1011).
EVENTS OF DEFAULT
The Indenture provides that events of default with respect to the Notes will
be (i) default for 30 days in payment of interest upon any Note; (ii) default
in payment of principal or premium, if any, on any Note; (iii) default in
performance, or breach, of any other covenant or warranty in the Indenture for
90 days after notice; (iv) (A) failure by the Company or any Subsidiary to pay
indebtedness in an aggregate principal amount exceeding $50 million at the
later of final maturity or upon expiration of any applicable period of grace
with
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respect to such principal amount, or (B) acceleration of the maturity of any
indebtedness of the Company or any Subsidiary, in excess of $50 million, if
such failure to pay is not discharged or such acceleration is not annulled
within 10 days after due notice; and (v) certain events of bankruptcy or
insolvency. (Section 501). If an event of default with respect to the Notes
should occur and be continuing (other than an event of default resulting from
certain events in bankruptcy or insolvency involving the Company or any
Significant Subsidiary), either the Trustee or the Holders of at least 25% in
the principal amount of outstanding Notes may declare the principal amount of
each Note due and payable. If an event of default results from certain events
in bankruptcy or insolvency involving the Company or any Significant
Subsidiary, the Notes shall become due and payable without any declaration or
other act on the part of the Trustee or any Holder. (Section 502). The Company
is required to file annually with the Trustee a statement of an officer as to
whether the Company is in default with respect to any of its obligations under
the Indenture. (Section 1004).
Holders of a majority in principal amount of the outstanding Notes will be
entitled to control certain actions of the Trustee under the Indenture and to
waive certain past defaults. (Sections 512 and 513). Subject to the provisions
of the Indenture relating to the duties of the Trustee, the Trustee will not
be under any obligation to exercise any of the rights or powers vested in it
by the Indenture at the request, order or direction of any of the Holders of
Notes, unless one or more of such Holders of Notes shall have offered to the
Trustee reasonable security or indemnity against the costs, expenses and
liabilities which may be incurred by the Trustee in connection with its
compliance with such request, order or direction. (Sections 601 and 603).
If an event of default occurs and is continuing with respect to the Notes,
any sums held or received by the Trustee under the Indenture may be applied to
reimburse the Trustee for its reasonable compensation and expenses incurred
prior to any payments to Holders of the Notes. (Section 506).
No Holder of any Note will have any right to institute any proceeding with
respect to the Indenture, or for the appointment of a receiver or a trustee,
or for any other remedy thereunder, unless (i) such Holder shall have
previously given to the Trustee written notice of a continuing Event of
Default with respect to the Notes, (ii) the Holders of not less than 25% in
aggregate principal amount of the Notes at the time outstanding shall have
made written request to the Trustee to institute proceedings as Trustee, (iii)
such Holder or Holders shall have offered to the Trustee reasonable indemnity,
(iv) the Trustee shall have failed to institute such proceeding within 60 days
thereafter and (iv) the Trustee shall not have received from the Holders of a
majority in aggregate principal amount of the Notes at the time outstanding a
direction inconsistent with such request. (Section 507). However, such
limitations do not apply to a suit instituted by a Holder of a Note for the
enforcement of payment of the principal of and premium, if any, or interest on
such Note or after the applicable due date specified in such Note. (Section
508).
DEFEASANCE AND DISCHARGE OF THE INDENTURE
The Indenture provides that the Company (a) will be deemed to have been
discharged from its obligations with respect to all outstanding Notes
("defeasance") or (b) will be released from its obligations (other than, among
other things, to pay when due the principal of, premium, if any, and interest
of such Notes) with respect to the Notes ("covenant defeasance"), at any time
prior to maturity, when the Company has irrevocably deposited with the
Trustee, in trust for the benefit of the Holders, money and/or U.S. Government
Obligations that, through the payment of principal and interest in accordance
with their terms, will provide money, in an amount sufficient to pay the
principal of and premium, if any, and interest on the Notes on the dates such
payments are due in accordance with the terms of the Notes. Such a trust may
be established with respect to the Notes only upon the satisfaction of certain
conditions specified in the Indenture. Upon defeasance and discharge, the
Indenture will cease to be of further effect with respect to the Notes and the
Holders of the Notes shall look only to the deposited funds or obligations for
payment. Upon covenant defeasance, however, the Company will not be relieved
of its obligation to pay when due principal of, premium, if any, and interest
on the Notes if not otherwise paid from such deposited funds or obligations.
Notwithstanding the foregoing, certain obligations and rights under the
Indenture with respect to compensation, reimbursement and indemnification of
the Trustee, optional redemption, registration of transfer and exchange of the
Notes, replacement of mutilated, destroyed, lost or stolen Notes and certain
other administrative provisions will survive defeasance and discharge and
covenant defeasance. (Sections 1202, 1203 and 1204).
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Under current U.S. federal income tax law, there is a substantial risk that
the defeasance and discharge contemplated in the preceding paragraph could be
treated as a taxable exchange of the Notes for an interest in the trust. As a
consequence, each Holder of the Notes would recognize gain or loss equal to
the difference between the value of the Holder's interest in the trust and the
Holder's tax basis for the securities deemed exchanged. Thereafter, each
Holder would be required to include in income his share of any income, gain
and loss recognized by the trust. Although a Holder could be subject to U.S.
federal income tax on the deemed exchange of the defeased Notes for an
interest in the trust, such Holder would not receive any cash until the
maturity of the Notes. Prospective investors are urged to consult their own
tax advisors as to the specific consequences of a defeasance and discharge,
including the applicability and effect of tax laws other than U.S. federal
income tax law.
CONCERNING THE TRUSTEE
Wilmington Trust Company is the Trustee under the Indenture. The Company has
and may from time to time in the future have banking relationships with the
Trustee in the ordinary course of business. Wilmington Trust Company is also
acting as Property Trustee and Delaware Trustee under the Capital Securities.
GOVERNING LAW
The Indenture and the Notes will be governed by, and construed in accordance
with, the laws of the State of New York without giving effect to the conflicts
of laws provisions thereof. (Section 112).
LISTING
The Notes have been approved for listing on the NYSE, subject to official
notice of issuance.
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DESCRIPTION OF CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
The following statements are subject to and qualified in their entirety by
reference to detailed provisions of the Company's Certificate and Bylaws
(copies of which have been incorporated by reference as exhibits to the
Registration Statement of which this Prospectus forms a part).
The Company is currently authorized to issue 750 million shares of Class A
Common Stock, 750 million shares of Class B Common Stock and 50 million shares
of Preferred Stock. The shares of Class A Common Stock and Class B Common
Stock are identical in all respects except for voting rights and certain
conversion rights and transfer restrictions regarding the shares of Class B
Common Stock as described below.
CLASS A COMMON STOCK AND CLASS B COMMON STOCK
Voting
All outstanding shares of Common Stock are fully paid and nonassessable.
Except for the Equity Purchase Rights, holders of Common Stock do not have any
preemptive rights to subscribe for or purchase any additional securities
issued by the Company. No redemption or sinking fund provisions are associated
with the Common Stock. Cumulative voting is not permitted by holders of Common
Stock.
The holders of Class B Common Stock are entitled to ten votes per share. The
holders of Class A Common Stock are entitled to one vote per share. Proposals
submitted to a vote of stockholders will be voted on by holders of Class A
Common Stock and Class B Common Stock voting together as a single class. At
all meetings of the stockholders of the Company, the holders of record
entitled to exercise at least a majority of the voting power of the Company,
represented in person or by proxy, shall constitute a quorum for the
transaction of business; and the affirmative vote of the holders represented
in person or by proxy of a majority of the Common Stock present at a meeting
at which a quorum is in existence shall be the act of the stockholders of the
Company. The superior voting rights of the Class B Common Stock might
discourage unsolicited merger proposals and unfriendly tender offers.
Transfer
The Certificate does not contain any restrictions on the transfer of shares
of Class A Common Stock. Upon any sale or other transfer of shares of Class B
Common Stock to any person or persons other than a member of the Nationwide
Insurance Enterprise such shares of Class B Common Stock will be converted
into an equal number of shares of Class A Common Stock.
Conversion
Class A Common Stock has no conversion rights. Class B Common Stock is
convertible into Class A Common Stock, in whole or in part, at any time and
from time to time at the option of the holder, on the basis of one share of
Class A Common Stock for each share of Class B Common Stock converted. If at
any time after the initial issuance of shares of Class A Common Stock the
number of outstanding shares of Class B Common Stock falls below 5% of the
aggregate number of issued and outstanding shares of Common Stock, then each
outstanding share of Class B Common Stock shall automatically convert into one
share of Class A Common Stock. In the event of any sale or transfer of shares
of Class B Common Stock to any person or persons other than a member of the
Nationwide Insurance Enterprises such shares of Class B Common Stock so
transferred shall be automatically converted into an equal number of shares of
Class A Common Stock.
Dividends
Holders of Common Stock are entitled to receive cash dividends pro rata on a
per share basis if and when such dividends are declared by the Board of
Directors of the Company from funds legally available therefor. In the case of
any dividend paid other than in cash or Common Stock (or securities
convertible into or exchangeable
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for Common Stock), holders of Class A Common Stock and Class B Common Stock
are entitled to receive such dividend pro rata on a per share basis. Dividends
paid in Common Stock (or securities convertible into or exchangeable for
Common Stock) may be paid in shares of Class A Common Stock (or securities
convertible into or exchangeable for Class A Common Stock) on the Class A
Common Stock and in shares of Class B Common Stock (or securities convertible
into or exchangeable for Class B Common Stock) on the Class B Common Stock.
Liquidation, Merger or Consolidation
Holders of Class A Common Stock and Class B Common Stock share with each
other on a ratable basis as a single class in the net assets of the Company
available for distribution in respect of the Common Stock in the event of
liquidation or any payments made on the Common Stock in the event of a merger
or consolidation of the Company.
PREFERRED STOCK
Under the Certificate, the Company has authority to issue 50 million shares
of Preferred Stock. Preferred Stock may be issued from time to time in one or
more classes with such full, special, limited or no voting powers, and such
designations, preferences and relative, participating, optional or other
special rights, and qualifications and limitations or restrictions thereof, as
shall be stated in any resolution adopted by the Board of Directors of the
Company establishing any class of Preferred Stock. The Board of Directors of
the Company has the authority to issue shares of Preferred Stock without
further action of the stockholders. The ability of the Board of Directors to
issue Preferred Stock, while providing flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of making it
more difficult for a third party to acquire, or of discouraging a third party
from acquiring, a majority of the outstanding voting stock of the Company. No
shares of Preferred Stock have been issued or are outstanding.
CERTAIN CERTIFICATE AND BYLAW PROVISIONS
Certain provisions of the Company's Certificate and Bylaws, summarized in
the following paragraphs, may be considered to have an anti-takeover effect
and may delay, deter or prevent a tender offer, proxy contest or other
takeover attempt that a stockholder might consider to be in such stockholder's
best interest, including such an attempt as might result in payment of a
premium over the market price for shares held by stockholders.
Classified Board of Directors
The Certificate provides for the Board of Directors of the Company to be
divided into three classes of directors, with each class as nearly equal in
number as possible, serving staggered three-year terms. As a result,
approximately one-third of the Board of Directors will be elected each year at
the annual meeting of stockholders. The Board of Directors believes that a
classified board of directors will help to assure the continuity and stability
of the Board of Directors and the business strategies and policies of the
Company as determined by the Board of Directors because continuity and
stability in the composition of the Board of Directors and in the policies
formulated by it will be enhanced by the staggered three-year terms.
The classified board provisions could have the effect of discouraging a
third party from making a tender offer or otherwise attempting to obtain
control of the Company, even though such an attempt might be beneficial to the
Company and its stockholders. In addition, the classified board provisions
could delay stockholders who do not like the policies of the Board of
Directors from removing a majority of the Board of Directors for two years.
Number of Directors; Removal; Filling Vacancies
The Certificate provides that the Board of Directors will consist of one to
fifteen members, the exact number to be fixed from time to time by resolution
adopted by a majority of the entire Board of Directors assuming no vacancies.
The Board of Directors currently consists of ten directors. Further, subject
to the rights of the
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holders of any series of Preferred Stock then outstanding, the Certificate
authorizes the Board of Directors to fill newly created directorships.
Accordingly, this provision could prevent a stockholder from obtaining
majority representation on the Board of Directors by permitting the Board of
Directors to enlarge the Board of Directors and fill the new directorships
with its own nominees. A director so elected by the Board of Directors holds
office until the next election of the class for which such director has been
chosen and until his successor is elected and qualified. Subject to the rights
of the holders of any series of Preferred Stock then outstanding, the
Certificate also provides that directors may be removed only for cause and
only by the affirmative vote of holders of a majority of the outstanding
voting power of the Company. The effect of these provisions is to preclude a
stockholder from removing incumbent directors without cause and simultaneously
gaining control of the Board of Directors by filling the vacancies created by
such removal with its own nominees.
Special Meetings of Stockholders
The Bylaws provide that special meetings of stockholders may be called by
the Chairman of the Board of Directors, the Chairman and Chief Executive
Officer--Nationwide Insurance Enterprise or the President and Chief Operating
Officer and shall be called by the Secretary at the request in writing of a
majority of the Board of Directors. Stockholders are not permitted to call
special meetings of stockholders.
Advance Notice Requirements for Stockholder Proposals and Director Nominations
The Company's Bylaws provide that in order to properly submit any business
to, or to nominate any person for election to the Board of Directors at, an
annual meeting of stockholders, a stockholder must provide timely notice
thereof in writing to the Secretary of the Company. To be considered timely, a
stockholder's notice must be delivered to, or mailed and received at, the
principal executive offices of the Company, (i) not less than 60 days nor more
than 90 days before the first anniversary date of the Company's proxy
statement in connection with the last annual meeting of stockholders or (ii)
if no annual meeting was held in the previous year or the date of the
applicable annual meeting has been changed by more then 30 days from the date
contemplated at the time of the previous year's proxy statement, not less than
a reasonable time, as determined by the Board of Directors, prior to the date
of the applicable annual meeting. The Bylaws also specify certain requirements
pertaining to the form and substance of a stockholder's notice. These
provisions may preclude some stockholders from making nominations for
directors at an annual or special meeting or from bringing other matters
before the stockholders at a meeting.
Class B Common Stock
The superior voting rights of the Class B Common Stock might discourage
unsolicited merger proposals and unfriendly tender offers.
No Action by Written Consent of the Stockholders
The Certificate does not allow the stockholders of the Company to take
action by written consent in lieu of a meeting.
Delaware Takeover Statute
The Company is subject to the provisions of Section 203 of the DGCL. Section
203 prohibits a Delaware corporation from engaging in any "business
combination" with any "interested stockholder" for a period of three years
following the time that such stockholder became an interested stockholder
unless (i) prior to such time, the board of directors of the corporation
approved either the business combination or the transaction which resulted in
the stockholder becoming an interested stockholder; or (ii) upon the
consummation of the transaction which resulted in the stockholder becoming an
interested stockholder, the interested stockholder owned at least 85% of the
voting stock of the corporation, as defined in Section 203; or (iii) at or
subsequent to such time, the business combination is approved by the board of
directors and authorized at an annual or special meeting of stockholders, and
not by written consent, by the affirmative vote of at least 66 2/3% of the
outstanding voting stock which is not owned by the interested stockholder. For
these purposes, the term "business combination" includes, but is not limited
to, mergers, asset or stock sales and other similar transactions with an
"interested
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stockholder." An "interested stockholder" is a person who, together with
affiliates and associates, owns (or, within the prior three years, did own)
15% or more of the corporation's voting stock.
Limitation on Liability
The Company's Certificate contains a provision that is designed to limit the
directors' liability to the extent permitted by the DGCL and any amendments
thereto. Specifically, directors will not be held liable to the Company or its
stockholders for an act or omission in such capacity as a director, except for
liability as a result of (i) a breach of the duty of loyalty to the Company or
its stockholders, (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) payment of an
improper dividend or improper repurchase of the Company's stock under Section
174 of the DGCL, or (iv) actions or omissions pursuant to which the director
received an improper personal benefit. The principal effect of the limitation
on liability provision is that a stockholder is unable to prosecute an action
for monetary damages against a director of the Company unless the stockholder
can demonstrate one of the specified bases for liability. This provision,
however, does not eliminate or limit director liability arising in connection
with causes of action brought under the federal securities laws. The Company's
Certificate does not eliminate its directors' duty of care. The inclusion of
this provision in the Company's Certificate may, however, discourage or deter
stockholders or management from bringing a lawsuit against directors for a
breach of their fiduciary duties, even though such an action, if successful,
might otherwise have benefited the Company and its stockholders. This
provision should not affect the availability of equitable remedies such as
injunction or rescission based upon a director's breach of the duty of care.
Indemnification
The Company's Bylaws also provide that the Company will indemnify its
directors and officers to the fullest extent permitted by Delaware law. The
Company is generally required to indemnify its directors and officers for all
judgments, fines, settlements, legal fees and other expenses incurred in
connection with pending or threatened legal proceedings because of the
director's or officer's position with the Company or another entity that the
director or officer serves at the Company's request, subject to certain
conditions, and to advance funds to its directors and officers to enable them
to defend against such proceedings. To receive indemnification, the director
or officer must have been successful in the legal proceeding or acted in good
faith and in what was reasonably believed to be a lawful manner in the
Company's best interest.
Certificate Provisions Relating to Corporate Opportunities
The Certificate provides that except as Nationwide Mutual (or its successors
or assigns) may otherwise agree in writing and except as set forth in the
Intercompany Agreement:
(i) no member of the Nationwide Insurance Enterprise shall have a duty to
refrain from engaging directly or indirectly in the same or similar
business activities or lines of business as the Company; and
(ii) no member of the Nationwide Insurance Enterprise, nor any director,
officer, employee, agent or any member of Nationwide Mutual (except as
provided below), will be liable to the Company or to its stockholders for
breach of any fiduciary duty by reason of any such activities of such
members or of such person's participation thereon.
The Certificate also provides that in the event that any member of the
Nationwide Insurance Enterprise (other than the Company) acquires knowledge of
a potential transaction or matter which may be a corporate opportunity both
for a member of the Nationwide Insurance Enterprise and the Company, no member
of the Nationwide Insurance Enterprise shall have any duty to communicate or
offer such corporate opportunity to the Company nor shall any such member be
liable to the Company or its stockholders for breach of any fiduciary duty as
a stockholder of the Company or controlling person of a stockholder by reason
of the fact that any such member of the Nationwide Insurance Enterprise
pursues or acquires such opportunity for itself, directs such corporate
opportunity to another person or entity or does not communicate information
regarding, or offer, such corporate opportunity to the Company.
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Further, the Certificate provides that in the event that a director,
officer, employee or agent of the Company who is also a director, officer,
employee or agent of any member of the Nationwide Insurance Enterprise
acquires knowledge of a potential transaction or matter that may be a
corporate opportunity for the Company or any member of Nationwide Insurance
Enterprise (whether such potential transaction or matter is proposed by a
third party or is conceived of by such director, officer, employee or agent of
the Company), such director, officer, employee or agent shall be entitled to
offer such corporate opportunity to the Company or such member of the
Nationwide Insurance Enterprise as such director, officer, employee or agent
deems appropriate under the circumstances in his or her sole discretion, and
no such director, officer, employee or agent shall be liable to the Company or
its stockholders for breach of any fiduciary duty or duty of loyalty or
failure to act in (or not opposed to) the best interests of the Company or the
derivation of any improper personal benefit by reason of the fact that (i)
such director, officer, employee or agent offered such corporate opportunity
to such member of the Nationwide Insurance Enterprise (rather than the
Company) or did not communicate information regarding such corporate
opportunity to the Company or (ii) such member of the Nationwide Insurance
Enterprise pursues or acquires such corporate opportunity for itself or
directs such corporate opportunity to another person or does not communicate
information regarding such corporate opportunity to the Company. The
enforceability of the provisions discussed above under the DGCL has not been
established and counsel to the Company has not delivered an opinion as to the
enforceability of such provisions. These provisions of the Certificate may
eliminate certain rights that might have been available to stockholders under
the DGCL had such provisions not been included in the Certificate.
The Company's Board of Directors currently consists of ten members, seven of
whom serve concurrently on the boards of directors of other companies within
the Nationwide Insurance Enterprise. In addition, a significant number of
officers of the Company will also be officers of other companies within the
Nationwide Insurance Enterprise.
The foregoing provisions of the Certificate shall expire on the date that
the members of the Nationwide Insurance Enterprise cease to beneficially own
(directly or indirectly) in the aggregate Common Stock representing at least
50% of the voting power of the outstanding shares of Common Stock.
LISTINGS
The Class A Common Stock has been approved for listing on the NYSE under the
symbol "NFS", subject to official notice of issuance.
TRANSFER AGENT AND REGISTRAR
First Chicago Trust Company of New York will serve as transfer agent and
registrar for the Class A Common Stock.
THE EQUITY OFFERINGS, THE NOTE OFFERING AND THE CAPITAL SECURITIES OFFERING
Prior to the Note Offering, the Company expects to consummate the public
offering of 16,432,000 shares of Class A Common Stock in the United States and
Canada and 4,108,000 shares of Class A Common Stock outside the United States
and Canada, and, concurrently with the Note Offering, an affiliate of the
Company expects to consummate the public offering of Capital Securities with
an aggregate liquidation amount of $100 million. The Capital Securities will
be issued by the NFS Trust, all of whose common trust securities, which are
the only voting securities of the NFS Trust, will be held by the Company. The
sole asset of such trust will be the junior subordinated debentures to be
issued by the Company. See "Capitalization."
The consummation of the Note Offering is not conditioned on the completion
of the Capital Securities Offering. There can be no assurance that the Capital
Securities Offering will be consummated.
The Equity Offerings and the Capital Securities Offering are being made
pursuant to separate prospectuses.
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UNDERWRITING
Under the terms and subject to the conditions contained in an Underwriting
Agreement, dated , 1997 (the "Underwriting Agreement"), the underwriters
named below (the "Underwriters"), for whom Credit Suisse First Boston
Corporation, Morgan Stanley & Co. Incorporated and Merrill Lynch, Pierce,
Fenner & Smith Incorporated are acting as representatives (the
"Representatives"), have severally but not jointly agreed to purchase from the
Company the following respective principal amount of the Notes:
<TABLE>
<CAPTION>
Principal
Underwriter Amount
----------- ------------
<S> <C>
Credit Suisse First Boston Corporation......................... $
Morgan Stanley & Co. Incorporated..............................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated..........................................
------------
Total........................................................ $300,000,000
============
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters will be
obligated to purchase all the Notes, if any are purchased. The Underwriting
Agreement provides that, in the event of a default by an Underwriter, in
certain circumstances the purchase commitments of non-defaulting Underwriters
may be increased or the Underwriting Agreement may be terminated.
The Company has been advised by the Representatives that the Underwriters
propose to offer the Notes to the public initially at the public offering
price set forth on the cover page of this Prospectus and, through the
Representatives, to certain dealers at such price less a concession of % of
the principal amount per Note, and the Underwriters and such dealers may allow
a discount of % of such principal amount per Note on sales to certain other
dealers. After the initial public offering, the public offering price and
concession and discount to dealers may be changed by the Representatives.
The Notes have been approved for listing on the NYSE, subject to official
notice of issuance.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including civil liabilities under the Securities Act, or to
contribute to payments which the Underwriters may be required to make in
respect thereof.
From time to time, Credit Suisse First Boston Corporation has provided
investment banking services to the Company, Nationwide Life and other members
of the Nationwide Insurance Enterprise, for which it has received customary
compensation. It is expected that Credit Suisse First Boston Corporation will
continue to provide such services in the future. The Representatives also are
acting as representatives of the underwriters of the Equity Offerings and the
Capital Securities Offering.
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NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the Notes in Canada is being made only on a private
placement basis exempt from the requirement that the Company prepare and file
a prospectus with the securities regulatory authorities in each province where
trades of the Notes are effected. Accordingly, any resale of Notes in Canada
must be made in accordance with applicable securities laws which will vary
depending on the relevant jurisdiction, and which may require resales to be
made in accordance with available statutory exemptions or pursuant to a
discretionary exemption granted by the applicable Canadian securities
regulatory authority. Purchasers are advised to seek legal advice prior to any
resale of Notes.
REPRESENTATIONS OF PURCHASERS
Each purchaser of the Notes in Canada who receives a purchase confirmation
will be deemed to represent to the Company and the dealer from whom such
purchase confirmation is received that (i) such purchaser is entitled under
applicable provincial securities laws to purchase such Notes without the
benefit of a prospectus qualified under such securities laws, (ii) where
required by law, that such purchaser is purchasing as principal and not as
agent, and (iii) such purchaser has reviewed the text above under "Resale
Restrictions."
RIGHTS OF ACTION AND ENFORCEMENT
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
section 32 of the Regulation under the Securities Act (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available,
including common law rights of action for damages or rescission or rights of
action under the civil liability provisions of the U.S. federal securities
laws.
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be
possible for Ontario purchasers to effect service of process within Canada
upon the issuer or such persons. All or a substantial portion of the assets of
the Company and such persons may be located outside of Canada and, as a
result, it may not be possible to satisfy a judgment against the Company or
such persons in Canada or to enforce a judgment obtained in Canadian courts
against such issuer or persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of the Notes to whom the Securities Act (British Columbia)
applies is advised that such purchaser is required to file within the British
Columbia Securities Commission a report within ten days of the sale of any
Notes acquired by such purchaser pursuant to this offering. Such report must
be in the form attached to British Columbia Securities Commission Blanket
Order BOR #95/17, a copy of which may be obtained from the Company. Only one
such report must be filed in respect of Notes acquired on the same date and
under the same prospectus exemption.
LEGAL MATTERS
The validity of the issuance of the Notes offered hereby will be passed upon
for the Company by LeBoeuf, Lamb, Greene & MacRae, L.L.P., a limited liability
partnership including professional corporations, New York, New York. Certain
other legal matters will be passed upon for the Company by W. Sidney Druen,
Esq., Senior Vice President and General Counsel. Certain legal matters
relating to the Note Offering will be passed upon for the Underwriters by
Dewey Ballantine, New York, New York.
EXPERTS
The consolidated financial statements and financial statement schedules of
the Company and its subsidiaries as of December 31, 1996 and 1995, and for
each of the years in the three-year period ended December 31, 1996 included
herein and elsewhere in this Registration Statement have been included herein
and elsewhere in this Registration Statement in reliance on the report of KPMG
Peat Marwick LLP, independent certified public accountants, appearing
elsewhere herein, and upon the authority of said firm as experts in accounting
and auditing.
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GLOSSARY OF SELECTED INSURANCE TERMS
ANNUITY.......................... A contract that provides for a fixed or
variable periodic payment made from a
stated or contingent date and continued for
a specific period, such as for a number of
years (certain period) or for life (life
contingent), either immediately or after a
stated accumulation period.
ASSET VALUATION RESERVE; AVR..... The asset valuation reserve adopted by the
NAIC in 1991. AVR appears as a liability on
a life insurer's statutory financial
statements. AVR establishes statutory
reserves for debt securities, common
stocks, preferred stocks, mortgage loans,
equity real estate, joint ventures and
other invested assets. AVR generally
captures all realized and unrealized gains
and losses on such assets, other than those
resulting from changes in interest rates.
AVR has no effect on financial statements
prepared in conformity with GAAP.
CASH VALUE....................... The amount of cash that may be realized by
the owner of a life insurance policy or
annuity contract with a life insurance
company upon lapse or surrender of the
policy or contract prior to its maturity.
CEDE, CEDING COMPANY............. When a company reinsures all or a portion
of its risk with another, it "cedes"
business and is referred to as the "ceding
company."
COINSURANCE...................... A form of indemnity reinsurance under which
the reserves and supporting assets as well
as the risk are transferred to the
reinsurer.
CREDITING RATES.................. Interest rates applied to life insurance
policies and annuity contracts, whether
contractually guaranteed or currently
declared for a specified period.
DEFERRED ANNUITY................. An annuity that (i) can be paid either with
a single premium or a series of
installments and (ii) includes a schedule
of periodic income benefit to commence
after an accumulation period.
DEFERRED POLICY ACQUISITION
COSTS............................ Commissions and other selling expenses that
vary with and are directly related to the
production of business. These acquisition
costs are deferred and amortized in
conformity with GAAP.
FIXED OPTION UNDER THE COMPANY'S
VARIABLE ANNUITY CONTRACTS....... Includes an investment option under the
Company's individual variable annuity
contracts which provides the contractholder
a return at a specified interest rate,
fixed for a prescribed period. Also
included are the Company's fixed group
annuity contracts offered as companion
contracts with variable group annuity
contracts. A fixed group annuity contract
which is
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companioned with a variable group annuity
contract would operate in a manner which is
indistinguishable from the fixed option of
a variable annuity. For example,
companioned fixed group annuity contracts
have the same surrender charge schedules
and deposit commission scales as the
variable contract with which they are
companioned. In addition, monies can be
moved between the fixed group annuity
contract and the variable contract, subject
to certain limitations, without incurring a
surrender charge.
GENERAL ACCOUNT.................. All an insurer's assets other than those
allocated to a separate account. The
insurer bears the investment risk on the
invested assets of the general account.
GENERALLY ACCEPTED ACCOUNTING
PRINCIPLES; GAAP................. United States generally accepted accounting
principles as defined by the American
Institute of Certified Public Accountants
and the Financial Accounting Standards
Board.
IMMEDIATE ANNUITY................ An annuity that begins payment immediately
after issuance.
IN FORCE......................... The total face amount of insurance coverage
under contracts that have not expired.
INSURANCE GUARANTY
ASSOCIATIONS..................... Associations created in all states, the
District of Columbia and Puerto Rico by
law, to cover funding shortfalls in paying
claims of insolvent life insurance
companies. These associations obtain funds
by post-insolvency assessments of life
insurance companies operating in a
particular state in proportion to their
business written in that state.
INSURANCE PREMIUM................ The amount paid by a policyholder under the
terms of the contract. The insurance
company assumes the risks of the insured
(length of life, state of health or
liability exposure) in exchange for a
premium payment. Premiums are calculated by
combining expectation of loss and expense
and profit loadings.
MODIFIED COINSURANCE........ Indemnity reinsurance that differs from
coinsurance only in that the reserves and
related assets are held by the ceding
company while the risk remains with the
reinsurer. The ceding company pays interest
to the reinsurer to replace what would have
been earned by the reinsurer if it had held
the assets.
MORBIDITY RATE................... The relative incidence of sickness or
disability due to disease or physical
impairment.
MORTALITY RATE................... The relative incidence of death of life
insureds or annuitants.
105
<PAGE>
NAIC............................. The National Association of Insurance
Commissioners, an association of the chief
insurance supervisory officials of each
state, territory and possession of the
United States.
PERSISTENCY...................... Percentage of life insurance policies or
annuity contracts remaining in force until
completion of the term for which the policy
or contract was written.
POLICY ACQUISITION COSTS......... Agents' and brokers' commissions, premiums,
taxes, marketing, underwriting and other
direct expenses related to the production
of business. Such costs that vary with and
are primarily related to the production of
business are deferred and amortized to
achieve a matching of revenues and expenses
when reported in financial statements
prepared in conformity with GAAP.
POLICY RESERVES; RESERVES........ Liabilities established by insurers to
reflect the present value of claims
payments and the related expenses that the
insurer will ultimately be required to pay
in respect of insurance it has written.
REINSURANCE...................... The practice whereby one party, called the
reinsurer or assuming company, in
consideration of a premium paid to such
party, agrees to indemnify another party,
called the ceding company. Reinsurance
provides a primary insurer with three major
benefits: it reduces net liability on
individual risks; it helps to protect
against catastrophic losses; and it helps
to maintain acceptable surplus and reserve
ratios. Reinsurance provides a primary
insurer with additional underwriting
capacity in that the primary insurer can
accept larger risks and can expand the
volume of business it writes without
increasing its capital base. Reinsurance
may be on an assumption or indemnity basis.
Assumption reinsurance is the permanent
transfer of insurance liabilities from the
ceding to the assuming company. Under
indemnity reinsurance, the ceding company
cedes some or all risks but retains its
liability to and its contractual
relationship with the insured. The two
forms of indemnity reinsurance are
proportional, where the amount ceded is
defined at the time the contract is entered
into, and stop loss, where the reinsurer is
responsible for losses in excess of a
predetermined dollar amount.
RISK-BASED CAPITAL
REQUIREMENTS..................... Regulatory and rating agency targeted
surplus based on the relationship of
statutory capital and surplus, with certain
adjustments, to the sum of stated
percentages of each element of a specified
list of Company risk exposures.
SEPARATE ACCOUNTS................ Investment accounts maintained by an
insurer to which funds have been allocated
for certain policies under provisions of
relevant state insurance law. The
investments in each separate account are
maintained separately from those in other
separate
106
<PAGE>
accounts and the general account. The
investment results of the separate account
assets are passed through directly to the
separate account policyholders, so that an
insurer derives management and other fees
from, but bears no investment risk on,
these assets, except the risk on a small
number of products that returns on separate
account assets will not meet the relatively
low minimum rate guaranteed on these
products.
SINGLE PREMIUM DEFERRED
ANNUITIES; SPDA'S................ Annuities that require a one-time lump sum
payment of consideration upon the issuance
of the contract with benefit payments
commencing at some future date following an
accumulation period.
STATUTORY ACCOUNTING PRACTICES... Those accounting practices prescribed or
permitted by an insurer's domiciliary state
insurance regulator for purposes of
financial reporting to regulators.
SURRENDERS AND WITHDRAWALS....... Surrenders of life insurance policies and
annuity contracts for their entire net cash
surrender values and withdrawals of a
portion of such values.
TERM LIFE INSURANCE.............. Life insurance offering protection during a
certain number of years, but expiring
without policy cash value if the insured
survives the stated period. Most term
policies provide for guaranteed
continuation of coverage for life at
increased premium rates.
UNIVERSAL LIFE INSURANCE......... Life insurance under which (i) premiums are
generally flexible, (ii) the level of death
benefits may be adjusted and (iii)
mortality, expense and other charges may
vary. This policy is sometimes referred to
as unbundled life insurance because its
three basic elements (investment earnings,
cost of protection and expense charges) are
separately identified both in the policy
and in an annual report to the
policyholder.
VARIABLE ANNUITY................. An annuity in which values and benefits may
vary. The value of a unit fluctuates in
accordance with the investment experience
of a separate account; variable annuity
contracts typically include a general
account guaranteed interest investment
option. At the time of the payment of
benefits to the annuitant, the annuitant
can generally elect from a number of
payment options which provide either fixed
or variable benefit payments.
VARIABLE LIFE INSURANCE.......... Life insurance under which the benefits
payable upon death or surrender typically
varies to reflect the investment experience
of the separate account supporting such
policies; variable life insurance policies
typically include a general account
guaranteed interest investment option.
WHOLE LIFE INSURANCE............. Insurance which is guaranteed for the life
of the insured.
107
<PAGE>
NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AUDITED CONSOLIDATED FINANCIAL STATEMENTS:
Independent Auditors' Report............................................. F-2
Consolidated Balance Sheets as of December 31, 1996 and 1995............. F-3
Consolidated Statements of Income for the Years Ended December 31, 1996,
1995 and 1994........................................................... F-4
Consolidated Statements of Shareholder's Equity for the Years Ended
December 31, 1996, 1995 and 1994........................................ F-5
Consolidated Statements of Cash Flows for the Years Ended December 31,
1996, 1995 and 1994..................................................... F-6
Notes to Consolidated Financial Statements............................... F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Nationwide Financial Services, Inc.:
We have audited the accompanying consolidated balance sheets of Nationwide
Financial Services, Inc. and subsidiaries as of December 31, 1996 and 1995,
and the related consolidated statements of income, shareholder's equity and
cash flows for each of the years in the three-year period ended December 31,
1996. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Nationwide
Financial Services, Inc. and subsidiaries as of December 31, 1996 and 1995,
and the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 1996, in conformity with generally
accepted accounting principles.
As discussed in note 1 to the consolidated financial statements, the Company
was formed in November 1996 as a holding company for Nationwide Life Insurance
Company and the other companies within the Nationwide Insurance Enterprise
that offer or distribute long-term savings and retirement products. The
consolidated financial statements are presented as if these companies were
consolidated for all periods presented.
In 1994, the Company adopted the provisions of the Financial Accounting
Standards Board's Statement of Financial Accounting Standards No. 115,
Accounting for Certain Investments in Debt and Equity Securities.
Columbus, Ohio KPMG Peat Marwick LLP
January 31, 1997
F-2
<PAGE>
NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
($000'S OMITTED)
<TABLE>
<CAPTION>
1996 1995
----------- ----------
<S> <C> <C>
ASSETS
Investments (notes 6, 9 and 10):
Securities available-for-sale, at fair value:
Fixed maturity securities (cost $11,970,878 in 1996;
$11,872,870 in 1995)................................ $12,304,639 12,495,878
Equity securities (cost $43,890 in 1996; $31,234 in
1995)............................................... 59,131 37,570
Fixed maturity securities held-to-maturity, at
amortized cost (fair value $5,944 in 1996; $5,989 in
1995)................................................. 5,877 5,720
Mortgage loans on real estate, net..................... 5,272,119 4,627,387
Real estate, net....................................... 265,759 229,442
Policy loans........................................... 371,816 336,356
Other long-term investments............................ 28,668 61,989
Short-term investments (note 14)....................... 9,261 42,671
----------- ----------
18,317,270 17,837,013
----------- ----------
Cash..................................................... 43,183 10,055
Accrued investment income................................ 210,182 212,963
Deferred policy acquisition costs........................ 1,366,509 1,020,356
Investment in subsidiaries classified as discontinued
operations (notes 1 and 3).............................. 485,707 506,677
Other assets (note 7).................................... 420,685 327,916
Assets held in Separate Accounts (note 9)................ 26,926,702 18,591,108
----------- ----------
$47,770,238 38,506,088
=========== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
Future policy benefits and claims (notes 7 and 9)........ $17,179,060 16,358,614
Policyholders' dividend accumulations.................... 361,401 348,027
Other policyholder funds................................. 60,073 65,297
Accrued federal income tax (note 8):
Current................................................ 29,201 36,980
Deferred............................................... 158,896 237,247
----------- ----------
188,097 274,227
----------- ----------
Dividend payable to shareholder (notes 1 and 3).......... 485,707 --
Other liabilities........................................ 437,465 252,085
Liabilities related to Separate Accounts (note 9)........ 26,926,702 18,591,108
----------- ----------
45,638,505 35,889,358
----------- ----------
Commitments and contingencies (notes 10 and 16)
Shareholder's equity (notes 2, 4, 5, 6, 13 and 14):
Class A common shares, $.01 par value. Authorized
750,000,000 shares, no shares issued and outstanding.. -- --
Class B common shares, $.01 par value. Authorized
750,000,000 shares, 104,745,000 shares issued and
outstanding........................................... 1,047 1,047
Additional paid-in capital............................. 551,422 680,690
Retained earnings...................................... 1,405,672 1,550,689
Unrealized gains on securities available-for-sale,
net................................................... 173,592 384,304
----------- ----------
2,131,733 2,616,730
----------- ----------
$47,770,238 38,506,088
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
($000'S OMITTED, EXCEPT PER COMMON SHARE INFORMATION)
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Revenues (note 17):
Investment product and universal life
insurance product policy charges........ $ 400,902 286,534 217,245
Traditional life insurance premiums...... 198,642 199,106 176,658
Net investment income (note 6)........... 1,357,759 1,294,033 1,210,811
Realized losses on investments (note 6).. (208) (1,724) (16,527)
Other income............................. 59,505 59,089 45,897
---------- ---------- ----------
2,016,600 1,837,038 1,634,084
---------- ---------- ----------
Benefits and expenses:
Benefits and claims...................... 1,160,580 1,115,493 992,667
Provision for policyholders' dividends
on participating policies (note 13)..... 40,973 39,937 38,754
Amortization of deferred policy
acquisition costs....................... 133,394 82,695 85,568
Other operating expenses (note 14)....... 353,565 317,743 276,632
---------- ---------- ----------
1,688,512 1,555,868 1,393,621
---------- ---------- ----------
Income from continuing operations
before federal income tax expense..... 328,088 281,170 240,463
---------- ---------- ----------
Federal income tax expense (benefit) (note
8):
Current.................................. 116,021 89,400 77,009
Deferred................................. (211) 6,914 5,507
---------- ---------- ----------
115,810 96,314 82,516
---------- ---------- ----------
Income from continuing operations...... 212,278 184,856 157,947
Income from discontinued operations (less
federal income tax expense of $4,453,
$7,446 and $10,915 in 1996, 1995 and 1994,
respectively) (note 3).................... 11,324 24,714 20,459
---------- ---------- ----------
Net income............................. $ 223,602 209,570 178,406
========== ========== ==========
Actual results per common share (note 4):
Income from continuing operations........ $ 2.03 $ 1.76 $ 1.51
Net income............................... $ 2.13 $ 2.00 $ 1.70
Weighted average number of common shares
outstanding
(in thousands)(note 4).................... 104,745 104,745 104,745
Pro forma results per common share (note
4):
Income from continuing operations........ $ 1.48 $ 1.29 $ 1.10
Net income............................... $ 1.35 $ 1.27 $ 1.08
Pro forma weighted average number of common
shares
outstanding for calculation using income
from continuing operations (in thousands)
(note 4).................................. 143,381 143,381 143,381
Pro forma weighted average number of common
shares outstanding for calculation using
net income (in thousands) (note 4)........ 165,459 165,459 165,459
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
($000'S OMITTED)
<TABLE>
<CAPTION>
UNREALIZED
GAINS (LOSSES)
CLASS A CLASS B ADDITIONAL ON SECURITIES TOTAL
COMMON COMMON PAID-IN RETAINED AVAILABLE-FOR- SHAREHOLDER'S
SHARES SHARES CAPITAL EARNINGS SALE, NET EQUITY
------- ------- ---------- --------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
1994:
Balance, beginning of
year................. $-- 1,047 429,661 1,172,163 6,745 1,609,616
Capital contribution.. -- -- 200,000 -- -- 200,000
Dividends to
shareholder.......... -- -- -- (1,000) -- (1,000)
Net income............ -- -- -- 178,406 -- 178,406
Adjustment for change
in accounting for
certain investments
in debt and equity
securities, net (note
5)................... -- -- -- -- 212,553 212,553
Unrealized losses on
securities available-
for-sale, net........ -- -- -- -- (338,971) (338,971)
---- ----- -------- --------- -------- ---------
Balance, end of year.. $-- 1,047 629,661 1,349,569 (119,673) 1,860,604
==== ===== ======== ========= ======== =========
1995:
Balance, beginning of
year................. -- 1,047 629,661 1,349,569 (119,673) 1,860,604
Capital contribution.. -- -- 51,029 -- (4,111) 46,918
Dividends to
shareholder.......... -- -- -- (8,450) -- (8,450)
Net income............ -- -- -- 209,570 -- 209,570
Unrealized gains on
securities available-
for-sale, net........ -- -- -- -- 508,088 508,088
---- ----- -------- --------- -------- ---------
Balance, end of year.. $-- 1,047 680,690 1,550,689 384,304 2,616,730
==== ===== ======== ========= ======== =========
1996:
Balance, beginning of
year................. -- 1,047 680,690 1,550,689 384,304 2,616,730
Issuance of common
shares............... -- -- 1 -- -- 1
Dividends to
shareholder (notes 1
and 3)............... -- -- (129,269) (368,619) (39,819) (537,707)
Net income............ -- -- -- 223,602 -- 223,602
Unrealized losses on
securities available-
for-sale, net........ -- -- -- -- (170,893) (170,893)
---- ----- -------- --------- -------- ---------
Balance, end of year.. $-- 1,047 551,422 1,405,672 173,592 2,131,733
==== ===== ======== ========= ======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
($000'S OMITTED)
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................ $ 223,602 209,570 178,406
Adjustments to reconcile net income to
net cash provided by operating
activities:
Capitalization of deferred policy
acquisition costs.................. (422,572) (321,327) (242,431)
Amortization of deferred policy
acquisition costs.................. 133,394 82,695 85,568
Amortization and depreciation....... 7,307 13,189 5,383
Realized (gains) losses on invested
assets, net........................ (633) 3,250 16,094
Deferred federal income tax
(benefit) expense.................. (173) 5,305 6,190
Decrease (increase) in accrued
investment income.................. 2,781 (16,889) (12,918)
(Increase) decrease in other
assets............................. (93,575) 25,844 (72,268)
Increase in policy liabilities...... 305,755 135,937 118,361
Increase in policyholders' dividend
accumulations...................... 13,374 12,639 15,298
(Decrease) increase in accrued
federal income tax payable......... (7,779) 32,579 (3,927)
Increase in other liabilities....... 185,380 31,966 6,856
Other, net.......................... (5,281) (21,970) (22,760)
----------- ----------- -----------
Net cash provided by operating ac-
tivities......................... 341,580 192,788 77,852
----------- ----------- -----------
Cash flows from investing activities:
Proceeds from maturity of securities
available-for-sale................... 1,162,766 634,553 544,843
Proceeds from sale of securities
available-for-sale................... 299,558 150,453 268,987
Proceeds from maturity of fixed
maturity securities
held-to-maturity..................... -- 564,450 491,862
Proceeds from repayments of mortgage
loans on real estate................. 309,050 207,832 190,574
Proceeds from sale of real estate..... 18,519 48,331 46,713
Proceeds from repayments of policy
loans and sale of other invested
assets............................... 22,795 53,587 120,506
Cost of securities available-for-sale
acquired............................. (1,573,640) (1,998,165) (1,858,036)
Cost of fixed maturity securities
held-to-maturity acquired............ -- (599,356) (410,379)
Cost of mortgage loans on real estate
acquired............................. (972,776) (796,026) (497,349)
Cost of real estate acquired.......... (7,862) (10,928) (6,385)
Policy loans issued and other invested
assets acquired...................... (57,740) (75,910) (65,302)
Short-term investments, net........... 33,410 91,659 (98,541)
Purchase of affiliate (note 14)....... -- -- (155,000)
----------- ----------- -----------
Net cash used in investing activi-
ties............................. (765,920) (1,729,520) (1,427,507)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of common
shares............................... 1 -- --
Proceeds from capital contributions... -- -- 200,000
Dividends paid to shareholder......... (52,000) (8,450) (1,000)
Increase in investment product and
universal life insurance product
account balances..................... 2,293,933 2,809,385 3,547,976
Decrease in investment product and
universal life insurance product
account balances..................... (1,784,466) (1,258,758) (2,412,595)
----------- ----------- -----------
Net cash provided by financing ac-
tivities......................... 457,468 1,542,177 1,334,381
----------- ----------- -----------
Net increase (decrease) in cash......... 33,128 5,445 (15,274)
Cash, beginning of year................. 10,055 4,610 19,884
----------- ----------- -----------
Cash, end of year....................... $ 43,183 10,055 4,610
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
($000'S OMITTED)
(1) ORGANIZATION AND DESCRIPTION OF BUSINESS
Nationwide Financial Services, Inc. (NFS) was formed in November 1996 as a
holding company for Nationwide Life Insurance Company (NLIC) and the other
companies within the Nationwide Insurance Enterprise that offer or distribute
long-term savings and retirement products. NFS is a wholly owned subsidiary of
Nationwide Corporation (Nationwide Corp.). The consolidated financial
statements represent the results of NLIC and subsidiaries and three marketing
and distribution companies as if they were consolidated with NFS for all
periods presented. This presentation is based on Nationwide Corp.'s
contribution of the common stock of those entities to NFS on January 27, 1997
in anticipation of the initial public offering of common stock of NFS
described more fully in note 2. NFS and the other companies whose results are
included in the consolidated financial statements are collectively referred to
as "the Company."
In anticipation of the restructuring described above, on September 24, 1996,
NLIC's Board of Directors declared a dividend payable to Nationwide Corp.
consisting of the outstanding shares of common stock of certain subsidiaries
that do not offer or distribute long-term savings and retirement products. In
addition, during 1996, NLIC entered into two reinsurance agreements whereby
all of NLIC's accident and health and group life insurance business was ceded
to two affiliates effective January 1, 1996. These subsidiaries and all
accident and health and group life insurance business have been accounted for
as discontinued operations for all periods presented. See notes 3 and 14.
In addition, as part of the restructuring described above, NLIC intends to
make an $850,000 distribution to NFS which will then make an equivalent
distribution to Nationwide Corp.
The three marketing and distribution companies contributed by Nationwide
Corp. to NFS in January, 1997 are: Public Employees Benefit Services
Corporation (PEBSCO), NEA Valuebuilder Investor Services, Inc. (NEAVIS) and
Nationwide Financial Institution Distributors Agency, Inc. (NFIDA).
The Company is a leading provider of long-term savings and retirement
products to retail and institutional customers and is subject to competition
from other financial services providers throughout the United States. The
Company is subject to regulation by the Insurance Departments of states in
which it is licensed, and undergoes periodic examinations by those
departments.
The following is a description of the most significant risks facing life
insurers and how the Company mitigates those risks:
Legal/Regulatory Risk is the risk that changes in the legal or regulatory
environment in which an insurer operates will create additional expenses
not anticipated by the insurer in pricing its products. That is, regulatory
initiatives, new legal theories or insurance company insolvencies through
guaranty fund assessments may create costs for the insurer beyond those
currently recorded in the consolidated financial statements. The Company
mitigates this risk by offering a wide range of products and by operating
throughout the United States, thus reducing its exposure to any single
product or jurisdiction, and also by employing underwriting practices which
identify and minimize the adverse impact of this risk.
Credit Risk is the risk that issuers of securities owned by the Company
or mortgagors on mortgage loans on real estate owned by the Company will
default or that other parties, including reinsurers, which owe the Company
money, will not pay. The Company minimizes this risk by adhering to a
conservative investment strategy, by maintaining reinsurance and credit and
collection policies and by providing for any amounts deemed uncollectible.
F-7
<PAGE>
NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Interest Rate Risk is the risk that interest rates will change and cause
a decrease in the value of an insurer's investments. This change in rates
may cause certain interest-sensitive products to become uncompetitive or
may cause disintermediation. The Company mitigates this risk by charging
fees for non-conformance with certain policy provisions, by offering
products that transfer this risk to the purchaser, and/or by attempting to
match the maturity schedule of its assets with the expected payouts of its
liabilities. To the extent that liabilities come due more quickly than
assets mature, an insurer would have to borrow funds or sell assets prior
to maturity and potentially recognize a gain or loss.
(2) INITIAL PUBLIC OFFERING
The Company is currently planning an initial public offering of its Class A
common stock (the Equity Offering) during the first quarter of 1997. After the
Equity Offering, Nationwide Corp. will continue to own all of the shares of
Class B common stock, which will represent approximately 98% of the voting
stock of the Company. Subsequent to December 31, 1996, the Company's Board of
Directors approved a 104,745 for one split of the Company's Class B common
stock, which will become effective February 10, 1997. Share information for
all periods presented has been restated to reflect the split.
Shortly after the Equity Offering, the Company expects to consummate the
public offering of $300,000 of senior notes due 2027. In addition, Nationwide
Financial Services Capital Trust, an affiliate of the Company, expects to
consummate the public offering of $100,000 of capital securities.
See note 13 for information on voting and conversion rights of Class A and
Class B common stock.
(3) DISCONTINUED OPERATIONS
As described in note 1, NFS is a holding company for NLIC and certain other
companies that offer or distribute long-term savings and retirement products.
Prior to the contribution by Nationwide Corp. to NFS of the outstanding common
stock of NLIC and other companies, NLIC effected certain transactions with
respect to certain subsidiaries and lines of business that were unrelated to
long-term savings and retirement products.
On September 24, 1996, NLIC's Board of Directors declared a dividend to
Nationwide Corp. consisting of the outstanding shares of common stock of three
subsidiaries: Employers Life Insurance Company of Wausau (ELICW), National
Casualty Company (NCC) and West Coast Life Insurance Company (WCLIC). ELICW
writes group accident and health and group life insurance business and
maintains its offices in Wausau, Wisconsin. NCC is a property and casualty
company that serves as a fronting company for a property and casualty
subsidiary of Nationwide Mutual Insurance Company (NMIC), an affiliate. NCC
maintains its offices in Scottsdale, Arizona. WCLIC writes high dollar term
life insurance policies and is located in San Francisco, California. ELICW,
NCC and WCLIC have been accounted for as discontinued operations for all
periods presented. The Company did not recognize any gain or loss on the
disposal of these subsidiaries.
A summary of the combined results of operations and assets and liabilities
of ELICW, NCC and WCLIC as of and for the years ended December 31, 1996, 1995
and 1994 is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- --------- ---------
<S> <C> <C> <C>
Revenues.................................... $ 668,870 422,149 84,226
Net income.................................. 10,824 25,806 11,753
Assets, consisting primarily of
investments................................ 3,029,293 2,965,353 2,537,692
Liabilities, consisting primarily of policy
benefits and claims........................ 2,543,586 2,460,649 2,179,263
</TABLE>
During 1996, NLIC entered into two reinsurance agreements whereby all of
NLIC's accident and health and group life insurance business was ceded to
ELICW and NMIC, effective January 1, 1996. As a result of the reinsurance,
NLIC's accident and health and group life insurance business had no effect on
the Company's 1996
F-8
<PAGE>
NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
consolidated statement of income. See note 14 for a complete discussion of the
reinsurance agreements. NLIC's accident and health and group life insurance
business is accounted for as discontinued operations for all periods
presented. The Company did not recognize any gain or loss on the disposal of
the accident and health and group life insurance business.
A summary of the results of operations and assets and liabilities of the
accident and health and group life insurance business as of and for the years
ended December 31, 1996, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Revenues......................................... $ -- 354,788 362,476
Net income (loss)................................ -- (1,742) 8,706
Assets, consisting primarily of investments...... 259,185 239,426 234,082
Liabilities, consisting primarily of policy
benefits and claims............................. 259,185 239,426 234,082
</TABLE>
(4) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies followed by the Company that materially
affect financial reporting are summarized below. The accompanying consolidated
financial statements have been prepared in accordance with generally accepted
accounting principles (GAAP) which differ from statutory accounting practices
prescribed or permitted by regulatory authorities. Annual Statements for the
Company's insurance subsidiaries, filed with the department of insurance of
each insurance company's state of domicile, are prepared on the basis of
accounting practices prescribed or permitted by each department. Prescribed
statutory accounting practices include a variety of publications of the
National Association of Insurance Commissioners (NAIC), as well as state laws,
regulations and general administrative rules. Permitted statutory accounting
practices encompass all accounting practices not so prescribed. The Company's
insurance subsidiaries have no material permitted statutory accounting
practices.
In preparing the consolidated financial statements, management is required
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and the disclosures of contingent assets and liabilities as of
the date of the consolidated financial statements and the reported amounts of
revenues and expenses for the reporting period. Actual results could differ
significantly from those estimates.
The most significant estimates include those used in determining deferred
policy acquisition costs, valuation allowances for mortgage loans on real
estate and real estate investments and the liability for future policy
benefits and claims. Although some variability is inherent in these estimates,
management believes the amounts provided are adequate.
(a) Consolidation Policy
The consolidated financial statements include the accounts of NFS and its
wholly owned subsidiaries. Subsidiaries that are classified and reported as
discontinued operations are not consolidated but rather are reported as
"Investment in Subsidiaries Classified as Discontinued Operations" in the
accompanying consolidated balance sheets and "Income from Discontinued
Operations" in the accompanying consolidated statements of income. All
significant intercompany balances and transactions have been eliminated.
(b) Valuation of Investments and Related Gains and Losses
The Company is required to classify its fixed maturity securities and equity
securities as either held-to-maturity, available-for-sale or trading. Fixed
maturity securities are classified as held-to-maturity when the Company has
the positive intent and ability to hold the securities to maturity and are
stated at amortized cost. Fixed maturity securities not classified as held-to-
maturity and all equity securities are classified as available-for-sale and
are stated at fair value, with the unrealized gains and losses, net of
adjustments to deferred policy
F-9
<PAGE>
NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
acquisition costs and deferred federal income tax, reported as a separate
component of shareholder's equity. The adjustment to deferred policy
acquisition costs represents the change in amortization of deferred policy
acquisition costs that would have been required as a charge or credit to
operations had such unrealized amounts been realized. The Company has no fixed
maturity securities classified as trading as of December 31, 1996 or 1995.
Mortgage loans on real estate are carried at the unpaid principal balance
less valuation allowances. The Company provides valuation allowances for
impairments of mortgage loans on real estate based on a review by portfolio
managers. The measurement of impaired loans is based on the present value of
expected future cash flows discounted at the loan's effective interest rate
or, as a practical expedient, at the fair value of the collateral, if the loan
is collateral dependent. Loans in foreclosure and loans considered to be
impaired are placed on non-accrual status. Interest received on non-accrual
status mortgage loans on real estate is included in interest income in the
period received.
Real estate is carried at cost less accumulated depreciation and valuation
allowances. Other long-term investments are carried on the equity basis,
adjusted for valuation allowances. Impairment losses are recorded on long-
lived assets used in operations when indicators of impairment are present and
the undiscounted cash flows estimated to be generated by those assets are less
than the assets' carrying amount.
Realized gains and losses on the sale of investments are determined on the
basis of specific security identification. Estimates for valuation allowances
and other than temporary declines are included in realized gains and losses on
investments.
(c) Revenues and Benefits
Investment Products and Universal Life Insurance Products: Investment
products consist primarily of individual and group variable and fixed
annuities, annuities without life contingencies and guaranteed investment
contracts. Universal life insurance products include universal life insurance,
variable universal life insurance and other interest-sensitive life insurance
policies. Revenues for investment products and universal life insurance
products consist of net investment income, asset fees, cost of insurance,
policy administration and surrender charges that have been earned and assessed
against policy account balances during the period. Policy benefits and claims
that are charged to expense include interest credited to policy account
balances and benefits and claims incurred in the period in excess of related
policy account balances.
Traditional Life Insurance Products: Traditional life insurance products
include those products with fixed and guaranteed premiums and benefits and
consist primarily of whole life insurance, limited-payment life insurance,
term life insurance and certain annuities with life contingencies. Premiums
for traditional life insurance products are recognized as revenue when due.
Benefits and expenses are associated with earned premiums so as to result in
recognition of profits over the life of the contract. This association is
accomplished by the provision for future policy benefits and the deferral and
amortization of policy acquisition costs.
Accident and Health Insurance Products: Accident and health insurance
premiums are recognized as revenue over the terms of the policies. Policy
claims are charged to expense in the period that claims are incurred. All
accident and health insurance business is accounted for as discontinued
operations. See note 3.
(d) Deferred Policy Acquisition Costs
The costs of acquiring new business, principally commissions, certain
expenses of the policy issue and underwriting department and certain variable
agency expenses have been deferred. For investment products and universal life
insurance products, deferred policy acquisition costs are being amortized with
interest over the lives of the policies in relation to the present value of
estimated future gross profits from projected interest margins,
F-10
<PAGE>
NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
asset fees, cost of insurance, policy administration and surrender charges.
For years in which gross profits are negative, deferred policy acquisition
costs are amortized based on the present value of gross revenues. For
traditional life insurance products, these deferred policy acquisition costs
are predominantly being amortized with interest over the premium paying period
of the related policies in proportion to the ratio of actual annual premium
revenue to the anticipated total premium revenue. Such anticipated premium
revenue was estimated using the same assumptions as were used for computing
liabilities for future policy benefits. Deferred policy acquisition costs are
adjusted to reflect the impact of unrealized gains and losses on fixed
maturity securities available-for-sale as described in note 4(b).
(e) Separate Accounts
Separate Account assets and liabilities represent contractholders' funds
which have been segregated into accounts with specific investment objectives.
The investment income and gains or losses of these accounts accrue directly to
the contractholders. The activity of the Separate Accounts is not reflected in
the consolidated statements of income and cash flows except for the fees the
Company receives.
(f) Future Policy Benefits
Future policy benefits for investment products in the accumulation phase,
universal life insurance and variable universal life insurance policies have
been calculated based on participants' contributions plus interest credited
less applicable contract charges.
Future policy benefits for traditional life insurance policies have been
calculated using a net level premium method based on estimates of mortality,
morbidity, investment yields and withdrawals which were used or which were
being experienced at the time the policies were issued, rather than the
assumptions prescribed by state regulatory authorities. See note 7.
Future policy benefits and claims for collectively renewable long-term
disability policies and group long-term disability policies are the present
value of amounts not yet due on reported claims and an estimate of amounts to
be paid on incurred but unreported claims. The impact of reserve discounting
is not material. Future policy benefits and claims on other group health
insurance policies are not discounted. All health insurance business is
accounted for as discontinued operations. See note 3.
(g) Participating Business
Participating business represents approximately 52% in 1996 (54% in 1995 and
55% in 1994) of the Company's life insurance in force, 78% in 1996 (79% in
1995 and 79% in 1994) of the number of life insurance policies in force, and
40% in 1996 (47% in 1995 and 51% in 1994) of life insurance premiums. The
provision for policyholder dividends is based on current dividend scales.
Future dividends are provided for ratably in future policy benefits based on
dividend scales in effect at the time the policies were issued.
(h) Federal Income Tax
The Company files a consolidated federal income tax return with NMIC, the
majority shareholder of Nationwide Corp. The members of the consolidated tax
return group have a tax sharing arrangement which provides, in effect, for
each member to bear essentially the same federal income tax liability as if
separate tax returns were filed.
The Company utilizes the asset and liability method of accounting for income
tax. Under this method, deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences
F-11
<PAGE>
NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. Under this
method, the effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
Valuation allowances are established when necessary to reduce the deferred tax
assets to the amounts expected to be realized.
(i) Reinsurance Ceded
Reinsurance premiums ceded and reinsurance recoveries on benefits and claims
incurred are deducted from the respective income and expense accounts. Assets
and liabilities related to reinsurance ceded are reported on a gross basis.
All of the Company's accident and health and group life insurance business is
ceded to affiliates and is accounted for as discontinued operations. See notes
3 and 14.
(j) Earnings per Common Share
Actual earnings per common share information is based on the weighted
average actual number of common shares outstanding during the periods
presented, adjusted for the split of Class B common stock described in note 2.
Pro forma earnings per common share information is based on the weighted
average actual number of Class B common shares outstanding during the periods
presented, adjusted for the stock split, plus the number of Class A common
shares whose expected proceeds, using $22.00 per share, would equal certain
dividends that have been or will be paid to Nationwide Corp. The calculation
of weighted average number of common shares outstanding is as follows:
<TABLE>
<CAPTION>
CALCULATION
USING INCOME
FROM CALCULATION
CONTINUING USING NET
OPERATIONS INCOME
------------ -----------
(IN THOUSANDS)
<S> <C> <C>
Class B common shares............................... 104,745 104,745
Class A common shares:
Dividend of $850,000 (note 1)..................... 38,636 38,636
Dividend of certain subsidiaries (note 1)......... -- 22,078
------- -------
143,381 165,459
======= =======
</TABLE>
(5) CHANGE IN ACCOUNTING PRINCIPLE
Effective January 1, 1994, the Company changed its method of accounting for
certain investments in debt and equity securities in connection with the
issuance of Statement of Financial Accounting Standards (SFAS) No. 115--
Accounting for Certain Investments in Debt and Equity Securities. As of
January 1, 1994, the Company classified fixed maturity securities with
amortized cost and fair value of $6,299,665 and $6,721,714, respectively, as
available-for-sale and recorded the securities at fair value. Previously,
these securities were
F-12
<PAGE>
NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
recorded at amortized cost. The effect as of January 1, 1994 has been recorded
as a direct credit to shareholder's equity as follows:
<TABLE>
<S> <C>
Excess of fair value over amortized cost of fixed maturity
securities
available-for-sale............................................. $422,049
Adjustment to deferred policy acquisition costs................. (95,044)
Deferred federal income tax..................................... (114,452)
--------
$212,553
========
</TABLE>
(6) INVESTMENTS
The amortized cost and estimated fair value of securities available-for-sale
were as follows as of December 31, 1996:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Fixed maturity securities:
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies...... $ 275,696 4,795 (1,340) 279,151
Obligations of states and
political subdivisions......... 6,242 450 (2) 6,690
Debt securities issued by
foreign governments............ 100,656 2,141 (857) 101,940
Corporate securities............ 7,999,310 285,946 (33,686) 8,251,570
Mortgage-backed securities...... 3,588,974 91,438 (15,124) 3,665,288
----------- ------- ------- ----------
Total fixed maturity
securities................... 11,970,878 384,770 (51,009) 12,304,639
Equity securities................. 43,890 15,571 (330) 59,131
----------- ------- ------- ----------
$12,014,768 400,341 (51,339) 12,363,770
=========== ======= ======= ==========
</TABLE>
The amortized cost and estimated fair value of the U.S. Treasury security
classified as held-to-maturity as of December 31, 1996 were $5,877 and $5,944,
respectively. Gross gains of $67 were unrealized on the security. The security
had a contractual maturity date of March 31, 1998.
The amortized cost and estimated fair value of securities available-for-sale
were as follows as of December 31, 1995:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Fixed maturity securities:
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies...... $ 320,500 12,764 (1) 333,263
Obligations of states and
political subdivisions......... 8,655 1,205 (1) 9,859
Debt securities issued by
foreign governments............ 101,414 4,387 (66) 105,735
Corporate securities............ 7,888,440 473,681 (25,742) 8,336,379
Mortgage-backed securities...... 3,553,861 165,169 (8,388) 3,710,642
----------- ------- ------- ----------
Total fixed maturity
securities................... 11,872,870 657,206 (34,198) 12,495,878
Equity securities................. 31,234 6,382 (46) 37,570
----------- ------- ------- ----------
$11,904,104 663,588 (34,244) 12,533,448
=========== ======= ======= ==========
</TABLE>
F-13
<PAGE>
NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The amortized cost and estimated fair value of the U.S. Treasury security
classified as held-to-maturity as of December 31, 1995 were $5,720 and $5,989,
respectively. Gross gains of $269 were unrealized on the security.
The amortized cost and estimated fair value of fixed maturity securities
available-for-sale as of December 31, 1996, by contractual maturity, are shown
below. Expected maturities will differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without
call or prepayment penalties.
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST FAIR VALUE
----------- ----------
<S> <C> <C>
Fixed maturity securities available-for-sale
Due in one year or less................................ $ 440,235 444,214
Due after one year through five years.................. 3,937,010 4,053,152
Due after five years through ten years................. 2,809,813 2,871,806
Due after ten years.................................... 1,194,846 1,270,179
----------- ----------
8,381,904 8,639,351
Mortgage-backed securities............................... 3,588,974 3,665,288
----------- ----------
$11,970,878 12,304,639
=========== ==========
</TABLE>
The components of unrealized gains on securities available-for-sale, net,
were as follows as of December 31:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Gross unrealized gains................................... $349,002 629,344
Adjustment to deferred policy acquisition costs.......... (81,939) (138,914)
Deferred federal income tax.............................. (93,471) (171,649)
-------- --------
173,592 318,781
Unrealized gains on securities available-for-sale, net,
of subsidiaries classified as discontinued operations
(note 3)................................................ -- 65,523
-------- --------
$173,592 384,304
======== ========
</TABLE>
An analysis of the change in gross unrealized gains/(losses) on securities
available-for-sale and fixed maturity securities held-to-maturity follows for
the years ended December 31:
<TABLE>
<CAPTION>
1996 1995 1994
--------- ------- ----------
<S> <C> <C> <C>
Securities available-for-
sale:
Fixed maturity
securities............. $(289,247) 876,332 (675,373)
Equity securities....... 8,905 (26) (1,927)
Fixed maturity securities
held-to-maturity......... (202) 75,895 (398,183)
--------- ------- ----------
$(280,544) 952,201 (1,075,483)
========= ======= ==========
</TABLE>
Proceeds from the sale of securities available-for-sale during 1996, 1995
and 1994 were $299,558, $150,453 and $268,987, respectively. During 1996,
gross gains of $6,368 ($4,838 and $3,045 in 1995 and 1994, respectively) and
gross losses of $13,659 ($2,147 and $21,280 in 1995 and 1994, respectively)
were realized on those sales.
During 1995, the Company transferred fixed maturity securities classified as
held-to-maturity with amortized cost of $25,429 to available-for-sale
securities due to evidence of a significant deterioration in the issuer's
creditworthiness. The transfer of those fixed maturity securities resulted in
a gross unrealized loss of $3,535.
F-14
<PAGE>
NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
As permitted by the Financial Accounting Standards Board's Special Report, A
Guide to Implementation of Statement 115 on Accounting for Certain Investments
in Debt and Equity Securities, issued in November 1995, the Company
transferred nearly all of its fixed maturity securities previously classified
as held-to-maturity to available-for-sale. As of December 14, 1995, the date
of transfer, the fixed maturity securities had amortized cost of $3,320,093,
resulting in a gross unrealized gain of $155,940.
Investments that were non-income producing for the twelve month period
preceding December 31, 1996 amounted to $26,805 ($27,712 in 1995) and
consisted of $248 ($6,982 in 1995) in fixed maturity securities, $20,633
($14,740 in 1995) in real estate and $5,924 ($5,990 in 1995) in other long-
term investments.
Real estate is presented at cost less accumulated depreciation of $30,338 as
of December 31, 1996 ($30,482 as of December 31, 1995) and valuation
allowances of $15,219 as of December 31, 1996 ($25,819 as of December 31,
1995).
The recorded investment of mortgage loans on real estate considered to be
impaired (under SFAS No. 114--Accounting by Creditors for Impairment of a Loan
as amended by SFAS No. 118--Accounting by Creditors for Impairment of a Loan--
Income Recognition and Disclosure) as of December 31, 1996 was $51,765
($44,409 as of December 31, 1995), which includes $41,663 ($23,975 as of
December 31, 1995) of impaired mortgage loans on real estate for which the
related valuation allowance was $8,485 ($5,276 as of December 31, 1995) and
$10,102 ($20,434 as of December 31, 1995) of impaired mortgage loans on real
estate for which there was no valuation allowance. During 1996, the average
recorded investment in impaired mortgage loans on real estate was
approximately $39,674 ($22,181 in 1995) and interest income recognized on
those loans was $2,103 ($387 in 1995), which is equal to interest income
recognized using a cash-basis method of income recognition.
Activity in the valuation allowance account for mortgage loans on real
estate is summarized for the years ended December 31:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Allowance, beginning of year............................. $49,128 $46,381
Additions charged to operations........................ 4,497 7,433
Direct write-downs charged against the allowance....... (2,587) (4,686)
------- -------
Allowance, end of year................................... $51,038 $49,128
======= =======
</TABLE>
An analysis of investment income by investment type follows for the years
ended December 31:
<TABLE>
<CAPTION>
1996 1995 1994
---------- --------- ---------
<S> <C> <C> <C>
Gross investment income:
Securities available-for-
sale:
Fixed maturity
securities............... $ 917,135 685,787 647,927
Equity securities......... 1,291 1,330 509
Fixed maturity securities
held-to-maturity.......... -- 201,808 185,938
Mortgage loans on real
estate.................... 432,815 395,478 372,734
Real estate................ 44,332 38,344 40,170
Short-term investments..... 4,155 10,576 6,141
Other...................... 3,998 7,239 2,121
---------- --------- ---------
Total investment
income................. 1,403,726 1,340,562 1,255,540
Less investment expenses.... 45,967 46,529 44,729
---------- --------- ---------
Net investment income... $1,357,759 1,294,033 1,210,811
========== ========= =========
</TABLE>
F-15
<PAGE>
NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
An analysis of realized gains/(losses) on investments, net of valuation
allowances, by investment type follows for the years ended December 31:
<TABLE>
<CAPTION>
1996 1995 1994
-------- ------ -------
<S> <C> <C> <C>
Securities available-for-sale:
Fixed maturity securities....................... $ (3,462) 4,213 (7,296)
Equity securities............................... 3,143 3,386 1,422
Mortgage loans on real estate..................... (4,115) (7,091) (20,446)
Real estate and other............................. 4,226 (2,232) 9,793
-------- ------ -------
$ (208) (1,724) (16,527)
======== ====== =======
</TABLE>
Fixed maturity securities with an amortized cost of $6,161 and $5,592 as of
December 31, 1996 and 1995, respectively, were on deposit with various
regulatory agencies as required by law.
(7) FUTURE POLICY BENEFITS AND CLAIMS
The liability for future policy benefits for investment contracts represents
approximately 87% and 87% of the total liability for future policy benefits as
of December 31, 1996 and 1995, respectively. The average interest rate
credited on investment product policies was approximately 6.3%, 6.6% and 6.5%
for the years ended December 31, 1996, 1995 and 1994, respectively.
The liability for future policy benefits for traditional life insurance
policies has been established based upon the following assumptions:
Interest rates: Interest rates vary as follows:
<TABLE>
<CAPTION>
YEAR OF ISSUE INTEREST RATES
------------- --------------
<S> <C>
1996................. 6.6%, not graded
1984-1995............ 6.0% to 10.5%, not graded
1966-1983............ 6.0% to 8.1%, graded over 20 years to 4.0% to 6.6%
1965 and prior....... generally lower than post 1965 issues
</TABLE>
Withdrawals: Rates, which vary by issue age, type of coverage and policy
duration, are based on Company experience.
Mortality: Mortality and morbidity rates are based on published tables,
modified for the Company's actual experience.
The Company has entered into a reinsurance contract to cede a portion of its
general account individual annuity business to The Franklin Life Insurance
Company (Franklin). Total recoveries due from Franklin were $240,451 and
$245,255 as of December 31, 1996 and 1995, respectively. The contract is
immaterial to the Company's results of operations. The ceding of risk does not
discharge the original insurer from its primary obligation to the
policyholder. Under the terms of the contract, Franklin has established a
trust as collateral for the recoveries. The trust assets are invested in
investment grade securities, the market value of which must at all times be
greater than or equal to 102% of the reinsured reserves.
The Company has reinsurance agreements with certain affiliates as described
in note 14. All other reinsurance agreements are not material to either
premiums or reinsurance recoverables.
F-16
<PAGE>
NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(8) FEDERAL INCOME TAX
The tax effects of temporary differences that give rise to significant
components of the net deferred tax liability as of December 31, 1996 and 1995
are as follows:
<TABLE>
<CAPTION>
1996 1995
-------- -------
<S> <C> <C>
Deferred tax assets:
Future policy benefits.................................. $175,571 149,192
Liabilities in Separate Accounts........................ 188,426 129,120
Mortgage loans on real estate and real estate........... 23,366 25,165
Other policyholder funds................................ 7,407 7,424
Other assets and other liabilities...................... 57,849 52,003
-------- -------
Total gross deferred tax assets....................... 452,619 362,904
Less valuation allowance.............................. (7,776) (7,776)
-------- -------
Net deferred tax assets............................... 444,843 355,128
-------- -------
Deferred tax liabilities:
Deferred policy acquisition costs....................... 399,345 299,579
Fixed maturity securities............................... 133,210 227,345
Deferred tax on realized investment gains............... 37,597 40,634
Equity securities and other long-term investments....... 8,210 3,780
Other................................................... 25,377 21,037
-------- -------
Total gross deferred tax liabilities.................. 603,739 592,375
-------- -------
$158,896 237,247
======== =======
</TABLE>
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion of the total gross
deferred tax assets will not be realized. Nearly all future deductible amounts
can be offset by future taxable amounts or recovery of federal income tax paid
within the statutory carryback period. There has been no change in the
valuation allowance for the year ended December 31, 1996 (decrease of $756
during 1995 and no change during 1994).
Total federal income tax expense for the years ended December 31, 1996, 1995
and 1994 differs from the amount computed by applying the U.S. federal income
tax rate to income before tax as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------------- ------------- -------------
AMOUNT % AMOUNT % AMOUNT %
-------- ---- ------- ---- ------- ----
<S> <C> <C> <C> <C> <C> <C>
Computed (expected) tax ex-
pense.......................... $114,831 35.0 $98,410 35.0 $84,162 35.0
Tax exempt interest and divi-
dends received deduction....... (212) (0.1) (18) 0.0 (130) (0.1)
Other, net...................... 1,191 0.4 (2,078) (0.7) (1,516) (0.6)
-------- ---- ------- ---- ------- ----
Total (effective rate of each
year)........................ $115,810 35.3 $96,314 34.3 $82,516 34.3
======== ==== ======= ==== ======= ====
</TABLE>
Total federal income tax paid was $117,327, $58,112 and $84,903 during the
years ended December 31, 1996, 1995 and 1994, respectively.
(9) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107--Disclosures about Fair Value of Financial Instruments (SFAS
107) requires disclosure of fair value information about existing on and off-
balance sheet financial instruments. SFAS 107 defines the fair
F-17
<PAGE>
NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
value of a financial instrument as the amount at which the financial
instrument could be exchanged in a current transaction between willing
parties. In cases where quoted market prices are not available, fair value is
based on estimates using present value or other valuation techniques.
These techniques are significantly affected by the assumptions used,
including the discount rate and estimates of future cash flows. Although fair
value estimates are calculated using assumptions that management believes are
appropriate, changes in assumptions could cause these estimates to vary
materially. In that regard, the derived fair value estimates cannot be
substantiated by comparison to independent markets and, in many cases, could
not be realized in the immediate settlement of the instruments. SFAS 107
excludes certain assets and liabilities from its disclosure requirements.
Accordingly, the aggregate fair value amounts presented do not represent the
underlying value of the Company.
Although insurance contracts, other than policies such as annuities that are
classified as investment contracts, are specifically exempted from SFAS 107
disclosures, estimated fair value of policy reserves on life insurance
contracts is provided to make the fair value disclosures more meaningful.
The tax ramifications of the related unrealized gains and losses can have a
significant effect on fair value estimates and have not been considered in the
estimates.
The following methods and assumptions were used by the Company in estimating
its fair value disclosures:
Cash, short-term investments and policy loans: The carrying amount
reported in the consolidated balance sheets for these instruments
approximates their fair value.
Fixed maturity and equity securities: Fair value for fixed maturity
securities is based on quoted market prices, where available. For fixed
maturity securities not actively traded, fair value is estimated using
values obtained from independent pricing services or, in the case of
private placements, is estimated by discounting expected future cash flows
using a current market rate applicable to the yield, credit quality and
maturity of the investments. The fair value for equity securities is based
on quoted market prices.
Separate Account assets and liabilities: The fair value of assets held in
Separate Accounts is based on quoted market prices. The fair value of
liabilities related to Separate Accounts is the amount payable on demand,
which includes certain surrender charges.
Mortgage loans on real estate: The fair value for mortgage loans on real
estate is estimated using discounted cash flow analyses, using interest
rates currently being offered for similar loans to borrowers with similar
credit ratings. Loans with similar characteristics are aggregated for
purposes of the calculations. Fair value for mortgages in default is the
estimated fair value of the underlying collateral.
Investment contracts: Fair value for the Company's liabilities under
investment type contracts is disclosed using two methods. For investment
contracts without defined maturities, fair value is the amount payable on
demand. For investment contracts with known or determined maturities, fair
value is estimated using discounted cash flow analysis. Interest rates used
are similar to currently offered contracts with maturities consistent with
those remaining for the contracts being valued.
Policy reserves on life insurance contracts: Included are disclosures for
individual life insurance, universal life insurance and supplementary
contracts with life contingencies for which the estimated fair value is the
amount payable on demand. Also included are disclosures for the Company's
limited payment policies, which the Company has used discounted cash flow
analyses similar to those used for investment contracts with known
maturities to estimate fair value.
Policyholders' dividend accumulations and other policyholder funds: The
carrying amount reported in the consolidated balance sheets for these
instruments approximates their fair value.
F-18
<PAGE>
NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Commitments to extend credit: Commitments to extend credit have nominal
fair value because of the short-term nature of such commitments. See note
10.
Carrying amount and estimated fair value of financial instruments subject to
SFAS 107 and policy reserves on life insurance contracts were as follows as of
December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
---------------------- ---------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Assets
Investments:
Securities available-for-sale:
Fixed maturity securities...... $12,304,639 12,304,639 12,495,878 12,495,878
Equity securities.............. 59,131 59,131 37,570 37,570
Fixed maturity securities held-
to-maturity.................... 5,877 5,944 5,720 5,989
Mortgage loans on real estate,
net............................ 5,272,119 5,397,865 4,627,387 4,987,569
Policy loans.................... 371,816 371,816 336,356 336,356
Short-term investments.......... 9,261 9,261 42,671 42,671
Cash............................. 43,183 43,183 10,055 10,055
Assets held in Separate
Accounts........................ 26,926,702 26,926,702 18,591,108 18,591,108
Liabilities
Investment contracts............. 13,914,441 13,484,526 13,229,360 12,876,798
Policy reserves on life insurance
contracts....................... 2,971,337 2,775,991 2,836,323 2,733,486
Policyholders' dividend
accumulations................... 361,401 361,401 348,027 348,027
Other policyholder funds......... 60,073 60,073 65,297 65,297
Liabilities related to Separate
Accounts........................ 26,926,702 26,164,213 18,591,108 18,052,362
</TABLE>
(10) ADDITIONAL FINANCIAL INSTRUMENTS DISCLOSURES
Financial Instruments with Off-Balance-Sheet Risk: The Company is a party to
financial instruments with off-balance-sheet risk in the normal course of
business through management of its investment portfolio. These financial
instruments include commitments to extend credit in the form of loans. These
instruments involve, to varying degrees, elements of credit risk in excess of
amounts recognized on the consolidated balance sheets.
Commitments to fund fixed rate mortgage loans on real estate are agreements
to lend to a borrower, and are subject to conditions established in the
contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a deposit. Commitments extended
by the Company are based on management's case-by-case credit evaluation of the
borrower and the borrower's loan collateral. The underlying mortgage property
represents the collateral if the commitment is funded. The Company's policy
for new mortgage loans on real estate is to lend no more than 75% of
collateral value. Should the commitment be funded, the Company's exposure to
credit loss in the event of nonperformance by the borrower is represented by
the contractual amounts of these commitments less the net realizable value of
the collateral. The contractual amounts also represent the cash requirements
for all unfunded commitments. Commitments on mortgage loans on real estate of
$327,456 extending into 1997 were outstanding as of December 31, 1996.
Significant Concentrations of Credit Risk: The Company grants mainly
commercial mortgage loans on real estate to customers throughout the United
States. The Company has a diversified portfolio with no more than 21% (20% in
1995) in any geographic area and no more than 2% (2% in 1995) with any one
borrower as of December 31, 1996.
The Company had a significant reinsurance recoverable balance from one
reinsurer as of December 31, 1996 and 1995. See note 7.
F-19
<PAGE>
NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The summary below depicts loans by remaining principal balance as of
December 31, 1996 and 1995:
<TABLE>
<CAPTION>
APARTMENT
OFFICE WAREHOUSE RETAIL & OTHER TOTAL
-------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
1996:
East North Central......... $139,518 119,069 549,064 215,038 1,022,689
East South Central......... 33,267 22,252 172,968 90,623 319,110
Mountain................... 17,972 43,027 113,292 73,390 247,681
Middle Atlantic............ 129,077 54,046 160,833 18,498 362,454
New England................ 33,348 43,581 161,960 -- 238,889
Pacific.................... 202,562 325,046 424,295 110,108 1,062,011
South Atlantic............. 103,889 134,492 482,934 385,185 1,106,500
West North Central......... 126,467 2,441 75,180 40,529 244,617
West South Central......... 104,877 120,314 197,090 304,256 726,537
-------- ------- --------- --------- ----------
$890,977 864,268 2,337,616 1,237,627 5,330,488
======== ======= ========= =========
Less valuation allowances
and unamortized discount.. 58,369
----------
Total mortgage loans on
real estate, net........ $5,272,119
==========
</TABLE>
<TABLE>
<CAPTION>
APARTMENT
OFFICE WAREHOUSE RETAIL & OTHER TOTAL
-------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
1995:
East North Central......... $138,965 101,925 514,995 175,213 931,098
East South Central......... 28,642 15,266 180,858 82,383 307,149
Mountain................... -- 17,219 141,537 45,274 204,030
Middle Atlantic............ 116,187 64,813 158,252 10,793 350,045
New England................ 9,559 39,525 148,449 1 197,534
Pacific.................... 183,206 241,857 378,024 105,419 908,506
South Atlantic............. 106,246 73,541 446,800 278,265 904,852
West North Central......... 133,899 14,205 78,065 36,651 262,820
West South Central......... 69,140 92,594 190,299 267,268 619,301
-------- ------- --------- --------- ----------
$785,844 660,945 2,237,279 1,001,267 4,685,335
======== ======= ========= =========
Less valuation allowances
and unamortized discount.. 57,948
----------
Total mortgage loans on
real estate, net........ $4,627,387
==========
</TABLE>
(11) PENSION PLAN
The Company is a participant, together with other affiliated companies, in a
pension plan covering all employees who have completed at least one thousand
hours of service within a twelve-month period and who have met certain age
requirements. Benefits are based upon the highest average annual salary of a
specified number of consecutive years of the last ten years of service. The
Company funds pension costs accrued for direct employees plus an allocation of
pension costs accrued for employees of affiliates whose work efforts benefit
the Company.
Effective January 1, 1995, the plan was amended to provide enhanced benefits
for participants who met certain eligibility requirements and elected early
retirement no later than March 15, 1995. The entire cost of the enhanced
benefit was borne by NMIC and certain of its property and casualty insurance
company affiliates.
F-20
<PAGE>
NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Effective December 31, 1995, the Nationwide Insurance Companies and
Affiliates Retirement Plan was merged with the Farmland Mutual Insurance
Company Employees' Retirement Plan and the Wausau Insurance Companies Pension
Plan to form the Nationwide Insurance Enterprise Retirement Plan. Immediately
prior to the merger, the plans were amended to provide consistent benefits for
service after January 1, 1996. These amendments had no significant impact on
the accumulated benefit obligation or projected benefit obligation as of
December 31, 1995.
Pension costs charged to operations by the Company during the years ended
December 31, 1996, 1995 and 1994 were $8,167, $11,383 and $11,113,
respectively.
The Company's net accrued pension expense as of December 31, 1996 and 1995
was $1,236 and $1,553, respectively.
The net periodic pension cost for the Nationwide Insurance Enterprise
Retirement Plan as a whole for the year ended December 31, 1996 and for the
Nationwide Insurance Companies and Affiliates Retirement Plan as a whole for
the years ended December 31, 1995 and 1994 follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- -------
<S> <C> <C> <C>
Service cost (benefits earned during the
period)..................................... $ 75,466 64,524 64,740
Interest cost on projected benefit
obligation.................................. 105,511 95,283 73,951
Actual return on plan assets................. (210,583) (249,294) (21,495)
Net amortization and deferral................ 101,795 143,353 (62,150)
-------- -------- -------
$ 72,189 53,866 55,046
======== ======== =======
Basis for measurements, net periodic pension cost:
<CAPTION>
1996 1995 1994
-------- -------- -------
<S> <C> <C> <C>
Weighted average discount rate............... 6.00% 7.50% 5.75%
Rate of increase in future compensation
levels...................................... 4.25% 6.25% 4.50%
Expected long-term rate of return on plan
assets...................................... 6.75% 8.75% 7.00%
</TABLE>
Information regarding the funded status of the Nationwide Insurance
Enterprise Retirement Plan as a whole as of December 31, 1996 and 1995
follows:
<TABLE>
<CAPTION>
1996 1995
---------- ---------
<S> <C> <C>
Accumulated benefit obligation:
Vested............................................ $1,338,554 1,236,730
Nonvested......................................... 11,149 26,503
---------- ---------
$1,349,703 1,263,233
========== =========
Net accrued pension expense:
Projected benefit obligation for services rendered
to date.......................................... $1,847,828 1,780,616
Plan assets at fair value......................... 1,947,933 1,738,004
---------- ---------
Plan assets in excess of (less than) projected
benefit obligation............................... 100,105 (42,612)
Unrecognized prior service cost................... 37,870 42,845
Unrecognized net gains............................ (201,952) (63,130)
Unrecognized net asset at transition.............. 37,158 41,305
---------- ---------
$ (26,819) (21,592)
========== =========
<CAPTION>
1996 1995
---------- ---------
<S> <C> <C>
Basis for measurements, funded status of plan:
Weighted average discount rate.................... 6.50% 6.00%
Rate of increase in future compensation levels.... 4.75% 4.25%
</TABLE>
F-21
<PAGE>
NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Assets of the Nationwide Insurance Enterprise Retirement Plan are invested
in group annuity contracts of NLIC and ELICW.
(12) POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
In addition to the defined benefit pension plan, the Company, together with
other affiliated companies, participates in life and health care defined
benefit plans for qualifying retirees. Postretirement life and health care
benefits are contributory and generally available to full time employees who
have attained age 55 and have accumulated 15 years of service with the Company
after reaching age 40. Postretirement health care benefit contributions are
adjusted annually and contain cost-sharing features such as deductibles and
coinsurance. In addition, there are caps on the Company's portion of the per-
participant cost of the postretirement health care benefits. These caps can
increase annually, but not more than three percent. The Company's policy is to
fund the cost of health care benefits in amounts determined at the discretion
of management. Plan assets are invested primarily in group annuity contracts
of NLIC.
The Company elected to immediately recognize its estimated accumulated
postretirement benefit obligation; however, certain affiliated companies
elected to amortize their initial transition obligation over periods ranging
from 10 to 20 years.
The Company's accrued postretirement benefit expense as of December 31, 1996
and 1995 was $34,884 and $33,539, respectively, and the net periodic
postretirement benefit cost (NPPBC) for 1996, 1995 and 1994 was $3,394, $3,221
and $4,524, respectively.
The amount of NPPBC for the plan as a whole for the years ended December 31,
1996, 1995 and 1994 was as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------ ------
<S> <C> <C> <C>
Service cost (benefits attributed to employee
service during the year)........................ $ 6,541 6,235 8,586
Interest cost on accumulated postretirement
benefit obligation.............................. 13,679 14,151 14,011
Actual return on plan assets..................... (4,348) (2,657) (1,622)
Amortization of unrecognized transition
obligation of affiliates........................ 173 2,966 568
Net amortization and deferral.................... 1,830 (1,619) 1,622
------- ------ ------
$17,875 19,076 23,165
======= ====== ======
</TABLE>
Information regarding the funded status of the plan as a whole as of
December 31, 1996 and 1995 follows:
<TABLE>
<CAPTION>
1996 1995
--------- --------
<S> <C> <C>
Accrued postretirement benefit expense:
Retirees............................................. $ 92,954 88,680
Fully eligible, active plan participants............. 23,749 28,793
Other active plan participants....................... 83,986 90,375
--------- --------
Accumulated postretirement benefit obligation
(APBO)............................................ 200,689 207,848
Plan assets at fair value............................ 63,044 54,325
--------- --------
Plan assets less than accumulated postretirement
benefit obligation................................ (137,645) (153,523)
Unrecognized transition obligation of affiliates..... 1,654 1,827
Unrecognized net gains............................... (23,225) (1,038)
--------- --------
$(159,216) (152,734)
========= ========
</TABLE>
F-22
<PAGE>
NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Actuarial assumptions used for the measurement of the APBO as of December
31, 1996 and 1995 and the NPPBC for 1996, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
1996 1996 1995 1995 1994
APBO NPPBC APBO NPPBC NPPBC
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Discount rate............... 7.25% 6.65% 6.75% 8.00% 7.00%
Long term rate of return on
plan assets, net of tax.... -- 4.80% -- 8.00% N/A
Assumed health care cost
trend rate:
Initial rate.............. 11.00% 11.00% 11.00% 10.00% 12.00%
Ultimate rate............. 6.00% 6.00% 6.00% 6.00% 6.00%
Uniform declining period.. 12 Years 12 Years 12 Years 12 Years 12 Years
</TABLE>
The health care cost trend rate assumption has an effect on the amounts
reported. For the plan as a whole, a one percentage point increase in the
assumed health care cost trend rate would increase the APBO as of December 31,
1996 by $701 and the NPPBC for the year ended December 31, 1996 by $83.
(13) SHAREHOLDER'S EQUITY, REGULATORY RISK-BASED CAPITAL, RETAINED EARNINGS
AND DIVIDEND RESTRICTIONS
The holders of Class A common stock are entitled to one vote per share. The
holders of Class B common stock are entitled to ten votes per share. Class A
common stock has no conversion rights. Class B common stock is convertible
into Class A common stock, in whole or in part, at any time and from time to
time at the option of the holder, on the basis of one share of Class A common
stock for each share of Class B common stock converted. If at any time after
the initial issuance of shares of Class A common stock the number of
outstanding shares of Class B common stock falls below 5% of the aggregate
number of issued and outstanding shares of common stock, then each outstanding
share of Class B common stock shall automatically convert into one share of
Class A common stock. In the event of any sale or transfer of shares of Class
B common stock to any person or persons other than NMIC or its affiliates,
such shares of Class B common stock so transferred shall be automatically
converted into an equal number of shares of Class A common stock.
Each insurance company's state of domicile imposes minimum risk-based
capital requirements that were developed by the NAIC. The formulas for
determining the amount of risk-based capital specify various weighting factors
that are applied to financial balances or various levels of activity based on
the perceived degree of risk. Regulatory compliance is determined by a ratio
of the company's regulatory total adjusted capital, as defined by the NAIC, to
its authorized control level risk-based capital, as defined by the NAIC.
Companies below specific trigger points or ratios are classified within
certain levels, each of which requires specified corrective action. NLIC and
each of its insurance company subsidiaries exceed the minimum risk-based
capital requirements.
The combined statutory capital and surplus of NLIC as of December 31, 1996,
1995 and 1994 was $1,000,647, $1,363,031 and $1,262,861, respectively. The
statutory net income of NLIC for the years ended December 31, 1996, 1995 and
1994 was $73,218, $86,529 and $76,532, respectively.
NLIC is limited in the amount of shareholder dividends it may pay without
prior approval by the Department of Insurance of the State of Ohio (the
Department). NLIC's dividend of the outstanding shares of common stock of
certain companies which was declared on September 24, 1996 and the anticipated
$850,000 dividend (as discussed in note 1) are deemed extraordinary under Ohio
insurance laws. As a result of such dividends, any dividend paid by NLIC
during the 12-month period immediately following the $850,000 dividend would
also be an extraordinary dividend under Ohio insurance laws. Accordingly, no
such dividend could be paid without prior regulatory approval.
In addition, the payment of dividends by NLIC may also be subject to
restrictions set forth in the insurance laws of New York that limit the amount
of statutory profits on NLIC's participating policies (measured before
dividends to policyholders) that can inure to the benefit of the Company and
its stockholders.
F-23
<PAGE>
NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company currently does not expect such regulatory requirements to impair
its ability to pay operating expenses and stockholder dividends in the future.
(14) TRANSACTIONS WITH AFFILIATES
The Company leases office space from NMIC and certain of its subsidiaries.
For the years ended December 31, 1996, 1995 and 1994, the Company made lease
payments to NMIC and its subsidiaries of $9,985, $9,880 and $8,987,
respectively.
Pursuant to a cost sharing agreement among NMIC and certain of its direct
and indirect subsidiaries, including the Company, NMIC provides certain
operational and administrative services, such as sales support, advertising,
personnel and general management services, to those subsidiaries. Expenses
covered by this agreement are subject to allocation among NMIC and such
subsidiaries. Amounts allocated to the Company were $101,584, $107,112 and
$100,601 in 1996, 1995 and 1994, respectively. Under the cost sharing
agreement, expenses are allocated in accordance with NAIC guidelines and are
based on standard allocation techniques and procedures acceptable under
general cost accounting practices. Measures used to allocate expenses include
individual employee estimates of time spent, special cost studies, salary
expense, commissions expense, and other measures that are agreed to by the
participating companies that are within regulatory and industry guidelines and
practices. The Company believes these allocation methods are reasonable. In
addition, the Company does not believe that expenses recognized under the
inter-company agreements are materially different than expenses that would
have been recognized had the Company operated on a stand alone basis. Amounts
payable to NMIC from the Company under the cost sharing agreement were $15,111
and $1,186 as of December 31, 1996 and 1995, respectively.
The Company also participates in intercompany repurchase agreements with
affiliates whereby the seller will transfer securities to the buyer at a
stated value. Upon demand or a stated period, the securities will be
repurchased by the seller at the original sales price plus a price
differential. Transactions under the agreements during 1996 and 1995 were not
material. The Company believes that the terms of the repurchase agreements are
materially consistent with what the Company could have obtained with
unaffiliated parties.
Intercompany reinsurance agreements exist between NLIC and, respectively,
NMIC and ELICW whereby all of NLIC's accident and health and group life
insurance business is ceded on a modified coinsurance basis. NLIC entered into
the reinsurance agreements during 1996 because the accident and health and
group life insurance business was unrelated to the Company's long-term savings
and retirement products. Accordingly, the accident and health and group life
insurance business has been accounted for as discontinued operations for all
periods presented. Under modified coinsurance agreements, invested assets are
retained by the ceding company and investment earnings are paid to the
reinsurer. Under the terms of the Company's agreements, the investment risk
associated with changes in interest rates is borne by ELICW or NMIC, as the
case may be. Risk of asset default is retained by the Company, although a fee
is paid by ELICW or NMIC, as the case may be, to the Company for the Company's
retention of such risk. The agreements will remain in force until all policy
obligations are settled. However, with respect to the agreement between NLIC
and NMIC, either party may terminate the contract on January 1 of any year
with prior notice. The ceding of risk does not discharge the original insurer
from its primary obligation to the policyholder. The Company believes that the
terms of the modified coinsurance agreements are consistent in all material
respects with what the Company could have obtained with unaffiliated parties.
Total premiums ceded under the reinsurance agreements were $321,555 during
1996. The effect of the reinsurance agreements was to increase the Company's
net income by $2,924 during 1996.
F-24
<PAGE>
NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company and various affiliates entered into agreements with Nationwide
Cash Management Company (NCMC) and California Cash Management Company (CCMC),
both affiliates, under which NCMC and CCMC act as common agents in handling
the purchase and sale of short-term securities for the respective accounts of
the participants. Amounts on deposit with NCMC and CCMC were $9,261 and
$18,602 as of December 31, 1996 and 1995, respectively, and are included in
short-term investments on the accompanying consolidated balance sheets.
On March 1, 1995, Nationwide Corp. contributed all of the outstanding shares
of common stock of Farmland Life Insurance Company (Farmland) to NLIC.
Farmland merged into WCLIC effective June 30, 1995. The contribution resulted
in a direct increase to consolidated shareholder's equity of $46,918. As
discussed in note 3, WCLIC is accounted for as discontinued operations.
Effective December 31, 1994, NLIC purchased all of the outstanding shares of
common stock of ELICW from Wausau Service Corporation (WSC) for $155,000. NLIC
transferred fixed maturity securities and cash with a fair value of $155,000
to WSC on December 28, 1994, which resulted in a realized loss of $19,239 on
the disposition of the securities. The purchase price approximated both the
historical cost basis and fair value of net assets of ELICW. ELICW has and
will continue to share home office, other facilities, equipment and common
management and administrative services with WSC. As discussed in note 3, ELICW
is accounted for as discontinued operations.
(15) BANK LINES OF CREDIT
In August 1996, NLIC, along with NMIC, entered into a $600,000 revolving
credit facility which provides for a $600,000 loan over a five year term on a
fully revolving basis with a group of national financial institutions. The
credit facility provides for several and not joint liability with respect to
any amount drawn by either NLIC or NMIC. NLIC and NMIC pay facility and usage
fees to the financial institutions to maintain the revolving credit facility.
All previously existing line of credit agreements were canceled.
(16) CONTINGENCIES
The Company is a defendant in various lawsuits. In the opinion of
management, the effects, if any, of such lawsuits are not expected to be
material to the Company's financial position or results of operations.
(17) SEGMENT INFORMATION
The Company has three primary segments: Variable Annuities, Fixed Annuities
and Life Insurance. The Variable Annuities segment consists of annuity
contracts that provide the customer with the opportunity to invest in mutual
funds managed by the Company and independent investment managers, with the
investment returns accumulating on a tax-deferred basis. The Fixed Annuities
segment consists of annuity contracts that generate a return for the customer
at a specified interest rate, fixed for a prescribed period, with returns
accumulating on a tax-deferred basis. The Life Insurance segment consists of
insurance products that provide a death benefit and may also allow the
customer to build cash value on a tax-deferred basis. In addition, the Company
reports corporate expenses and investments, and the related investment income
supporting capital not specifically allocated to its product segments in a
Corporate and Other segment. In addition, all realized gains and losses,
investment management fees and other revenue earned from mutual funds other
than the portion allocated to the variable annuities and life insurance
segments, and commissions and other income earned by the marketing and
distribution companies are reported in the Corporate and Other segment.
F-25
<PAGE>
NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table summarizes revenues and income from continuing
operations before federal income tax expense for the years ended December 31,
1996, 1995 and 1994 and assets as of December 31, 1996, 1995 and 1994, by
business segment.
<TABLE>
<CAPTION>
1996 1995 1994
----------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Variable Annuities......................... $ 284,638 189,071 132,687
Fixed Annuities............................ 1,092,566 1,051,970 939,868
Life Insurance............................. 435,657 409,135 383,150
Corporate and Other........................ 203,739 186,862 178,379
----------- ---------- ----------
$ 2,016,600 1,837,038 1,634,084
=========== ========== ==========
Income from continuing operations before
federal income tax expense:
Variable Annuities......................... 90,244 50,837 24,574
Fixed Annuities............................ 135,405 137,000 138,950
Life Insurance............................. 67,242 67,590 53,046
Corporate and Other........................ 35,197 25,743 23,893
----------- ---------- ----------
$ 328,088 281,170 240,463
=========== ========== ==========
Assets:
Variable Annuities......................... 25,069,725 17,333,039 11,146,465
Fixed Annuities............................ 13,994,715 13,250,359 11,668,973
Life Insurance............................. 3,353,286 3,027,420 2,752,283
Corporate and Other, including discontinued
operations................................ 5,352,512 4,895,270 3,675,592
----------- ---------- ----------
$47,770,238 38,506,088 29,243,313
=========== ========== ==========
</TABLE>
F-26
<PAGE>
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFOR-
MATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF
THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSE-
QUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF
THE COMPANY SINCE SUCH DATE.
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information.................................................... 2
Prospectus Summary....................................................... 3
Risk Factors............................................................. 11
Use of Proceeds.......................................................... 18
Recent History........................................................... 18
Capitalization........................................................... 19
Selected Consolidated Financial Data..................................... 20
Pro Forma Consolidated Financial Data.................................... 22
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 27
Business................................................................. 38
Management............................................................... 70
Ownership of Capital Stock............................................... 83
Certain Relationships and Related Transactions........................... 84
Description of Notes..................................................... 90
Description of Capital Stock............................................. 97
The Equity Offerings, the Note Offering and the Capital Securities
Offering................................................................ 101
Underwriting............................................................. 102
Notice to Canadian Residents............................................. 103
Legal Matters............................................................ 103
Experts.................................................................. 103
Glossary of Selected Insurance Terms..................................... 104
Index to Consolidated Financial Statements............................... F-1
</TABLE>
------------
UNTIL , 1997 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
[LOGO OF NATIONWIDE FINANCIAL SERVICES, INC. APPEARS HERE]
Nationwide Financial
Services, Inc.
$300,000,000
% Senior Notes
Due 2027
PROSPECTUS
CREDIT SUISSE FIRST BOSTON
MORGAN STANLEY & CO.
Incorporated
MERRILL LYNCH & CO.
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses in connection with the
offering of Notes pursuant to this Registration Statement that will be paid
fully by the Registrant. All amounts shown are estimates, except the
Securities and Exchange Commission registration fee, the NASD filing fee and
the NYSE listing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee.............. $90,909.09
NASD filing fee.................................................. 30,500.00
NYSE listing fee................................................. *
Blue Sky fees and expenses....................................... *
Legal fees and expenses.......................................... *
Accounting fees and expenses..................................... *
Trustee fees and expenses........................................ *
Printing, engraving and postage expenses......................... *
Miscellaneous.................................................... *
----------
Total.......................................................... $ *
==========
</TABLE>
- --------
* To be completed by amendment.
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Subsection (a) of DGCL Section 145 empowers a corporation to indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the corporation) by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by him in connection with
such action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
Subsection (b) of DGCL Section 145 empowers a corporation to indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that such
person acted in any of the capacities set forth above, against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if he acted
in good faith and in a manner he reasonably believed to be in or not opposed
to the best interests of the corporation, except that no
indemnification may be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the court
shall deem proper.
Other subsections of DGCL Section 145 further provide that to the extent a
director, officer, employee or agent of a corporation has been successful on
the merits or otherwise in the defense of any action, suit or proceeding
referred to in subsections (a) and (b) of Section 145, or in defense of any
claim, issue or matter therein, he shall be indemnified against expenses
(including attorney's fees) actually and reasonably incurred by him in
connection therewith; that indemnification provided for by Section 145 shall,
unless otherwise provided
II-1
<PAGE>
when authorized or ratified, continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of such
person's heirs, executors and administrators; and that expenses incurred by an
officer or director in defending any civil, criminal, administrative or
investigative action, suit or proceeding may be paid by the corporation in
advance of the final disposition of such action, suit or proceeding upon
receipt of an undertaking by or on behalf of such director or officer to repay
such amount if it shall ultimately be determined that he is not entitled to be
indemnified by the corporation.
Section 1 of Article VI of the Company's Bylaws provides that the Company
shall indemnify its directors, officers, employees and agents to the fullest
extent permitted by the DGCL. This Section further provides that the Company
may advance expenses incurred by any director or officer in defending a civil
or criminal action, suit or proceeding upon receipt of an undertaking by or on
behalf of such director or officer to repay such amount if it shall ultimately
be determined that such person is not entitled to the indemnification by the
Company.
DGCL Section 145 also provides that any indemnification provided for therein
may only be made upon a determination by (i) a majority vote of the directors
who are not parties to such action, suit or proceeding, even though less than
a quorum, or (ii) if there are no such directors, or if such directors so
direct, by independent legal counsel in a written opinion, or (iii) by the
stockholders that the indemnitee has met the standard of conduct required by
Section 145 entitling him to such indemnification.
DGCL Section 145 empowers the corporation to purchase and maintain insurance
on behalf of a director, officer, employee or agent of the corporation against
any liability asserted against him and incurred by him in any such capacity,
or arising out of his status as such, whether or not the corporation would
have the power to indemnify him against such liabilities under Section 145.
Section 3 of Article VI of the Company's Bylaws provides that the Company may
purchase and maintain insurance on behalf of any director or officer against
any liability asserted against and incurred by such person arising out of the
person's status as such, whether or not the Company would have the power to
indemnify such person against such liability under the DGCL.
The Company has in force and effect a policy insuring the directors and
officers of the Company against losses which they or any of them shall become
legally obligated to pay for by reason of any actual or alleged error or
misstatement or misleading statement or act or omission or neglect or breach
of duty by the directors and officers in the discharge of their duties,
individually or collectively, or any matter claimed against them solely by
reason of their being directors or officers, such coverage being limited by
the specific terms and provisions of the insurance policy.
Pursuant to the Underwriting Agreement, in the form filed as an exhibit to
the Registration Statement, any Underwriters under the Underwriting Agreement
will agree to indemnify the registrant's directors and officers and persons
controlling the registrant within the meaning of the Securities Act, against
certain liabilities that might arise out of or based upon certain information
furnished to the registrant by any such indemnifying party.
Section 102(b)(7) of the DGCL provides that a certificate of incorporation
may contain a provision eliminating or limiting the personal liability of a
director to the corporation or its stockholders for monetary damages for
breach of fiduciary duty as a director provided that such provision shall not
eliminate or limit the liability of a director (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or
a knowing violation of law, (iii) under Section 174 of the DGCL, or (iv) for
any transaction from which the director derived an improper personal benefit.
Article TWELFTH of the Company's Certificate limits the liability of directors
to the fullest extent permitted by Section 102(b)(7).
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
On December 11, 1996, the Registrant issued 1,000 shares of common stock to
Nationwide Corp. in exchange for $1,000. This exchange is exempt from
registration under the Securities Act pursuant to Section 4(2) thereunder.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<C> <S>
*1.1 --Form of Underwriting Agreement
3.1 --Form of Restated Certificate of Incorporation of Nationwide
Financial Services, Inc.
3.2 --Form of Restated Bylaws of Nationwide Financial Services, Inc.
4.1 --Form of Indenture relating to the Notes, including the form of
Global Note and the form of Definitive Note
*5.1 --Opinion of LeBoeuf, Lamb, Greene & MacRae, L.L.P.
*10.1 --Form of Intercompany Agreement among Nationwide Mutual Insurance
Company, Nationwide Corporation and Nationwide Financial
Services, Inc.
10.2 --Form of Tax Sharing Agreement among Nationwide Mutual Insurance
Company, Nationwide Corporation and any corporation that may
hereafter be a subsidiary of Nationwide Corporation
10.3 --Form of First Amendment to Cost Sharing Agreement among the
parties named therein
**10.4 --Modified Coinsurance Agreement between Nationwide Life Insurance
Company and Nationwide Mutual Insurance Company
**10.5 --Modified Coinsurance Agreement between Employers Life Insurance
Company of Wausau and Nationwide Life Insurance Company
10.6 --Credit Facility, dated August 12, 1996, among Nationwide Life
Insurance Company, Nationwide Mutual Insurance Company, the banks
named therein and Morgan Guaranty Trust Company of New York, the
administrative agent
10.7 --Form of Lease Agreement between Nationwide Mutual Insurance
Company, Nationwide Life Insurance Company, Nationwide Life and
Annuity Insurance Company and Nationwide Financial Services, Inc.
10.8 --Form of Nationwide Financial Services, Inc. 1996 Long-Term
Equity Compensation Plan
10.9 --General Description of Nationwide Insurance Enterprise Executive
Incentive Plan
10.10 --General Description of Nationwide Insurance Enterprise
Management Incentive Plan
10.11 --Nationwide Insurance Enterprise Excess Benefit Plan effective as
of December 31, 1996
10.12 --Nationwide Insurance Enterprise Supplemental Retirement Plan
effective as of December 31, 1996
10.13 --Nationwide Salaried Employees Severance Pay Plan
10.14 --Nationwide Insurance Enterprise Supplemental Defined
Contribution Plan effective as of January 1, 1996
10.15 --General Description of Nationwide Insurance Enterprise
Individual Deferred Compensation Program
10.16 --General Description of Nationwide Mutual Insurance Company
Directors Deferred Compensation Program
10.17 --Deferred Compensation Agreement, dated as of September 3, 1979,
between Nationwide Mutual Insurance Company and D. Richard
McFerson
10.18 --Nationwide Financial Services, Inc. Stock Retainer Plan for Non-
Employee Directors
12.1 --Statements Regarding Computation of Ratios
**21.1 --List of Subsidiaries
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S>
23.1 --Consent of KPMG Peat Marwick LLP
*23.2 --Consent of LeBoeuf, Lamb, Greene & MacRae, L.L.P. (contained in
Exhibit 5.1)
**24.1 --Power of Attorney (for Messrs. McFerson, Gasper, Oakley,
Shisler, Holloway, Patterson,
Miller and Fuellgraf)
24.2 --Power of Attorney for Lydia Micheaux Marshall
24.3 --Power of Attorney for Donald L. McWhorter
24.4 --Power of Attorney for Gerald D. Prothro
*25.1 --Statement of Eligibility of the Trustee under the Indenture
27.1 --Financial Data Schedule
</TABLE>
<TABLE>
<C> <C> <S>
(b) Financial Statement Schedules
Schedule I --Consolidated Summary of Investments--Other than Investments
in Related Parties
Schedule III --Supplementary Insurance Information
Schedule IV --Reinsurance
Schedule V --Valuation and Qualifying Accounts
</TABLE>
- --------
*To be filed by amendment.
**Previously filed.
ITEM 17. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(b) The undersigned registrant hereby undertakes that:
(i) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective; and
(ii) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
COLUMBUS, STATE OF OHIO, ON FEBRUARY 25, 1997.
Nationwide Financial Services, Inc.
By: *
---------------------------------
DIMON RICHARD MCFERSON
CHAIRMAN AND CHIEF EXECUTIVE
OFFICER--
NATIONWIDE INSURANCE ENTERPRISE
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BELOW ON FEBRUARY
25, 1997 BY THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
Chairman and Chief Executive
* Officer--Nationwide Insurance
- ------------------------------------- Enterprise and Director (Principal
Executive Officer)
DIMON RICHARD MCFERSON
President and Chief Operating
* Officer and Director
- -------------------------------------
JOSEPH J. GASPER
Executive Vice President--Chief
* Financial Officer (Principal
- ------------------------------------- Financial Officer and Principal
ROBERT A. OAKLEY Accounting Officer)
* Director
- -------------------------------------
ARDEN L. SHISLER
* Director
- -------------------------------------
HENRY S. HOLLOWAY
* Director
- -------------------------------------
JAMES F. PATTERSON
* Director
- -------------------------------------
DAVID O. MILLER
* Director
- -------------------------------------
CHARLES L. FUELLGRAF, JR.
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
* Director
- -------------------------------------
LYDIA MICHEAUX MARSHALL
* Director
- -------------------------------------
DONALD L. MCWHORTER
* Director
- -------------------------------------
GERALD D. PROTHRO
(*) By: /s/ Mark B. Koogler
--------------------------------
MARK B. KOOGLER
ATTORNEY-IN-FACT
</TABLE>
II-6
<PAGE>
NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report on Financial Statement Schedules............ S-2
Schedule I Consolidated Summary of Investments--Other Than Investments
In Related Parties as of December 31, 1996................. S-3
Schedule III Supplementary Insurance Information as of December 31,
1996, 1995 and 1994 and for each for the years then ended.. S-4
Schedule IV Reinsurance as of December 31, 1996, 1995 and 1994 and for
each of the years then ended............................... S-5
Schedule V Valuation and Qualifying Accounts for the years ended
December 31, 1996, 1995 and 1994........................... S-6
</TABLE>
All other schedules are omitted because they are not applicable, or not
required, or because the required information has been included in the
consolidated financial statements or notes thereto.
S-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
ON FINANCIAL STATEMENT SCHEDULES
The Board of Directors
Nationwide Financial Services, Inc. :
Under date of January 31, 1997, we reported on the consolidated balance
sheets of Nationwide Financial Services, Inc. and subsidiaries as of December
31, 1996 and 1995, and the related consolidated statements of income,
shareholder's equity and cash flows for each of the years in the three-year
period ended December 31, 1996, which are included in the prospectus.
As discussed in note 1 to the consolidated financial statements, the Company
was formed in November 1996 as a holding company for Nationwide Life Insurance
Company and the other companies within the Nationwide Insurance Enterprise
that offer or distribute long-term savings and retirement products. The
consolidated financial statements are presented as if these companies were
consolidated for all periods presented.
In 1994, the Company adopted the provisions of the Financial Accounting
Standards Board's Statement of Financial Accounting Standards No. 115,
Accounting for Certain Investments in Debt and Equity Securities.
In connection with our audits of the aforementioned consolidated financial
statements, we also audited the related consolidated financial statement
schedules included in the registration statement. These consolidated financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statement schedules based on our audits.
In our opinion, such consolidated financial statement schedules, when
considered in relation to the basic consolidated financial statements taken as
a whole, present fairly, in all material respects, the information set forth
therein.
Columbus, Ohio KPMG Peat Marwick LLP
January 31, 1997
S-2
<PAGE>
SCHEDULE I
NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED SUMMARY OF INVESTMENTS--
OTHER THAN INVESTMENTS IN RELATED PARTIES
AS OF DECEMBER 31, 1996
($000'S OMITTED)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D
-------- ----------- ---------- ---------------
AMOUNT AT WHICH
SHOWN IN THE
MARKET CONSOLIDATED
TYPE OF INVESTMENT COST VALUE BALANCE SHEET
------------------ ----------- ---------- ---------------
<S> <C> <C> <C>
Fixed maturity securities available-for-
sale:
Bonds:
United States government and
government agencies and
authorities........................ $ 3,757,887 3,834,762 3,834,762
States, municipalities and political
subdivisions....................... 6,241 6,690 6,690
Foreign governments................. 100,656 101,940 101,940
Public utilities.................... 1,798,736 1,843,938 1,843,938
All other corporate ................ 6,307,358 6,517,309 6,517,309
----------- ---------- ----------
Total fixed maturity securities
available-for-sale............... 11,970,878 12,304,639 12,304,639
----------- ---------- ----------
Equity securities available-for-sale:
Common stocks:
Industrial, miscellaneous and all
other.............................. 43,501 50,405 50,405
Nonredeemable preferred stock......... 389 8,726 8,726
----------- ---------- ----------
Total equity securities available-
for-sale......................... 43,890 59,131 59,131
----------- ---------- ----------
Fixed maturity securities held-to-matu-
rity:
Bonds:
United States government and govern-
ment agencies and authorities...... 5,877 5,944 5,877
----------- ---------- ----------
Total fixed maturity securities
held-to-maturity................. 5,877 5,944 5,877
----------- ---------- ----------
Mortgage loans on real estate, net...... 5,327,317 5,272,119(1)
Real estate, net:
Investment properties................. 253,384 217,611(1)
Acquired in satisfaction of debt...... 57,933 48,148(1)
Policy loans............................ 371,816 371,816
Other long-term investments............. 27,370 28,668(2)
Short-term investments.................. 9,261 9,261
----------- ----------
Total investments................. $18,067,726 18,317,270
=========== ==========
</TABLE>
- --------
See accompanying independent auditors' report.
(1) Difference from Column B is primarily due to accumulated depreciation and
valuation allowances due to impairments on real estate and valuation
allowances due to impairments on mortgage loans on real estate. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations" and note 6 to the consolidated financial statements.
(2) Difference from Column B is primarily due to operating gains of
investments in limited partnerships.
S-3
<PAGE>
SCHEDULE III
NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES
SUPPLEMENTARY INSURANCE INFORMATION
AS OF DECEMBER 31, 1996, 1995 AND 1994 AND FOR EACH OF THE YEARS THEN ENDED
($000'S OMITTED)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F COLUMN G COLUMN H COLUMN I COLUMN J
-------- ----------- ---------------- -------- ---------- -------- ---------- ---------- ------------ ---------
FUTURE OTHER
POLICY BENEFITS, POLICY BENEFITS, AMORTIZATION
DEFERRED LOSSES, CLAIMS AND NET CLAIMS OF DEFERRED OTHER
POLICY CLAIMS AND UNEARNED BENEFITS INVESTMENT LOSSES AND POLICY OPERATING
ACQUISITION LOSS PREMIUMS PAYABLE PREMIUM INCOME SETTLEMENT ACQUISITION EXPENSES
SEGMENT COSTS EXPENSES (1) (2) REVENUE (3) EXPENSES COSTS (3)
------- ----------- ---------------- -------- ---------- -------- ---------- ---------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996:
Variable
Annuities........ $ 791,611 -- -- -- (21,449) 4,624 57,412 132,357
Fixed Annuities.. 242,421 14,952,877 687 24,030 1,050,557 838,533 38,635 79,737
Life Insurance... 414,417 1,995,802 395,739 174,612 174,002 211,386 37,347 78,965
Corporate and
Other ........... (81,940) 230,381 25,048 -- 154,649 106,037 -- 62,506
---------- ----------- ------- ------- --------- --------- ------- -------
Total........... $1,366,509 17,179,060 421,474 198,642 1,357,759 1,160,580 133,394 353,565
========== =========== ======= ======= ========= ========= ======= =======
1995:
Variable
Annuities........ 571,283 -- -- -- (17,640) 2,881 26,264 109,089
Fixed Annuities.. 221,111 14,221,622 455 32,774 1,002,718 804,980 29,499 80,260
Life Insurance... 366,876 1,898,641 383,983 166,332 171,255 201,986 31,021 68,832
Corporate and
Other............ (138,914) 238,351 28,886 -- 137,700 105,646 (4,089) 59,562
---------- ----------- ------- ------- --------- --------- ------- -------
Total........... $1,020,356 16,358,614 413,324 199,106 1,294,033 1,115,493 82,695 317,743
========== =========== ======= ======= ========= ========= ======= =======
1994:
Variable
Annuities........ 395,397 -- -- -- (13,415) 2,277 22,135 83,701
Fixed Annuities.. 198,639 12,633,253 240 20,134 903,572 702,082 29,849 69,975
Life Insurance... 327,079 1,806,762 371,984 156,524 166,329 191,006 29,495 69,861
Corporate and
Other............ 74,445 233,569 26,927 -- 154,325 97,302 4,089 53,095
---------- ----------- ------- ------- --------- --------- ------- -------
Total........... $ 995,560 14,673,584 399,151 176,658 1,210,811 992,667 85,568 276,632
========== =========== ======= ======= ========= ========= ======= =======
<CAPTION>
COLUMN A COLUMN K
-------- --------
PREMIUMS
SEGMENT WRITTEN
------- --------
<S> <C>
1996:
Variable
Annuities........
Fixed Annuities..
Life Insurance...
Corporate and
Other ...........
Total...........
1995:
Variable
Annuities........
Fixed Annuities..
Life Insurance...
Corporate and
Other............
Total...........
1994:
Variable
Annuities........
Fixed Annuities..
Life Insurance...
Corporate and
Other............
Total...........
</TABLE>
- ----
See accompanying independent auditors' report.
(1) Unearned premiums are included in Column C amounts.
(2) Column E agrees to the sum of Balance Sheet captions, "Policyholders'
dividend accumulations" and "Other policyholder funds."
(3) Allocations of net investment income and certain general expenses are
based on a number of assumptions and estimates, and reported operating
results would change by segment if different methods were applied.
S-4
<PAGE>
SCHEDULE IV
NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES
REINSURANCE
AS OF DECEMBER 31, 1996, 1995 AND 1994
AND FOR EACH OF THE YEARS THEN ENDED
($000'S OMITTED)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
-------- ------------ --------- ---------- ---------- -------------
PERCENTAGE OF
CEDED TO ASSUMED AMOUNT
OTHER FROM OTHER ASSUMED
GROSS AMOUNT COMPANIES COMPANIES NET AMOUNT TO NET
------------ --------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C>
As of December 31, 1996
Life insurance in
force................ $47,071,264 6,633,567 288,593 40,726,290 0.7%
=========== ========= ======= ========== =====
Year ended December 31,
1996
Insurance premiums
Life insurance........ 225,615 29,282 2,309 198,642 1.2%
Accident and health
insurance............ 291,871 305,789 13,918 -- N/A
----------- --------- ------- ---------- -----
Total insurance
premiums........... $ 517,486 335,071 16,227 198,642 8.2%
=========== ========= ======= ========== =====
As of December 31, 1995
Life insurance in
force................ $41,087,025 8,935,743 391,174 32,542,456 1.2%
=========== ========= ======= ========== =====
Year ended December 31,
1995
Insurance Premiums
Life insurance........ 221,257 24,360 2,209 199,106 1.1%
Accident and health
insurance............ 298,058 313,036 14,978 -- N/A
----------- --------- ------- ---------- -----
Total insurance
premiums........... $ 519,315 337,396 17,187 199,106 8.6%
=========== ========= ======= ========== =====
As of December 31, 1994
Life insurance in
force................ $35,926,633 7,550,623 829,742 29,205,752 2.8%
=========== ========= ======= ========== =====
Year ended December 31,
1994
Insurance premiums
Life insurance........ 198,705 21,912 2,865 176,658 1.6%
Accident and health
insurance............ 303,435 321,696 18,261 -- N/A
----------- --------- ------- ---------- -----
Total insurance
premiums........... $ 502,140 343,608 21,126 176,658 12.0%
=========== ========= ======= ========== =====
</TABLE>
- --------
See accompanying independent auditors' report.
Note: The life insurance caption represents principally premiums for
traditional life and life-contingent immediate annuities and excludes
deposits on investment products and universal life insurance products.
S-5
<PAGE>
SCHEDULE V
NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
($000'S OMITTED)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- ---------- ------------------- ------------- -------------
BALANCE AT CHARGED TO CHARGED
BEGINNING COSTS AND TO OTHER BALANCE AT
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS(1) END OF PERIOD
----------- ---------- ---------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C>
1996:
Valuation allowances--
mortgage loans on real
estate................. $49,128 4,497 -- 2,587 51,038
Valuation allowances--
real estate............ 25,819 (10,600) -- -- 15,219
------- ------- ------ ------ ------
Total.................. $74,947 (6,103) -- 2,587 66,257
======= ======= ====== ====== ======
1995:
Valuation allowances--
fixed maturity
securities............. -- 8,908 -- 8,908 --
Valuation allowances--
mortgage loans on real
estate................. 46,381 7,433 -- 4,686 49,128
Valuation allowances--
real estate............ 27,330 (1,511) -- -- 25,819
------- ------- ------ ------ ------
Total.................. $73,711 14,830 -- 13,594 74,947
======= ======= ====== ====== ======
1994:
Valuation allowances--
fixed maturity
securities............. 4,800 (4,800) -- -- --
Valuation allowances--
mortgage loans on real
estate................. 42,150 20,445 -- 16,214 46,381
Valuation allowances--
real estate............ 31,357 (4,027) -- -- 27,330
------- ------- ------ ------ ------
Total.................. $78,307 11,618 -- 16,214 73,711
======= ======= ====== ====== ======
</TABLE>
- --------
See accompanying independent auditors' report.
(1) Amounts represent direct write-downs charged against the valuation
allowance.
S-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBITS
--------
<C> <S>
*1.1 --Form of Underwriting Agreement
3.1 --Form of Restated Certificate of Incorporation of Nationwide
Financial Services, Inc.
3.2 --Form of Restated Bylaws of Nationwide Financial Services, Inc.
4.1 --Form of Indenture relating to the Notes, including the form of
Global Note and the form of Definitive Note
*5.1 --Opinion of LeBoeuf, Lamb, Greene & MacRae, L.L.P.
*10.1 --Form of Intercompany Agreement among Nationwide Mutual Insurance
Company, Nationwide Corporation and Nationwide Financial Services,
Inc.
10.2 --Form of Tax Sharing Agreement among Nationwide Mutual Insurance
Company, Nationwide Corporation and any corporation that may
hereafter be a subsidiary of Nationwide Corporation
10.3 --Form of First Amendment to Cost Sharing Agreement among the parties
named therein
**10.4 --Modified Coinsurance Agreement between Nationwide Life Insurance
Company and Nationwide Mutual Insurance Company
**10.5 --Modified Coinsurance Agreement between Employers Life Insurance
Company of Wausau and Nationwide Life Insurance Company
10.6 --Credit Facility, dated August 12, 1996, among Nationwide Life
Insurance Company, Nationwide Mutual Insurance Company, the banks
named therein and Morgan Guaranty Trust Company of New York, the
administrative agent
10.7 --Form of Lease Agreement between Nationwide Mutual Insurance
Company, Nationwide Life Insurance Company, Nationwide Life and
Annuity Insurance Company and Nationwide Financial Services, Inc.
10.8 --Form of Nationwide Financial Services, Inc. 1996 Long-Term Equity
Compensation Plan
10.9 --General Description of Nationwide Insurance Enterprise Executive
Incentive Plan
10.10 --General Description of Nationwide Insurance Enterprise Management
Incentive Plan
10.11 --Nationwide Insurance Enterprise Excess Benefit Plan effective as of
December 31, 1996
10.12 --Nationwide Insurance Enterprise Supplemental Retirement Plan
effective as of December 31, 1996
10.13 --Nationwide Salaried Employees Severance Pay Plan
10.14 --Nationwide Insurance Enterprise Supplemental Defined Contribution
Plan effective as of January 1, 1996
10.15 --General Description of Nationwide Insurance Enterprise Individual
Deferred Compensation Program
10.16 --General Description of Nationwide Mutual Insurance Company
Directors Deferred Compensation Program
10.17 --Deferred Compensation Agreement, dated as of September 3, 1979,
between Nationwide Mutual Insurance Company and D. Richard McFerson
10.18 --Nationwide Financial Services, Inc. Stock Retainer Plan for Non-
Employee Directors
12.1 --Statements Regarding Computation of Ratios
**21.1 --List of Subsidiaries
23.1 --Consent of KPMG Peat Marwick LLP
*23.2 --Consent of LeBoeuf, Lamb, Greene & MacRae, L.L.P. (contained in
Exhibit 5.1)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS
--------
<C> <S>
**24.1 --Power of Attorney (for Messrs. McFerson, Gasper, Oakley, Shisler,
Holloway, Patterson, Miller and Fuellgraf)
24.2 --Power of Attorney for Lydia Micheaux Marshall
24.3 --Power of Attorney for Donald L. McWhorter
24.4 --Power of Attorney for Gerald D. Prothro
*25.1 --Statement of Eligibility of the Trustee under the Indenture
27.1 --Financial Data Schedule
</TABLE>
- --------
* To be filed by amendment.
**Previously filed.
<PAGE>
Exhibit 3.1
FORM OF
RESTATED CERTIFICATE OF INCORPORATION
OF
NATIONWIDE FINANCIAL SERVICES, INC.
Pursuant to Sections 242 and 245
of the General Corporation Law of the State of Delaware
Nationwide Financial Services, Inc., a corporation existing under the
laws of the State of Delaware (the "Corporation"), does hereby certify as
follows:
1. The name of the Corporation is Nationwide Financial Services, Inc.
The original Certificate of Incorporation of the Corporation was filed with the
Secretary of State of the State of Delaware on November 19, 1996.
2. This Restated Certificate of Incorporation restates and integrates
and also further amends the Certificate of Incorporation of the Corporation.
This Restated Certificate of Incorporation was proposed by the Board of
Directors and duly adopted by the sole stockholder of the Corporation in the
manner, and by the vote prescribed by, Sections 228, 242 and 245 of the General
Corporation Law of the State of Delaware. The text of the Certificate of
Incorporation, as so amended and restated is as follows:
FIRST: The name of the Corporation is Nationwide Financial Services,
-----
Inc.
SECOND: The address of the registered office of the Corporation in
------
the State of Delaware is 1209 Orange Street, in the City of Wilmington, County
of New Castle. The name of its registered agent at that address is The
Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act
-----
or activity for which a corporation may be organized under the General
Corporation Law of the State of Delaware as the same exists or may hereafter be
amended (the "DGCL").
FOURTH: A. Authorized Shares. The total number of shares of stock
------ -----------------
that the Corporation shall have the authority to issue is 1,550,000,000 shares
consisting of 750,000,000 shares of Class A Common Stock with par value $.01 per
share (the "Class A Common Stock"), 750,000,000 shares of Class B Common Stock
with par value $.01 per share (the "Class B Common Stock" and, together with the
Class A Common Stock, the "Common Stock"), and 50,000,000 shares of Preferred
Stock with par value $.01 per share (the "Preferred Stock"). The number of
authorized shares of Class A Common Stock or Class B Common Stock may be
increased or decreased (but not below the number of shares of Class A Common
Stock or Class B Common Stock then outstanding) by the affirmative vote of a
majority of the aggregate voting power of the outstanding shares of Class A
Common Stock and Class B Common Stock, voting together without regard to class.
<PAGE>
Effective upon the filing of this Restated Certificate of
Incorporation with the Secretary of State of the State of Delaware, each share
of common stock, no par value per share, of the Corporation outstanding as of
the close of business on the day prior to the date of such filing shall be
reclassified on a basis of 104,745 shares of Class B Common Stock for each share
of such common stock outstanding and, accordingly, each share of such common
stock outstanding as of the close of business on the day prior to the date of
such filing shall, without further action by the Corporation or any stockholder,
be deemed to represent 104,745 shares of Class B Common Stock.
B. Ranking. The powers, preferences and rights of the Class A Common
-------
Stock and Class B Common Stock, and the qualifications, limitations and
restrictions thereof, shall be in all respects identical, except as otherwise
required by law or expressly provided in this Restated Certificate of
Incorporation.
C. Voting. Except as otherwise required by law or in this Restated
------
Certificate of Incorporation, with respect to all matters upon which
stockholders are entitled to vote or to which stockholders are entitled to give
consent, the holders of any outstanding shares of the Class A Common Stock and
the holders of any outstanding shares of Class B Common Stock shall vote
together without regard to class, and every holder of the Class A Common Stock
shall be entitled to cast thereon one vote in person or by proxy for each share
of the Class A Common Stock standing in such holder's name, and every holder of
the Class B Common Stock shall be entitled to cast thereon ten votes in person
or by proxy for each share of Class B Common Stock standing in such holder's
name.
D. Amendments Affecting Stock. So long as any shares of Class A
--------------------------
Common Stock are outstanding, the Corporation shall not, without the affirmative
vote of at least a majority (or such higher percentage, if any, as may then be
required by applicable law) of the outstanding shares of Class A Common Stock
voting as a single class, (i) amend, alter or repeal any provision of Sections B
through K of this Article FOURTH so as to affect adversely the relative rights,
preferences, qualifications, limitations or restrictions of the Class A Common
Stock as compared to those of the Class B Common Stock or (ii) take any other
action upon which class voting is required by law.
E. Dividends; Changes in Stock. No dividend or distribution may be
---------------------------
declared or paid on any share of Class A Common Stock unless a dividend or
distribution, payable in the same consideration and manner, is simultaneously
declared or paid, as the case may be, on each share of Class B Common Stock, nor
shall any dividend or distribution be declared or paid on any share of Class B
Common Stock unless a dividend or distribution, payable in the same
consideration and manner, is simultaneously declared or paid, as the case may
be, on each share of Class A Common Stock, in each case without preference or
priority of any kind; provided, however, that if dividends are declared that are
-------- -------
payable in shares of Class A Common Stock or Class B Common Stock or in rights,
options, warrants or other securities convertible into or exchangeable for
shares of Class A Common Stock or Class B Common Stock, dividends shall be
declared that are payable at the same rate on both classes of Common Stock and
the dividends payable in shares of Class A Common Stock or in rights, options,
warrants or other securities convertible into or exchangeable for shares of
Class A Common Stock shall be payable to holders of Class A Common Stock and the
dividends payable in shares of Class B Common Stock or in rights, options,
warrants or other securities convertible into or exchangeable for shares of
Class B Common Stock shall be payable to holders
-2-
<PAGE>
of Class B Common Stock. If the Corporation in any manner subdivides or
combines the outstanding shares of Class B Common Stock, the outstanding shares
of the Class A Common Stock shall be proportionately subdivided or combined, as
the case may be. Similarly, if the Corporation in any manner subdivides or
combines the outstanding shares of Class A Common Stock, the outstanding shares
of the Class B Common Stock shall be proportionately subdivided or combined, as
the case may be.
F. Optional Conversion. (i) Each share of Class B Common Stock shall
-------------------
be convertible at any time, at the option of the holder thereof into one share
of Class A Common Stock, subject to adjustment as provided in paragraph (iv) of
this Section F and subject to the conditions and limitations described below and
in the manner described below.
(ii) In order to convert shares of Class B Common Stock into Class A
Common Stock pursuant to this Section F, the holder thereof shall surrender to
the Corporation the certificate or certificates therefor, duly endorsed or
assigned to the Corporation or in blank, and give written notice to the
Corporation that the holder elects to convert such shares. Such notice shall be
dated and received by the Corporation at least one business day prior to the
date fixed for conversion and shall state (a) the number of shares of Class B
Common Stock to be converted, (b) the date fixed for conversion, (c) the
denominations in which the shares of Class A Common Stock issuable upon such
conversion are to be issued, (d) the name in which the shares of Class A Common
Stock are to be registered, if different from the registered holder of the Class
B Common Stock being converted, and (e) the name and address of the registered
holder requesting such conversion.
(iii) Shares of Class B Common Stock shall be deemed to have been
converted immediately prior to the close of business on the day of the surrender
of such shares for conversion in accordance with the foregoing provisions, and
the person or persons entitled to receive Class A Common Stock issuable upon
such conversion shall be treated for all purposes as the record holder or
holders of such Class A Common Stock at such time. As promptly as practicable
on or after the conversion date, the Corporation shall issue and shall deliver a
certificate or certificates for the number of shares of Class A Common Stock
issuable upon such conversion to the person or persons entitled to receive the
same.
(iv) If there occurs any capital reorganization or any
reclassification of the capital stock of the Corporation (other than a
subdivision or combination described in Section E or pursuant to a merger or
consolidation referred to in Section I), each share of Class B Common Stock
shall thereafter be convertible into, in lieu of one share of Class A Common
Stock, the same kind and amounts of securities or other assets, or both, that
were issuable or distributable to the holders of shares of outstanding Class A
Common Stock upon such reorganization or reclassification in respect to that
number of shares of Class A Common Stock into which such share of Class B Common
Stock would have been converted had such share of Class B Common Stock been
converted into Class A Common Stock immediately prior to such reorganization or
reclassification.
(v) Upon any event described in paragraph (iv) above, the Corporation
shall promptly mail to each holder of Class B Common Stock a notice that shall
describe such event and the change in the number of shares or other assets or
securities issuable upon the conversion of Class
-3-
<PAGE>
B Common Stock, setting forth in reasonable detail the method of calculation and
the facts upon which such calculation is based.
(vi) The Corporation shall pay any and all taxes that may be payable
in respect of the issue or delivery of shares of Class A Common Stock on
conversion of the Class B Common Stock pursuant hereto. The Corporation shall
not, however, be required to pay any tax that may be payable in respect of any
transfer involved in the issue and delivery of shares of Class A Common Stock in
a name other than that in which the shares of Class B Common Stock so converted
were registered, and no such issue or delivery shall be made unless and until
the person requesting such issue has paid to the Corporation the amount of any
such tax, or has established to the satisfaction of the Corporation that such
tax has been paid.
G. Automatic Conversion. (i) At any time after the initial issuance
--------------------
of shares of Class A Common Stock, if the number of shares of Class B Common
Stock that are issued and outstanding falls below 5% of the total number of
shares of Common Stock that are issued and outstanding, then, immediately upon
the occurrence of such event, each outstanding share of Class B Common Stock
shall be converted into a share of Class A Common Stock and each right, option,
warrant or other security convertible into or exchangeable for shares of Class B
Common Stock shall be automatically converted into a right, option, warrant or
other security convertible into or exchangeable for shares of Class A Common
Stock, in each case, without any further action on the part of the Corporation
or any other person, and the certificates representing such shares of Class B
Common Stock or the rights, options, warrants or other securities convertible
into or exchangeable for shares of Class B Common Stock shall be deemed to
represent shares of Class A Common Stock or rights, options, warrants or
securities convertible into or exchangeable for shares of Class A Common Stock,
as the case may be.
(ii) Upon any issuance by the Corporation, or any sale or other
transfer (whether or not for value) by a stockholder of the Corporation, of
shares of Class B Common Stock, of rights, options or warrants to purchase Class
B Common Stock or of securities convertible into or exchangeable for shares of
Class B Common Stock to any person or persons other than a member of the
Nationwide Insurance Enterprise (as defined in Article SEVENTH hereof),
including, without limitation, pursuant to any private placement or public sale
of such shares (including a public offering registered under the Securities Act
of 1933, as amended, and a sale pursuant to Rule 144 under the Securities Act of
1933, as amended, or any similar rule then in force), such shares shall
automatically convert into an equal number of shares of Class A Common Stock
(with the same rights and restrictions as shares of Class A Common Stock
generally), and such rights, options, warrants or convertible or exchangeable
securities shall automatically convert into rights, options or warrants to
purchase Class A Common Stock or securities convertible into or exchangeable for
shares of Class A Common Stock (otherwise with terms identical to the rights,
options, warrants or convertible or exchangeable securities that so
automatically convert), in each case, without any further action on the part of
the Corporation or any other person, and the certificates representing such
shares, rights, options, warrants or convertible or exchangeable securities
shall be deemed to represent shares of Class A Common Stock, rights, options or
warrants to purchase shares of Class A Common Stock or securities convertible
into or exchangeable for shares of Class A Common Stock, as the case may be.
For purposes of this Section G: (a) a "person" shall mean a corporation, a
trust, a limited liability company, an association, a partnership, a joint
venture, an organization, a
-4-
<PAGE>
business, an individual, a government or a subdivision thereof or a governmental
agency and; (b) the term "transfer" shall not include a bona fide pledge of
shares of Class B Common Stock; provided, however, that any execution, levy,
-------- -------
exercise of rights or other enforcement by the pledgee pursuant to such pledge
shall be considered a transfer.
H. Liquidation. Shares of Class B Common Stock shall rank pari passu
----------- ---- -----
with the Class A Common Stock as to distribution of assets in the event of any
liquidation, dissolution or winding up of the affairs of the Corporation.
I. Merger or Consolidation. In the event of a merger or
-----------------------
consolidation of the Corporation with or into another entity (whether or not the
Corporation is the surviving entity), the holders of each share of Class A
Common Stock and Class B Common Stock shall be entitled to receive the same per
share consideration as the per share consideration, if any, received by the
holders of each share of such other class of stock.
J. Status of Converted Stock. Any shares of Class B Common Stock
-------------------------
that shall have been converted into Class A Common Stock at any time pursuant to
the provisions of Section F or Section G of this Article FOURTH shall, after
such conversion, be cancelled and shall not be reissued.
K. Reservation. The Corporation shall at all times reserve and keep
-----------
available, free from pre-emptive rights, out of its authorized but unissued
shares of Class A Common Stock solely for the purpose of issuance upon the
conversion of the Class B Common Stock, such number of shares of Class A Common
Stock issuable upon the conversion of all outstanding Class B Common Stock. All
shares of Class A Common Stock that are so issuable shall, when issued, be duly
and validly issued, fully paid and nonassessable. The Corporation shall take
all such actions as it deems necessary or appropriate to assure that all such
shares of Class A Common Stock may be so issued without violation of any
applicable law or governmental regulation or any requirements of any securities
exchange upon which shares of Class A Common Stock may be listed.
L. Preferred Stock. The Corporation may issue Preferred Stock from
---------------
time to time in one or more series or classes as the Board of Directors may
establish by the adoption of a resolution or resolutions relating thereto, each
series or class to have such voting powers, full or limited, or no voting
powers, and such designations, preferences and relative, participating, optional
or other special rights and qualifications, limitations or restrictions thereof,
as shall be stated and expressed in the resolution or resolutions providing for
the issue of such series adopted by the Board of Directors pursuant to its
authority to do so, which authority is hereby granted to the Board of Directors.
FIFTH: A. Board of Directors. The business and affairs of the
----- ------------------
Corporation shall be managed by or under the direction of a Board of Directors,
the number of directors to be determined from time to time by resolution adopted
by affirmative vote of a majority of the entire Board of Directors that the
Corporation would have if there were no vacancies. The directors shall be
divided into three classes, designated Class I, Class II and Class III. Each
class shall consist, as nearly as may be possible, of one-third of the total
number of directors constituting the entire Board of Directors. The initial
division of the Board of Directors into classes shall be made by the decision
-5-
<PAGE>
of the affirmative vote of a majority of the entire Board of Directors. Class I
directors shall be elected initially for a one-year term, Class II directors
initially for a two-year term and Class III directors initially for a three-year
term. At each succeeding annual meeting of stockholders beginning in 1998,
successors to the class of directors whose term expires at that annual meeting
shall be elected for a three-year term. If the number of directors is changed,
any increase or decrease shall be apportioned among the classes so as to
maintain the number of directors in each class as nearly equal as possible, and
any additional director of any class elected to fill a vacancy resulting from an
increase in such class shall hold office for a term that shall coincide with the
remaining term of that class, but in no case shall a decrease in the number of
directors shorten the term of any incumbent director. A director shall hold
office until the annual meeting for the year in which his or her term expires
and until his or her successor shall be elected and shall qualify, subject,
however, to prior death, resignation, retirement, disqualification or removal
from office. Any vacancy on the Board of Directors that results from an
increase in the number of directors may be filled by a majority of the Board of
Directors then in office, provided that a quorum is present, and any other
vacancy occurring in the Board of Directors may be filled by a majority of the
Board of Directors then in office, even if less than a quorum, or a sole
remaining director. Any director elected to fill a vacancy not resulting from
an increase in the number of directors shall have the same remaining term as
that of his or her predecessor. Notwithstanding the foregoing, whenever the
holders of any one or more classes or series of Preferred Stock issued by the
Corporation shall have the right, voting separately by class or series, to elect
directors at an annual or special meeting of stockholders, the election, term of
office, filling of vacancies and other features of such directorships shall be
governed by the terms of this Restated Certificate of Incorporation applicable
thereto, and such directors so elected shall not be divided into classes
pursuant to this Article FIFTH unless expressly provided by such terms.
B. Removal of Directors Solely for Cause. No director may be removed
-------------------------------------
from office except for cause and only by the affirmative vote of the holders of
a majority of the combined voting power of all outstanding shares of stock then
entitled to vote generally in the election of directors, voting as a single
class. Notwithstanding the foregoing, directors who shall have been elected by
the holders of a series or class of Preferred Stock, voting separately as a
class, shall be removed only pursuant to the provisions establishing the rights
of such series or class to elect such directors.
SIXTH: The books and records of the Corporation may be kept (subject
-----
to any mandatory requirement of law) outside the State of Delaware at such place
or places as may be designated from time to time by the Board of Directors or by
the Bylaws of the Corporation.
SEVENTH: A. Purpose. In anticipation that the Corporation will
------- -------
cease to be a wholly owned subsidiary of Nationwide Corporation, but that
Nationwide Corporation will remain a stockholder of the Corporation, and in
light of the fact that the Corporation and one or more members of the Nationwide
Insurance Enterprise may engage in the same or similar activities or lines of
business and have an interest in the same areas of corporate opportunities, and
in recognition of (i) the benefits to be derived by the Corporation through its
continued contractual, corporate and business relations with members of the
Nationwide Insurance Enterprise (including service of officers and directors of
members of the Nationwide Insurance Enterprise as officers and directors of the
Corporation) and (ii) the difficulties attendant to any director, who desires
and endeavors fully to satisfy such director's fiduciary duties, in determining
the full scope of such duties in any
-6-
<PAGE>
particular situation, the provisions of this Article SEVENTH are set forth to
regulate, define and guide the conduct of certain affairs of the Corporation as
they may involve members of the Nationwide Insurance Enterprise and their
officers and directors, and the powers, rights, duties and liabilities of the
Corporation and its officers, directors and stockholders in connection
therewith.
B. Conduct of Similar Business Activities; Corporate Opportunities.
---------------------------------------------------------------
Except as Nationwide Mutual (as hereinafter defined) (or its successor or
assign) may otherwise agree in writing:
(i) no member of the Nationwide Insurance Enterprise shall have a
duty to refrain from engaging directly or indirectly in the same or similar
business activities or lines of business as the Corporation; and
(ii) no member of the Nationwide Insurance Enterprise, nor any
director, officer, employee or agent of any member of the Nationwide Insurance
Enterprise (except as provided below), shall be liable to the Corporation or its
stockholders for breach of any fiduciary duty by reason of any such activities
of such member's or of such person's participation therein.
In the event that any member of the Nationwide Insurance Enterprise acquires
knowledge of a potential transaction or matter that may be a corporate
opportunity both for a member of the Nationwide Insurance Enterprise and the
Corporation, no member of the Nationwide Insurance Enterprise shall have any
duty to communicate or offer such corporate opportunity to the Corporation, nor
shall any such member be liable to the Corporation or its stockholders for
breach of any fiduciary duty as a stockholder of the Corporation or controlling
person of a stockholder by reason of the fact that any member of the Nationwide
Insurance Enterprise pursues or acquires such corporate opportunity for itself,
directs such corporate opportunity to another person or entity, or does not
communicate information regarding, or offer, such corporate opportunity to the
Corporation.
C. Liability of Directors, Officers and Employees With Respect to
--------------------------------------------------------------
Corporate Opportunities. In the event that a director, officer, employee or
- -----------------------
agent of the Corporation who is also a director, officer, employee or agent of
any member of the Nationwide Insurance Enterprise acquires knowledge of a
potential transaction or matter that may be a corporate opportunity for the
Corporation or any member of the Nationwide Insurance Enterprise (whether such
potential transaction or matter is proposed by a third party or is conceived of
by such director, officer, employee or agent of the Corporation), such director,
officer, employee or agent shall be entitled to offer such corporate opportunity
to the Corporation or such member of the Nationwide Insurance Enterprise as such
director, officer or employee deems appropriate under the circumstances in his
sole discretion, and no such director, officer, employee or agent shall be
liable to the Corporation or its stockholders for breach of any fiduciary duty
or duty of loyalty or failure to act in (or not opposed to) the best interests
of the Corporation or the derivation of any improper personal benefit by reason
of the fact that (i) such director, officer, employee or agent offered such
corporate opportunity to such member of the National Insurance Enterprise
(rather than to the Corporation) or did not communicate information regarding
such corporate opportunity to the Corporation or (ii) such member of the
Nationwide Insurance Enterprise pursues or acquires such corporate
-7-
<PAGE>
opportunity for itself or directs such corporate opportunity to another person
or does not communicate information regarding such corporate opportunity to the
Corporation.
D. Notice. Any person purchasing or otherwise acquiring any interest
------
in any shares of capital stock of the Corporation shall be deemed to have notice
of and to have consented to the provisions of this Article SEVENTH.
E. Certain Definitions. For purposes of this Article SEVENTH and
-------------------
Article EIGHTH hereof only, the term "Corporation" shall mean the Corporation
and all corporations, partnerships, joint ventures, associations and other
entities in which the Corporation beneficially owns (directly or indirectly) 50%
or more of the outstanding voting stock, voting power or similar voting
interests, (ii) the term "Nationwide Mutual" shall mean Nationwide Mutual
Insurance Company, an Ohio mutual insurance company, and (iii) the term
"Nationwide Insurance Enterprise" shall mean, collectively, Nationwide Mutual
and its subsidiaries and affiliates (other than the Corporation).
F. Termination of Corporate Opportunities Provisions.
-------------------------------------------------
Notwithstanding anything in this Restated Certificate of Incorporation to the
contrary, the foregoing provisions of this Article SEVENTH shall terminate on
the date (the "Expiration Date") that the members of the Nationwide Insurance
Enterprise cease to beneficially own (directly or indirectly) in the aggregate
Common Stock representing at least 50% of the voting power of the outstanding
shares of Common Stock. Neither the alteration, amendment, termination or repeal
of this Article SEVENTH nor the adoption of any provision inconsistent with this
Article SEVENTH shall eliminate or reduce the effect of this Article SEVENTH in
respect of any matter occurring, or any cause of action, suit or claim that, but
for this Article SEVENTH, would accrue or arise, prior to such alteration,
amendment, termination, repeal or adoption.
G. General. The provisions of this Article SEVENTH are in addition
-------
to the provisions of Article EIGHTH and Article ELEVENTH hereof.
EIGHTH: A. Participation of Interested Officers and Directors. No
------ --------------------------------------------------
contract, agreement, arrangement or transaction (or any amendment, modification
or termination thereof) between the Corporation and any member of the Nationwide
Insurance Enterprise or any Related Entity (as defined below) or between the
Corporation and one or more of the directors or officers of the Corporation, any
member of the Nationwide Insurance Enterprise or any Related Entity, shall be
void or voidable solely for the reason that any member of the Nationwide
Insurance Enterprise or any Related Entity or any one or more of the officers or
directors of the Corporation, any member of the Nationwide Insurance Enterprise
or any Related Entity are parties thereto, or solely because any such directors
or officers are present at or participate in the meeting of the Board of
Directors of the Corporation or committee thereof which authorizes the contract,
agreement, arrangement, transaction, amendment, modification or termination or
solely because his, her or their votes are counted for such purpose, but any
such contract, agreement, arrangement or transaction (or any amendment,
modification or termination thereof) shall be governed by the provisions of this
Restated Certificate of Incorporation, the Bylaws of the Corporation, the DGCL
and other applicable law. For purposes of this Article EIGHTH, the term
"Related Entities" means one or more directors of the Corporation, or one or
more corporations, partnerships, associations or other organizations in which
one or more of the directors of the Corporation have a direct or indirect
financial interest.
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<PAGE>
B. Quorum. Directors of the Corporation who are also directors or
------
officers of any member of the Nationwide Insurance Enterprise or any Related
Entity may be counted in determining the presence of a quorum at a meeting of
the Board of Directors of the Corporation or of a committee thereof that
authorizes or approves any contract, agreement, arrangement or transaction
described in this Article EIGHTH (or amendment, modification or termination
thereof). Outstanding shares of Common Stock owned by any member of the
Nationwide Insurance Enterprise and any Related Entities may be counted in
determining the presence of a quorum at a meeting of stockholders that
authorizes or approves any contract, agreement, arrangement or transaction
described in this Article EIGHTH (or amendment, modification or termination
thereof).
C. No Liability for Breach of Fiduciary Duties. Neither any member
-------------------------------------------
of the Nationwide Insurance Enterprise nor any officer or director thereof nor
any Related Entity shall be liable to the Corporation or its stockholders for
breach of any fiduciary duty or duty of loyalty or failure to act in (or not
opposed to) the best interests of the Corporation or the derivation of any
improper personal benefit by reason of the fact that any member of the
Nationwide Insurance Enterprise or an officer or director thereof or such
Related Entity in good faith takes any action or exercises any rights or gives
or withholds any consent in connection with any agreement or contract between
any member of the Nationwide Insurance Enterprise or such Related Entity and the
Corporation. No vote cast or other action taken by any person who is an
officer, director or other representative of any member of the Nationwide
Insurance Enterprise or such Related Entity, which vote is cast or action is
taken by such person in his or her capacity as a director of the Corporation,
shall constitute an action of or the exercise of a right by or a consent of such
member of the Nationwide Insurance Enterprise or such Related Entity for the
purpose of any such agreement or contract.
D. Notice. Any person or entity purchasing or otherwise acquiring
------
any interest in any shares of capital stock of the Corporation shall be deemed
to have notice of and to have consented to the provisions of this Article
EIGHTH.
E. Transactions with the Corporation. For purposes of this Article
---------------------------------
EIGHTH, any contract, agreement, arrangement or transaction with any
corporation, partnership, joint venture, association or other entity in which
the Corporation beneficially owns (directly or indirectly) 50% or more of the
outstanding voting stock, voting power or similar voting interests, or with any
officer or director thereof, shall be deemed to be a contract, agreement,
arrangement or transaction with the Corporation.
F. Termination of Participation of Interested Officers and Directors
-----------------------------------------------------------------
Provisions. Notwithstanding anything in this Restated Certificate of
- ----------
Incorporation to the contrary, the foregoing provisions of this Article EIGHTH
shall terminate on the Expiration Date. Neither the alteration, amendment,
termination or repeal of this Article EIGHTH nor to adoption of any provision
inconsistent with this Article EIGHTH shall eliminate or reduce the effect of
this Article EIGHTH in respect of any matter occurring or any cause of action,
suit or claim that, but for this Article EIGHTH, would accrue or arise, prior to
such alteration, amendment, termination, repeal or adoption.
-9-
<PAGE>
G. General. The provisions of this Article EIGHTH are in addition to
-------
the provisions of Article SEVENTH and Article TWELFTH hereof.
NINTH: Following the consummation of an initial public offering of
-----
Common Stock or any transaction or event as a result of which any Common Stock
is listed on a national securities exchange or registered under Section 12 of
the Securities Exchange Act of 1934, as amended, any action required or
permitted to be taken by the stockholders of the Corporation must be affected at
a duly called annual or special meeting of stockholders of the Corporation, and
the ability of the stockholders to consent in writing to the taking of any
action is hereby specifically denied. Except as otherwise required by law,
special meetings of stockholders of the Corporation may be called only by (i)
the Chairman of the Board, the Chairman and Chief Executive Officer --
Nationwide Insurance Enterprise (or any successor title) or the President and
Chief Operating Officer of the Corporation and (ii) shall be called by the
Secretary of the Corporation at the request in writing of a majority of the
members of the Board of Directors.
TENTH: In furtherance and not in limitation of the powers conferred
-----
upon it by the laws of the State of Delaware, the Board of Directors shall have
the power to adopt, alter, amend, terminate or repeal the Corporation's Bylaws.
The affirmative vote of at least 66-2/3% of the entire Board of Directors shall
be required to adopt, alter, amend, terminate or repeal the Corporation's
Bylaws.
ELEVENTH: The provisions of Articles FIFTH, NINTH, TENTH and ELEVENTH
--------
hereof and Article II, Section 11 of the Corporation's Bylaws may only be
altered, amended, terminated or repealed, or a provision adopted inconsistent
with the purpose and intent of the provisions of such Articles, by the
affirmative vote of the holders of at least 66-2/3% of the voting power of the
shares entitled to vote at an election of directors.
TWELFTH: No director or officer of the Corporation shall be liable to the
-------
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director or officer, except for liability (i) for any breach of the
director's or officer's duty of loyalty to the Corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL or
(iv) for any transaction from which the director derived an improper personal
benefit.
THIRTEENTH: Except as provided in Articles FOURTH and ELEVENTH of this
----------
Restated Certificate of Incorporation, the Corporation reserves the right to
amend and repeal any provision contained in this Restated Certificate of
Incorporation in the manner prescribed by the laws of the State of Delaware, and
all rights of stockholders shall be subject to this reservation.
THE UNDERSIGNED, being the Secretary of the Corporation, does hereby
certify that the Corporation has restated its Certificate of Incorporation as
set forth above, does hereby certify that such restatement has been duly adopted
in accordance with the applicable provisions of Sections 242 and 245 of the
General Corporation Law of the State of Delaware, and does hereby make and file
this Restated Certificate of Incorporation.
Dated: February 6, 1997
_________________________________
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<PAGE>
Exhibit 3.2
FORM OF
RESTATED BYLAWS
OF
NATIONWIDE FINANCIAL SERVICES, INC.
(hereinafter called the "Corporation")
For the Government of the Stockholders
and Board of Directors
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of the
-----------------
Corporation in the State of Delaware is c/o Corporation Trust Center, 1209
Orange Street, in the City of Wilmington, in the State of Delaware.
Section 2. Other Offices. The Corporation may have other offices,
-------------
either within or without the State of Delaware, at such place or places as the
Board of Directors may from time to time appoint or the business of the
Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Meetings In or Out of State. Any annual or special
---------------------------
meeting of stockholders may be held in or outside of the State of Delaware.
Section 2. Annual Meetings. An annual meeting of the stockholders
---------------
for the election of directors and such other business as may come before the
meeting shall be held on such date, at such place and at such time as shall be
designated by the Board of Directors. If for any reason the annual meeting is
not held as provided for in this section, then the business to be transacted
thereat may be transacted at any special meeting of stockholders called as
provided for in Section 3 of this Article II.
Section 3. Special Meetings. Special meetings of the stockholders
----------------
may be called by the Chairman of the Board, the Chairman and Chief Executive
Officer--Nationwide Insurance Enterprise, or the President and Chief Operating
Officer and shall be called by the Secretary at the request in writing of a
majority of the members of the
<PAGE>
Board of Directors. No business other than that included in the notice of the
special meeting shall be acted upon at such meeting.
Section 4. Notice of Stockholders' Meetings. A written, printed or
--------------------------------
typewritten notice of each annual or special meeting of the stockholders,
stating the place, time and date and, if it is for a special meeting, the
purpose or purposes thereof, shall be delivered or mailed to each stockholder of
record entitled to vote at such meeting or entitled to notice thereof. If
mailed, such notice shall be addressed to such stockholder's last known address
as the same appears on the records of the Corporation. Such notices for each
annual or special meeting shall be so delivered or mailed not more than 60 nor
less than 10 days before the date fixed for the meeting. In the event of the
transfer of shares after notice has been given and prior to the holding of the
meeting, it shall not be necessary to serve notice upon the transferee. If a
meeting is adjourned to another time or place and such adjournment is for 30
days or less and no new record date is fixed for the adjourned meeting, no
further notice as to such adjourned meeting need be given if the time and place
to which the meeting is adjourned are fixed and announced at such meeting. If
the adjournment is for more than 30 days, or after the adjournment a new record
date is fixed for the adjourned meeting, a notice of the adjourned meeting shall
be given to each stockholder of record entitled to vote at the meeting or
entitled to notice thereof.
Section 5. Waiver of Notice. Any stockholder entitled to notice of
----------------
any stockholders' meeting may, in person or by proxy, either before, at or after
such meeting, waive notice in writing, which writing shall be filed with or
entered upon the records of the meeting, of any or all of the provisions of law,
the Certificate of Incorporation of the Corporation, as amended and restated
from time to time (the "Certificate of Incorporation"), or these Bylaws as to
notice of such meeting, including the time, place and purpose thereof, or as to
any irregularities in such notice or arising in connection therewith or with the
giving thereof and shall thereby validate the proceedings at such meeting as
fully as though all of the requirements waived had been duly met in their
respective cases. The attendance of any stockholder at any such meeting, in
person or by proxy, without protesting the lack of a proper notice of such
meeting shall be deemed to be a waiver of notice of such meeting.
Section 6. Quorum. A stockholders' meeting duly called shall not be
------
organized for the transaction of business unless a quorum is present. Except as
otherwise expressly provided by law, the Certificate of Incorporation, these
Bylaws or any certificate filed under Section 151(g) of the Delaware General
Corporation Law (the "DGCL") (or its successor statute as in effect from time to
time), the presence in person or by proxy of holders of record entitled to
exercise at least a majority of the voting power of the Corporation shall
constitute a quorum for such meeting. The stockholders present at a duly
organized meeting can continue to do business until adjournment, notwithstanding
the withdrawal of enough stockholders to leave less than a quorum. If a meeting
cannot be organized because a quorum has not attended, stockholders representing
a majority of the voting power of the stockholders present may adjourn, or, in
the absence of a decision by the majority, any officer entitled to preside at
such meeting may adjourn, the meeting from time to time to such time (not more
than 30 days after the previously adjourned meeting) and
-2-
<PAGE>
place as such stockholders or officer may determine, without notice other than
by announcement at the meeting of the time and place of the adjourned meeting.
At any such adjourned meeting at which a quorum is present any business may be
transacted which might have been transacted at the meeting as originally called.
Section 7. Fixing Date for Determination of Stockholders of Record.
-------------------------------------------------------
In order that the Corporation may determine the stockholders entitled to notice
of or to vote at any meeting of stockholders or any adjournment thereof, or
entitled to receive payment of any dividend or other distribution or allotment
of any rights, or entitled to exercise any rights in respect of any other
change, conversion or exchange of stock or for the purpose of any other lawful
action, the Board of Directors may fix, in advance, a record date, which shall
not be more than 60 days nor less than 10 days before the date of such meeting,
nor more than 60 days prior to any other action. A determination of
stockholders entitled to notice of or to vote at a meeting of stockholders shall
apply to any adjournment of such meeting; provided, however, that the Board of
Directors may fix a new record date for the adjourned meeting.
Section 8. Voting.
------
(a) Stockholders Entitled to Vote. Each stockholder shall, at each meeting of
-----------------------------
the stockholders, be entitled to vote in person or by proxy each share or
fractional share of the stock of the Corporation having voting rights on the
matter in question and which shall have been held by him or her and registered
in his name on the books of the Corporation on the date fixed pursuant to
Section 7 of this Article II as the record date for the determination of
stockholders entitled to notice of and to vote at such meeting.
(b) Voting by Another Corporation. Subject to the provisions of the
-----------------------------
Certificate of Incorporation and subsection (a) of this Section 8, the chairman
of the board of directors, the president, any vice president, the secretary, the
treasurer or any other duly elected officer or duly authorized agent, proxy or
attorney-in-fact of another corporation holding shares of this Corporation and
entitled to vote at any meeting shall conclusively be deemed to have authority
to vote such shares and to execute proxies and written waivers or consents in
relation thereto, whether such shares are held in a fiduciary capacity or
otherwise, unless before a vote is taken or a consent or waiver is acted upon, a
certified copy of the bylaws, or a resolution of the board of directors, of the
corporation holding such shares is delivered to the Secretary of this
Corporation, showing that such authority does not exist or is vested in some
other officer or person. A person executing such writing or so acting as one of
such officers, agents, proxies or attorneys-in-fact of such corporation shall,
for the purposes of this subsection (b), be prima facie deemed to be duly
elected (if applicable) or appointed, qualified and acting as such officer,
agent, proxy or attorney-in-fact and to be fully authorized.
(c) Voting by Proxy. A stockholder may, through a written proxy, authorize
---------------
another person (who need not be a stockholder) to vote in the stockholder's
stead and to represent the stockholder at one or more stockholders' meetings,
whether annual or special meetings, or any adjournment thereof, but such
instrument must be filed with the Secretary
-3-
<PAGE>
of this Corporation before the convening of the meeting and before the person
authorized thereby may exercise the rights thereunder. A vote in accordance
with the terms of a duly filed proxy shall be valid notwithstanding the previous
death of the principal or the revocation of the appointment or the transfer of
the share on which the vote was given, unless notice in writing of such death,
revocation or transfer shall have been received by the Secretary of this
Corporation, or such revocation is made in open meeting, before the vote is
taken or the authority granted is otherwise exercised; provided, however, that
-------- -------
no proxy hereafter made shall be valid after the expiration of 3 years after the
date of its execution unless the stockholder executing it shall have specified
therein the length of time it is to continue in force. A telegram, cablegram,
wireless message or photograph, photostatic or equivalent reproduction of a
writing appointing a proxy or proxies shall be a sufficient writing. A
stockholder, without affecting any vote previously taken, may revoke such
writing not otherwise revoked by giving notice to this Corporation in writing or
in open meeting.
Section 9. Inspectors of Election. The Board of Directors, in advance
----------------------
of any meeting of stockholders, may appoint 3 inspectors to act at the meeting.
If inspectors are not so appointed, the person acting as the chairman of any
meeting of stockholders may appoint such inspectors. If any person so appointed
fails to appear or act, the vacancy may be filled by appointment made by the
Board of Directors in advance of the meeting or at the meeting by the person
acting as chairman thereat. The inspectors so appointed, if any, shall (i)
determine the number of shares outstanding, the voting rights with respect to
the shares outstanding, the shares represented at the meeting, the existence of
a quorum, and the authenticity, validity, and effect of proxies, (ii) receive
votes, ballots, consents, waivers, or releases, (iii) hear and determine all
challenges and questions arising in connection with the vote, (iv) count and
tabulate all votes, consents, waivers, and releases, (v) determine and announce
the result, and (vi) do such acts as are proper to conduct the election or vote
with fairness to all stockholders. The decision, act or certificate of a
majority of the inspectors shall be effective in all respects as the decision,
act or certificate of all 3 inspectors. If requested to do so by the person
acting as chairman of the meeting, the inspectors shall make a report in writing
of any challenge, question or matter determined by them, and make and execute a
certificate of any facts found by them. The certificate of the inspectors shall
be prima facie evidence of the facts therein stated and of the vote as certified
by them.
Section 10. Organization. At each meeting of the stockholders, the
------------
Chairman of the Board, or in his absence or by his or her request, the Chairman
and Chief Executive Officer--Nationwide Insurance Enterprise, or in his or her
absence or by his or her request, the President and Chief Operating Officer, or
in his or her absence or by his or her request, any Vice President, or, in the
absence of the Chairman of the Board, the Chairman and Chief Executive Officer--
Nationwide Insurance Enterprise, the President and Chief Operating Officer and a
Vice President, a chairman chosen by stockholders representing a majority of the
voting power present in person or by proxy and entitled to vote shall act as
chairman, and the Secretary of this Corporation, or, if the Secretary of this
Corporation not be present, an Assistant Secretary, or if neither the Secretary
nor an Assistant Secretary be present, any person whom the chairman of the
meeting shall appoint, shall act as secretary of the meeting.
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<PAGE>
Section 11. Advance Notice of Stockholder Proposals and Stockholder
-------------------------------------------------------
Nominations of Directors. In order to properly submit any business to, or
- ------------------------
nominate any person for election to the Board of Directors at, an annual meeting
of stockholders, a stockholder must give timely notice in writing to the
Secretary of the Corporation. To be considered timely, a stockholder's notice
must be delivered either in person or by United States certified mail, postage
prepaid, and received at the principal executive offices of the Corporation (i)
not less than 60 days nor more than 90 days before the first anniversary date of
the Corporation's proxy statement in connection with the last annual meeting of
stockholders or (ii) if no annual meeting was held in the previous year or the
date of the applicable annual meeting has been changed by more than 30 days from
the date contemplated at the time of the previous year's proxy statement, not
less than a reasonable time, as determined by the Board of Directors, prior to
the date of the applicable annual meeting. With respect to any special meeting
of stockholders, written notice of a stockholder's proposal to submit business
or to nominate a person for election to the Board of Directors must be delivered
in the manner specified above and not later than the close of business on the
seventh day following the earlier of (a) the day on which notice of such meeting
is first given to stockholders or (b) the day on which public disclosure of the
meeting is made.
The Secretary of the Corporation shall deliver any stockholder proposals
and nominations received in a timely manner for review by the Board of Directors
or a committee designated by the Board of Directors.
A stockholder's notice to submit business at an annual meeting of
stockholders shall set forth (1) the name and address of such stockholder, (2)
the class and number of shares of stock beneficially owned by such stockholder,
(3) the name in which such shares are registered on the stock transfer books of
the Corporation, (4) a representation that such stockholder intends to appear at
the meeting in person or by proxy to submit the business specified in such
notice, (5) any material interest of such stockholder in the business to be
submitted, and (6) a brief description of the business desired to be submitted
at the annual meeting, including the complete text of any resolutions to be
presented at the annual meeting, and the reasons for conducting such business at
the annual meeting. In addition, the stockholder making such proposal shall
promptly provide any other information reasonably requested by the Corporation.
In addition to the information required above to be given by a
stockholder who intends to submit business at a meeting of stockholders, if the
business to be submitted is the nomination of a person or persons for election
to the Board of Directors then such stockholder's notice must also set forth, as
to each person whom such stockholder proposes to nominate for election as a
director, (A) the name, age, business address and, if known, residential address
of such person, (B) the principal occupation or employment of such person, (C)
the class and number of shares of stock of the Corporation which are
beneficially owned by such person, (D) any other information relating to such
person that is required to be disclosed in solicitations of proxies for election
of directors or is otherwise required by the rules and regulations of the
Securities and Exchange Commission promulgated under the
-5-
<PAGE>
Securities Exchange Act of 1934, as amended, (E) the written consent of such
person to be named in the proxy statement as a nominee and to serve as a
director if elected, and (F) a description of all arrangements or understandings
between such stockholder and each nominee and any other person or persons
(naming such person or persons) pursuant to which the nomination or nominations
are to be made by such stockholder.
Any person nominated for election as a director by the Board of Directors
or any committee designated by the Board of Directors shall, upon the request of
the Board of Directors or such committee, furnish to the Secretary of the
Corporation all such information pertaining to such person that is required to
be set forth in a stockholder's notice of nomination.
Notwithstanding the foregoing provisions of this Section 11, a
stockholder who seeks to have any proposal included in the Corporation's proxy
statement shall comply with the requirements of Regulation 14A under the
Securities Exchange Act of 1934, as amended, at any time when such requirements
are applicable pursuant thereto.
ARTICLE III
DIRECTORS
Section 1. Powers and Number of Directors. The affairs, property and
------------------------------
business of the Corporation shall be conducted and managed by a Board of
Directors consisting of not less than 1 nor more than 15 directors. The exact
number of directors shall be determined from time to time by resolution or
resolutions adopted by affirmative vote of a majority of the entire Board of
Directors which the Corporation would have if there were no vacancies. The
directors shall be divided into three classes, designated Class I, Class II and
Class III, as provided in the Certificate of Incorporation. The terms of
directors shall be as provided in the Certificate of Incorporation.
Section 2. Election of Directors. At each meeting of the stockholders
---------------------
for the election of directors, the persons receiving the greatest number of
votes shall be the directors. Directors need not be stockholders.
Section 3. Nominations. Nominations of persons for election to the
-----------
Board of Directors may be made by the Board of Directors, any committee thereof,
or by any stockholders entitled to vote for the election of directors at the
applicable meeting of stockholders. Nominations made by stockholders must be
made in accordance with the provisions of Section 11 of Article II of these
Bylaws. Notice of nominations which are proposed by the Board of Directors
shall be given on behalf of the Board of Directors by the chairman of the
meeting. The chairman of the meeting may, if the facts warrant, determine that
a nomination was not made in accordance with the foregoing procedure, and if the
chairman should so determine, the chairman shall so declare at the meeting and
the defective nomination shall be disregarded.
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<PAGE>
Section 4. Resignations. Any director of the Corporation may resign at
------------
any time by giving written notice to the Chairman of the Board, the Chairman and
Chief Executive Officer--Nationwide Insurance Enterprise, the President and
Chief Operating Officer or the Secretary of the Corporation. Such resignation
shall take effect at the time specified therein, and if no time is specified, at
the time of its receipt. Unless otherwise specified therein, the acceptance of
such resignation shall not be necessary to make it effective.
Section 5. Vacancies and Removal of Directors. Vacancies in the Board
----------------------------------
of Directors shall be filled, and directors may be removed, only as provided in
the Certificate of Incorporation.
Section 6. Place of Meeting. The Board of Directors may hold any of its
----------------
meetings at the principal office of the Corporation or at such other place or
places as the Board of Directors (or the Chairman of the Board in the absence of
a determination by the Board of Directors) may from time to time designate.
Section 7. Annual Meeting. An annual meeting of the Board of Directors
--------------
shall be held each year at the same place as, and immediately after, the annual
meeting of stockholders, or at such other place and time as shall theretofore
have been determined by the Board of Directors and notice thereof need not be
given. At its annual meeting, the Board of Directors shall organize itself and
elect the officers of the Corporation for the ensuing year, and may transact any
other business which may properly come before the meeting.
Section 8. Regular Meetings. Regular meetings of the Board of Directors
----------------
may be held without notice at such intervals, at such time and at such place as
shall from time to time be determined by resolution of the Board of Directors.
Section 9. Special Meetings. Special meetings of the Board of Directors
----------------
may be called at any time by the Chairman of the Board, the Chairman and Chief
Executive Officer--Nationwide Insurance Enterprise, the President and Chief
Operating Officer or by a majority of directors then in office to be held on
such day and at such time and place as shall be specified by the person or
persons calling the meeting.
Section 10. Notice of Meeting. Notice of each special meeting or, where
-----------------
required, each regular meeting of the Board of Directors shall be given to each
director either by being mailed on at least the third day prior to the date of
the meeting or by being telegraphed, faxed or given personally or by telephone
on at least 24 hours notice prior to the date of meeting. Such notice shall
specify the place, the date and the hour of the meeting and, if it is for a
special meeting, the purpose or purposes for which the meeting is called. At any
meeting of the Board of Directors at which every director shall be present
(unless any director shall be so present solely to protest the validity or
legality of such meeting), even though without such notice, any business may be
transacted. Any acts or proceedings taken at a meeting of the Board of
Directors not validly called or constituted may be made valid
-7-
<PAGE>
and fully effective by ratification at a subsequent meeting which shall be
legally and validly called or constituted. Notice of any regular meeting of the
Board of Directors need not state the purpose of the meeting and, at any regular
meeting duly held, any business may be transacted. If the notice of a special
meeting shall state as a purpose of the meeting the transaction of any business
that may come before the meeting, then at the meeting any business may be
transacted, whether or not referred to in the notice thereof. A written waiver
of notice of a special or regular meeting, signed by the person or persons
entitled to such notice, whether before or after the time stated therein, shall
be deemed the equivalent of such notice, and attendance of a director at a
meeting shall constitute a waiver of notice of such meeting except when the
director attends the meeting and prior to or at the commencement of such meeting
protests the lack of proper notice.
Section 11. Quorum and Voting. At all meetings of the Board of
-----------------
Directors, the presence of a majority of the directors then in office shall
constitute a quorum for the transaction of business. Except as otherwise
required by law, the Certificate of Incorporation, or these Bylaws, the vote of
a majority of the directors present at any meeting at which a quorum is present
shall be the act of the Board of Directors. If at any meeting of the Board of
Directors, there shall be less than a quorum present, a majority of the
directors present may adjourn the meeting from time to time until a quorum is
obtained, and no further notice thereof need be given other than by announcement
at the adjourned meeting. At all meetings of the Board of Directors, each
director shall have one vote.
Section 12. Committees. The Board of Directors, by resolution passed
----------
by a majority of the entire board, may designate one or more committees of the
Board of Directors, each consisting of two or more directors. To the extent
provided in the resolution and permitted by law, the committee or committees
shall have and may exercise all powers and authority of the Board of Directors
in the management of the business and affairs of the Corporation and may
authorize the seal of the Corporation to be affixed to all papers that may
require it, but no committee shall have the power or authority to approve or
adopt, or recommend to the stockholders of the Corporation, any matter expressly
required by the DGCL to be submitted to stockholders for approval or adopt,
amend or repeal any provision of these Bylaws or the Certificate of
Incorporation. Any committee or committees shall have the name or names
determined from time to time by resolution adopted by the Board of Directors.
Any vacancy in a committee occurring from any cause whatsoever may be filled by
the Board of Directors. Each committee shall serve at the pleasure of the Board
of Directors and shall be subject to the control and direction of the Board of
Directors. Any such committee may act by a majority of its members at a meeting
of such committee. Any such committee shall keep written minutes of its
meetings and report the same to the Board of Directors at the next regular
meeting of the Board of Directors.
Section 13. Compensation. The Board of Directors may, by resolution
------------
passed by a majority of those in office, fix the compensation of directors for
service in any capacity and may fix fees for attendance at meetings and may
authorize the Corporation to pay the traveling and other expenses of directors
incident to their attendance at meetings, or may delegate such authority to a
committee of the Board of Directors.
-8-
<PAGE>
Section 14. Action by Consent. Any action required or permitted to be
-----------------
taken at any meeting of the Board of Directors or of any committee thereof may
be taken without a meeting if a written consent thereto is signed by all members
of the Board of Directors or of such committee, as the case may be, and such
written consent is filed with the minutes of proceedings of the Board of
Directors or such committee.
Section 15. Participation in Meeting by Telephone. Unless otherwise
-------------------------------------
provided by the Certificate of Incorporation or these Bylaws, members of the
Board of Directors or any committee thereof may participate in a meeting of the
Board of Directors or such committee by means of a conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and participation in a meeting pursuant to this
Section 15 shall constitute presence in person at such meeting.
ARTICLE IV
OFFICERS
Section 1. Officers. The officers of the Corporation shall be a
--------
Chairman of the Board, a Chairman and Chief Executive Officer--Nationwide
Insurance Enterprise, a President and Chief Operating Officer, one or more Vice
Presidents, a General Counsel, a Secretary, and a Treasurer. The Corporation
may also have such other officers, assistant officers and agents as, from time
to time, may be elected or appointed by the Board of Directors. The Chairman of
the Board, the Chairman and Chief Executive Officer--Nationwide Insurance
Enterprise and the President and Chief Operating Officer must be members of the
Board of Directors. Any two or more of the offices may be held by the same
person, but no officer shall execute, acknowledge or verify any instrument in
more than one capacity, if such instrument is required by law, by the
Certificate of Incorporation or by these Bylaws to be executed, acknowledge or
verified by two or more officers.
Section 2. Election and Term of Office. The Chairman of the Board, the
---------------------------
Chairman and Chief Executive Officer -- Nationwide Insurance Enterprise, the
President and Chief Operating Officer, the Vice Presidents, the General
Counsel, the Secretary and the Treasurer shall be elected by the majority of the
Board of Directors at the annual meeting of the Board of Directors. The
officers shall hold office until the date of the next annual meeting of the
Board of Directors and until their respective successors are elected and
qualified. All other officers, assistant officers and agents of the Corporation
shall be elected or appointed by the Board of Directors and shall hold office
for such period, have such authority and perform such duties as the Board of
Directors may from time to time determine. The Board of Directors may delegate
to any officer the power to appoint any subordinate officers or agents.
Section 3. Removal. Any officer of the Corporation may be removed from
-------
office at any time, for or without cause, by a vote of a majority of the Board
of Directors.
-9-
<PAGE>
Any officer appointed not by the Board of Directors but by a committee or
officer to which the Board of Directors shall have delegated the power of
appointment may be removed, for or without cause, by the committee or superior
officer (including successors) who made the appointment, or by any committee or
officer upon whom such power of removal may be conferred by the Board of
Directors.
Section 4. Resignations. Any officer may resign at any time by giving
------------
written notice to the Chairman of the Board, the Chairman and Chief Executive
Officer--Nationwide Insurance Enterprise, the President and Chief Operating
Officer, or the Secretary of the Corporation. Any such resignation shall take
effect at the time specified therein, and if no time is specified, at the time
of its receipt. Unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
Section 5. Vacancies. A vacancy in any office because of death,
---------
resignation, removal, disqualification or otherwise, shall be filled in the
manner prescribed in these Bylaws for regular appointments or elections to such
office.
ARTICLE V
DUTIES OF OFFICERS
Section 1. Chairman of the Board. The Chairman of the Board shall
---------------------
preside, if present, at all meetings of the stockholders and the Board of
Directors, shall sign the record of such meetings at which he or she shall
preside and shall have such other powers and duties as are conferred upon him or
her by these Bylaws or may be assigned to him or her from time to time by the
Board of Directors.
Section 2. Chairman and Chief Executive Officer--Nationwide Insurance
----------------------------------------------------------
Enterprise. The Chairman and Chief Executive Officer--Nationwide Insurance
- ----------
Enterprise shall be the Chief Executive Officer of the Corporation and shall
exercise general administrative leadership and direction of the Corporation in
conformity with actions and controls established and maintained by the Board of
Directors. The Chairman and Chief Executive Officer--Nationwide Insurance
Enterprise shall, in compliance with the laws of Delaware, the Certificate of
Incorporation and these Bylaws, and in concurrence with the actions of the Board
of Directors, direct the activities of the officers of the Corporation. The
Chairman and Chief Executive Officer--Nationwide Insurance Enterprise shall have
the power and authority to execute on behalf of the Corporation any and all
approved documents, contracts, instruments, or other papers to which the
signature of the Corporation is to be attached; provided, however, that a
-------- -------
facsimile of his or her signature may be printed, engraved or stamped on any
approved document, contract, instrument or other paper of the Corporation. The
Chairman and Chief Executive Officer--Nationwide Insurance Enterprise shall
exercise the discretion of and perform generally all of the duties incident to
the office of Chairman and Chief Executive Officer--Nationwide Insurance
Enterprise and such other
-10-
<PAGE>
duties as are conferred upon him or her by these Bylaws or may be assigned to
him or her from time to time by the Board of Directors.
In the absence of the Chairman of the Board, or at the request thereof,
the Chairman and Chief Executive Officer--Nationwide Insurance Enterprise shall
preside at meetings of the stockholders and the Board of Directors and sign the
record of such meetings at which he or she shall preside. In the absence of the
Chairman of the Board and the Chairman and Chief Executive Officer--Nationwide
Insurance Enterprise, another director shall be selected by the directors
present at the meeting of the Board of Directors to preside at such meeting and
shall be authorized to sign the record of the meeting at which such director
shall preside.
Section 3. President and Chief Operating Officer. The President and
-------------------------------------
Chief Operating Officer shall be the chief operating officer of the Corporation
and shall, in compliance with the laws of Delaware, the Certificate of
Incorporation and these Bylaws, and in concurrence with the Chairman and Chief
Executive Officer--Nationwide Insurance Enterprise and the actions of the Board
of Directors, direct the activities of the officers of the Corporation. Except
as provided for by resolution of the Board of Directors or by memorandum from
the Chairman and Chief Executive Officer--Nationwide Insurance Enterprise, the
President and Chief Operating Officer shall have the power and authority to
execute on behalf of the Corporation any and all approved documents, contracts,
instruments, or other papers to which the signature of the Corporation is to be
attached; provided, however, that a facsimile of his or her signature may be
-------- -------
printed, engraved or stamped on any approved document, contract, instrument or
other paper of the Corporation. The President and Chief Operating Officer shall
exercise the discretion of and perform generally all of the duties incident to
the office of President and Chief Operating Officer and such other and further
duties as are conferred upon him or her by these Bylaws or may be assigned to
him or her from time to time by the Board of Directors or the Chairman and Chief
Executive Officer--Nationwide Insurance Enterprise.
Section 4. Vice Presidents. The Vice Presidents, who may be designated
---------------
Executive Vice President, Senior Vice President, Vice President or Associate
Vice President, shall have such powers and perform such duties as are conferred
upon them by these Bylaws or may be assigned to them from time to time by the
Chairman and Chief Executive Officer--Nationwide Insurance Enterprise or the
President and Chief Operating Officer and approved by the Board of Directors.
The officer designated by the President and Chief Operating Officer and approved
by the Chairman and Chief Executive Officer--Nationwide Insurance Enterprise
shall act for the President and Chief Operating Officer upon his or her absence
or disability.
Section 5. General Counsel. The General Counsel shall furnish legal
---------------
counsel on corporate matters as required; render legal opinions to the Board of
Directors, the Chairman and Chief Executive Officer--Nationwide Insurance
Enterprise, the President and Chief Operating Officer and the other officers and
employees as requested; interpret all laws and regulations relating to the
business of the Corporation; initiate recommendations with
-11-
<PAGE>
respect to legislation affecting the business of the Corporation; and shall
perform such other and further duties as may be required by the Board of
Directors, the Chairman and Chief Executive Officer--Nationwide Insurance
Enterprise or the President and Chief Operating Officer.
Section 6. Secretary. The Secretary shall (i) issue notices and
---------
maintain the official records of all meetings of the stockholders and the Board
of Directors and such records shall be attested by the Secretary or by such
other person as shall have acted as secretary of such meeting in the case of the
Secretary's absence for any reason, (ii) have charge of the seal, share or other
security books of the Corporation, and (iii) shall issue and attest all
certificates of shares or other securities of the Corporation; provided,
--------
however, that a facsimile of his or her signature may be printed, engraved or
- -------
stamped on certificates for shares, bonds or other securities of the Corporation
when such certificates are countersigned by an incorporated transfer agent or
registrar. In case a transfer agent or registrar of the shares or other
securities of the Corporation shall be duly appointed by the Corporation, the
Secretary may place in the charge of such transfer agent or registrar the seal
and share or other security books of the Corporation and such transfer agent or
registrar may perform in the Secretary's stead all duties in connection with the
shares of the Corporation. The Secretary shall have power and authority to sign
or attest on behalf of the Corporation any and all approved documents,
contracts, instruments or other papers where required in carrying on the
business of the Corporation; provided, however, that a facsimile of his or her
-------- -------
signature may be printed, engraved or stamped on any approved document,
contract, instrument or other paper of the Corporation. The Secretary shall
perform such other and further duties as are conferred upon him or her by these
Bylaws or may be assigned to him or her from time to time by the Chairman and
Chief Executive Officer--Nationwide Insurance Enterprise or the President and
Chief Operating Officer and approved by the Board of Directors.
Section 7. Treasurer. The Treasurer shall (i) maintain custody of all
---------
funds, securities and properties of the Corporation, (ii) direct the receipt and
deposit of all funds and securities and payment of all authorized disbursements,
(iii) direct the administration of all accounting activities of the Corporation,
(iv) furnish financial reports of the Corporation, as required, and (v) have
the power and authority to sign or attest on behalf of the Corporation any and
all approved documents, contracts, instruments, or other papers where required
in carrying on the business of the Corporation; provided, however, that a
-------- -------
facsimile of his signature may be printed, engraved or stamped on any approved
document, contract, instrument or other paper of the Corporation. The Treasurer
shall perform such other and further duties as are conferred upon him or her by
these Bylaws or may be assigned to him or her from time to time by the Chairman
and Chief Executive Officer--Nationwide Insurance Enterprise or the President
and Chief Operating Officer and approved by the Board of Directors.
Section 8. Assistant Secretary. Any Assistant Secretary shall at all
-------------------
times act as an assistant to the Secretary and have such powers and perform such
duties as are conferred upon him or her by these Bylaws or be assigned to him or
her from time to time
-12-
<PAGE>
by the Secretary and approved by the Chairman and Chief Executive Officer--
Nationwide Insurance Enterprise or the President and Chief Operating Officer.
In case both the Secretary and all Assistant Secretaries are at the same time
absent or unable to perform their duties, the Board of Directors may appoint a
secretary pro tempore with the power and duty to act as Secretary during such
absence or disability of the Secretary and the Assistant Secretaries.
Section 9. Assistant Treasurer. Any Assistant Treasurer shall at all
-------------------
times act as an assistant to the Treasurer and shall have powers and perform
such duties as are conferred upon him or her by these Bylaws or may be assigned
to him or her from time to time by the Treasurer and approved by the Chairman
and Chief Executive Officer--Nationwide Insurance Enterprise or the President
and Chief Operating Officer.
Section 10. Execution of Instruments. Any Vice President and any
------------------------
assistant secretary or assistant treasurer shall have the power and authority to
sign any and all approved documents, contracts, instruments, or other papers in
connection with the operation of the business of the Corporation in addition to
the Chairman and Chief Executive Officer--Nationwide Insurance Enterprise, the
President and Chief Operating Officer, the Treasurer and the Secretary;
provided, however, the facsimile signature of any of them may be printed,
- -------- -------
engraved or stamped on any approved document, contract, instrument, or other
paper of the Corporation.
Section 11. Bond of Officers and Employees. Any officer or employee of
------------------------------
the Corporation handling funds or negotiable instruments or any other property
of the Corporation shall furnish such bond or shall be covered by a blanket bond
in such amounts and with such surety and sureties as may be required by the
Board of Directors. The premium of any such bond shall be paid by the
Corporation.
ARTICLE VI
INDEMNIFICATION
Section 1. Indemnification. The Corporation shall indemnify, to the
---------------
fullest extent permissible under the DGCL, or the indemnification provisions of
any successor statute, any person, and the heirs and personal representatives of
such person, against any and all judgments, fines, amounts paid in settlement
and costs and expenses, including attorneys' fees, actually and reasonably
incurred by or imposed upon such person, in connection with, or resulting from
any claim, action, suit or proceeding (civil, criminal, administrative or
investigative) in which such person is a party or is threatened to be made a
party by reason of such person being or having been a director, officer,
employee or agent of the Corporation, or of another corporation, joint venture,
trust or other organization in which such person serves as a director, officer,
employee or agent at the request of the Corporation, or by reason of such person
being or having been an administrator or a member of any board or committee of
the Corporation or of any such other organization, including, but not limited
to, any administrator, board or committee related to any employee benefit plan.
-13-
<PAGE>
The Corporation may advance expenses incurred in defending a civil or
criminal action, suit or proceeding to any such director, officer, employee or
agent upon receipt of an undertaking by or on behalf of the director, officer,
employee or agent to repay such amount, if it shall ultimately be determined
that such person is not entitled to indemnification by the Corporation.
The foregoing right of indemnification and advancement of expenses shall
in no way be exclusive of any other rights of indemnification to which any such
person may be entitled, under any bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, and shall inure to the benefit of the
heirs and personal representatives of such person. Any repeal or amendment of
this Section 1 of Article VI by the Corporation shall be prospective only and
shall not adversely affect any right of protection of a person with respect to
any act or omission occurring prior to the time of such repeal or modification.
Section 2. Reliance on Books and Records. Each director and officer and
-----------------------------
each member of any committee designated by the Board of Directors shall, in the
performance of his or her duties, be fully protected in relying in good faith
upon the books of account or other records of the Corporation or of any of its
subsidiaries, or upon reports made to the Corporation or any of its subsidiaries
by any officer of the Corporation or of a subsidiary or by an independent
certified public accountant or by an appraiser selected with reasonable care by
the Board of Directors or by any such committee.
Section 3. Insurance. The Corporation may purchase and maintain
---------
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
such person and incurred by such person in any such capacity, or arising out of
the person's status as such, whether or not the Corporation would have the power
to indemnify such person against such liability under the DGCL.
ARTICLE VII
SHARES
Section 1. Certificates of Shares. Each stockholder of the Corporation
----------------------
whose shares are paid in full shall be entitled to a certificate or certificates
showing the number and class of shares registered in such stockholder's name on
the books of the Corporation. Certificates for the respective classes of shares
of the Corporation shall be issued in numerical order and signed in the name of
the Corporation by the Chairman of the Board, the Chairman and Chief Executive
Officer--Nationwide Insurance Enterprise or the President and Chief Operating
Officer and the Secretary or the Treasurer, or such other officers or persons as
may be authorized by the Board of Directors and permitted by applicable law.
The signature of any of said officers may be facsimile, engraved, stamped or
printed when such certificates are countersigned by an incorporated transfer
agent or
-14-
<PAGE>
registrar. A full record of each certificate as issued shall be entered on the
stock record books of the Corporation. No new certificate shall be issued until
the former certificate for the same number of shares shall have been surrendered
and canceled, except as provided for in Section 3 of this Article VII. In case
any officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate is issued, it may
be issued by the Corporation with the same effect as if he or she was such
officer, transfer agent or registrar at the date of issue.
Section 2. Transfer of Shares. Transfers of shares in the Corporation
------------------
shall be made only on the books of the Corporation by the registered holder
thereof, his legal guardian, executor or administrator, or by his attorney
thereunto authorized by power of attorney duly executed and filed with the
Secretary or with a transfer agent appointed by the Board of Directors, and on
surrender of the certificate or certificates for such shares properly endorsed
or accompanied by properly executed stock powers and evidence of the payment of
all taxes imposed upon such transfer.
Section 3. Lost, Stolen, Destroyed or Mutilated Certificates. If any
-------------------------------------------------
share certificate in this Corporation becomes worn, defaced or mutilated, the
Secretary, upon presentation or surrender thereof, shall order the same
canceled, and shall issue a new certificate in lieu thereof. If any share
certificate is lost, stolen or destroyed, the Secretary shall issue a new
certificate in lieu thereof to the person entitled to such lost, stolen or
destroyed certificate upon receiving a bond of indemnity containing such terms
as the Board of Directors may reasonably require to protect the Corporation or
any person, firm or other corporation from loss, cost or damage resulting from
the issue of such new certificate.
Section 4. Holder of Record. The Corporation shall be entitled to treat
----------------
the holder of record of any share or shares of the Corporation as the holder in
fact thereof, and accordingly shall not be bound to recognize any equitable or
other claim to, or interest in, such share on the part of any person, whether or
not the Corporation shall have express or other notice thereof, except as
expressly provided by the laws of Delaware.
Section 5. Transfer Agents and Registrars. The Board of Directors may
------------------------------
appoint, or revoke the appointment of, transfer agents and registrars and may
require all certificates for shares to bear the signatures of such transfer
agents and registrars, or any of them. The Board of Directors shall have
authority to make all such rules and regulations as it may deem expedient
concerning the issue, transfer, and registration of certificates for shares of
the Corporation.
-15-
<PAGE>
ARTICLE VIII
FISCAL YEAR
Section 1. Fiscal Year. The fiscal year of the Corporation shall be the
-----------
calendar year ending December 31, unless otherwise fixed by resolution of the
Board of Directors.
ARTICLE IX
SEAL
Section 1. Seal. The corporate seal shall be circular in form and shall
----
contain the name of the Corporation, the year of its creation and the words
"CORPORATE SEAL Delaware." Said seal may be used by causing it or a facsimile
thereof to be impressed or affixed or reproduced or otherwise.
ARTICLE X
MISCELLANEOUS
Section 1. Checks. All checks, drafts or other orders for the payment
------
of money, notes, or other evidences of indebtedness issued in the name of the
Corporation shall be signed by such officer or officers or agent or agents of
the Corporation, and in such manner, as shall be determined from time to time by
resolution of the Board of Directors.
Section 2. Notice and Waiver of Notice. Except as otherwise expressly
---------------------------
provided herein, any notice required by these Bylaws to be given shall be
sufficient if given by depositing the same in a post office or letter box in a
sealed wrapper with first-class postage prepaid thereon and addressed to the
person entitled thereto at such person's address, as the same appears upon the
books of the Corporation, or by faxing, telegraphing or cabling the same to such
person at such address; and such notice shall be deemed to be given at the time
it is faxed, telegraphed or cabled or at the time the mailing is received.
Whenever any notice is required to be given under the provisions of any law, or
under the provisions of the Certificate of Incorporation or these Bylaws, a
waiver thereof in writing, signed by the person or persons entitled to said
notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE XI
AMENDMENTS
-16-
<PAGE>
Section 1. By Stockholders. Except as otherwise provided in the
---------------
Certificate of Incorporation, these Bylaws may be altered or amended at any
meeting of the stockholders by affirmative vote of holders of a majority of the
voting power of the shares entitled to vote thereon at such meeting.
Section 2. By Directors. Except as otherwise provided in the
------------
Certificate of Incorporation, these Bylaws may be altered or amended at any
meeting of the Board of Directors by affirmative vote of a majority of the Board
of Directors.
-17-
<PAGE>
================================================================================
NATIONWIDE FINANCIAL SERVICES, INC.
Issuer
and
WILMINGTON TRUST COMPANY
Trustee
INDENTURE
Dated as of _______ __, 1997
$300,000,000
___% Senior Notes Due 2027
================================================================================
<PAGE>
INDENTURE, dated as of _______ __, 1997, between Nationwide Financial
Services, Inc., a corporation duly organized and existing under the laws of the
State of Delaware (herein called the "Company"), having its principal office at
One Nationwide Plaza, Columbus, Ohio 43215, and Wilmington Trust Company, a
national banking association duly organized and existing under the laws of the
United States of America, as Trustee (herein called the "Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the creation of an issue of its __%
Senior Notes Due 2027 (herein called the "Securities") of substantially the
tenor and amount hereinafter set forth, and to provide therefor the Company has
duly authorized the execution and delivery of this Indenture.
All things necessary to make the Securities, when executed by the
Company and authenticated and delivered hereunder and duly issued by the
Company, the valid obligations of the Company, and to make this Indenture a
valid agreement of the Company, in accordance with their and its terms, have
been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the
Securities by the Holders thereof, it is mutually covenanted and agreed, for the
equal and proportionate benefit of all Holders of the Securities, as follows:
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
Section 101. Definitions. For all purposes of this Indenture, except
-----------
as otherwise expressly provided or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings assigned to
them in this Article and include the plural as well as the singular;
(2) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein;
<PAGE>
(3) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles;
(4) the words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision; and
(5) the words "Article" and "Section" refer to an Article and Section,
respectively, of this Indenture.
"Act," when used with respect to any Holder, has the meaning specified
---
in Section 104.
"Affiliate" of any specified Person means any other Person directly or
---------
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control," when used with respect to any specified Person, means the power to
direct the management and policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise
(and the terms "controlling" and "controlled" have meanings correlative to the
----------- ----------
foregoing).
"Authenticating Agent" means any Person authorized pursuant to
--------------------
Section 614 on behalf of the Trustee to authenticate Securities.
"Bankruptcy Law" means Title 11, United States Code, or any similar
--------------
Federal or state law for the relief of debtors.
"Board of Directors" means the board of directors of the Company or
------------------
any duly authorized committee of that board.
"Board Resolution" means a copy of a resolution certified by the
----------------
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"Business Day," when used with respect to any Place of Payment or
------------
other location, means each Monday, Tuesday, Wednesday, Thursday and Friday which
is not a day on which banking institutions in that Place of Payment or other
location, as the case may be, are authorized or obligated by law or executive
order to close.
"Capital Lease Obligation" means an obligation of the Company or any
------------------------
Subsidiary to pay rent or other amounts
2
<PAGE>
under a lease of (or another Indebtedness arrangement conveying the right to
use) real or personal property thereof that is required to be classified and
accounted for as a capital lease or a liability on the face of a balance sheet
thereof in accordance with generally accepted accounting principles. For
purposes of this Indenture, the amount of such obligation shall be the
capitalized amount thereof and the stated maturity thereof shall be the date of
the last payment of rent or any other amount due under such lease (or such other
arrangement) prior to the first date upon which such lease (or such other
arrangement) may be terminated by the lessee (or obligor) without payment of a
penalty.
"Capital Stock" of any Person means any and all shares, interests,
-------------
participations or other equivalents (however designated) of corporate stock or
other equity of such Person.
"Commission" means the Securities and Exchange Commission, as from
----------
time to time constituted and created under the Exchange Act, or, if at any time
after the execution of this instrument such Commission is not existing and
performing the duties now assigned to it under the Trust Indenture Act, then the
body performing such duties at such time.
"Company" means the Person named as the "Company" in the first
-------
paragraph of this instrument until a successor Person shall have become such
pursuant to the applicable provisions of this Indenture and thereafter "Company"
shall mean such successor Person.
"Company Request" or "Company Order" means a written request or order
--------------- -------------
signed in the name of the Company by its Chairman of the Board, its Chairman and
Chief Executive Officer - Nationwide Insurance Enterprise, its President and
Chief Operating Officer or a Vice President, and by its Treasurer, an Assistant
Treasurer, its Secretary or an Assistant Secretary, and delivered to the
Trustee.
"Corporate Trust Office" means the principal office of the Trustee in
----------------------
the City of Wilmington, Delaware, at which at any particular time its corporate
trust business shall be administered, which, as of the date of this Indenture,
is located at Rodney Square North, 1100 N. Market Street, Wilmington, Delaware
19890.
"corporation" means a corporation, association, company, joint-stock
-----------
company or business trust.
"Covenant Defeasance" has the meaning specified in Section 1203.
-------------------
3
<PAGE>
"Defaulted Interest" has the meaning specified in Section 307.
------------------
"Defeasance" has the meaning specified in Section 1202.
----------
"Definitive Security" means a Security other than a Global Security or
-------------------
a temporary Security.
"Depositary" means the Person designated as Depositary by the Company
----------
in Section 301 until a successor Depositary shall have become such pursuant to
the applicable provisions of this Indenture, and thereafter "Depositary" shall
mean or include each Person who is then a Depositary hereunder.
"Event of Default" has the meaning specified in Section 501.
----------------
"Exchange Act" means the Securities Exchange Act of 1934, as amended
------------
from time to time, and any statutory successor thereto.
"Global Security" means a Security evidencing all or part of the
---------------
Securities, issued to the Depositary in accordance with Section 303 and bearing
the legend described in Section 204.
"Guaranty" by any Person means any Obligation, contingent or
--------
otherwise, of such Person guaranteeing any Indebtedness of any other Person (the
"primary obligor") in any manner, whether directly or indirectly, and including,
---------------
without limitation, every Obligation of such Person (i) to purchase or pay (or
advance or supply funds for the purchase or payment of) such Indebtedness or to
purchase (or to advances or supply funds for the purchase of) any security for
the payment of such Indebtedness, (ii) to purchase property, securities or
services for the purpose of assuring the holder of such Indebtedness of the
payment of such Indebtedness or (iii) to maintain working capital, equity
capital or other financial statement condition or liquidity of the primary
obligor so as to enable the primary obligor to pay such Indebtedness (and the
terms "Guaranteed," "Guaranteeing" and "Guarantor" shall have meanings
---------- ------------ ---------
correlative to the foregoing); provided, however, that the Guaranty by any
-------- -------
Person shall not include endorsements by such Person for collection or deposit,
in either case in the ordinary course of business.
"Holder" means a Person in whose name a Security is registered in the
------
Security Register.
4
<PAGE>
"Indebtedness" of any Person means, without duplication, (i) every
------------
obligation of such Person for money borrowed; (ii) every obligation of such
Person evidenced by bonds, debentures, notes or similar instruments, including
obligations incurred in connection with the acquisition of property, assets or
businesses; (iii) every obligation of such Person under conditional sale or
other title retention agreements relating to assets or property purchased by
such Person or issued or assumed as the deferred purchase price of property,
assets or services (but excluding trade accounts payable or accrued liabilities
arising in the ordinary course of business that are not overdue by more than 90
days or are being contested by such Person in good faith); (iv) every Capital
Lease Obligation of such Person; (v) every obligation of such Person with
respect to any Sale and Leaseback Transaction to which such Person is a party;
(vi) every obligation of such Person with respect to letters of credit, bankers'
acceptances or similar facilities issued for the account of such person; (vii)
the maximum fixed redemption or repurchase price of outstanding Redeemable Stock
of such Person; (viii) every obligation of such person with respect to
performance, surety or similar bonds; (ix) every obligation of such Person under
interest rate swap or cap or similar agreements, or under foreign currency
hedge, exchange or similar agreements, of such Person; (x) if such Person is
engaged in the insurance business, all Surplus Debt of such Person; (xi) every
obligation of the type referred to in clauses (i) through (x) and (xii) of
another Person the payment of which such Person has Guaranteed or is otherwise
responsible for or liable for, directly or indirectly, as obligor, Guarantor or
otherwise; and (xii) every amendment, modification, renewal and extension of an
obligation of the type referred to in clauses (i) through (xi).
"Indenture" means this instrument as originally executed, as it may
---------
from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof,
including, for all purposes of this instrument, and any such supplemental
indenture, the provisions of the Trust Indenture Act that are deemed to be a
part of and govern this instrument and any such supplemental indenture,
respectively.
"Insurance Regulator" means any Person having (i) authority to
-------------------
administer or enforce any statute, regulation or other law of the United States,
any State or the District of Columbia or any instrumentality or political
subdivision thereof (or any order or decree of any court thereof) governing the
conduct of an insurance business, and (ii) jurisdiction over the matter in
question.
5
<PAGE>
"Interest Payment Date" means the Stated Maturity of an installment of
---------------------
interest on the Securities.
"Maturity Date," when used with respect to any Security, means the
-------------
date on which the principal of such Security becomes due and payable as therein
or herein provided, whether at the Stated Maturity or by declaration of
acceleration, call for redemption on a Redemption Date or otherwise.
"Notice of Default" has the meaning specified in Section 501.
-----------------
"Obligation" of any person means any obligation of such Person to pay
----------
principal, premium, interest (including interest accruing on or after the filing
of any petition in bankruptcy or for reorganization relating to the Company
whether or not a claim for such post-petition interest is allowed in such
proceeding), penalties, reimbursement or indemnification amounts, fees, expenses
or other amounts.
"Officers' Certificate" means a certificate signed by the Chairman of
---------------------
the Board, the Chairman and Chief Executive Officer - Nationwide Insurance
Enterprise, the President and Chief Operating Officer or a Vice President, and
by the Treasurer, an Assistant Treasurer, the Secretary or an Assistant
Secretary, of the Company, and delivered to the Trustee.
"Opinion of Counsel" means a written opinion of legal counsel, who may
------------------
be an employee of or counsel for the Company, and who shall be reasonably
acceptable to the Trustee.
"Outstanding," when used with respect to Securities, means, as of the
-----------
date of determination, all Securities theretofore authenticated and delivered
under this Indenture, except:
(1) Securities theretofore cancelled by the Trustee or delivered to
the Trustee for cancellation;
(2) Securities for which payment or redemption money in the necessary
amount has been theretofore deposited with the Trustee or any Paying Agent
(other than the Company) in trust or set aside and segregated in trust by
the Company (if the Company shall act as its own Paying Agent) for the
Holders of such Securities; provided that, if such Securities are to be
--------
redeemed, notice of such redemption has been duly given pursuant to this
Indenture or provision therefor satisfactory to the Trustee has been made;
and
6
<PAGE>
(3) Securities which have been replaced or paid pursuant to Section
306 or in exchange for or in lieu of which other Securities have been
authenticated and delivered pursuant to this Indenture, other than any such
Securities in respect of which there shall have been presented to the
Trustee proof satisfactory to it that such Securities are held by a bona
fide purchaser in whose hands such Securities are valid obligations of the
Company;
provided, however, that, in determining whether the Holders of the requisite
- -------- -------
principal amount of the Outstanding Securities have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Securities owned
by the Company or any other obligor upon the Securities or any Affiliate of the
Company or of such other obligor shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall be protected
in relying upon any such request, demand, authorization, direction, notice,
consent or waiver, only Securities which the Trustee knows to be so owned shall
be so disregarded. Securities so owned which have been pledged in good faith
may be regarded as Outstanding if the pledgee establishes to the satisfaction of
the Trustee the pledgee's right so to act with respect to such Securities and
that the pledgee is not the Company or any other obligor upon the Securities or
any Affiliate of the Company or of such other obligor.
"Paying Agent" means any Person authorized by the Company to pay the
------------
principal of and premium, if any, or interest on any Securities on behalf of the
Company.
"Person" means any individual, corporation, partnership, joint
------
venture, trust, unincorporated organization or government or any agency or
political subdivision thereof.
"Place of Payment," when used with respect to the Securities, means
----------------
the place or places where, subject to the provisions of Section 1002, the
principal of and premium, if any, and interest on the Securities are payable as
specified and as contemplated by Section 301.
"Predecessor Security" of any particular Security means every previous
--------------------
Security evidencing all or a portion of the same debt as that evidenced by such
particular Security and, for the purposes of this definition, any Security
authenticated and delivered under Section 306 in exchange for or in lieu of a
mutilated, destroyed, lost or stolen Security shall be deemed to evidence the
same debt as the mutilated, destroyed, lost or stolen Security.
7
<PAGE>
"Redeemable Stock" of a Person means Capital Stock of such Person that
----------------
by its terms or otherwise is required to be redeemed or otherwise purchased by
such Person, or is redeemable or so purchasable at the option of the holder
thereof, at any time prior to the Stated Maturity thereof.
"Redemption Date," when used with respect to any Security to be
---------------
redeemed, means the date fixed for such redemption by or pursuant to this
Indenture.
"Redemption Price," when used with respect to any Security to be
----------------
redeemed, means the price at which it is to be redeemed pursuant to this
Indenture, including as applicable without duplication, any accrued interest due
upon such redemption pursuant to the terms of this Indenture.
"Regular Record Date" for the interest payable on the Securities on
-------------------
any Interest Payment Date means the _______________ or _______________ (whether
or not a Business Day), as the case may be, next preceding such Interest Payment
Date.
"Sale and Leaseback Transaction" means any arrangement with any bank,
------------------------------
insurance company or other lender or investor (other than the Company or a
Subsidiary), or to which such lender or investor is a party, providing for the
leasing by the Company or any Subsidiary of any property or asset of the Company
or any Subsidiary that has been or is to be sold or transferred by the Company
or any Subsidiary to such lender or investor or to any Person (other than the
Company or a Subsidiary) to whom funds have been or are to be advanced by such
lender or investor on the security of such property or asset.
"Securities" has the meaning specified in the first recital of this
----------
Indenture and more particularly means any Securities authenticated and delivered
under this Indenture.
"Security Register" and "Security Registrar" have the respective
----------------- ------------------
meanings specified in Section 305.
"Significant Subsidiary" means a Subsidiary, including its
----------------------
Subsidiaries, which meets any of the following conditions (in each case
determined in accordance with generally accepted accounting principles): (i)
the Company's and its other Subsidiaries' investment in and advances to the
Subsidiary exceed ten percent of the total assets of the Company and its
Subsidiaries consolidated as of the end of the most recently completed fiscal
year; (ii) the Company's and its other Subsidiaries' proportionate share of the
total assets (after inter-company eliminations)
8
<PAGE>
of the Subsidiary exceeds 10 percent of the total assets of the Company and its
Subsidiaries consolidated as of the end of the most recently completed fiscal
year; or (iii) the Company's and its other Subsidiaries' equity interest in the
income from continuing operations before income taxes, extraordinary items and
cumulative effect of a change in accounting principles of the Subsidiary exceed
ten percent of such income of the Company and its Subsidiaries consolidated for
the most recently completed fiscal year.
"Special Record Date" for the payment of any Defaulted Interest means
-------------------
a date fixed by the Trustee pursuant to Section 307.
"Stated Maturity," when used with respect to any Security or any
---------------
installment of interest thereon, means the date specified in such Security as
the fixed date on which the principal of such Security or such installment of
interest is due and payable.
"Subsidiary" means a corporation more than 50% of the outstanding
----------
Voting Stock of which is owned, directly or indirectly, by the Company, one or
more Subsidiaries or the Company and one or more Subsidiaries.
"Surplus Debt" of any Person engaged in the insurance business means
------------
any liability of such Person to another Person for repayment of a sum of money
to such other Person under a written agreement approved by an Insurance
Regulator providing for such liability to be paid only out of surplus of such
Person in excess of a minimum amount of surplus specified in such agreement.
"Trust Indenture Act" means the Trust Indenture Act of 1939 as in
-------------------
force at the date as of which this instrument was executed, except as provided
in Section 905; provided, however, that in the event the Trust Indenture Act of
-------- -------
1939 is amended after such date, "Trust Indenture Act" means, to the extent
required by any such amendment, the Trust Indenture Act of 1939 as so amended.
"Trustee" means the Person named as the "Trustee" in the first
-------
paragraph of this instrument until a successor Trustee shall have assumed all of
the duties and obligations of this Indenture pursuant to the applicable
provisions of this Indenture, and thereafter "Trustee" shall mean such successor
Trustee.
"U.S. Government Obligations" has the meaning specified in Section
---------------------------
1204.
"Vice President," when used with respect to the Company or the
--------------
Trustee, means any vice president, whether
9
<PAGE>
designated by a number or a word or words added before or after the title "vice
president."
"Voting Stock" of any Person means Capital Stock the holders of which
------------
have general voting power under ordinary circumstances to elect at least a
majority of the board of directors of a corporation, provided that, for the
purposes of such definition, Capital Stock which carries only the right to vote
conditioned on the happening of an event shall not be considered Voting Stock
whether or not such event shall have happened.
"Wholly Owned Subsidiary" means, at any time, a Subsidiary all of the
-----------------------
outstanding Capital Stock of which (other than directors' qualifying shares)
shall at such time be owned, directly or indirectly, by the Company, one or more
Wholly Owned Subsidiaries or the Company and one or more Wholly Owned
Subsidiaries.
Section 102. Compliance Certificates and Opinions. Upon any
------------------------------------
application or request by the Company to the Trustee to take any action under
any provision of this Indenture, the Company shall furnish to the Trustee such
certificates and opinions as may be required under the Trust Indenture Act.
Each such certificate or opinion shall be in the form of an Officers'
Certificate if to be given by an officer of the Company, or an Opinion of
Counsel, if to be given by counsel, and shall comply with the requirements of
the Trust Indenture Act and any other requirements set forth in this Indenture.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (except for certificates
provided for in Section 1004) shall include:
(1) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto;
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of each such individual, he has
made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or condition
has been complied with; and
10
<PAGE>
(4) a statement as to whether, in the opinion of each such individual,
such condition or covenant has been complied with.
Section 103. Form of Documents Delivered to Trustee. In any case
--------------------------------------
where several matters are required to be certified by, or covered by an opinion
of, any specified Person, it is not necessary that all such matters be certified
by, or covered by the opinion of, only one such Person, or that they be so
certified or covered by only one document, but one such Person may certify or
give an opinion with respect to some matters and one or more other such Persons
as to other matters, and any such Person may certify or give an opinion as to
such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any certificate or Opinion of Counsel may be based, insofar as it
relates to factual matters, upon a certificate or opinion of, or representations
by, an officer or officers of the Company, stating that the information with
respect to such factual matters is in the possession of the Company, unless such
counsel knows, or in the exercise of reasonable care should know, that the
certificate or opinion or representations with respect to such matters are
erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
Section 104. Acts of Holders; Record Date. (a) Any request, demand,
----------------------------
authorization, direction, notice, consent, waiver or other action provided by
this Indenture to be given or taken by Holders may be embodied in and evidenced
by one or more instruments of substantially similar tenor signed by such Holders
in person or by one or more agents duly appointed in writing; and, except as
herein otherwise expressly provided, such action shall become effective when
such instrument or instruments are delivered to the Trustee and, where it is
hereby expressly required, to the Company. Such instrument or instruments (and
the action embodied therein and evidenced thereby) are herein sometimes referred
to as the "Act" of the Holders signing such instrument or instruments. Proof of
execution of any
11
<PAGE>
such instrument or of a writing appointing any such agent shall be sufficient
for any purpose of this Indenture and (subject to Section 601) conclusive in
favor of the Trustee and the Company, if made in the manner provided in this
Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where
such execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of his authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner which the Trustee deems sufficient.
(c) The ownership of Securities shall be proved by the Security
Register.
(d) Any request, demand, authorization, direction, notice, consent,
waiver or other Act of the Holder of any Security shall bind every future Holder
of the same Security and the Holder of every Security issued upon the
registration of transfer thereof or in exchange therefor in lieu thereof in
respect of anything done, omitted or suffered to be done by the Trustee or the
Company in reliance thereon, whether or not notation of such action is made upon
such Security.
(e) The Company may, in the circumstances permitted by the Trust
Indenture Act, set any day as the record date for the purpose of determining the
Holders of Outstanding Securities entitled to give or take any request, demand,
authorization, direction, notice, consent, waiver or other Act provided or
permitted by this Indenture to be given or taken by Holders of Securities. With
regard to any record date set pursuant to this paragraph, the Holders of
Outstanding Securities on such record date (or their duly appointed agents), and
only such Persons, shall be entitled to give or take the relevant action,
whether or not such Persons remain Holders after such record date.
Section 105. Notices, Etc., to Trustee and Company. Any request,
-------------------------------------
demand, authorization, direction, notice, consent, waiver or Act of Holders or
other document provided or permitted by this Indenture to be made upon, given or
furnished to, or filed with,
12
<PAGE>
(1) the Trustee by any Holder or by the Company shall be sufficient
for every purpose hereunder if made, given, furnished or filed in writing
to or with the Trustee at its Corporate Trust Office, Attention: Corporate
Trust Department, or
(2) the Company by the Trustee or by any Holder shall be sufficient
for every purpose hereunder (unless otherwise herein expressly provided) if
in writing and mailed, first-class postage prepaid, to the Company,
addressed to it at the address of its principal office specified in the
first paragraph of this Indenture or at any other address previously
furnished in writing to the Trustee by the Company.
Section 106. Notice to Holders; Waiver. Where this Indenture
-------------------------
provides for notice to Holders of any event, such notice shall be sufficiently
given (unless otherwise herein expressly provided) if in writing and mailed,
first-class postage prepaid, to each Holder affected by such event, at his
address as it appears in the Security Register, not later than the latest date
(if any), and not earlier than the earliest date (if any), prescribed for the
giving of such notice. In any case where notice to Holders is given by mail,
neither the failure to mail such notice, nor any defect in any notice so mailed,
to any particular Holder shall affect the sufficiency of such notice with
respect to other Holders. Where this Indenture provides for notice in any
manner, such notice may be waived in writing by the Person entitled to receive
such notice, either before or after the event, and such waiver shall be the
equivalent of such notice. Waivers of notice by Holders shall be filed with the
Trustee, but such filing shall not be a condition precedent to the validity of
any action taken in reliance upon such waiver.
In case by reason of the suspension of regular mail service or by
reason of any other cause it shall be impracticable to give such notice by mail,
then such notification as shall be made with the approval of the Trustee shall
constitute a sufficient notification for every purpose hereunder.
Section 107. Conflict with Trust Indenture Act. If any provision
---------------------------------
hereof limits, qualifies or conflicts with a provision of the Trust Indenture
Act that is required under such Act to be a part of and govern this Indenture,
the latter provision shall control. If any provision of this Indenture modifies
or excludes any provision of the Trust Indenture Act that may be so modified or
excluded, the latter provision shall be deemed to apply to this Indenture as so
modified or excluded, as the case may be.
13
<PAGE>
Section 108. Effect of Headings and Table of Contents. The Article
----------------------------------------
and Section headings herein and the Table of Contents are for convenience only
and shall not affect the construction hereof.
Section 109. Successors and Assigns. All covenants and agreements in
----------------------
this Indenture by the Company shall bind its respective successors and assigns,
whether so expressed or not.
Section 110. Separability Clause. In case any provision in this
-------------------
Indenture or in the Securities shall be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby.
Section 111. Benefits of Indenture. Nothing in this Indenture or in
---------------------
the Securities, express or implied, shall give to any Person, other than the
parties hereto and their successors hereunder and the Holders of Securities, any
benefit or any legal or equitable right, remedy or claim under this Indenture.
Section 112. Governing Law. THIS INDENTURE AND THE SECURITIES SHALL
-------------
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
YORK AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK,
WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS.
Section 113. Legal Holidays. In any case where any Interest Payment
--------------
Date, Redemption Date, Maturity Date or Stated Maturity of any Security shall
not be a Business Day, then (notwithstanding any other provision of this
Indenture or of the Securities) payment of interest or principal (and premium if
any) need not be made on such date, but may be made on the next succeeding
Business Day with the same force and effect as if made on the Interest Payment
Date, Maturity Date or Redemption Date, or at the Stated Maturity; provided that
--------
no interest shall accrue for the period from and after such Interest Payment
Date, Redemption Date, Maturity Date or Stated Maturity, as the case may be, if
such payment is made or duly provided for on the next succeeding Business Day.
Section 114. Incorporators, Stockholders, Officers and Directors of
------------------------------------------------------
the Company Exempt from Individual Liability. No recourse under or upon any
- --------------------------------------------
obligation, covenant or agreement of this Indenture or any indenture
supplemental hereto or of any Security, or for any claim based thereon or
otherwise in respect thereof, shall be had against any incorporator,
stockholder, officer or director, as such, past, present or future, of the
Company or of any successor Person, either directly or through the Company or
14
<PAGE>
any successor Person, whether by virtue of any constitution, statute or rule of
law, or by the enforcement of any assessment or penalty or otherwise; it being
expressly understood that this Indenture and the obligations issued hereunder
are solely corporate obligations, and that no such personal liability whatever
shall attach to, or is or shall be incurred by, the incorporators, stockholders,
officers or directors, as such, of the Company or of any successor Person, or
any of them, because of the creation of the indebtedness hereby authorized, or
under or by reason of the obligations, covenants or agreements contained in this
Indenture or in any of the Securities or implied therefrom; and that any and all
such personal liability of every name and nature, either at common law or in
equity or by constitution or statute, of, and any and all such rights and claims
against, every such incorporator, stockholder, officer or director, as such,
because of the creation of the indebtedness hereby authorized, or under or by
reason of the obligations, covenants or agreements contained in this Indenture
or in any of the Securities or implied therefrom are hereby expressly waived and
released as a condition of, and as a consideration for, the execution of this
Indenture and the issue of such Securities.
ARTICLE II
FORMS OF SECURITIES
Section 201. Forms Generally. The Securities and the Trustee's
---------------
certificates of authentication shall be in substantially the forms set forth in
this Article, with such appropriate insertions, omissions, substitutions and
other variations as are required or permitted by this Indenture, and may have
such letters, numbers or other marks of identification and such legends or
endorsements placed thereon as may be required to comply with the rules of any
securities exchange or as may, consistently herewith, be determined by the
officers executing such Securities, as evidenced by their execution thereof.
The Definitive Securities shall be printed, lithographed or engraved
or produced by any combination of these methods on steel engraved borders or may
be produced in any other manner permitted by the rules of any securities
exchange on which the Securities may be listed, all as determined by the
officers executing such Securities, as evidenced by their execution thereof.
15
<PAGE>
Section 202. Form of Face of Security.
------------------------
[If a Global Security, insert legend required by Section 204 of the
------------------------------------------------------------------
Indenture] [if applicable, insert -- UNLESS THIS SECURITY IS PRESENTED BY AN
- --------- ---------------------
AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW
YORK, NEW YORK) TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE OR PAYMENT, AND ANY SECURITY ISSUED IS REGISTERED IN THE NAME OF CEDE &
CO. OR SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY AND ANY PAYMENT IS MADE TO CEDE & CO., ANY TRANSFER,
PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.]
NATIONWIDE FINANCIAL SERVICES, INC.
___% Senior Notes Due 2027
No.______ $______
Nationwide Financial Services, Inc., a Delaware corporation (herein
called the "Company," which term includes any successor Person under the
Indenture hereinafter referred to), for value received, hereby promises to pay
to , or registered assigns, the principal sum of on
_______ __, 2027, and to pay interest thereon from _______ __, 199_ or from the
most recent Interest Payment Date to which interest has been paid or duly
provided for, as the case may be, semi-annually in arrears on _______________
and _______________ in each year, commencing _______________, 199_, at the rate
per annum of ___%, until the principal hereof is paid or made available for
payment. The interest so payable, and punctually paid or duly provided for, on
any Interest Payment Date will, as provided in such Indenture, be paid to the
Person in whose name this Security (or one or more Predecessor Securities) is
registered at the close of business on the Regular Record Date for such
interest, which shall be the _______________ or _______________ (whether or not
a Business Day), as the case may be, next preceding such Interest Payment Date.
Any such interest not so punctually paid or duly provided for will forthwith
cease to be payable to the Holder on such Regular Record Date and may either be
paid to the Person in whose name this Security (or one or more Predecessor
Securities) is registered at the close of business on a Special Record Date for
the payment of such Defaulted Interest to be fixed by the Trustee, notice
whereof shall be given to Holders of Securities not less than 10 days prior to
such Special Record Date, or be paid at any time in any other lawful manner not
inconsistent with the requirements of any securities exchange on which the
Securities may be
16
<PAGE>
listed, and upon such notice as may be required by such exchange, all as more
fully provided in said Indenture.
[If a Definitive Security, insert -- Payment of the principal of and
--------------------------------
premium, if any, and interest on, and the Redemption Price with respect to, this
Security will be made at the office or agency of the Company maintained for that
purpose in the Borough of Manhattan, the City of New York and at any other
office or agency maintained by the Company for such purpose, in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts; provided, however, that at the
-------- -------
option of the Company payment of interest may be made by check mailed to the
address of the Person entitled thereto as such address shall appear in the
Security Register.]
[If a Global Security, insert -- Payment of the principal of and
----------------------------
premium, if any, and any such interest on, and the Redemption Price with respect
to, this Security will be made by transfer of immediately available funds to a
bank account in the Borough of Manhattan, the City of New York designated by the
Holders in such coin or currency of the United States of America as at the time
of payment is legal tender for payment of public and private debts.]
Interest on this Security will be calculated on the basis of a 360-day
year consisting of twelve 30-day months.
Reference is hereby made to the further provisions of this Security
set forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by
the Trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.
Dated:
NATIONWIDE FINANCIAL SERVICES, INC.
By ________________________________
Name:
Title:
17
<PAGE>
Section 203. Form of Reverse of Security. This Security is one of a
---------------------------
duly authorized issue of Securities of the Company designated as its ___% Senior
Notes Due 2027 (herein called the "Securities"), limited in aggregate principal
amount to $300,000,000 issued and to be issued under an Indenture, dated as of
_______ ___, 1997 (herein called the "Indenture", between the Company and
[________________], as Trustee (herein called the "Trustee," which term includes
any successor trustee under the Indenture), to which Indenture and all
indentures supplemental thereto reference is hereby made for a statement of the
respective rights, limitations of rights, duties and immunities thereunder of
the Company, the Trustee and the Holders of the Securities and of the terms upon
which the Securities are, and are to be, authenticated and delivered.
The Securities are subject to redemption upon not less than 20 nor
more than 60 days' notice by first class mail, at any time or from time to time
on or after __________ __, 2007, in whole or in part, at the election of the
Company, at the following Redemption Prices (expressed as a percentage of the
principal amount of the Securities) if redeemed during the 12-month period
ending ___________:
Year Redemption Price
---- ----------------
2009 ................ %
2010 ................ %
2011 ................ %
2012 ................ %
2013 ................ %
2014 ................ %
2015 ................ %
2016 ................ %
2017 ................ %
and thereafter at 100% of the principal amount of the Securities plus, in each
case, accrued and unpaid interest, if any, to the Redemption Date.
In the event of redemption of this Security in part only, a new
Security or Securities for the unredeemed portion hereof will be issued in the
name of the Holder hereof upon the cancellation hereof.
18
<PAGE>
The Indenture contains provisions for defeasance at any time of (i)
the entire indebtedness of this Security or (ii) certain restrictive covenants
and Events of Default with respect to the Security, in each case upon compliance
with certain conditions set forth therein.
If an Event of Default shall occur and be continuing, the principal of
all the Securities may become due and payable in the manner and with the effect
provided in the Indenture.
The Indenture permits, with certain exceptions as therein provided,
the amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities under the Indenture at
any time by the Company and the Trustee with the consent of the Holders of a
majority in aggregate principal amount of the Securities at the time
Outstanding. The Indenture also contains provisions permitting the Holders of
specified percentages in aggregate principal amount of the Securities at the
time Outstanding, on behalf of the Holders of all the Securities, to waive
compliance by the Company with certain provisions of the Indenture and certain
past defaults under the Indenture and their consequences. Any such consent or
waiver by the Holder of this Security shall be conclusive and binding upon such
Holder and upon all future Holders of this Security and of any Security issued
upon the registration of transfer hereof or in exchange herefor or in lieu
hereof, whether or not notation of such consent or waiver is made upon this
Security.
No reference herein to the Indenture and no provision of this Security
or of the Indenture shall alter or impair the obligation of the Company, which
is absolute and unconditional, to pay the principal of and premium, if any, and
interest on this Security in the manner, at the times, place, and rate, and in
the coin or currency, herein prescribed.
[If a Definitive Security, insert -- As provided in the Indenture and
--------------------------------
subject to certain limitations therein set forth, the transfer of this Security
is registrable in the Security Register, upon surrender of this Security for
registration of transfer at the office or agency of the Company in the Borough
of Manhattan, the City of New York or at any other office or agency maintained
by the Company for such purpose, duly endorsed by, or accompanied by a written
instrument of transfer in form satisfactory to the Company and the Security
Registrar duly executed by, the Holder hereof or his attorney duly authorized in
writing, and thereupon one or more new Securities, of authorized denominations
and for the same aggregate principal amount, will be issued to the designated
transferee or transferees.]
19
<PAGE>
[If a Global Security, insert -- This Global Security or portion
----------------------------
hereof may not be exchanged for Definitive Securities except in the limited
circumstances provided in the Indenture.]
The Securities are issuable only in registered form without coupons in
denominations of $1,000 and any integral multiple thereof. As provided in the
Indenture and subject to certain limitations therein set forth, Securities are
exchangeable for a like aggregate principal amount of Securities of a different
authorized denomination, as requested by a Holder surrendering the same.
No service charge shall be made for any such registration of transfer
or exchange of Securities, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in connection
therewith.
Prior to due presentment of this Security for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name this security is registered as the owner
hereof for all purposes, whether or not any amount due in respect of this
Security be overdue, and none of the Company, the Trustee or any such agent
shall be affected by notice to the contrary.
No recourse for the payment of the principal of, premium, if any, or
interest on this Security, or for any claim based hereon or otherwise in respect
hereof, and no recourse under or upon any obligation, covenant or agreement of
the Company in the Indenture or any indenture supplemental thereto or in any
Security, or because of the creation of any indebtedness represented thereby,
shall be had against any incorporator, stockholder, officer or director, as
such, past, present or future, of the Company or of any successor Person, either
directly or through the Company, whether by virtue of any constitution, statute
or rule of law or by the enforcement of any assessment or penalty or otherwise,
all such liability being, by the issue hereof, expressly waived and released.
The Indenture and the Securities shall be governed by and construed in
accordance with the laws of the State of New York as applied to contracts made
and performed within the State of New York, without regard to principles of
conflicts of laws.
All terms used in this Security which are defined in the Indenture
shall have the meanings assigned to them in the Indenture. The foregoing summary
of the terms of the
20
<PAGE>
Indenture is qualified in all respects by the terms of the Indenture.
Section 204. Global Securities. Every Global Security authenticated
-----------------
and delivered hereunder shall bear a legend in substantially the following form:
"THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE
INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A
DEPOSITARY OR A NOMINEE THEREOF. THIS SECURITY MAY NOT BE TRANSFERRED
TO, OR REGISTERED OR EXCHANGED FOR SECURITIES REGISTERED IN THE NAME
OF, ANY PERSON OTHER THAN THE DEPOSITARY OR A NOMINEE THEREOF AND NO
SUCH TRANSFER MAY BE REGISTERED, EXCEPT IN THE LIMITED CIRCUMSTANCES
DESCRIBED IN THE INDENTURE. EVERY SECURITY AUTHENTICATED AND DELIVERED
UPON REGISTRATION OF TRANSFER OF, OR IN EXCHANGE FOR OR IN LIEU OF,
THIS SECURITY SHALL BE A GLOBAL SECURITY SUBJECT TO THE FOREGOING,
EXCEPT IN SUCH LIMITED CIRCUMSTANCES."
If Securities are issuable in whole or in part in the form of one or
more Global Securities, as specified and as contemplated by Section 301, then,
notwithstanding the provisions of Section 302, any Global Security shall
represent such of the Outstanding Securities as shall be specified therein and
may provide that it shall represent the aggregate amount of Outstanding
Securities from time to time endorsed thereon and that the aggregate amount of
Outstanding Securities represented thereby may from time to time be reduced or
increased, as the case may be, to reflect exchanges. Any endorsement of a
Global Security to reflect the amount, or any reduction or increase in the
amount, of Outstanding Securities represented thereby shall be made in such
manner and upon instructions given by such Person or Persons as shall be
specified therein or in a Company Order. Subject to the provisions of Sections
303, 304 and 305, the Trustee shall deliver and redeliver any Global Security in
the manner and upon instructions given by the Person or Persons specified
therein or in the applicable Company Order. Any instructions by the Company
with respect to endorsement or delivery or redelivery of a Global Security shall
be in a Company Order (which need not comply with Section 102 and need not be
accompanied by an Opinion of Counsel).
Section 205. Form of Trustee's Certificate of Authentication.
-----------------------------------------------
Certificate of Authentication
-----------------------------
21
<PAGE>
This is one of the Securities referred to in the within-mentioned
Indenture.
Dated:
[___________________],
as Trustee
By _____________________________
Authorized Signatory
22
<PAGE>
Section 206. Form of Assignment.
------------------
To assign this Security, fill in the form below:
I or we assign and transfer this Security to:
_______________________
: :
_______________________
(Insert assignee's soc.
sec. or tax ID no.)
________________________
________________________
________________________
(Print or type assignee's
name, address and zip code)
and irrevocably appoint
________________________
________________________
as agent to transfer this security on the books of the Company. The agent may
substitute another to act for him.
________________________________________________________________________________
Date: _______________________ Your Signature:__________________________________*
________________________________________________________________________________
(Sign exactly as your name appears on the other side of this Security)
* Your signature must be guaranteed by a commercial bank or trust company or by
a member or members' organization of the New York Stock Exchange or American
Stock Exchange.
23
<PAGE>
ARTICLE III
THE SECURITIES
Section 301. Title and Terms. The aggregate principal amount of
---------------
Securities which may be authenticated and delivered under this Indenture is
limited to $300,000,000, except for Securities authenticated and delivered upon
registration of transfer of, or in exchange for, or in lieu of, other Securities
pursuant to Sections 304, 305, 306, 906 or 1108.
The Securities shall be known and designated as the "___% Senior Notes
Due 2027" of the Company. Their Stated Maturity shall be _______ __, 2027, and
they shall bear interest at the rate per annum of __% from _________, 199_ or
from the most recent Interest Payment Date to which interest has been paid or
duly provided for, as the case may be, payable semiannually in arrears on
_____________ and ____________ commencing _____________, 199_, until the
principal thereof is paid or made available for payment.
Payment of the principal of and premium, if any, and interest on, and
the Redemption Price with respect to, the Securities (other than Global
Securities) will be made at the office or agency of the Company maintained for
such purpose in the Borough of Manhattan, the City of New York and at any other
office or agency maintained by the Company for such purpose, in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts; provided, however, that at the
-------- -------
option of the Company payment of interest may be made by check mailed to the
address of the Person entitled thereto as such address shall appear in the
Security Register.
Payment of the principal of and premium, if any, and any interest on,
and the Redemption Price with respect to, any Global Security will be made by
transfer of immediately available funds to a bank account in the Borough of
Manhattan, the City of New York designated by the Holder in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts.
The Securities shall be redeemable as provided in Article XI.
The Securities shall be subject to Defeasance and Covenant Defeasance
as provided in Article XII.
The initial Depositary for the Securities is The Depository Trust
Company.
24
<PAGE>
Section 302. Denominations. The Securities shall be issuable only in
-------------
registered form without coupons and only in denominations of $1,000 and any
integral multiple thereof.
Section 303. Execution, Authentication, Delivery and Dating. (a)
----------------------------------------------
The Securities shall be executed on behalf of the Company by its Chairman of the
Board, its Chairman and Chief Executive Officer - Nationwide Insurance
Enterprise, its President and Chief Operating Officer or one of its Vice
Presidents. The signature of any of these officers on the Securities may be
manual or facsimile.
Securities bearing the manual or facsimile signatures of individuals
who were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Securities or did not
hold such offices at the date of such Securities.
At any time and from time to time after the execution and delivery of
this Indenture, the Company may deliver Securities executed by the Company to
the Trustee for authentication, together with a Company Order for the
authentication and delivery of such Securities; and the Trustee in accordance
with such Company Order shall authenticate and deliver such Securities as in
this Indenture provided and not otherwise.
Notwithstanding the provisions of the preceding paragraph, if all
Securities are not to be originally issued at one time, it shall not be
necessary to deliver the Company Order otherwise required pursuant to such
preceding paragraph at or prior to the time of authentication of each such
Security if the Company Order is delivered at or prior to the authentication
upon original issuance of the first Security to be issued.
Each Security shall be dated the date of its authentication.
No Security shall be entitled to any benefit under this Indenture or
be valid or obligatory for any purpose unless there appears on such Security a
certificate of authentication substantially in the form provided for herein
executed by the Trustee by manual signature, and such certificate upon any
Security shall be conclusive evidence, and the only evidence, that such Security
has been duly authenticated and delivered hereunder and is entitled to the
benefits of this Indenture. Notwithstanding the foregoing, if any Security
shall have been authenticated and delivered hereunder but never issued and sold
by the Company, and the
25
<PAGE>
Company shall deliver such Security to the Trustee for cancellation as provided
in Section 309, for all purposes of this Indenture such Security shall be deemed
never to have been authenticated and delivered hereunder and shall never be
entitled to the benefits of this Indenture.
Minor typographical and other minor errors in the text of any Security
shall not affect the validity and enforceability of such Security if it has been
duly authenticated and delivered by the Trustee.
(b) The Company shall initially execute and the Trustee shall
authenticate and deliver one or more Global Securities that (i) shall represent
an aggregate amount equal to the aggregate principal amount of the initially
issued Securities, (ii) shall be registered in the name of the Depositary or the
nominee of the Depositary, (iii) shall be delivered by the Trustee to the
Depositary or pursuant to the Depositary's instruction and (iv) shall bear a
legend substantially in the form required in Section 204.
(c) The Depositary must, at all times while it serves as such
Depositary, be a clearing agency registered under the Exchange Act, and any
other applicable statute or regulation.
Section 304. Temporary Securities. Pending the preparation of
--------------------
Definitive Securities, the Company may execute, and upon Company Order the
Trustee shall authenticate and make available for delivery, temporary Securities
which are printed, lithographed, typewritten, mimeographed or otherwise
produced, in any authorized denomination, substantially of the tenor of the
Definitive Securities in lieu of which they are issued and with such appropriate
insertions, omissions, substitutions and other variations as the officers
executing such Securities may determine, as evidenced by their execution of such
Securities.
If temporary Securities are issued, the Company will cause Definitive
Securities to be prepared without unreasonable delay. After the preparation of
Definitive Securities, the temporary Securities shall be exchangeable for
Definitive Securities upon surrender of the temporary Securities at any office
or agency of the Company designated pursuant to Section 1002, without charge to
the Holder. Upon surrender for cancellation of any one or more temporary
Securities, the Company shall execute and the Trustee shall authenticate and
make available for delivery in exchange therefor a like principal amount of
Definitive Securities of authorized denominations. Until so exchanged the
temporary Securities shall in all respects be entitled to the same benefits
under this Indenture as Definitive Securities.
26
<PAGE>
Section 305. Registration, Registration of Transfer and Exchange.
---------------------------------------------------
(a) The Company shall cause to be kept at the Corporate Trust Office of the
Trustee a register (the register maintained in such office and in any other
office or agency designated pursuant to Section 1002 being herein sometimes
collectively referred to as the "Security Register") in which, subject to such
-----------------
reasonable regulations as it may prescribe, the Company shall provide for the
registration of Securities and of transfer of Securities. The Trustee is hereby
appointed the initial "Security Registrar" for the purpose of registering
------------------
Securities and transfers of Securities as herein provided. The Company may at
any time replace such Security Registrar, change such office or agency or act as
its own Security Registrar. The Company will give prompt written notice to the
Trustee of any change of the Security Registrar or of the location of such
office or agency.
Upon surrender for registration of transfer of any Security at an
office or agency of the Company designated pursuant to Section 1002 for such
purpose, the Company shall execute, and the Trustee shall authenticate and make
available for delivery, in the name of the designated transferee or transferees,
one or more new Securities of any authorized denominations and of a like
aggregate principal amount.
Notwithstanding any other provision of this Section, unless and until
it is exchanged in whole or in part for the individual Securities represented
thereby, a Global Security representing all or a portion of the Securities may
not be transferred except as a whole by the Depositary to a nominee of such
Depositary or by a nominee of such Depositary to such Depositary or another
nominee of such Depositary or by such Depositary or any such nominee to a
successor Depositary or nominee of such successor Depositary.
At the option of the Holder, Securities may be exchanged for other
Securities of any authorized denominations and of a like aggregate principal
amount, upon surrender of the Securities to be exchanged at such office or
agency. Whenever any Securities are so surrendered for exchange, the Company
shall execute, and the Trustee shall authenticate and make available for
delivery, the Securities which the Holder making the exchange is entitled to
receive.
(b) If at any time the Depositary notifies the Company that it is
unwilling or unable to continue as Depositary or if at any time the Depositary
shall no longer be eligible under Section 303(c), the Company shall appoint a
successor Depositary. If a successor Depositary is not appointed by the Company
within 90 days after the Company
27
<PAGE>
receives such notice or becomes aware of such ineligibility, the Company will
execute, and the Trustee, upon receipt of a Company Order for the authentication
and delivery of individual Definitive Securities in exchange for the Global
Security or Securities, will authenticate and make available for delivery,
individual Definitive Securities in an aggregate principal amount equal to the
principal amount of the Global Security or Securities, in exchange for such
Global Security or Securities.
The Company may at any time and in its sole discretion determine that
individual Securities issued in the form of one or more Global Securities shall
no longer be represented by such Global Security or Securities. In such event
the Company will execute, and the Trustee, upon receipt of a Company Order for
the authentication and delivery of individual Definitive Securities in exchange
for the Global Security or Securities, will authenticate and make available for
delivery, individual Definitive Securities in an aggregate principal amount
equal to the principal amount of the Global Security or Securities, in exchange
for such Global Security or Securities.
The Depositary may surrender a Global Security in exchange in whole or
in part for individual Definitive Securities on such terms as are acceptable to
the Company and such Depositary. Thereupon, the Company shall execute, and the
Trustee shall authenticate and make available for delivery, without service
charge,
(i) to each Person specified by such Depositary a new individual
Definitive Security or Securities of any authorized denomination as
requested by such Person in aggregate principal amount equal to and in
exchange for such Person's beneficial interest in the Global Security; and
(ii) to such Depositary a new Global Security in a denomination equal
to the difference, if any, between the principal amount of the surrendered
Global Security and the aggregate principal amount of individual Definitive
Securities delivered to Holders thereof.
Upon the exchange of a Global Security for individual Definitive
Securities in an aggregate principal amount equal to the principal amount of
such Global Security, such Global Security shall be canceled by the Trustee.
Individual Definitive Securities issued in exchange for a Global Security
pursuant to this Section shall be registered in such names and in such
authorized denominations as the Depositary for such Global Security, pursuant to
instructions from its direct or indirect participants or otherwise, shall
instruct the Trustee. The
28
<PAGE>
Trustee shall make available for delivery such individual Definitive Securities
to the Persons in whose names such Securities are so registered.
(c) All Securities issued upon any registration of transfer or
exchange of Securities shall be the valid obligations of the Company evidencing
the same debt, and entitled to the same benefits under this Indenture, as the
Securities surrendered upon such registration of transfer or exchange.
Every Security presented or surrendered for registration of transfer
or for exchange shall (if so required by the Company or the Trustee) be duly
endorsed, or be accompanied by a written instrument of transfer in form
satisfactory to the Company and the Security Registrar duly executed, by the
Holder thereof or his attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or
exchange of Securities, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in connection
with any registration of transfer or exchange of Securities, other than
exchanges pursuant to Section 304, 906 or 1108 not involving any transfer.
The Company shall not be required (i) to issue, register the transfer
of or exchange any Security during a period beginning at the opening of business
15 days before the day of the mailing of a notice of redemption of Securities
selected for redemption under Section 1104 and ending at the close of business
on the day of such mailing, or (ii) to register the transfer of or exchange any
Security so selected for redemption in whole or in part, except the unredeemable
portion of any Security being redeemed in part.
Section 306. Mutilated, Destroyed, Lost and Stolen Securities. If
------------------------------------------------
any mutilated Security is surrendered to the Trustee, the Company shall execute
and the Trustee shall authenticate and make available for delivery in exchange
therefor a new Security, of like tenor and principal amount and bearing a number
not contemporaneously outstanding.
If there shall be delivered to the Company and the Trustee (i)
evidence to their satisfaction of the destruction, loss or theft of any Security
and (ii) such security or indemnity as may be required by them to save each of
them and any agent of either of them harmless, then, in the absence of notice to
the Company or the Trustee that such Security has been acquired by a bona fide
purchaser, the Company shall execute and upon its request the Trustee
29
<PAGE>
shall authenticate and make available for delivery, in lieu of any such
destroyed, lost or stolen Security, a new Security of like tenor and principal
amount and bearing a number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security has
become or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section, the Company
may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.
Every new Security issued pursuant to this Section in lieu of any
destroyed, lost or stolen Security shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Security shall be at any time enforceable by anyone, and shall be
entitled to all the benefits of this Indenture equally and proportionately with
any and all other Securities duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Securities.
Section 307. Payment of Interest; Interest Rights Preserved.
----------------------------------------------
Interest on any Security which is payable, and is punctually paid or duly
provided for, on any Interest Payment Date shall be paid to the Person in whose
name that Security (or one or more Predecessor Securities) is registered at the
close of business on the Regular Record Date for such interest.
Any interest on any Security which is payable, but is not punctually
paid or duly provided for, on any Interest Payment Date (herein called
"Defaulted Interest") shall forthwith cease to be payable to the Holder on the
- -------------------
relevant Regular Record Date notwithstanding the fact that such Holder was a
Holder on such Regular Record Date, and such Defaulted Interest may be paid by
the Company, at its election, as provided in Clause (1) or (2) below:
(1) The Company may elect to make payment of any Defaulted Interest
to the Persons in whose names the Securities (or their respective
Predecessor Securities) are registered at the close of business on a
Special Record Date for the payment of such Defaulted Interest,
30
<PAGE>
which shall be fixed in the following manner. The Company shall notify the
Trustee in writing of the amount of Defaulted Interest proposed to be paid
on each Security and the date of the proposed payment, and at the same time
the Company shall deposit with the Trustee an amount of money equal to the
aggregate amount proposed to be paid in respect of such Defaulted Interest
or shall make arrangements satisfactory to the Trustee for such deposit
prior to the date of the proposed payment, such money when deposited shall
be held in trust for the benefit of the Persons entitled to such Defaulted
Interest as provided in this Clause. Thereupon the Trustee shall fix a
Special Record Date for the payment of such Defaulted Interest which shall
be not more than 15 days and not less than 10 days prior to the date of the
proposed payment and not less than 10 days after the receipt by the Trustee
of the notice of the proposed payment. The Trustee shall promptly notify
the Company of such Special Record Date and, in the name and at the expense
of the Company, shall cause notice of the proposed payment of such
Defaulted Interest and the Special Record Date therefor to be mailed,
first-class postage prepaid, to each Holder at his address as it appears in
the Security Register, not less than 10 days prior to such Special Record
Date. Notice of the proposed payment of such Defaulted Interest and the
Special Record Date therefor having been so mailed, such Defaulted Interest
shall be paid to the Persons in whose names the Securities (or their
respective Predecessor Securities) are registered at the close of business
on such Special Record Date and shall no longer be payable pursuant to the
following Clause (2).
(2) The Company may make payment of any Defaulted Interest in any
other lawful manner not inconsistent with the requirements of any
securities exchange on which the Securities may then be listed, and upon
such notice as may be required by such exchange, if, after notice given by
the Company to the Trustee of the proposed payment pursuant to this Clause,
such manner of payment shall he deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section and Section 305,
each Security delivered under this Indenture upon registration of transfer of or
in exchange for or in lieu of any other Security shall carry the rights to
interest accrued and unpaid, and to accrue, which were carried by such other
Security.
31
<PAGE>
Section 308. Persons Deemed Owners. Prior to due presentment of a
---------------------
Security for registration of transfer, the Company, the Trustee and any agent of
the Company or the Trustee may treat the Person in whose name such Security is
registered as the owner of such Security for the purpose of receiving payment of
principal of and premium, if any, and (subject to Sections 305 and 307) interest
on such Security and for all other purposes whatsoever, whether or not any
payment due in respect of such Security be overdue, and none of the Company, the
Trustee or any agent of the Company or the Trustee shall be affected by notice
to the contrary.
Section 309. Cancellation. All Securities surrendered for payment,
------------
redemption, registration of transfer or exchange shall, if surrendered to any
Person other than the Trustee, be delivered to the Trustee and shall be promptly
cancelled by it. The Company may at any time deliver to the Trustee for
cancellation any Securities previously authenticated and delivered hereunder
which the Company may have acquired in any manner whatsoever, and may deliver to
the Trustee (or any other Person for delivery to the Trustee) for cancellation
any Securities previously authenticated hereunder which the Company has not
issued and sold, and all Securities so delivered shall be promptly cancelled by
the Trustee. No Securities shall be authenticated in lieu of or in exchange for
any Securities cancelled as provided in this Section, except as expressly
permitted by this Indenture. All cancelled Securities held by the Trustee shall
be disposed of as directed by a Company Order, or, if no such Company Order is
given within 60 days after notice by the Trustee to the Company of cancellation
of such Securities, then the Trustee may destroy such cancelled Security and, in
such case, the Trustee shall thereafter deliver to the Company a certificate
with respect to such destruction.
Section 310. Computation of Interest. Interest on the Securities
-----------------------
shall be computed on the basis of a 360-day year of twelve 30-day months.
Section 311. CUSIP Numbers. The Company in issuing the Securities
-------------
may use "CUSIP" numbers (if then generally in use), and, if so, the Trustee
shall use "CUSIP" numbers in notices of redemption as a convenience to Holders;
provided that any such notice may state that no representation is made as to the
- --------
correctness of such "CUSIP" numbers either as printed on the Securities or as
contained in any notice of a redemption and that reliance may be placed only on
the other identification numbers printed on the Securities, and any such
redemption shall not be affected by any defect in or omission of such "CUSIP"
numbers.
32
<PAGE>
ARTICLE IV
SATISFACTION AND DISCHARGE
Section 401. Satisfaction and Discharge of Indenture. This Indenture
---------------------------------------
shall upon Company Request cease to be of further effect (except as to any
registration of transfer or exchange of Securities herein expressly provided
for), and the Trustee, on demand of and at the expense of the Company, shall
execute proper instruments acknowledging satisfaction and discharge of this
Indenture, when
(1) either
(A) all Securities theretofore authenticated and delivered
(other than (i) Securities which have been mutilated, destroyed, lost
or stolen and which have been replaced or paid as provided in Section
306 and (ii) Securities for whose payment money has theretofore been
deposited in trust or segregated and held in trust by the Company and
thereafter repaid to the Company or discharged from such trust, as
provided in Section 1003) have been delivered to the Trustee for
cancellation; or
(B) all such securities not theretofore delivered to the Trustee
for cancellation
(i) have become due and payable, or
(ii) will become due and payable at their Stated Maturity
within one year, or
(iii) are to be called for redemption within one year under
arrangements satisfactory to the Trustee for the giving of notice
of redemption by the Trustee in the name, and at the expense, of
the Company,
and the Company, in the case of clause (i), (ii) or (iii) above, has
deposited or caused to be deposited with the Trustee as trust funds in
trust for the purpose an amount sufficient to pay and discharge the
entire indebtedness on such Securities not theretofore delivered to
the Trustee for cancellation for principal (and premium, if any) and
interest to the date of such deposit (in the case of Securities which
have become due and payable) or to the Stated Maturity or Redemption
Date, as the case may be;
(2) the Company has paid or caused to be paid all other sums payable
hereunder by the Company; and
33
<PAGE>
(3) the Company has delivered to the Trustee an Officers' Certificate
and an Opinion of Counsel, each stating that all conditions precedent
herein provided for relating to the satisfaction and discharge of this
Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company in Sections 305, 306, 607, 1001, 1002 and 1003 shall
survive until the Securities are no longer outstanding.
Section 402. Application of Trust Money. Subject to the provisions
--------------------------
of the last paragraph of Section 1003, all money deposited with the Trustee
pursuant to Section 401 shall be held in trust and applied by it, in accordance
with the provisions of the Securities and this Indenture, to the payment to the
Persons entitled thereto, either directly or through any Paying Agent (including
the Company acting as its own Paying Agent) as the Trustee may determine, of the
principal (and premium, if any) and interest for whose payment such money has
been deposited with the Trustee.
ARTICLE V
EVENTS OF DEFAULT; REMEDIES
Section 501. Events of Default. "Event of Default," wherever used
----------------- ----------------
herein, means any one of the following events (whatever the reason for such
Event of Default and whether it shall be voluntary or involuntary or be effected
by operation of law or pursuant to any judgment, decree or order or any court or
any order, rule or regulation of any administrative or governmental body):
(1) default by the Company in the payment of any interest upon any
Security when it becomes due and payable, and continuance of such default
for a period of 30 days; or
(2) default by the Company in the payment of the principal of or
premium, if any, on, or the Redemption Price on, any Security when the same
becomes due and payable at its Maturity Date; or
(3) default by the Company in the performance, or breach, of any
covenant or warranty of the Company in this Indenture (other than a
covenant or warranty a default in whose performance or whose breach is
elsewhere in this Section specifically dealt with), and continuance of such
default or breach for a period of 90 days after there has been given, by
registered or certified mail, to the Company by the Trustee or to the
34
<PAGE>
Company and the Trustee by the Holders of at least 25% in principal amount
of the Outstanding Securities a written notice specifying such default or
breach and requiring it to be remedied and stating that such notice is a
"Notice of Default" hereunder;
-----------------
(4)(A) the failure by the Company or any Subsidiary to pay
Indebtedness in an aggregate principal amount exceeding $50 million at the
later of final maturity or upon expiration of any applicable grace period
with respect to such principal amount, or (B) acceleration of the maturity
of any Indebtedness of the Company or any Subsidiary, in excess of $50
million, if such failure to pay is not discharged or such acceleration is
not annulled within 10 days after due notice; or
(5) a decree or order by a court having jurisdiction in the premises
shall have been entered adjudging the Company or any Significant Subsidiary
as bankrupt or insolvent, or approving as properly filed a petition seeking
reorganization of the Company or any Significant Subsidiary under any
Bankruptcy Law, and such decree or order shall have continued undischarged
and unstayed for a period of 120 days; or a decree or order of a court
having jurisdiction in the premises for the appointment of a receiver or
liquidator or trustee or assignee in bankruptcy or insolvency of the
Company or any Significant Subsidiary or of their respective property, or
for the winding up or liquidation of their respective affairs, shall have
been entered, and such decree or order shall have remained in force
undischarged and unstayed for a period of 120 days; or
(6) the Company or any Significant Subsidiary shall institute
proceedings to be adjudicated a voluntary bankrupt, or shall consent to the
filing of a bankruptcy proceeding against any of them, or shall file a
petition or answer or consent seeking reorganization under any Bankruptcy
Law, or shall consent to the filing of any such petition, or shall consent
to the appointment of a receiver or liquidator or trustee or assignee in
bankruptcy or insolvency of the Company or any Significant Subsidiary or of
their respective property, or shall make an assignment for the benefit of
creditors, or shall admit in writing its inability to pay their respective
debts generally as they become due.
35
<PAGE>
Section 502. Acceleration of Maturity Date; Rescission and Annulment.
-------------------------------------------------------
If an Event of Default (other than an Event of Default specified in Section
501(5) or 501(6)) occurs and is continuing, then and in every such case the
Trustee or the Holders of not less than 25% in principal amount of the
Outstanding Securities may declare the principal of all the Securities to be due
and payable, by a notice in writing to the Company (and to the Trustee if given
by Holders), and upon receipt by the Company (and the Trustee if given by
Holders) of any such written notice, such principal shall become immediately due
and payable. If an Event of Default specified in Section 501(5) or 501(6)
occurs, all unpaid principal and accrued interest on the Outstanding Securities
shall become and be immediately due and payable without any declaration or other
act on the part of the Trustee or any Holder.
At any time after such declaration of acceleration has been made and
before a judgment or decree for payment of the money due has been obtained by
the Trustee as hereinafter in this Article V provided, the Holders of a majority
in principal amount of the Outstanding Securities, by written notice to the
Company and the Trustee, may rescind and annul such declaration and its
consequences if:
(1) the Company has paid or deposited with the Trustee a sum
sufficient to pay
(A) all overdue interest on all Securities,
(B) the principal of and premium, if any, on any Securities
which have become due otherwise than by such declaration of
acceleration and interest thereon at the rate borne by the Securities,
(C) to the extent that payment of such interest is lawful,
interest upon overdue interest at the rate borne by the Securities,
and
(D) all sums paid or advanced by the Trustee hereunder and the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and
(2) all Events of Default, other than the non-payment of the
principal of Securities which have become due solely by such declaration of
acceleration, have been cured or waived as provided in Section 513.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
36
<PAGE>
Section 503. Collection of Indebtedness and Suits for Enforcement by
-------------------------------------------------------
Trustee. The Company covenants that if
- -------
(1) default is made in the payment of any interest on any Security
when such interest becomes due and payable and such default continues for a
period of 30 days, or
(2) default is made in the payment of the principal of or premium, if
any, on any Security at the Maturity Date thereof, including the payment of
the Redemption Price on any Redemption Date,
the Company will, upon demand of the Trustee, pay to it, for the benefit of the
Holders of such Securities, the whole amount then due and payable on such
Securities for principal (and premium, if any) and interest, and, to the extent
that payment of such interest shall be legally enforceable, interest on any
overdue principal (and premium, if any) and on any Defaulted Interest, at the
rate borne by the Securities, and, in addition thereto, such further amount as
shall be sufficient to cover the reasonable costs and expenses of collection,
including the reasonable compensation, expenses, disbursements and advances of
the Trustee, its agents and counsel.
If the Company fails to pay such amounts forthwith upon such demand,
the Trustee, in its own name and as trustee of an express trust, may institute a
judicial proceeding for the collection of the sums so due and unpaid, may
prosecute such proceeding to judgment or final decree and may enforce the same
against the Company or any other obligor upon the Securities and collect the
moneys adjudged or decreed to be payable in the manner provided by law out of
the property of the Company or any other obligor upon the Securities, wherever
situated.
If an Event of Default occurs and is continuing, the Trustee may in
its discretion proceed to protect and enforce its rights and the rights of the
Holders by such appropriate judicial proceedings as the Trustee shall deem most
effective to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
Section 504. Trustee May File Proofs of Claim. In case of any
--------------------------------
judicial proceeding relative to the Company or any other obligor upon the
Securities, their property or their creditors, the Trustee shall be entitled and
empowered, by intervention in such proceeding or otherwise, to take any and all
actions authorized under the Trust Indenture Act in order to have claims of the
Holders and the
37
<PAGE>
Trustee allowed in any such proceeding. In particular, the Trustee shall be
authorized to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same; and any custodian,
receiver, assignee, trustee, liquidator, sequestrator or other similar official
in any such judicial proceeding is hereby authorized by each Holder to make such
payments to the Trustee and, in the event that the Trustee shall consent to the
making of such payments directly to the Holders, to pay to the Trustee any
amount due it for the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, and any other amounts due the
Trustee under Section 607.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Holder thereof or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding; provided, however,
-------- -------
that the Trustee may, on behalf of the Holders, vote for the election of a
trustee in bankruptcy or similar official and be a member of a creditors' or
other similar committee.
Section 505. Trustee May Enforce Claims Without Possession of
------------------------------------------------
Securities. All rights of action and claims under this Indenture or the
- ----------
Securities may be prosecuted and enforced by the Trustee without the possession
of any of the Securities or the production thereof in any proceeding relating
thereto, and any such proceeding instituted by the Trustee shall be brought in
its own name as trustee of an express trust, and any recovery of judgment shall,
after provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, be for the
ratable benefit of the Holders of the Securities in respect of which such
judgment has been recovered.
Section 506. Application of Money Collected. Any money collected by
------------------------------
the Trustee pursuant to this Article V shall be applied in the following order,
at the date or dates fixed by the Trustee and, in case of the distribution of
such money on account of principal, premium, if any, or interest, upon
presentation of the Securities and the notation thereon of the payment if only
partially paid and upon surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under Section
607;
SECOND: To the payment of the amounts then due and unpaid for
principal of and premium, if any, and
38
<PAGE>
interest on the Securities in respect of which or for the benefit of which
such money has been collected, ratably, without preference or priority of
any kind, according to the amounts due and payable on such Securities for
principal, premium, if any, and interest, respectively; and
THIRD: The balance, if any, to the Company.
Section 507. Limitation on Suits. No Holder of any Security shall
-------------------
have any right to institute any proceeding, judicial or otherwise, with respect
to this Indenture, or for the appointment of a receiver or trustee, or for any
other remedy hereunder, unless
(1) such Holder has previously given written notice to the Trustee of
a continuing Event of Default;
(2) the Holders of not less than 25% in principal amount of the
Outstanding Securities shall have made written request to the Trustee to
institute proceedings in respect of such Event of Defaults in its own name
as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice, request
and offer of indemnity has failed to institute any such proceeding; and
(5) no direction inconsistent with such written request has been
given to the Trustee during such 60-day period by the Holders of a majority
in principal amount of the Outstanding Securities;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders,
or to obtain or to seek to obtain priority or preference over any other Holders
or to enforce any right under this Indenture, except in the manner herein
provided and for the equal and ratable benefit of all the Holders.
Section 508. Unconditional Right of Holders to Receive Principal,
----------------------------------------------------
Premium and Interest. Notwithstanding any other provision in this Indenture,
- --------------------
the Holder of any Security shall have the right, which is absolute and
unconditional, to receive payment of the principal of and premium, if any, and
(subject to Section 307) interest on such Security on the respective Stated
Maturities of such
39
<PAGE>
payments as expressed in such Security (and in the case of redemption, the
Redemption Price on the applicable Redemption Date) and to institute suit for
the enforcement of any such payment and right to convert, and such rights shall
not be impaired without the consent of such Holder.
Section 509. Restoration of Rights and Remedies. If the Trustee or
----------------------------------
any Holder has instituted any proceeding to enforce any right or remedy under
this Indenture and such proceeding has been discontinued or abandoned for any
reason, or has been determined adversely to the Trustee or to such Holder, then
and in every such case, subject to any determination in such proceeding, the
Company, the Trustee and the Holders shall be restored severally and
respectively to their former positions hereunder and thereafter all rights and
remedies of the Trustee and the Holders shall continue as though no such
proceeding had been instituted.
Section 510. Rights and Remedies Cumulative. Except as otherwise
------------------------------
provided with respect to the replacement or payment of mutilated, destroyed,
lost or stolen Securities in the last paragraph of Section 306, no right or
remedy herein conferred upon or reserved to the Trustee or to the Holders is
intended to be exclusive of any other right or remedy, and every right and
remedy shall, to the extent permitted by law, be cumulative and in addition to
every other right and remedy given hereunder or now or hereafter existing at law
or in equity or otherwise. The assertion or employment of any right or remedy
hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
Section 511. Delay or Omission Not Waiver. No delay or omission of
----------------------------
the Trustee or of any Holder of any Security to exercise any right or remedy
accruing upon any Event of Default shall impair any such right or remedy or
constitute a waiver of any such Event of Default or an acquiescence therein.
Every right and remedy given by this Article V or by law to the Trustee or to
the Holders may be exercised from time to time, and as often as may be deemed
expedient, by the Trustee or by the Holders, as the case may be.
Section 512. Control by Holders. The Holders of a majority in
------------------
principal amount of the Outstanding Securities shall have the right to direct
the time, method and place of conducting any proceeding for any remedy available
to the Trustee or exercising any trust or power conferred on the Trustee,
provided that
- --------
(1) such direction shall not be in conflict with any rule of law or
with this Indenture, and
40
<PAGE>
(2) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction.
Section 513. Waiver of Past Default. The Holders of not less than a
----------------------
majority in principal amount of the Outstanding Securities may on behalf of the
Holders of all the Securities waive any past default hereunder and its
consequences, except a default
(1) in the payment of the principal of or premium, if any, or
interest on any Security as specified in clauses (1) and (2) of Section 501
or
(2) in respect of a covenant or provision hereof which under Article
IX cannot be modified or amended without the consent of the Holder of each
Outstanding Security affected.
Upon any such waiver, such default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other default or impair any right consequent thereon.
Section 514. Undertaking for Costs. In any suit for the enforcement
---------------------
of any right or remedy under this Indenture, or in any suit against the Trustee
for any action taken, suffered or omitted by it as Trustee, a court may require
any party litigant in such suit to file an undertaking to pay the costs of such
suit, and may assess costs against any such party litigant, in the manner and to
the extent provided in the Trust Indenture Act; provided that neither this
---------
Section nor the Trust Indenture Act shall be deemed to authorize any court to
require such undertaking or to make such an assessment in any suit instituted by
the Company.
Section 515. Waiver of Stay or Extension Laws. The Company covenants
--------------------------------
(to the extent that it may lawfully do so) that it will not at any time insist
upon, or plead, or in any manner whatsoever claim or take the benefit or
advantage of, any stay or extension law wherever enacted, now or at any time
hereafter in force, which may affect the covenants or the performance of this
Indenture; and the Company (to the extent that it may lawfully do so) hereby
expressly waives all benefit or advantage of any such law and covenants that it
will not hinder, delay or impede the execution of any power herein granted to
the Trustee, but will suffer and permit the execution of every such power as
though no such law had been enacted.
41
<PAGE>
ARTICLE VI
THE TRUSTEE
Section 601. Certain Duties and Responsibilities. The duties and
-----------------------------------
responsibilities of the Trustee shall be as provided by the Trust Indenture Act.
Notwithstanding the foregoing, no provision of this Indenture shall require the
Trustee to expend or risk its own funds or otherwise incur any financial
liability in the performance of any of its duties hereunder, or in the exercise
of any of its rights or powers, if it shall have reasonable grounds for
believing that repayment of such funds or adequate indemnity against such risk
or liability is not reasonably assured to it.
Whether or not therein expressly so provided, every provision of this
Indenture relating to the conduct or affecting the liability of or affording
protection to the Trustee shall be subject to the provisions of this Section.
Section 602. Notice of Defaults. If a default occurs hereunder with
------------------
respect to the Securities, the Trustee shall give the Holders of the Securities
notice of such default as and to the extent provided by the Trust Indenture Act;
provided, however, that in the case of any default of the character specified in
- -------- -------
Section 501(3), no such notice to Holders shall be given until at least 30 days
after the occurrence thereof. For the purpose of this Section, the term
"default" means any event which is, or after notice or lapse of time or both
- --------
would become, an Event of Default.
Section 603. Certain Rights of Trustee. Subject to the provisions of
-------------------------
Section 601:
(a) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of Indebtedness or other paper or
document believed by it to be genuine and to have been signed or presented
by the proper party or parties;
(b) any request, direction, order or demand of the Company mentioned
herein shall be sufficiently evidenced by a Company Request or Company
Order, and any resolution of the Board of Directors may be sufficiently
evidenced by a Board Resolution;
(c) whenever in the administration of this Indenture the Trustee
shall deem it desirable that a matter be proved or established prior to
taking, suffering or omitting any action hereunder, the Trustee
42
<PAGE>
(unless other evidence be herein specifically prescribed) may, in the
absence of bad faith on its part, rely upon an Officer's Certificate;
(d) the Trustee may consult with counsel and the written advice of
such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or
omitted by it hereunder in good faith and in reliance thereon;
(e) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction
of any of the Holders pursuant to this Indenture, unless such Holders shall
have offered to the Trustee security or indemnity against the costs,
expenses and liabilities which might be incurred by it in compliance with
such request or direction which shall be reasonably satisfactory to the
Trustee;
(f) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document, but the Trustee, in its discretion, may make such further inquiry
or investigation into such facts or matters as it may see fit; provided,
--------
however, that the Trustee shall not thereby be deemed to be required to act
-------
or be held to any higher duty of care than existed prior to such inquiry;
and
(g) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by
it hereunder.
Section 604. Not Responsible for Recitals or Issuance of Securities.
------------------------------------------------------
The recitals contained herein and in the Securities, except the Trustee's
certificates of authentication, shall be taken as the statements of the Company,
and the Trustee assumes no responsibility or liability whatsoever for their
correctness. The Trustee makes no representations as to the validity or
sufficiency of this Indenture or of the Securities. The Trustee shall not be
accountable for the use or application by the Company of Securities or the
proceeds thereof.
43
<PAGE>
Section 605. May Hold Securities. The Trustee, any Authenticating
-------------------
Agent, any Paying Agent, any Security Registrar or any other agent of the
Company, in its individual or any other capacity, may become the owner or
pledgee of Securities and, subject to Sections 608 and 613, may otherwise deal
with the Company with the same rights it would have if it were not Trustee,
Authenticating Agent, Paying Agent, Security Registrar or such other agent.
Section 606. Money Held in Trust. Money held by the Trustee in trust
-------------------
hereunder need not be segregated from other funds except to the extent required
by law. The Trustee shall be under no liability for interest on any money
received by it hereunder except as otherwise agreed in writing with the Company.
Section 607. Compensation and Reimbursement. The Company agrees:
------------------------------
(1) to pay to the Trustee from time to time such reasonable
compensation as the Company and the Trustee shall from time to time agree
upon in writing for all services rendered by it hereunder (which
compensation shall not be limited by any provision of law in regard to the
compensation of a trustee of an express trust);
(2) except as otherwise expressly provided herein, to reimburse the
Trustee upon its request for all reasonable expenses, disbursements and
advances incurred or made by the Trustee in accordance with the Trustee's
performance of this Indenture (including the reasonable compensation and
expenses and disbursements of its non-employee agents and counsel), except
any such expense, disbursement or advance as may be attributable to its
negligence or willful misconduct; and
(3) to indemnify each of the Trustee or any predecessor Trustee for,
and to hold it harmless against, any and all loss, damage, claim, liability
or expense incurred without negligence or willful misconduct on its part,
arising out of or in connection with the acceptance or administration of
this trust, including the costs and expenses of defending itself against
any claim or liability in connection with the exercise or performance of
any of its powers or duties hereunder, except those attributable to its
negligence or willful misconduct. This obligation shall survive the
maturity of the Securities.
The Trustee shall have a claim prior to the Securities as to all
property and funds properly held by it hereunder for any amount owing it or any
predecessor Trustee
44
<PAGE>
pursuant to this Section 607, except with respect to funds held in trust for the
benefit of the Holders of particular Securities.
When the Trustee incurs expenses or renders services in connection
with an Event of Default specified in Section 501(5) or Section 501(6), the
expenses (including the reasonable charges and expenses of its counsel) and the
compensation for the services are intended to constitute expenses of
administration under any applicable Federal or state bankruptcy, insolvency or
other similar law.
The provisions of this Section shall survive the termination of this
Indenture.
Section 608. Disqualification; Conflicting Interests. If the Trustee
---------------------------------------
has or shall acquire a conflicting interest within the meaning of the Trust
Indenture Act, the Trustee shall either eliminate such interest or resign, to
the extent and in the manner provided by, and subject to the provisions of, the
Trust Indenture Act and this Indenture.
Section 609. Corporate Trustee Required; Eligibility. There shall at
---------------------------------------
all times be a Trustee hereunder which shall (i) be a corporation organized and
doing business under the laws of the United States of America, any State thereof
or the District of Columbia, (ii) authorized under such laws to exercise
corporate trust powers, (iii) have a combined capital and surplus of at least
$50,000,000 (or, in the case of the initial Trustee hereunder, have a combined
capital and surplus meeting the requirements of the Trust Indenture Act and be a
wholly owned subsidiary of a Person that would otherwise meet the eligibility
requirements of this Section), and (iv) be subject to supervision or examination
by Federal or state authority. If such corporation publishes reports of
condition at least annually, pursuant to law or to the requirements of said
supervising or examining authority, then for the purposes of this Section, the
combined capital and surplus of such corporation shall be deemed to be its
combined capital and surplus as set forth in its most recent report of condition
so published. If at any time the Trustee shall cease to be eligible in
accordance with the provisions of this Section, it shall resign immediately in
the manner and with the effect hereinafter specified in this Article VI. The
Trustee shall comply with Trust Indenture Act (S) 310(b).
Section 610. Resignation and Removal; Appointment of Successor. (a)
-------------------------------------------------
No resignation or removal of the Trustee and no appointment of a successor
Trustee pursuant to this
45
<PAGE>
Article shall become effective until the acceptance of appointment by the
successor Trustee under Section 611.
(b) The Trustee may resign at any time by giving written notice
thereof to the Company. If an instrument of acceptance by a successor Trustee
required by Section 611 shall not have been delivered to the Trustee within 30
days after the giving of such notice of resignation, the resigning Trustee may
petition any court of competent jurisdiction for the appointment of a successor
Trustee.
(c) The Trustee may be removed at any time by Act of the Holders of a
majority in principal amount of the Outstanding Securities, delivered to the
Trustee and to the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with Section 608 after
written request therefor by the Company or by any Holder who has been
a bona fide Holder of a Security for at least six months, or
(2) the Trustee shall cease to be eligible under Section 609 and
shall fail to resign after written request therefor by the Company or
by any such Holder, or
(3) the Trustee shall become incapable of acting or shall be
judged a bankrupt or insolvent or a receiver of the Trustee or of its
property shall be appointed or any public officer shall take charge or
control of the Trustee or of its property or affairs for the purpose
of rehabilitation, conservation or liquidation,
then, in any such case, (i) the Company may remove the Trustee with respect to
all Securities, or (ii) subject to Section 514, any Holder who has been a bona
fide Holder of a Security for at least six months may, on behalf of himself and
all other similarly situated, petition any court of competent jurisdiction for
the removal of the Trustee and the appointment of a successor Trustee.
(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause, the
Company shall promptly appoint a successor Trustee. If, within one year after
such resignation, removal or incapability, or the occurrence of such vacancy, a
successor Trustee shall be appointed by Act of the Holders of a majority in
principal amount of the Outstanding Securities delivered to the Company and the
retiring Trustee, the successor Trustee so
46
<PAGE>
appointed shall, forthwith upon its acceptance of such appointment in accordance
with the applicable requirements of Section 611, become the successor Trustee
and supersede the successor Trustee appointed by the Company. If no successor
Trustee shall have been so appointed by the Company or the Holders and accepted
appointment in the manner hereinafter provided, any Holder who has been a bona
fide Holder of a Security for at least six months may, on behalf of himself and
all others similarly situated, petition any court of competent jurisdiction for
the appointment of a successor Trustee.
(f) The Company shall give notice of each resignation and each
removal of the Trustee and each appointment of a successor Trustee by mailing
written notice of such event by first-class mail, postage prepaid, to all
Holders as their names and addresses appear in the Security Register. Each
notice shall include the name of the successor Trustee and the address of its
Corporate Trust Office.
Section 611. Acceptance of Appointment by Successor. Every successor
--------------------------------------
Trustee appointed hereunder shall execute, acknowledge and deliver to the
Company and to the retiring Trustee an instrument accepting such appointment,
and thereupon the resignation or removal of the retiring Trustee shall become
effective and such successor Trustee, without any further act, deed or
conveyance shall become vested with all the rights, powers, trusts and duties of
the retiring Trustee; but, on request of the Company or the successor Trustee,
such retiring Trustee shall, upon payment of its charges pursuant to Section
607, execute and deliver an instrument transferring to such successor Trustee
all the rights, powers and trusts of the retiring Trustee and shall duly assign,
transfer and deliver to such successor Trustee all property and money held by
such retiring Trustee hereunder. Upon request of any such successor Trustee,
the Company shall execute any and all instruments for more fully and certainly
vesting in and confirming to such successor Trustee all such rights, powers and
trusts.
No successor Trustee shall accept its appointment unless at the time
of such acceptance such successor Trustee shall be qualified and eligible under
this Article VI.
Section 612. Merger, Conversion, Consolidation or Succession to
--------------------------------------------------
Business. Any corporation into which the Trustee may be merged or converted or
- --------
with which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all the corporate trust business
of the Trustee, shall be
47
<PAGE>
the successor of the Trustee hereunder, provided such corporation shall be
otherwise qualified and eligible under this Article VI, without the execution or
filing of any paper or any further act on the part of any of the parties hereto.
In case any Securities shall have been authenticated, but not delivered, by the
Trustee then in office, any successor by merger, conversion or consolidation to
such authenticating Trustee may adopt such authentication and deliver the
Securities so authenticated with the same effect as if such successor Trustee
had itself authenticated such Securities.
Section 613. Preferential Collection of Claims Against Company. If
-------------------------------------------------
and when the Trustee shall be or become a creditor of the Company (or any other
obligor upon the Securities), the Trustee shall be subject to the provisions of
the Trust Indenture Act regarding the collection of claims against the Company
(or any such other obligor).
Section 614. Appointment of Authenticating Agent. The Trustee may
-----------------------------------
appoint an Authenticating Agent or Agents acceptable to the Company which shall
be authorized to act on behalf of the Trustee to authenticate Securities issued
upon original issue and upon exchange, registration of transfer, or partial
redemption or pursuant to Section 306, and Securities so authenticated shall be
entitled to the benefits of this Indenture and shall be valid and obligatory for
all purposes as if authenticated by the Trustee hereunder. Wherever reference
is made in this Indenture to the authentication and delivery of Securities by
the Trustee or the Trustee's certificate of authentication, such reference shall
be deemed to include authentication and delivery on behalf of the Trustee by an
Authenticating Agent and a certificate of authentication executed on behalf of
the Trustee by an Authenticating Agent.
Each Authenticating Agent shall be acceptable to the Company and shall
at all times be a corporation organized and doing business under the laws of the
United States of America, any State thereof or the District of Columbia,
authorized under such laws to act as Authenticating Agent, having a combined
capital and surplus of not less than $50,000,000 and subject to supervision or
examination by Federal or state authority. If such Authenticating Agent
publishes reports of condition at least annually, pursuant to law or to the
requirements of said supervising or examining authority, then for the purposes
of this Section, the combined capital and surplus of such Authenticating Agent
shall be deemed to be its combined capital and surplus as set forth in its most
recent report of condition so published. If at any time an Authenticating Agent
shall cease to be eligible in accordance with the provisions of this Section,
such Authenticating Agent shall
48
<PAGE>
resign immediately in the manner and with the effect specified in this Section.
Any corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating Agent
shall be a party, or any corporation succeeding to all or substantially all of
the corporate agency or corporate trust business of such Authenticating Agent,
shall continue to be an Authenticating Agent, provided such corporation shall be
otherwise eligible under this Section, without the execution or filing of any
paper or any further act on the part of the Trustee, the Company or such
Authenticating Agent.
An Authenticating Agent may resign at any time by giving written
notice thereof to the Trustee and to the Company. The Trustee may at any time
terminate the agency of an Authenticating Agent by giving written notice thereof
to such Authenticating Agent and to the Company. Upon receiving such a notice
of resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, the Trustee may appoint a successor Authenticating
Agent which shall be acceptable to the Company and shall mail written notice of
such appointment by first-class mail, postage prepaid, to all Holders of
Securities, as their names and addresses appear in the Security Register. Any
successor Authenticating Agent upon acceptance of its appointment hereunder
shall become vested with all the rights, powers and duties of its predecessor
hereunder, with like effect as if originally named as an Authenticating Agent.
No successor Authenticating Agent shall be appointed unless eligible under the
provisions of this Section.
The Company agrees to pay each Authenticating Agent, as appointed from
time to time, such reasonable fees as may be agreed to in writing with the
Company, for services rendered under this Section 614.
If an appointment is made pursuant to this Section, the Securities may
have endorsed thereon, in addition to the Trustee's certificates of
authentication, an alternate certificate of authentication in the following
form:
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This is one of the Securities described in the within mentioned
Indenture.
[ ], as Trustee
-------------------
By:
-----------------------------------
As Authenticating Agent
By:
-----------------------------------
Authorized Signatory
ARTICLE VII
HOLDERS' LISTS AND REPORTS
BY TRUSTEE AND COMPANY
Section 701. Company to Furnish Trustee Names and Addresses of
-------------------------------------------------
Holders. The Company will furnish or cause to be furnished to the Trustee:
- -------
(a) semi-annually, not more than 15 days after each Regular Record
Date, a list, in such form as the Trustee may reasonably require, of the
names and addresses of the Holders as of such Regular Record Date, and
(b) at such other times as the Trustee may request in writing, within
30 days after the receipt by the Company of any such request, a list of
similar form and content as of a date not more than 15 days prior to the
time such list is furnished;
excluding from any such list names and addresses received by the Trustee in its
capacity as Security Registrar or Paying Agent.
Section 702. Preservation of Information; Communications to Holders.
------------------------------------------------------
(a) The Trustee shall preserve, in as current a form as is reasonably
practicable, the names and addresses of Holders contained in the most recent
list furnished to the Trustee as provided in Section 701 and the names and
addresses of Holders received by the Trustee in its capacity as Security
Registrar or Paying Agent. The Trustee may destroy any list furnished to it as
provided in Section 701 upon receipt of a new list so furnished.
(b) The rights of Holders to communicate with other Holders with
respect to their rights under this Indenture or under the Securities, and the
corresponding rights and privileges of the Trustee, shall be as provided by the
Trust Indenture Act.
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(c) Every Holder of Securities, by receiving and holding the same,
agrees with the Company and the Trustee that neither the Company nor the Trustee
nor any agent of any of them shall be held accountable by reason of the
disclosure of any such information as to the names and addresses of the Holders
in accordance with Section 702(b), regardless of the source from which such
information was derived, and that the Trustee shall not be held accountable by
reason of mailing any material pursuant to a request made under Section 702(b).
Section 703. Reports by Trustee. The Trustee shall transmit to
------------------
Holders such reports concerning the Trustee and its actions under this Indenture
as may be required pursuant to the Trust Indenture Act at the times and in the
manner provided pursuant thereto.
A copy of each such report shall, at the time of such transmission to
Holders, be filed by the Trustee with each stock exchange upon which any
Securities are listed, with the Commission and the Company.
Section 704. Reports by Company. The Company shall:
------------------
(1) file with the Trustee, within 15 days after the Company is
required to file the same with the Commission, copies of the annual reports
and of the information, documents and other reports (or copies of such
portions of any of the foregoing as the Commission may from time to time by
rules and regulations prescribe) which the Company may be required to file
with the Commission pursuant to Section 13 or Section 15(d) of the Exchange
Act; or, if the Company is not required to file information, documents or
reports pursuant to either of said Sections, then it shall file with the
Trustee and the Commission, in accordance with rules and regulations
prescribed from time to time by the Commission, such of the supplementary
and periodic information, documents and reports which may be required
pursuant to Section 13 of the Exchange Act in respect of a security listed
and registered on a national securities exchange as may be prescribed from
time to time in such rules and regulations;
(2) file with the Trustee and the Commission, in accordance with
rules and regulations prescribed from time to time by the Commission, such
additional information, documents and reports with respect to compliance by
the Company with the conditions and covenants of this Indenture as may be
required from time to time by such rules and regulations; and
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(3) transmit by mail, to all Holders, as their names and addresses
appear in the Security Register, within 30 days after the filing thereof
with the Trustee, such summaries of any information, documents and reports
required to be filed by the Company pursuant to paragraphs (1) and (2) of
this Section as may be required by rules and regulations prescribed from
time to time by the Commission.
ARTICLE VIII
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
Section 801. Company May Consolidate, Etc., Only on Certain Terms.
----------------------------------------------------
The Company shall not consolidate with or merge into another corporation or sell
other than for cash or lease all or substantially all its assets to another
corporation, or purchase all or substantially all the assets of another
corporation, unless:
(1) either the Company is the continuing corporation, or the
successor corporation (if other than the Company) expressly assumes by
supplemental indenture the obligations evidenced by the Securities (in
which case, except in the case of such a lease, the Company will be
discharged therefrom); and
(2) immediately thereafter, the Company or the successor corporation
(if other than the Company) would not be in default in the performance of
any covenant or condition contained herein.
Section 802. Successor Substituted for Company. Upon any
---------------------------------
consolidation of the Company with, or merger of the Company into, any other
Person or any conveyance, transfer or lease of the properties and assets of the
Company substantially as an entirety in accordance with Section 801, the
successor Person formed by such consolidation or into which the Company is
merged or to which such conveyance, transfer or lease is made shall succeed to,
and be substituted for, and may exercise every right and power of, the Company
under this Indenture with the same effect as if such successor Person had been
named as the Company herein, and thereafter, except in the case of a lease, the
predecessor Person shall be relieved of all obligations and covenants under this
Indenture and the Securities.
52
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ARTICLE IX
SUPPLEMENTAL INDENTURES
Section 901. Supplemental Indentures Without Consent of Holders.
--------------------------------------------------
Without the consent of any Holders, the Company and the Trustee, at any time and
from time to time, may enter into one or more indentures supplemental hereto, in
form satisfactory to the Trustee, for any of the following purposes:
(1) to evidence the succession of another Person to the Company and
the assumption by any such successor of the covenants of the Company herein
and in the Securities in accordance with Article VIII; or
(2) to add to the covenants of the Company for the benefit of the
Holders, or to surrender any right or power herein conferred upon the
Company; or
(3) to secure the Securities; or
(4) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee with respect to the Securities; or
(5) to cure any ambiguity, to correct or supplement any provision
herein which may be inconsistent with any other provision herein, or to
make any other provisions with respect to matters or questions arising
under this Indenture which shall not be inconsistent with the provisions of
this Indenture, provided such action pursuant to this clause (5) shall not
adversely affect the interests of the Holders in any material respect.
Section 902. Supplemental Indentures with Consent of Holders.
-----------------------------------------------
Subject to Section 508, with the consent of the Holders of not less than a
majority in principal amount of the outstanding Securities, by Act of said
Holders delivered to the Company and the Trustee, the Company and the Trustee
may enter into an indenture or indentures supplemental hereto for the purpose of
adding any provisions to or changing in any manner or eliminating any of the
provisions of this Indenture or of modifying in any manner the rights of the
Holders under this Indenture. Notwithstanding any of the above, however, no
such supplemental indenture shall, without the consent of the Holder of each
Outstanding Security affected thereby:
(1) change the Stated Maturity of the principal of, or any installment
of interest on, any Security, or reduce the principal amount thereof or the
rate of
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interest thereon or any premium payable upon the redemption thereof, or
change the coin or currency in which any Security or any premium or the
interest thereon is payable, or impair the right to institute suit for the
enforcement of any such payment on or after the Stated Maturity thereof
(or, in the case of redemption, on or after the Redemption Date);
(2) reduce the percentage in principal amount of the Outstanding
Securities, the consent of whose Holders is required for any such
supplemental indenture, or the consent of whose Holders is required for any
waiver (of compliance with certain provisions of this Indenture or certain
defaults hereunder and their consequences) provided for in this Indenture;
or
(3) modify any of the provisions of this Section or Section 513 or
Section 1011, except to increase any such percentage or to provide that
certain other provisions of this Indenture cannot be modified or waived
without the consent of the Holder of each Outstanding Security affected
thereby.
It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act shall approve the substance thereof.
After a supplemental indenture under this Section becomes effective,
the Company shall mail to the Holders affected thereby a notice briefly
describing the supplemental indenture. Any failure of the Company to mail such
notice, or defect therein, shall not, however, in any way impair or affect the
validity of such supplemental indenture.
Section 903. Execution of Supplemental Indentures. In executing, or
------------------------------------
accepting the additional trusts created by, any supplemental indenture permitted
by this Article IX or the modifications thereby of the trusts created by this
Indenture, the Trustee shall be entitled to receive, and, subject to Section
601, shall be fully protected in relying upon, an Opinion of Counsel of the
Company stating that the execution of such supplemental indenture is authorized
or permitted by this Indenture. The Trustee may, but shall not be obligated to,
enter into any such supplemental indenture which affects the Trustee's own
rights, duties or immunities under this Indenture or otherwise.
54
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Section 904. Effect of Supplemental Indentures. Upon the execution
---------------------------------
of any supplemental indenture under this Article IX, this Indenture shall be
modified in accordance therewith, and such supplemental indenture shall form a
part of this Indenture for all purposes; and every Holder of Securities
theretofore or thereafter authenticated and delivered hereunder shall be bound
thereby.
Section 905. Conformity with Trust Indenture Act. Every supplemental
-----------------------------------
indenture executed pursuant to this Article IX shall conform to the requirements
of the Trust Indenture Act as then in effect.
Section 906. Reference in Securities to Supplemental Indentures.
--------------------------------------------------
Securities authenticated and delivered after the execution of any supplemental
indenture pursuant to this Article IX may, and shall if required by the Trustee,
bear a notation in form approved by the Trustee as to any matter provided for in
such supplemental indenture. If the Company shall so determine, new Securities
so modified as to conform, in the opinion of the Trustee and the Company, to any
such supplemental indenture may be prepared and executed by the Company, and
authenticated and made available for delivery by the Trustee in exchange for
Outstanding Securities.
ARTICLE X
COVENANTS
Section 1001. Payment of Principal, Premium and Interest. The
------------------------------------------
Company covenants and agrees that it will duly and punctually pay the principal
of and premium, if any, and interest on the Securities and the Redemption Price
as and when due, in accordance with the terms of the Securities and this
Indenture.
The Company shall pay interest on overdue amounts at the rate set
forth in paragraph 1 of the Securities, and it shall pay interest on overdue
interest at the same rate compounded semiannually (to the extent that the
payment of such interest shall be legally enforceable), which interest on
overdue interest shall accrue from the date such amounts became overdue.
Section 1002. Maintenance of Office or Agency. The Company will
-------------------------------
maintain in the Borough of Manhattan, the City of New York an office or agency
where Securities may be presented or surrendered for payment, where Securities
may be surrendered for registration of transfer or exchange and where notices
and demands to or upon the Company in respect of the Securities and this
Indenture may be served. Such
55
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office or agency will initially be the office of the Trustee located at
___________________________. The Company will give prompt written notice to the
Trustee of the location, and any change in the location, of such office or
agency. If at any time the Company shall fail to maintain any such required
office or agency or shall fail to furnish the Trustee with the address thereof,
such presentations, surrenders, notices and demands may be made or served at the
Corporate Trust Office of the Trustee, and the Company hereby appoints the
Trustee as its agent to receive all such presentations, surrenders, notices and
demands.
The Company may also from time to time designate one or more other
offices or agencies (in or outside the Borough of Manhattan, the City of New
York) where the Securities may be presented or surrendered for any or all such
purposes and may from time to time rescind such designations; provided, however,
-------- -------
that no such designation or rescission shall in any manner relieve the Company
of its obligation to maintain an office or agency in the Borough of Manhattan,
the City of New York for such purposes. The Company will give prompt written
notice to the Trustee of any such designation or rescission and of any change in
the location of any such other office or agency.
Section 1003. Money for Security Payments to Be Held in Trust. If
-----------------------------------------------
the Company shall at any time act as its own Paying Agent, it will, on or before
each due date of the principal of and premium, if any, or interest on any of the
Securities, segregate and hold in trust for the benefit of the Persons entitled
thereto a sum sufficient to pay the principal (and premium, if any) or interest
so becoming due until such sums shall be paid to such Persons or otherwise
disposed of as herein provided and will promptly notify the Trustee of its
action or failure so to act.
Whenever the Company shall have one or more Paying Agents, it will, on
or prior to each due date of the principal of and premium, if any, or interest
on any Securities, deposit with the Paying Agent or Paying Agents a sum
sufficient to pay the principal, premium, if any, or interest so becoming due,
such sum to be held in trust for the benefit of the Persons entitled to such
principal, premium, if any, or interest, and, unless such Paying Agent is the
Trustee, the Company will promptly notify the Trustee of its action or failure
so to act.
The Company will cause each Paying Agent other than the Trustee to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent will:
56
<PAGE>
(1) hold all sums held by it for the payment of the principal of and
premium, if any, or interest on Securities in trust for the benefit of the
Persons entitled thereto until such sums shall be paid to such Persons or
otherwise disposed of as herein provided;
(2) give the Trustee notice of any default by the Company (or any
other obligor upon the Securities) in the making of any payment of
principal and premium, if any, or interest; and
(3) at any time during the continuance of any such default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so
held in trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment by any Paying Agent to the Trustee,
such Paying Agent shall be released from all further liability with respect to
such money.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company in trust for the payment of the principal of and premium, if any,
or interest on any Security and remaining unclaimed for two years after such
principal and premium, if any, or interest has become due and payable shall be
paid to the Company on Company Request, or, if then held by the Company, shall
be discharged from such trust; and the Holder of such Security shall thereafter,
as an unsecured general creditor, look only to the Company for payment thereof,
and all liability of the Trustee or such Paying Agent with respect to such trust
money, and all liability of the Company as trustee thereof, shall thereupon
cease; provided, however, that the Trustee or such Paying Agent, before being
-------- -------
required to make any such repayment, may at the expense of the Company cause to
be published once, in a newspaper customarily published on each Business Day and
of general circulation in the Borough of Manhattan, the City of New York, notice
that such money remains unclaimed and that, after a date specified therein,
which shall not be less than 30 days from the date of such publication, any
unclaimed balance of such money then remaining will be repaid to the Company.
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Section 1004. Statements of Officers of Company as to Default; Notice
-------------------------------------------------------
of Default. (a) The Company will deliver to the Trustee, within 120 days after
- ----------
the end of each fiscal year of the Company ending after the date hereof, a
certificate, signed by the principal executive officer, principal financial
officer, or principal accounting officer, stating whether or not to the best
knowledge of the signers thereof the Company is in default (without regard to
periods of grace or requirements of notice) in the performance and observance of
any of the terms, provisions and conditions hereof, and if the Company shall be
in default, specifying all such defaults and the nature and status thereof of
which they may have knowledge.
(b) The Company shall file with the Trustee written notice of the
occurrence of any default or Event of Default within five Business Days of its
becoming aware of any such default or Event of Default.
Section 1005. Existence. Subject to Article VIII, the Company will
---------
do or cause to be done all things necessary to preserve and keep in full force
and effect its existence, rights (charter and statutory) and franchises and
those of each of its Subsidiaries; provided, however, that the Company shall not
-------- -------
be required to preserve any such right or franchise if its Board of Directors
shall determine that the preservation thereof is no longer desirable in the
conduct of the business of the Company or the business of any Subsidiary and
that the loss thereof is not disadvantageous in any material respect to the
Holders.
Section 1006. Maintenance of Properties. The Company will cause all
-------------------------
properties used or useful in the conduct of its business or the business of any
Subsidiary to be maintained and kept in good condition, repair and working order
and supplied with all necessary equipment and will cause to be made all
necessary repairs, renewals, replacements, betterments and improvements thereof,
all as in the judgment of the Company may be necessary so that the business
carried on in connection therewith may be properly and advantageously conducted
at all times; provided, however, that nothing in this Section shall prevent the
-------- -------
Company from discontinuing the operation or maintenance of any of such
properties if such discontinuance is, in the judgment of the Company, desirable
in the conduct of its business or the business of any Subsidiary and not
disadvantageous in any material respect to the Holders.
Section 1007. Payment of Taxes and Other Claims. The Company shall
---------------------------------
pay or discharge or cause to be paid or discharged, before the same shall become
delinquent, (1) all taxes, assessments and governmental charges (including
withholding taxes and any penalties, interest and additions
58
<PAGE>
to taxes) levied or imposed upon the Company or any Subsidiary or upon the
income, profits or property of the Company or any Subsidiary, and (2) all
material lawful claims for labor, materials and supplies which, if unpaid, might
by law become a lien upon the property of the Company or any Subsidiary;
provided, however, that the Company shall not be required to pay or discharge or
- -------- -------
cause to be paid or discharged any such tax, assessment, charge or claim whose
amount, applicability or validity is being contested in good faith by
appropriate proceedings and for which disputed amounts adequate reserves have
been made.
Section 1008. Further Instruments and Acts. Upon request of the
----------------------------
Trustee, the Company will execute and deliver such further instruments and
perform such further acts as may be reasonably necessary or proper to carry out
more effectively the purposes of this Indenture.
Section 1009. Limitation on Liens. (a) The Company will not, and
-------------------
will not permit any Subsidiary to, incur, issue, assume or Guaranty any
Indebtedness if such Indebtedness is secured by a pledge of, lien on, or
security interest in any shares of Voting Stock of any Significant Subsidiary,
whether such Voting Stock is now owned or shall hereafter be acquired, without
providing that the Securities (together with, if the Company shall so determine,
any other Indebtedness or Obligations of the Company or any Subsidiary ranking
equally with such Securities and then existing or thereafter created) shall be
secured equally and ratably with such Indebtedness. For the purposes of the
foregoing, pledging, placing a lien on or creating a security interest in any
shares of Voting Stock of a Significant Subsidiary in order to secure then
outstanding Indebtedness of the Company or any Subsidiary shall be deemed to be
the incurrence, issuance, assumption or Guaranty (as the case may be) of such
Indebtedness.
(b) The foregoing limitation shall not apply to (i) Indebtedness
secured by a pledge of, lien on or security interest in any shares of Voting
Stock of any corporation if such pledge, lien or security interest is made or
granted prior to or at the time such corporation becomes a Significant
Subsidiary, (ii) liens or security interests securing Indebtedness of a
Significant Subsidiary to the Company or another Significant Subsidiary or (iii)
the extension, renewal or replacement (or successive extensions, renewals or
replacements), in whole or in part, of any lien or security interest referred to
in the foregoing clauses (i) and (ii) but only if the principal amount of
Indebtedness secured by the liens or security interests immediately prior
thereto is not increased and the lien or security interest is not extended to
other property.
59
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Section 1010. Limitations on Disposition of Stock of Significant
--------------------------------------------------
Subsidiaries. The Company will not, and will not permit any Subsidiary to,
- ------------
sell, transfer or otherwise dispose of any shares of Capital Stock of any
Significant Subsidiary (or of any Subsidiary having direct or indirect control
of any Significant Subsidiary) except for, subject to the covenant relating to
mergers and sales of assets described in Section 801, (i) a sale, transfer or
other disposition of any Capital Stock of any Significant Subsidiary (or of any
Subsidiary having direct or indirect control of any Significant Subsidiary) to a
Wholly Owned Subsidiary of the Company or (ii) a sale, transfer or other
disposition for at least fair value (as determined by the Board of Directors
acting in good faith) of any of the Capital Stock of any Significant Subsidiary
(or of any Subsidiary having direct or indirect control of any Significant
Subsidiary) held by the Company and its Subsidiaries.
Section 1011. Waiver of Certain Covenants. The Company may omit in
---------------------------
any particular instance to comply with any term, provision or condition set
forth in this Article X (other than Sections 1001 through 1004, inclusive), if
before the time for such compliance the Holders of at least a majority (or such
greater amount as may be specified in any such term, provision or condition) in
principal amount of the Outstanding Securities shall, by Act of such Holders,
either waive such compliance in such instance or generally waive compliance with
such term, provision or condition, but no such waiver shall extend to or affect
such term, provision or condition except to the extent so expressly waived, and,
until such waiver shall become effective, the obligations of the Company and the
duties of the Trustee in respect of any such term, provision or condition shall
remain in full force and effect.
ARTICLE XI
REDEMPTION OF SECURITIES
Section 1101. Right of Redemption. The Securities may be redeemed at
-------------------
the election of the Company at any time or from time to time on or after
_________ __, 2007, in whole or in part, at the Redemption Price specified in
the form of Security hereinbefore set forth, together with accrued interest to
the Redemption Date.
Section 1102. Applicability of Article. Redemption of Securities at
------------------------
the election of the Company, as permitted by any provision of the Securities or
this Indenture, shall be made in accordance with such provision and this Article
XI.
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Section 1103. Election to Redeem; Notice to Trustee. The election of
-------------------------------------
the Company to redeem any Securities pursuant to Section 1101 shall be evidenced
by a Board Resolution. In case of any redemption at the election of the Company
of less than all the Securities, the Company shall, at least 20 days prior to
the Redemption Date fixed by the Company (unless a shorter notice shall be
satisfactory to the Trustee), notify the Trustee of such Redemption Date and of
the principal amount of Securities to be redeemed.
Section 1104. Selection by Trustee of Securities to be Redeemed. If
-------------------------------------------------
less than all the Securities are to be redeemed, the particular Securities to be
redeemed shall be selected not more than 60 days prior to the Redemption Date by
the Trustee, from the Outstanding Securities not previously called for
redemption, by such method as the Trustee shall deem fair and appropriate and
which may provide for the selection for redemption of portions (equal to $1,000
or any integral multiple thereof) of the principal amount of Securities of a
denomination larger than $1,000.
The Trustee shall promptly notify the Company and each Security
Registrar in writing of the Securities selected for redemption and, in the case
of any Securities selected for partial redemption, the principal amount thereof
to be redeemed.
For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to the redemption of Securities shall relate,
in the case of any Securities redeemed or to be redeemed only in part, to the
portion of the principal amount of such Securities which has been or is to be
redeemed.
Section 1105. Notice of Redemption. Notice of redemption shall be
--------------------
given in the manner provided by Section 106, mailed not less than 20 nor more
than 60 days prior to the Redemption Date, to each Holder of Securities to be
redeemed, at his address appearing in the Security Register.
All notices of redemption shall state:
(1) the Redemption Date,
(2) the formula pursuant to which the Redemption Price will be
determined,
(3) if less than all the Outstanding Securities are to be redeemed,
the identification (and, in the case of partial redemption, the principal
amounts) of the particular Securities to be redeemed,
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(4) that on the Redemption Date the Redemption Price will become due
and payable upon each such Security to be redeemed and that interest
thereon will cease to accrue on and after that date,
(5) the place or places where such Securities are to be surrendered
for payment of the Redemption Price, and
(6) the CUSIP number of the Securities to be redeemed.
Notice of redemption of Securities to be redeemed at the election of
the Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company.
Section 1106. Deposit of Redemption Price. On or prior to any
---------------------------
Redemption Date, the Company shall deposit with the Trustee or with a Paying
Agent (or, if the Company is acting as its own Paying Agent, segregate and hold
in trust as provided in Section 1003) an amount of money sufficient to pay the
Redemption Price of, and (except if the Redemption Date shall be an Interest
Payment Date) accrued interest on, all the Securities which are to be redeemed
on that date.
Section 1107. Securities Payable on Redemption Date. Notice of
-------------------------------------
redemption having been given as aforesaid, the Securities so to be redeemed
shall, on the Redemption Date, become due and payable at the Redemption Price
therein specified, and from and after such date (unless the Company shall
default in the payment of the Redemption Price and accrued interest) such
Securities shall cease to bear interest. Upon surrender of any such Security
for redemption in accordance with said notice, such Security shall be paid by
the Company at the Redemption Price, together with accrued interest to the
Redemption Date; provided, however, that installments of interest whose Stated
-------- -------
Maturity is on or prior to the Redemption Date shall be payable to the Holders
of such Securities, or one or more Predecessor Securities, registered as such at
the close of business on the relevant Record Dates according to their terms and
the provisions of Section 307.
If any Security called for redemption shall not be so paid upon
surrender thereof for redemption, the principal and premium, if any, shall,
until paid, bear interest from the Redemption Date at the rate borne by the
Security.
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Section 1108. Securities Redeemed in Part. Any Security which is to
---------------------------
be redeemed only in part shall be surrendered at an office or agency of the
Company designated for that purpose pursuant to Section 1002 (with, if the
Company or the Trustee so requires, due endorsement by, or a written instrument
of transfer in form satisfactory to the Company and the Trustee duly executed
by, the Holder thereof or his attorney duly authorized in writing), and the
Company shall execute, and the Trustee shall authenticate and make available for
delivery to the Holder of such Security without service charge, a new Security
or Securities of any authorized denomination as requested by such Holder, in
aggregate principal amount equal to and in exchange for the unredeemed portion
of the principal of the Security so surrendered; except that if a Global
Security is so surrendered, the Company shall execute, and the Trustee shall
authenticate and make available for delivery to the Depositary for such Global
Security, without service charge, a new Global Security in a denomination equal
to and in exchange for the unredeemed portion of the principal of the Global
Security so surrendered.
ARTICLE XII
DEFEASANCE AND COVENANT DEFEASANCE
Section 1201. Company's Option to Effect Defeasance or Covenant
-------------------------------------------------
Defeasance. The Company may at its option by Board Resolution, at any time,
- ----------
elect to have either Section 1202 or Section 1203 applied to the Outstanding
Securities upon compliance with the conditions set forth below in this Article
XII.
Section 1202. Defeasance and Discharge. Upon the Company's exercise
------------------------
of the option provided in Section 1201 applicable to this Section, the Company
shall be deemed to have been discharged from its obligations with respect to the
Outstanding Securities on the date the conditions set forth below are satisfied
(hereinafter, "Defeasance"). For this purpose, such Defeasance means that the
----------
Company shall be deemed to have paid and discharged the entire indebtedness
represented by the Outstanding Securities and to have satisfied all its other
obligations under such Securities and this Indenture insofar as such Securities
are concerned (and the Trustee, at the expense of the Company, shall execute
proper instruments acknowledging the same), except for the following which shall
survive until otherwise terminated or discharged hereunder: (A) the rights of
Holders of Outstanding Securities to receive, solely from the trust fund
described in Section 1204 and as more fully set forth in such Section, payments
in respect of the principal of and premium, if any, and interest on such
63
<PAGE>
Securities when such payments are due, (B) the Company's obligations with
respect to such Securities under Sections 305, 306, 607, 1002 and 1003, (C) the
rights, powers, trusts, duties and immunities of the Trustee hereunder and (D)
this Article XII.
Subject to compliance with this Article XII, the Company may exercise
its option under this Section 1202 notwithstanding the prior exercise of its
option under Section 1203.
Section 1203. Covenant Defeasance. Upon the Company's exercise of
-------------------
the option provided in Section 1201 applicable to this Section, (i) the Company
shall be released from its obligations under any covenant contained in Article
VIII and in Sections 1006 through 1010 and (ii) the occurrence of an event
specified in Section 501(4) shall not constitute an Event of Default, and such
Sections and Article shall no longer apply with respect to or for the benefit of
the Company, the Securities and the Holders of Securities on and after the date
the conditions set forth below are satisfied (hereinafter, "Covenant
--------
Defeasance"). For this purpose, such Covenant Defeasance means that the Company
- ----------
may omit to comply with and shall have no liability in respect of any term,
condition or limitation set forth in any such Sections or Article whether
directly or indirectly by reason of any reference elsewhere herein to any such
Sections or Article or by reason of any reference in any such Sections or
Article to any other provision herein or in any other document, but the
remainder of this Indenture and such Securities shall be unaffected thereby.
Section 1204. Conditions to Defeasance or Covenant Defeasance. The
-----------------------------------------------
following shall be the conditions to application of either Section 1202 or
Section 1203 to the Outstanding Securities:
(1) The Company shall irrevocably have deposited or caused to be
deposited with the Trustee (or another trustee satisfying the requirements
of Section 609 who shall agree to comply with the provisions of this
Article XII applicable to it) as trust funds in trust for the purpose of
making the following payments, specifically pledged as security for, and
dedicated solely to, the benefit of the Holders of such Securities, (A)
money in an amount, or (B) U.S. Government Obligations which through the
scheduled payment of principal and interest in respect thereof in
accordance with their terms will provide, not later than one day before the
due date of any payment, money in an amount, or (C) a combination thereof,
sufficient, in the opinion of a nationally recognized firm of independent
public accountants expressed in a written
64
<PAGE>
certification thereof delivered to the Trustee, to pay and discharge, and
which shall be applied by the Trustee or other qualifying trustee to pay
and discharge, the principal of and premium, if any, and each installment
of interest on the Securities on the Stated Maturity of such principal or
installment of interest in accordance with the terms of this Indenture and
of such Securities. For this purpose, "U.S. Government Obligations" means
---------------------------
securities that are (x) direct obligations of the United States of America
for the payment of which its full faith and credit is pledged or (y)
obligations of a Person controlled or supervised by and acting as an agency
or instrumentality of the United States of America the payment of which is
unconditionally guaranteed as a full faith and credit obligation by the
United States of America, which, in either case, are not callable or
redeemable at the option of the issuer thereof, and shall also include a
depository receipt issued by a bank (as defined in Section 3(a)(2) of the
Securities Act of 1933, as amended) as custodian with respect to any such
U.S. Government Obligation or a specific payment of principal of or
interest on any such U.S. Government Obligation held by such custodian for
the account of the holder of such depository receipt; provided that (except
--------
as required by law) such custodian is not authorized to make any deduction
from the amount payable to the holder of such depository receipt from any
amount received by the custodian in respect of the U.S. Government
Obligation or the specific payment of principal of or interest on the U.S.
Government Obligation evidenced by such depository receipt.
(2) In the case of an election under Section 1202, the Company shall
have delivered to the Trustee an Opinion of Counsel stating that (x) the
Company has received from, or there has been published by, the Internal
Revenue Service a ruling or (y) since the date of this Indenture there has
been a change in the applicable federal income tax law, in either case to
the effect that, and based thereon such opinion shall confirm that, the
Holders of the Outstanding Securities will not recognize income, gain or
loss for federal income tax purposes as a result of such deposit,
Defeasance and discharge and will be subject to federal income tax on the
same amounts, in the same manner and at the same times as would have been
the case if such Defeasance had not occurred.
(3) In the case of an election under Section 1203, the Company shall
have delivered to the Trustee an Opinion of Counsel to the effect that the
Holders of
65
<PAGE>
the Outstanding Securities will not recognize gain or loss for federal
income tax purposes as a result of such Covenant Defeasance and will be
subject to federal income tax on the same amounts, in the same manner and
at the same times as would have been the case if such deposit and Covenant
Defeasance had not occurred.
(4) The Company shall have delivered to the Trustee an Officers'
Certificate to the effect that the Securities, if then listed on any
securities exchange, will not be delisted as a result of such deposit, in
the case of an election under Section 1202 or 1203.
(5) No Event of Default or event which with notice or lapse of time or
both would become an Event of Default shall have occurred and be continuing
on the date of such deposit or, insofar as Sections 501(5) and (6) are
concerned, at any time during the period ending on the 90th day after the
date of such deposit (it being understood that this condition shall not be
deemed satisfied until the expiration of such period).
(6) Such Defeasance or Covenant Defeasance shall not cause the Trustee
to have a conflicting interest as defined in Section 608 and for purposes
of the Trust Indenture Act with respect to any securities of the Company.
(7) Such Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute a default under, any other agreement
or instrument to which the Company is a party or by which it is bound.
(8) The Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for relating to either the Defeasance under Section 1202
or the Covenant Defeasance under Section 1203 (as the case may be) have
been complied with.
(9) Such Defeasance or Covenant Defeasance shall not result in the
trust arising from such deposit to constitute, unless it is qualified as, a
regulated investment company under the Investment Company Act of 1940, as
amended.
Section 1205. Deposited Money and U.S. Government Obligations to Be
-----------------------------------------------------
Held in Trust; Other Miscellaneous Provisions. Subject to the provisions of the
- ---------------------------------------------
last paragraph of Section 1003, all money and U.S. Government Obligations
(including the proceeds thereof) deposited with the Trustee (or other qualifying
trustee -- collectively, for purposes of this Section 1205, the "Trustee")
pursuant to Section
66
<PAGE>
1204 shall be held in trust and applied by the Trustee, in accordance with the
provisions of the Securities and this Indenture, to the payment, either directly
or through any Paying Agent (including the Company acting as its own Paying
Agent) as the Trustee may determine, to the Holders of the Securities, of all
sums due and to become due thereon, in respect of principal and premium, if any,
and interest, but such money need not be segregated from other funds except to
the extent required by law.
The Company shall pay and indemnify the Trustee against any tax, fee
or other charge imposed on or assessed against the U.S. Government Obligations
deposited pursuant to Section 1204 or the principal and interest received in
respect thereof other than any such tax, fee or other charge which by law is for
the account of the Holders of the Outstanding Securities.
Anything in this Article XII to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon Company
Request any money or U.S. Government Obligations held by it as provided in
Section 1204 which, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee, are in excess of the amount hereof which would then be
required to be deposited to effect an equivalent Defeasance or Covenant
Defeasance.
Section 1206. Reinstatement. If the Trustee or Paying Agent is
-------------
unable to apply any money in accordance with Section 1202 or 1203 by reason of
any order or judgment of any court or governmental authority enjoining,
restraining or otherwise prohibiting such application, the Company's obligations
under this Indenture and the Securities shall be revived and reinstated as
though no deposit had occurred pursuant to this Article XII until such time as
the Trustee or Paying Agent is permitted to apply all such money in accordance
with Section 1202 or 1203; provided, however, that if the Company makes any
-------- -------
payment of principal of or premium, if any, or interest on any Security
following the reinstatement of its obligations, the Company shall be subrogated
to the rights of the Holders of such Securities to receive such payment from the
money held by the Trustee or Paying Agent.
67
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed, and their respective corporate seals to be hereunto affixed
and attested, all as of the day and year first above written.
NATIONWIDE FINANCIAL SERVICES, INC.
By:
--------------------------------------------------
Name:
Title:
Attest:
- --------------------
WILMINGTON TRUST COMPANY,
as Trustee
By:
==================================================
Name:
Title:
Attest:
- --------------------
68
<PAGE>
STATE OF __________ )
) ss.:
COUNTY OF __________)
On the _____ day of _____, 1997 before me personally came
______________, to me known, who, being by me duly sworn, did depose and say
that s/he is the __________ _________________________________ of Nationwide
Financial Services, Inc., the corporation described in and which executed the
foregoing instrument; and that s/he signed his/her name thereto by authority of
the Board of Directors of such corporation.
----------------------------------------
Notary Public
[NOTARIAL SEAL APPEARS HERE]
69
<PAGE>
STATE OF __________ )
) ss.:
COUNTY OF __________)
On the ____ day of __________, 1997 before me personally came
___________________ to me known, who, being by me duly sworn, did depose and say
that s/he is an _______________ of Wilmington Trust Company, a corporation
described in and which executed the foregoing instrument; and that s/he signed
his/her name thereto by authority of the Board of Directors of such corporation.
----------------------------------------
Notary Public
[NOTARIAL SEAL APPEARS HERE]
70
<PAGE>
Nationwide Financial Services, Inc.
Certain Sections of this Indenture relating to
Sections 310 through 318, inclusive, of the
Trust Indenture Act of 1939:
Trust Indenture
Act Section Indenture Section
- ----------------- -----------------
(S) 310 (a)(1) 609
(a)(2) 609
(a)(3) Not Applicable
(a)(4) Not Applicable
(b) 608
610
(S) 311 (a) 613
(b) 613
(S) 312 (a) 701
702
(b) 702
(c) 702
(S) 313 (a) 703
(b) 703
(c) 703
(d) 703
(S) 314 (a) 704
(a)(4) 101
1004
(b) Not Applicable
(c)(1) 102
(c)(2) 102
(c)(3) Not Applicable
(d) Not Applicable
(e) 102
(S) 315 (a) 601
(b) 602
(c) 601
(d) 601
(e) 514
(S) 316 (a) 101
(a)(1)(A) 502
512
(a)(1)(B) 513
(a)(2) Not Applicable
(b) 508
(c) 104
(S) 317 (a)(1) 503
(a)(2) 504
(b) 1003
(S) 318 (a) 107
NOTE: This reconciliation and tie shall not, for any purpose, be deemed to be
a part of the Indenture.
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
Section 101. Definitions................................................. 1
Section 102. Compliance Certificates and Opinions........................ 10
Section 103. Form of Documents Delivered to Trustee...................... 11
Section 104. Acts of Holders; Record Date................................ 11
Section 105. Notices, Etc., to Trustee and Company....................... 12
Section 106. Notice to Holders; Waiver................................... 13
Section 107. Conflict with Trust Indenture Act........................... 13
Section 108. Effect of Headings and Table of Contents.................... 14
Section 109. Successors and Assigns...................................... 14
Section 110. Separability Clause......................................... 14
Section 111. Benefits of Indenture....................................... 14
Section 112. Governing Law............................................... 14
Section 113. Legal Holidays.............................................. 14
Section 114. Incorporators, Stockholders, Officers and
Directors of the Company Exempt from
Individual Liability........................................ 14
ARTICLE II
FORMS OF SECURITIES
Section 201. Forms Generally............................................. 15
Section 202. Form of Face of Security.................................... 16
Section 203. Form of Reverse of Security................................. 18
Section 204. Global Securities........................................... 21
Section 205. Form of Trustee's Certificate of Authentication............. 21
Section 206. Form of Assignment.......................................... 23
ARTICLE III
THE SECURITIES
Section 301. Title and Terms............................................. 24
Section 302. Denominations............................................... 25
Section 303. Execution, Authentication, Delivery and Dating.............. 25
Section 304. Temporary Securities........................................ 26
Section 305. Registration, Registration of Transfer and Exchange......... 27
Section 306. Mutilated, Destroyed, Lost and Stolen
ii
<PAGE>
Page
----
Securities.................................................. 29
Section 307. Payment of Interest; Interest Rights Preserved.............. 30
Section 308. Persons Deemed Owners....................................... 32
Section 309. Cancellation................................................ 32
Section 310. Computation of Interest..................................... 32
Section 311. CUSIP Numbers............................................... 32
ARTICLE IV
SATISFACTION AND DISCHARGE
Section 401. Satisfaction and Discharge of Indenture..................... 33
Section 402. Application of Trust Money.................................. 34
ARTICLE V
EVENTS OF DEFAULT; REMEDIES
Section 501. Events of Default........................................... 34
Section 502. Acceleration of Maturity Date; Rescission and Annulment..... 36
Section 503. Collection of Indebtedness and Suits for Enforcement by
Trustee..................................................... 37
Section 504. Trustee May File Proofs of Claim............................ 37
Section 505. Trustee May Enforce Claims Without Possession of Securities. 38
Section 506. Application of Money Collected.............................. 38
Section 507. Limitation on Suits......................................... 39
Section 508. Unconditional Right of Holders to Receive Principal,
Premium and Interest........................................ 39
Section 509. Restoration of Rights and Remedies.......................... 40
Section 510. Rights and Remedies Cumulative.............................. 40
Section 511. Delay or Omission Not Waiver................................ 40
Section 512. Control by Holders.......................................... 40
Section 513. Waiver of Past Default...................................... 41
Section 514. Undertaking for Costs....................................... 41
Section 515. Waiver of Stay or Extension Laws............................ 41
ARTICLE VI
THE TRUSTEE
Section 601. Certain Duties and Responsibilities......................... 42
Section 602. Notice of Defaults.......................................... 42
Section 603. Certain Rights of Trustee................................... 42
iii
<PAGE>
Page
----
Section 604. Not Responsible for Recitals or Issuance of Securities...... 43
Section 605. May Hold Securities......................................... 44
Section 606. Money Held in Trust......................................... 44
Section 607. Compensation and Reimbursement.............................. 44
Section 608. Disqualification; Conflicting Interests..................... 45
Section 609. Corporate Trustee Required; Eligibility..................... 45
Section 610. Resignation and Removal; Appointment of Successor........... 45
Section 611. Acceptance of Appointment by Successor...................... 47
Section 612. Merger, Conversion, Consolidation or Succession to Business. 47
Section 613. Preferential Collection of Claims Against Company........... 48
Section 614. Appointment of Authenticating Agent......................... 48
ARTICLE VII
HOLDERS' LISTS AND REPORTS
BY TRUSTEE AND COMPANY
Section 701. Company to Furnish Trustee Names and Addresses of Holders... 50
Section 702. Preservation of Information; Communications to Holders...... 50
Section 703. Reports by Trustee.......................................... 51
Section 704. Report to Company........................................... 51
ARTICLE VIII
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
Section 801. Company May Consolidate, Etc., Only on Certain Terms........ 52
Section 802. Successor Substituted for Company........................... 52
ARTICLE IX
SUPPLEMENTAL INDENTURES
Section 901. Supplemental Indentures Without Consent of Holders.......... 53
Section 902. Supplemental Indentures with Consent of Holders............. 53
Section 903. Execution of Supplemental Indentures........................ 54
Section 904. Effect of Supplemental Indentures........................... 55
iv
<PAGE>
Page
----
Section 905. Conformity with Trust Indenture Act......................... 55
Section 906. Reference in Securities to Supplemental Indentures.......... 55
ARTICLE X
COVENANTS
Section 1001. Payment of Principal, Premium and Interest................. 55
Section 1002. Maintenance of Office or Agency............................ 55
Section 1003. Money for Security Payments to Be Held in Trust............ 56
Section 1004. Statements of Officers of Company as to Default; Notice of
Default.................................................... 58
Section 1005. Existence.................................................. 58
Section 1006. Maintenance of Properties.................................. 58
Section 1007. Payment of Taxes and Other Claims.......................... 58
Section 1008. Further Instruments and Acts............................... 59
Section 1009. Limitation on Liens........................................ 59
Section 1010. Limitations on Disposition of Stock of Significant
Subsidiaries............................................... 60
Section 1011. Waiver of Certain Covenants................................ 60
ARTICLE XI
REDEMPTION OF SECURITIES
Section 1101. Right of Redemption........................................ 60
Section 1102. Applicability of Article................................... 60
Section 1103. Election to Redeem; Notice to Trustee...................... 61
Section 1104. Selection by Trustee of Securities to be Redeemed.......... 61
Section 1105. Notice of Redemption....................................... 61
Section 1106. Deposit of Redemption Price................................ 62
Section 1107. Securities Payable on Redemption Date...................... 62
Section 1108. Securities Redeemed in Part................................ 63
ARTICLE XII
DEFEASANCE AND COVENANT DEFEASANCE
Section 1201. Company's Option to Effect Defeasance or Covenant
Defeasance................................................. 63
Section 1202. Defeasance and Discharge................................... 63
Section 1203. Covenant Defeasance........................................ 64
Section 1204. Conditions to Defeasance or Covenant Defeasance............ 64
v
<PAGE>
Page
----
Section 1205. Deposited Money and U.S. Government Obligations to Be Held
in Trust; Other Miscellaneous Provisions................... 66
Section 1206. Reinstatement.............................................. 67
vi
<PAGE>
Exhibit 10.2
FORM OF
-------
TAX SHARING AGREEMENT
---------------------
TAX SHARING AGREEMENT (the "Agreement") dated as of _____________________,
19____, between Nationwide Mutual Insurance Company, an Ohio mutual company
("Nationwide") and any corporation that may hereafter be a subsidiary of
Nationwide and become a party hereto as contemplated by Section 8 hereof
(collectively, the "Subsidiaries").
Nationwide and the Subsidiaries are members of an affiliated group of
corporations as defined in Section 1504 of the Internal Revenue Code of 1986, as
amended (the "Code"), of which Nationwide is the common parent. Such affiliated
group of corporations is referred to herein as the "Group." The Group files
consolidated federal income tax returns pursuant to Sections 1501 et seq. of the
-- ----
Code. In addition, members of the Group may be eligible to file consolidated or
combined state or local income or franchise tax returns. Nationwide and the
Subsidiaries desire to allocate among themselves the benefits and burdens which
arise from filing of such consolidated or combined tax returns and, accordingly,
hereby agree as follows:
Section 1. Definitions. As used herein, the following terms shall have
-----------
the following meanings (all terms defined in this Section 1 or in other
provisions of this Agreement in the singular to have the same meanings when used
in the plural and vice versa):
----------
"Includible Corporation" shall mean, with respect to any entity, any
----------------------
corporation that is a subsidiary of such entity and that now or in the future
qualifies under Section 1501 et seq. of the Code as an includible corporation of
------
an affiliated group of corporations of which such entity is the parent.
"Obligor" shall mean, individually, Nationwide and each of the Subsidiaries
-------
that is or becomes a party hereto.
"Tax Year" shall mean each year or other period during which the
--------
Subsidiaries are included in a consolidated federal income tax return with
Nationwide.
In addition, for purposes of this Agreement, the "federal income tax
------------------
liability" or "federal income tax refund" for any Tax Year shall be the amount
- --------- -------------------------
of such liability or refund calculated under Section 1552(a)(2) and Regulation
1.1502-33(d)(3) (the Percentage Method, using 100%), but without regard to the
provisions of Section 55 of the Code.
1
<PAGE>
Section 2. Representations and Warranties. Each Obligor hereby
------------------------------
represents and warrants to each other Obligor that:
(a) Such Obligor is a corporation duly incorporated, validly existing and
in good standing under the laws of the jurisdiction of its incorporation.
(b) None of the execution and delivery of this Agreement, the consummation
of the transaction herein contemplated or compliance with the terms and
provisions hereof will conflict with or result in a breach of, or require any
consent under, the charter Bylaws, Code of Regulations or Articles of
Incorporation of such Obligor, or, to the best knowledge of such Obligor, any
applicable law or regulation, or any order, writ, injunction or decree of any
court or governmental authority or agency, or any agreement or instrument to
which such Obligor is a party or by which such Obligor is bound or to which such
Obligor is subject, or constitute a default under any such agreement or
instrument, or result in the creation or imposition of any lien on any of the
revenues or assets of such Obligor pursuant to the terms of any such agreement
or instrument.
(c) Such Obligor has all necessary corporate power and authority to
execute, deliver and perform its obligations under this Agreement; the
execution, delivery and performance by such Obligor of this Agreement have been
duly authorized by all necessary corporate action on its part; and this
Agreement has been duly and validly executed and delivered by such Obligor and
constitutes its legal, valid and binding obligation, enforceable against such
Obligor in accordance with its terms, except as such enforceability may be
limited by (a) bankruptcy, insolvency, reorganization , moratorium or similar
laws of general applicability affecting the enforcement of creditors' rights and
(b) the application of general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law).
(d) No authorizations, approvals or consents of, and no filing or
registrations with, any governmental or regulatory authority or agency are
necessary for the execution, delivery or performance by such Obligor of this
Agreement or for the validity or enforceability hereof, or such authorizations,
approvals, consents, filings or registrations have been obtained or made.
Section 3. Consolidated Tax Returns. Nationwide will file a consolidated
------------------------
federal income tax return for all taxable periods. Nationwide and the
Subsidiaries agree to file such consents, elections and other documents and to
take such other action as may be necessary or appropriate to carry out the
purposes of this Section 3. Nationwide will timely pay the Group's federal
income tax liability for each Tax Year.
2
<PAGE>
Section 4. Payment of Tax Liability. For each Tax Year, each Subsidiary
------------------------
will pay to Nationwide an amount equal to the federal income tax liability
attributable to such Subsidiary for such Tax Year within thirty (30) days of
notification.
Section 5. Estimated Taxes. If in any Tax Year Nationwide believes in
---------------
good faith that any Subsidiary will be obligated to make payment to Nationwide
pursuant to Section 4 hereof in respect of such Tax Year, such Subsidiary shall
pay to Nationwide such amounts as would be necessary to make estimated payments
in respect of its federal income tax liability, if any, that the Subsidiary will
be obligated to pay under Section 4 hereof. Nationwide shall calculate the
amount of the payments to be made by the Subsidiary pursuant to this Section 5
in a manner consistent with the conventions used by Nationwide to compute its
estimated tax, and shall provide the Subsidiary with at least 10 days' notice of
the amount due. Estimated payments will be made by the Subsidiary to Nationwide
prior to the due date of the corresponding estimated payments by Nationwide,
even if no such payment by Nationwide is required at that time.
If, following the filing of the Group's federal income tax return for any
Tax Year, it shall be determined that the actual payments required to be made by
each Subsidiary pursuant to Section 4 hereof in respect of such Tax Year shall
not be equal to the estimated payments made pursuant to this Section 5, then
each Subsidiary and Nationwide shall make such adjustments of payments between
themselves in such amounts as shall be necessary so that the payments actually
made by such Subsidiary to Nationwide in respect of such Tax Year shall be equal
to the amounts that should have been paid in respect of such Tax Year pursuant
to Section 4.
Section 6. Refunds. If, on the basis of the computation made by
-------
Nationwide in accordance with Section 4 hereof, any Subsidiary would have been
entitled to a refund of federal income taxes had such Subsidiary filed a
separate return taking into account all facts in existence at the time of such
determination, and excluding any tax attributes of the Subsidiary which have
been utilized by the Group and for which the Subsidiary has been compensated,
Nationwide shall pay such Subsidiary the amount of that refund at the time that,
if a refund is applied for, the Internal Revenue Service makes the refund and,
if a refund has not been applied for, at the time the Internal Revenue Service
would have made the refund had it been timely applied for.
Section 7. Redeterminations. In the event of any adjustment to the tax
----------------
return of the Group as filed (by reason of an amended return, claim for refund
or an audit by the Internal Revenue Service), the liability of Nationwide and
the Subsidiaries shall be redetermined to give effect to any such adjustment as
if it had been made as part of the original computation of tax liability.
Payments shall be made promptly before any corresponding payments to the
Internal Revenue Service or promptly after the receipt of any refund from the
Internal Revenue Service. Any payments shall include interest and penalties
equal to the amounts actually paid to, or received from, the Internal Revenue
Service with respect to the redetermination of tax liabilities. Nationwide shall
calculate the amounts of any such payments and shall give the Subsidiaries at
least 10 days' notice of any amounts payable by the Subsidiaries.
3
<PAGE>
Section 8. Future Subsidiaries. Nationwide and the Subsidiaries agree to
-------------------
cause any corporation that in the future will qualify as an Includible
Corporation of Nationwide, to become a party hereto as an additional
"Subsidiary" hereunder.
Section 9. Administrative Matters.
----------------------
9.01 Information. The Subsidiaries shall provide Nationwide with such
-----------
information as Nationwide may need in connection with the preparation of federal
income tax returns for the Group. Nationwide shall prepare, or have prepared at
its expense, the federal consolidated income tax returns of the Group, and
Nationwide and the Subsidiaries shall cooperate with each other in the
preparation of such federal income returns.
9.02 Audits. Nationwide shall act as agent for the Subsidiaries in the
------
event of any audit of Nationwide's federal consolidated income tax returns and
in any administrative or judicial proceedings with respect to those returns.
Nationwide and the Subsidiaries shall cooperate with each other in such audits,
administrative or judicial proceedings.
9.03 Consent to Settlements. Nationwide shall inform each Subsidiary of
----------------------
any audits, administrative or judicial proceedings that may affect the tax
liability of the Subsidiaries. Nationwide shall not settle any such issues
without the Subsidiaries' consent, which consent may not be unreasonably
withheld.
Section 10. State and Local Taxes. If Nationwide and any Subsidiaries of
---------------------
Nationwide, are eligible, but not required, to file consolidated or combined
state or local income or franchise tax returns for any Tax Year, Nationwide
shall determine, in its sole discretion, whether to file any such return for
such Tax Year. In the event that Nationwide shall elect for any Tax Year so to
file consolidated or combined state or local income or franchise tax returns (or
in the event that Nationwide shall be required to file such returns), each
Subsidiary shall pay to Nationwide an amount equal to the amount of state or
local income or franchise tax for such Tax Year that such Subsidiary would pay
as a separate corporation. Nationwide shall pay to each Subsidiary the amount
of any refunds such Subsidiary would have received from any state or local
authority had it filed separate returns for such Tax Year. Principles analogous
to those applicable to computations, payments, refunds, elections and
adjustments for federal income taxes provided for in this Agreement shall apply
to such state and local income and franchise taxes.
Section 11. State Insurance Regulation. In the event any state
--------------------------
shall require a different procedure with respect to the payment of the
federal or state tax liability of a member of the Group for the purposes of
regulating insurance companies, such other method shall be utilized with respect
to the members of the Group affected thereby.
4
<PAGE>
Section 12. Ratification. Notwithstanding any prior agreement of the
------------
parties, or any prior decision of Nationwide or the Subsidiaries, the actions of
the officers and employees of the parties which have been taken prior to the
date of this agreement concerning the allocation and payment of federal, state
and local tax liability are hereby ratified and affirmed, and the parties agree
to be bound by such actions.
Section 13. Miscellaneous.
-------------
13.01 Notices. All notices hereunder shall be in writing and telecopied
-------
or delivered to the intended recipient at its "Address for Notices" specified
beneath its name on the signature pages hereof or, as to any party, at such
other address as shall be designated by such party in a notice to each other
party, provided that notices to any Subsidiary shall be given to such Subsidiary
at the "Address for Notices". Except as otherwise provided in this Agreement,
all such communications shall be deemed to have been duly given when transmitted
by telecopier or personally delivered or, in the case of a mailed notice, upon
receipt, in each case given or addressed as aforesaid.
13.02 Governing Law. This Agreement shall be governed by, and construed
-------------
in accordance with, the law of the State of Ohio.
13.03 Waivers, Etc. The terms of this Agreement may be waived, altered or
-------------
amended only by an instrument in writing duly executed by Nationwide and the
Subsidiaries. Any such amendment or waiver shall be binding upon Nationwide and
the Subsidiaries.
13.04 Successors and Assigns. This Agreement shall be binding upon and
----------------------
inure to the benefit of the respective successors and assigns of Nationwide and
the Subsidiaries.
13.05 Counterparts; Integration. This Agreement may be executed in any
-------------------------
number of counterparts, all of which taken together shall constitute one and the
same instrument and any of the parties hereto may execute this Agreement by
signing any such counterpart. This Agreement constitutes the entire agreement
and understanding among the parties hereto and supersedes any and all prior
agreements and understanding, oral or written, relating to the subject matter
hereof.
13.06 Number. Unless otherwise provided, all references in the Agreement
------
that are in the singular shall be construed to include the plural, and all
references in the plural shall be construed to include the singular.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Tax Sharing
Agreement to be duly executed and delivered as of the day and year first written
above.
____________________________________
By:__________________________________
Its:__________________________________
Address for Notices:
_____________________________________
_____________________________________
_____________________________________
Attention:___________________________
Telephone No.________________________
Facsimile No.________________________
By:__________________________________
Its:__________________________________
Address for Notices:
_____________________________________
_____________________________________
_____________________________________
Attention:___________________________
Telephone No.________________________
Facsimile No.________________________
6
<PAGE>
Exhibit 10.3
FORM OF
FIRST AMENDMENT TO
COST SHARING AGREEMENT
THIS FIRST AMENDMENT to that certain Cost Sharing Agreement, effective as of
January 1, 1995 (the "Agreement"), among Nationwide Mutual Insurance Company,
Nationwide Mutual Fire Insurance Company, Nationwide General Insurance Company,
Nationwide Property and Casualty Insurance Company, Nationwide Indemnity
Company, Nationwide Life Insurance Company, Nationwide Life and Annuity
Insurance Company, Wausau Lloyds, NEA Valuebuilder Investor Services, Inc.,
Public Employees Benefit Services Corp., and Nationwide Financial Institution
Distributors, Inc., formerly known as Financial Horizons Distributors Agency,
Inc. (collectively, the "Participating Companies"), is made and entered into as
of the ____ day of ______________________, 1997.
For good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the Participating Companies and Nationwide Financial
Services, Inc. hereby agree to the following:
A. Nationwide Financial Services, Inc. shall be added as a party to the
Agreement, effective as of _________________________, 1997.
B. All other terms and conditions of the Agreement, a true and complete copy
of which is attached hereto as Exhibit A, shall remain in full force and
effect.
IN WITNESS WHEREOF, the undersigned parties have caused this First Amendment to
be duly entered into and executed.
NATIONWIDE MUTUAL INSURANCE COMPANY
By: __________________________________________
Its: __________________________________________
1
<PAGE>
NATIONWIDE MUTUAL FIRE INSURANCE COMPANY
By: _____________________________________
Its: _____________________________________
NATIONWIDE GENERAL INSURANCE COMPANY
By: _______________________________________
Its: ______________________________________
NATIONWIDE PROPERTY AND CASUALTY
INSURANCE COMPANY
By: _______________________________________
Its: ______________________________________
NATIONWIDE INDEMNITY COMPANY
By: ________________________________________
Its: _______________________________________
2
<PAGE>
NATIONWIDE LIFE INSURANCE COMPANY
By: _____________________________________
Its: ____________________________________
NATIONWIDE LIFE AND ANNUITY
INSURANCE COMPANY
By: ______________________________________
Its: _____________________________________
WAUSAU LLOYDS
By: _____________________________________
Its: ____________________________________
NEA VALUEBUILDER INVESTOR SERVICES, INC.
By: ______________________________________
Its: _____________________________________
3
<PAGE>
PUBLIC EMPLOYEES BENEFIT SERVICES CORP.
By: _______________________________________
Its: ______________________________________
NATIONWIDE FINANCIAL INSTITUTION
DISTRIBUTORS, INC.
By: _______________________________________
Its: ______________________________________
NATIONWIDE FINANCIAL SERVICES, INC.
By: _______________________________________
Its: ______________________________________
4
<PAGE>
EXHIBIT A
COST SHARING AGREEMENT
Participating Companies: Nationwide Mutual Insurance Company (NMIC), Nationwide
- ------------------------
Mutual Fire Insurance Company (NMFIC), Nationwide General Insurance Company
(NGI), Nationwide Property and Casualty Insurance Company (NPC), Nationwide
Indemnity Company (NIC), Nationwide Life Insurance Company (NLIC), Nationwide
Life and Annuity Insurance Company (NLAIC), Wausau Lloyds (WL) NEA Valuebuilder
Investor Services, Inc. (NEA), Public Employees Benefit Services Corp. (PEBSCO),
and Financial Horizons Distributors Agency, Inc. (FHDAI).
Whereas the Participating Companies are all members of the Nationwide Group and
Whereas the Participating Companies desire to properly distribute and allocate
expenses equitably among themselves.
Now theretofore, the Participating Companies agree with respect to the
allocation and sharing of expenses as follows:
1. All expenses of the Participating Companies will be paid by the respective
Operating Units or NMIC. Expenses paid by the Operating Units will be
charged and billed to NMIC to be included in the pool of expenses to be
allocated. Management may determine that an expense item is 100%
chargeable to a specific company and may elect to exclude said expense from
this agreement. Estimated settlements will be executed on a weekly and
monthly basis as appropriate to maintain equity of cash flow. Each
quarter, the actual settlement will occur taking into account the estimated
settlements.
2. All expenses will be allocated to the Participant Companies based on
standard allocation techniques and procedures acceptable under general cost
accounting techniques and procedures and also in accordance with NAIC
guidelines.
3. The Participating Companies shall maintain expenses in sufficient detail so
as to facilitate proper allocations to company, state, and line of
business.
4. The following methods or some combination thereof shall be used as
appropriate to allocate expenses to the Participating Companies.
a. Special Cost Studies
b. Direct Written Premiums
c. Commissions
d. Claim Counts (e.g. Open, Closed, and Closed w/o Pay)
e. Individual Time Estimates
f. Policies in Force
<PAGE>
g. Any other method agreed to by the Participating Companies that is within
industry guidelines and acceptable practices.
5. The Office of Finance shall be responsible for allocation of expenses among
the Participating Companies. This Office may seek input from other areas
but will make the ultimate decision regarding the allocation of expenses.
It shall be the Office of Finance's responsibility to maintain fairness and
equality of expense allocations and to ensure that allocations are within
acceptable industry practice and NAIC guidelines.
6. If a dispute arises between the Participating Companies regarding the
allocation of expenses and cannot be resolved between the parties and the
Office of Finance, the Presidents of the Participating Companies can, at
their option, negotiate an agreement. The Office of Finance shall ensure
that the resolution is within the above cited guidelines.
7. This agreement shall be effective January 1, 1995.
In witness thereof, the following officers of the Participating Companies
signify their acceptance by signing this agreement on this 17th day of July,
1995.
Nationwide Mutual Insurance Company
/s/ J.E. Shultz
- -------------------------------------------------
By: J.E. Schultz
Vice President, Property/Casualty Controller
Nationwide Mutual Fire Insurance Company
/s/ J.E. Shultz
- -------------------------------------------------
By: J.E. Schultz
Vice President, Property/Casualty Controller
Nationwide General Insurance Company
/s/ J.E. Shultz
- -------------------------------------------------
By: J.E. Schultz
Vice President, Property/Casualty Controller
<PAGE>
Nationwide Property and Casualty Insurance Company
/s/ J.E. Shultz
- -------------------------------------------------
By: J.E. Schultz
Vice President, Property/Casualty Controller
Nationwide Indemnity Company
/s/ R.A. Oakley
- -------------------------------------------------
By: R.A. Oakley
Executive Vice President - Chief Financial Officer
Nationwide Life Insurance Company
/s/ D.A. Diamond
- -------------------------------------------------
By: D.A. Diamond
Vice President, Life Controller
Nationwide Life and Annuity Insurance Company
/s/ D.A. Diamond
- -------------------------------------------------
By: D.A. Diamond
Vice President, Life Controller
Wausau Lloyds
/s/ J.A. Merhar
- -------------------------------------------------
By: J.A. Merhar
Attorney-In-Fact
NEA Valuebuilder Investor Services, Inc.
<PAGE>
/s/ R.A. Oakley
- -------------------------------------------------
By: R.A. Oakley
Executive Vice President - Chief Financial Officer
Public Employees Benefit Services Corp.
/s/ R.A. Oakley
- -------------------------------------------------
By: R.A. Oakley
Executive Vice President - Chief Financial Officer
Financial Horizons Distributors Agency, Inc.
/s/ R.A. Oakley
- -------------------------------------------------
By: R.A. Oakley
Executive Vice President - Chief Financial Officer
<PAGE>
EXHIBIT 10.6
$600,000,000
CREDIT AGREEMENT
dated as of
August 12, 1996
among
Nationwide Mutual Insurance Company,
Nationwide Life Insurance Company
The Banks Parties Hereto
and
Morgan Guaranty Trust Company of New York,
as Administrative Agent
-----------------------
J.P. Morgan Securities Inc.,
Arranger
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1
DEFINITIONS
1.1. Definitions......................................................... 1
1.2. Accounting Terms and Determinations................................. 14
1.3. Types of Borrowings................................................. 14
ARTICLE 2
THE CREDITS
2.1. Commitments to Lend................................................. 15
2.2. Notice of Committed Borrowing....................................... 15
2.3. Money Market Borrowings............................................. 16
2.4. Notice to Banks; Funding of Loans................................... 20
2.5. Notes............................................................... 21
2.6. Maturity of Loans................................................... 21
2.7. Interest Rates...................................................... 22
2.8. Fees................................................................ 26
2.9. Optional Termination or Reduction of
Commitments..................................................... 26
2.10. Method of Electing Interest Rates................................... 26
2.11. Mandatory Termination of Commitments................................ 28
2.12. Optional Prepayments................................................ 28
2.13. General Provisions as to Payments................................... 29
2.14. Funding Losses...................................................... 30
2.15. Computation of Interest and Fees.................................... 30
2.16. Regulation D Compensation........................................... 30
ARTICLE 3
CONDITIONS
3.1. Closing............................................................. 31
3.2. Borrowings.......................................................... 31
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
4.1. Corporate Existence and Power....................................... 32
4.2. Corporate and Governmental Authorization; No
Contravention................................................... 33
4.3. Binding Effect...................................................... 33
4.4. Financial Information............................................... 33
i
<PAGE>
4.5. Litigation............................................... 33
4.6. Compliance with ERISA.................................... 33
4.7. Environmental Matters.................................... 34
4.8. Taxes.................................................... 34
4.9. Material Subsidiaries.................................... 35
4.10. Regulatory Restrictions.................................. 35
4.11. Full Disclosure.......................................... 35
ARTICLE 5
COVENANTS
5.1. Information.............................................. 35
5.2. Maintenance of Property; Insurance....................... 37
5.3. Conduct of Business and Maintenance of Existence......... 37
5.4. Compliance with Laws..................................... 37
5.5. Mergers and Sales of Assets.............................. 38
5.6. Use of Proceeds.......................................... 38
5.7. Minimum Statutory Surplus................................ 38
5.8. Negative Pledge.......................................... 38
5.9. Transactions with Affiliates............................. 39
ARTICLE 6
DEFAULTS
6.1. Events of Default........................................ 40
6.2. Notice of Default........................................ 43
ARTICLE 7
THE ADMINISTRATIVE AGENT
7.1. Appointment and Authorization............................ 43
7.2. Administrative Agent and Affiliates...................... 43
7.3. Action by Administrative Agent........................... 44
7.4. Consultation with Experts................................ 44
7.5. Liability of Administrative Agent........................ 44
7.6. Indemnification.......................................... 44
7.7. Credit Decision.......................................... 45
7.8. Successor Administrative Agent........................... 45
7.9. Administrative Agent's Fee............................... 45
ARTICLE 8
CHANGE IN CIRCUMSTANCES
8.1. Basis for Determining Interest Rate Inadequate
or Unfair............................................ 46
8.2. Illegality............................................... 47
<PAGE>
Page
----
8.3. Increased Cost and Reduced Return............................... 47
8.4. Taxes........................................................... 49
8.5. Base Rate Loans Substituted for Affected
Fixed Rate Loans........................................... 51
8.6. Substitution of Bank ........................................... 52
ARTICLE 9
MISCELLANEOUS
9.1. Notices......................................................... 52
9.2. No Waivers...................................................... 53
9.3. Expenses; Indemnification....................................... 53
9.4. Sharing of Set-Offs............................................. 54
9.5. Amendments and Waivers.......................................... 54
9.6. Successors and Assigns.......................................... 54
9.7. Collateral...................................................... 56
9.8. Governing Law; Submission to Jurisdiction....................... 56
9.9. Counterparts; Integration; Effectiveness;
Termination of Designated Credit
Facilities.................................................. 57
9.10. WAIVER OF JURY TRIAL............................................ 57
9.11. Confidentiality................................................. 57
PRICING SCHEDULE
SCHEDULE I - Designated Credit Facilities
EXHIBIT A - Note
EXHIBIT B - Money Market Quote Request
EXHIBIT C - Invitation for Money Market Quotes
EXHIBIT D - Money Market Quote
EXHIBIT E - Opinion of Counsel for the Borrowers
EXHIBIT F - Opinion of Special Counsel for the
Administrative Agent
EXHIBIT G - Assignment and Assumption Agreement
iii
<PAGE>
CREDIT AGREEMENT dated as of August 12, 1996 among NATIONWIDE MUTUAL
INSURANCE COMPANY, NATIONWIDE LIFE INSURANCE COMPANY, the BANKS parties hereto
and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative Agent.
The parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.1. Definitions. The following terms, as used herein, have the
-----------
following meanings:
"Absolute Rate Auction" means a solicitation of Money market Quotes
setting forth Money Market Absolute Rates pursuant to Section 2.3.
"Adjusted CD Rate" has the meaning set forth in Section 2.7(b).
"Administrative Agent" means Morgan Guaranty Trust Company of New York
in its capacity as agent for the Banks hereunder, and its successors in such
capacity.
"Administrative Questionnaire" means, with respect to each Bank, an
administrative questionnaire in the form prepared by the Administrative Agent
and submitted to the Administrative Agent (with a copy to the Borrowers) duly
completed by such Bank.
"Affiliate" means, with respect to either Borrower, (i) any Person that
directly, or indirectly through one or more intermediaries, controls such
Borrower (a "Controlling Person") or (ii) any Person (other than such Borrower
or a Subsidiary of such Borrower) which is controlled by or is under common
control with a Controlling Person. As used herein, the term "control" means
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of a Person, whether through the
ownership of voting securities, by contract or otherwise.
"Applicable Lending Office" means, with respect to any Bank, (i) in the
case of its Domestic Loans, its Domestic Lending Office, (ii) in the case of its
Euro-Dollar Loans, its Euro-Dollar Lending Office and (iii) in the case of its
Money Market Loans, its Money Marketing Lending Office.
<PAGE>
"Article 8 Share" has the meaning set forth in Section 8.3.
"Assessment Rate" has the meaning set forth in Section 2.7(b).
"Assignee" has the meaning set forth in Section 9.6(c).
"Availability Percentage" means, with respect to either Borrower, 50%;
provided that if the Commitments are terminated with respect to one but not both
- --------
Borrowers pursuant to Section 6.1, the Availability Percentage of the Borrower
with respect to which the Commitments are terminated shall be zero and the
Availabilty Percentage of the other Borrower shall be 100%.
"Bank" means each bank listed on the signature pages hereof, each
Assignee which becomes a Bank pursuant to Section 9.6(c), and their respective
successors.
"Base Rate" means, for any day, a rate per annum equal to the higher of
(i) the Prime Rate for such day and (ii) the sum of 1/2 of 1% plus the Federal
Funds Rate for such day.
"Base Rate Loan" means (i) a Committed Loan which bears interest at the
Base Rate pursuant to the applicable Notice of Committed Borrowing or Notice of
Interest Rate Election or the provisions of Article 8 or (ii) an overdue amount
which was a Base Rate Loan immediately before it became overdue.
"Benefit Arrangement" means at any time an employee benefit plan within
the meaning of Section 3(3) of ERISA which is not a Plan or a Multiemployer Plan
and which is maintained or otherwise contributed to by any member of the ERISA
Group.
"Borrower" means either Nationwide Mutual or Nationwide Life. References
to "the Borrower" in connection with any Loan or Borrowing are to the particular
Borrower to which such Loan is made or proposed to be made or by which such
Borrowing is made or proposed to be made.
"Borrowing" has the meaning set forth in Section 1.3.
"CD Base Rate" has the meaning set forth in Section 2.7(b).
2
<PAGE>
"CD Loan" means (i) a Committed Loan which bears interest at a CD Rate
pursuant to the applicable Notice of Committed Borrowing or Notice of Interest
Rate Election or (ii) an overdue amount which was a CD Loan immediately before
it became overdue.
"CD Margin" means a rate per annum determined in accordance with the
Pricing Schedule.
"CD Rate" means a rate of interest determined pursuant to Section 2.7(b)
on the basis of an Adjusted CD Rate.
"CD Reference Banks" means The First National Bank of Chicago, Mellon
Bank, and Morgan Guaranty Trust Company of New York.
"Closing Date" means the date on or after the Effective Date on which
the Administrative Agent shall have received the documents specified in or
pursuant to Section 3.1.
"Commitment" means, with respect to each Bank, the amount set forth
opposite the name of such Bank on the signature pages hereof (or, in the case of
an Assignee, the portion of the transferor Bank's Commitment assigned to such
Assignee pursuant to Section 9.6(c)), as such amount may be reduced from time to
time pursuant to Section 2.9.
"Committed Loan" means a loan made by a Bank pursuant to Section 2.1;
provided that, if any such loan or loans (or portions thereof) are combined or
- --------
subdivided pursuant to a Notice of Interest Rate Election, the term "Committed
Loan" shall refer to the combined principal amount resulting from such
combination or to each of the separate principal amounts resulting from such
subdivision, as the case may be.
"Debt" of any Persons means at any date, without duplication, (i) all
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments,
(iii) all obligations of such Person to pay the deferred purchase price of
property or services, except trade accounts payable arising in the ordinary
course of business, (iv) all obligations of such Person as lessee which are
capitalized in accordance with generally accepted accounting principles, (v) all
non-contingent obligations (and, for purposes of Section 5.8 and the definitions
of Material Debt and Material Financial Obligations, all contingent obligations)
of such Person to reimburse any bank or other Person in
3
<PAGE>
respect of amounts paid under a letter of credit or similar instrument, (vi) all
Debt secured by a Lien on any asset of such Person, whether or not such Debt is
otherwise an obligation of such Person and (vii) all Debt of others Guaranteed
by such Person.
"Default" means any condition or event which constitutes an Event of
Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.
"Derivatives Obligations" of any Person means all obligations of such
Person in respect of any rate swap transaction, basis swap, forward rate
transaction, commodity swap, commodity option, equity or equity index swap,
equity or equity index option, bond option, interest rate option, foreign
exchange transaction, cap transaction, floor transaction, collar transaction,
currency swap transaction, cross-currency rate swap transaction, currency option
or any other similar transaction (including any option with respect to any of
the foregoing transactions) or any combination of the foregoing transactions.
"Designated Credit Facilities" means the credit facilities listed on
Schedule I.
"Domestic Business Day" means any day except a Saturday, Sunday or
other day on which commercial banks in New York City are authorized or required
by law to close.
"Domestic Lending Office" means, as to each Bank, its office located at
its address set forth in its Administrative Questionnaire (or identified in its
Administrative Questionnaire as its Domestic Lending Office) or such other
office as such Bank may hereafter designate as its Domestic Lending Office by
notice to the Borrowers and the Administrative Agent; provided that any Bank may
--------
so designate separate Domestic Lending Offices for its Base Rate Loans, on the
one hand, and its CD Loans, on the other hand, in which case all references
herein to the Domestic Lending Office of such Bank shall be deemed to refer to
either or both of such offices, as the context may require.
"Domestic Loans" means CD Loans or Base Rate Loans or both.
"Domestic Reserve Percentage" has the meaning set forth in Section
2.7(b).
4
<PAGE>
"Effective Date" means the date this Agreement becomes effective in
accordance with Section 9.9.
"Environmental Laws" means any and all federal, state, local and
foreign statutes, laws, judicial decisions, regulations, ordinances, rules,
judgments, orders, decrees, plans, injunctions, permits, concessions, grants,
franchises, licenses, agreements and other governmental restrictions relating to
the environment, the effect of the environment on human health or to emissions,
discharges or releases of pollutants, contaminants, Hazardous Substances or
wastes into the environment including, without limitation, ambient air, surface
water, ground water, or land, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of pollutants, contaminants, Hazardous Substances or wastes or the
clean-up or other remediation thereof.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, or any successor statute.
"ERISA Group" means, with respect to either Borrower, any Subsidiary
of such Borrower and all members of a controlled group of corporations and all
trades or businesses (whether or not incorporated) under common control which,
together with such Borrower or any Subsidiary of such Borrower, are treated as a
single employer under Section 414 of the Internal Revenue Code.
"Euro-Dollar Business Day" means any Domestic Business Day on which
commercial banks are open for international business (including dealings in
dollar deposits) in London.
"Euro-Dollar Lending Office" means, as to each Bank, its office,
branch or affiliate located at its address set forth in its Administrative
Questionnaire (or identified in its Administrative Questionnaire as its
Euro-Dollar Lending Office) or such other office, branch or affiliate of such
Bank as it may hereafter designate as its Euro-Dollar Lending Office by notice
to the Borrowers and the Administrative Agent.
"Euro-Dollar Loan" means (i) a Committed Loan which bears interest at
a Euro-Dollar Rate pursuant to the applicable Notice of Committed Borrowing or
Notice of Interest Rate Election or (ii) an overdue amount which was a
Euro-Dollar Loan immediately before it became overdue.
5
<PAGE>
"Euro-Dollar Margin" means a rate per annum determined in accordance
with the Pricing Schedule.
"Euro-Dollar Rate" means a rate of interest determined pursuant to
Section 2.7(c) on the basis of a London Interbank Offered Rate.
"Euro-Dollar Reference Banks" means the principal London offices of
The First National Bank of Chicago, Mellon Bank, and Morgan Guaranty Trust
Company of New York.
"Euro-Dollar Reserve Percentage" has the meaning set forth in Section
2.7(c).
"Event of Default" has the meaning set forth in Section 6.1.
"Facility Fee Rate" has the meaning set forth in the Pricing Schedule.
"Facility Fee Share" means, at any date with respect to either
Borrower, a portion of the aggregate amount of the Commitments equal to the sum
of (i) the aggregate principal amount of Loans outstanding to such Borrower plus
----
(ii) such Borrower's Availability Percentage of an amount equal to the excess
(if any) of the aggregate amount of the Commitments over the aggregate principal
amount of the Loans outstanding to both Borrowers, all determined as of such
date.
"Federal Funds Rate" means, for any day, the rate per annum (rounded
upward, if necessary, to the nearest 1/100th of 1%) equal to the weighted
average of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers on such day, as
published by the Federal Reserve Bank of New York on the Domestic Business Day
next succeeding such day, provided that (i) if such day is not a Domestic
--------
Business Day, the Federal Funds Rate for such day shall be such rate on such
transactions on the next preceding Domestic Business Day as so published on the
next succeeding Domestic Business Day, and (ii) if no such rate is so published
on such next succeeding Domestic Business Day, the Federal Funds Rate for such
day shall be the average rate quoted to Morgan Guaranty Trust Company of New
York on such day on such transactions as determined by the Administrative Agent.
"Fixed Rate Loans" means CD Loans or Euro-Dollar Loans or Money Market
Loans (excluding Money Market LIBOR Loans bearing interest at the Base Rate
pursuant to Section 8.1) or any combination of the foregoing.
6
<PAGE>
"Group of Loans" means at any time a group of Loans consisting of
(i) all Committed Loans to a single Borrower which are Base Rate Loans at such
time, (ii) all Euro-Dollar Loans to a single Borrower having the same Interest
Period at such time or (iii) all CD Loans to a single Borrower having the same
interest period at such time, provided that, if a Committed Loan of any
particular Bank is converted to or made as a Base Rate Loan pursuant to Article
8, such Loan shall be included in the same Group or Groups of Loans from time to
time as it would have been in if it had not been so converted or made.
"Guarantee" by any Person means any obligation, contingent or other
wise, of such Person directly or indirectly guaranteeing any Debt of any other
Person and, without limiting the generality of the foregoing, any obligation,
direct or indirect, contingent or otherwise, of such Person (i) to purchase or
pay (or advance or supply funds for the purchase or payment of) such Debt
(whether arising by virtue of partnership arrangements, by agreement to
keep-well, to purchase assets, goods, securities or services, to take-or-pay, or
to maintain financial statement conditions or otherwise) or (ii) entered into
for the purpose of assuring in any other manner the holder of such Debt of the
payment thereof or to protect such holder against loss in respect thereof (in
whole or in part), provided that the term Guarantee shall not include (a)
--------
endorsements for collection or deposit in the ordinary course of business. The
term "Guarantee" used as a verb has a corresponding meaning.
"Hazardous Substances" means any toxic, radioactive, caustic or
otherwise hazardous substance, including petroleum, its derivatives, by-products
and other hydrocarbons, or any substance having any constituent elements
displaying any of the foregoing characteristics.
"Indemnitee" has the meaning set forth in Section 9.3(c).
"Interest Period" means: (1) with respect to each Euro-Dollar Loan,
the period commencing on the date of borrowing specified in the applicable
Notice of Borrowing or on the date specified in the applicable Notice of
Interest Rate Election and ending one, two, three or six months thereafter, as
the Borrower may elect in the applicable notice; provided that:
--------
(a) any Interest Period which would otherwise end on a day which is
not a Euro-Dollar Business Day shall be extended to the next succeeding
Euro-Dollar Business
7
<PAGE>
Day unless such Euro-Dollar Business Day falls in another calendar month,
in which case such Interest Period shall end on the next preceding Euro-
Dollar Business Day;
(b) any Interest Period which begins on the last Euro-Dollar
Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end of such
Interest Period) shall, subject to clause (c) below, end on the last Euro-
Dollar Business Day of a calendar month; and
(c) any Interest Period which would otherwise end after the
Termination Date shall end on the Termination Date.
(2) with respect to each CD Loan, the period commencing on the date
of borrowing specified in the applicable Notice of Borrowing or on the date
specified in the applicable Notice of Interest Rate Election and ending 30, 60,
90 or 180 days thereafter, as the Borrower may elect in the applicable notice
provided that:
- --------
(a) any Interest Period (other than an Interest Period determined
pursuant to clause (b) below) which would otherwise end on a day which is
not a Euro-Dollar Business Day shall be extended to the next succeeding
Euro-Dollar Business Day; and
(b) any Interest Period which would otherwise end after the
Termination Date shall end on the Termination Date.
(3) with respect to each Money Market LIBOR Loan, the period
commencing on the date of borrowing specified in the applicable Notice of
Borrowing and ending such whole number of months thereafter as the Borrower may
elect in accordance with Section 2.3; provided that:
--------
(a) any Interest Period which would otherwise end on a day which is
not a Euro-Dollar Business Day shall be extended to the next succeeding
Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in
another calendar month, in which case such Interest Period shall end on the
next preceding Euro-Dollar Business Day;
(b) any Interest Period which begins on the last Euro-Dollar
Business Day of a calendar month (or on a day for which there is no
numerically corresponding day in the calendar month at the end of such
Interest
8
<PAGE>
Period) shall, subject to clause (c) below, end on the last Euro-Dollar
Business Day of a calendar month; and
(c) any Interest Period which would otherwise end after the
Termination Date shall end on the Termination Date.
(4) with respect to each Money Market Absolute Rate Loan, the period
commencing on the date of borrowing specified in the applicable Notice of
Borrowing and ending such number of days thereafter (but not less than 7 days)
as the Borrower may elect in accordance with Section 2.3; provided that:
--------
(a) any Interest Period which would otherwise end on a day which is
not a Euro-Dollar Business Day shall be extended to the next succeeding
Euro-Dollar Business Day; and
(b) any Interest Period which would otherwise end after the
Termination Date shall end on the Termination Date.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended, or any successor statute.
"LIBOR Auction" means a solicitation of Money Market Quotes setting
forth Money Market Margins based on the London Interbank Offered Rate
pursuant to Section 2.3.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind, or any other type of
preferential arrangement that has the practical effect of creating a
security interest, in respect of such asset. For the purposes of this
Agreement, a Person shall be deemed to own subject to a Lien any asset
which it has acquired or holds subject to the interest of a vendor or
lessor under any conditional sale agreement, capital lease or other title
retention agreement relating to such asset.
"Loan" means a Domestic Loan, a Euro-Dollar Loan or a Money Market
Loan and "Loans" means Domestic Loans, Euro-Dollar Loans or Money Market
Loans or any combination of the foregoing.
"London Interbank Offered Rate" has the meaning set forth in Section
2.7 (c).
"Material Affiliate" means,
9
<PAGE>
(i) in respect of Nationwide Mutual, (x) any other Person which is a
party to the Nationwide Insurance Intercompany Pooling Agreement, effective
as of January 1, 1994, as amended or supplemented from time to time and (y)
any of its Material Subsidiaries.
(ii) in respect of Nationwide Life, any of its Material Subsidiaries.
"Material Debt" means, with respect to either Borrower, Debt (other
than the Notes) of such Borrower and/or one or more of its Subsidiaries, arising
in one or more related or unrelated transactions, in an aggregate principal or
face amount exceeding $25,000,000.
"Material Financial Obligations" means, with respect to either
Borrower, a principal or face amount of Debt and/or payment or collateralization
obligations in respect of Derivatives Obligations of such Borrower and/or one or
more of its Subsidiaries, arising in one or more related or unrelated
transactions, exceeding in the aggregate $25,000,000.
"Material Plan" means at any time a Plan or Plans having aggregate
Unfunded Liabilities in excess of $25,000,000.
"Material Subsidiary" means,
(i) in respect of Nationwide Mutual, any Subsidiary having, as of the
date of the Combined Annual Statement most recently delivered to the Banks
pursuant to Section 4.4 or 5.1(a)(iii), consolidated assets of at least 1%
of the total combined assets set out in such statement; provided that, for
--------
purposes of this Agreement, neither Nationwide Life nor any of its
consolidated Subsidiaries shall be considered to be a Material Subsidiary
of Nationwide Mutual, and
(ii) in respect of Nationwide Life, any Subsidiary having, as of the
date of the balance sheet most recently delivered to the Banks by such
Borrower pursuant to Section 4.4 or 5.1(a)(ii), consolidated assets of at
least 1% of the total consolidated assets set out in such statement.
"Money Market Absolute rate" has the meaning set forth in Section
2.3(d).
"Money Market Absolute Rate Loan" means a loan to be made by a Bank
pursuant to an Absolute Rate Auction.
10
<PAGE>
"Money Market Lending Office" means, as to each Bank, its Domestic
Lending Office or such other office, branch or affiliate of such Bank as it may
hereafter designate as its Money Market Lending Office by notice to the
Borrowers and the Administrative Agent; provided that any Bank may from time to
--------
time by notice to the Borrowers and the Administrative Agent designate separate
Money Market Lending Offices for its Money Market LIBOR Loans, on the one hand,
and its Money Market Absolute Rate Loans, on the other hand, in which case all
references herein to the Money Market Lending Office of such Bank shall be
deemed to refer to either or both of such offices, as the context may require.
"Money Market LIBOR Loan" means a loan to be made by a Bank pursuant
to a LIBOR Auction (including such a loan bearing interest at the Base Rate
pursuant to Section 8.1).
"Money Market Loan" means a Money Market LIBOR Loan or a Money Market
Absolute Rate Loan.
"Money Market Margin" has the meaning set forth in Section
2.3(d)(ii)(C).
"Money Market Quote" means an offer by a Bank to make a Money Market
Loan in accordance with Section 2.3.
"Moody's" means Moody's Investors Services, Inc.
"Multiemployer Plan" means at any time an employee pension benefit
plan within the meaning of Section 4001(a)(3) of ERISA to which any member of
the ERISA Group is then making or accruing an obligation to make contributions
or has within the preceding five plan years made contributions, including for
these purposes any Person which ceased to be a member of the ERISA Group during
such five year period.
"Nationwide Life" means Nationwide Life Insurance Company, an Ohio
insurance company, and its successors.
"Nationwide Mutual" means Nationwide Mutual Insurance Company, an Ohio
mutual insurance company, and its successors.
"Notes" means promissory notes of a Borrower, substantially in the
form of Exhibit A hereto, evidencing the obligation of such Borrower to repay
the Loans made to it, and "Note" means any one of such promissory notes issued
hereunder.
11
<PAGE>
"Notice of Borrowing" means a Notice of Committed Borrowing (as defined
in Section 2.2) or a Notice of Money Market Borrowing (as defined in
Section 2.3(f)).
"Notice of Interest Rate Election" has the meaning set forth in
Section 2.10.
"Other Taxes" has the meaning set forth in Section 8.4.
"Parent" means, with respect to any Bank, any Person controlling such
Bank.
"Participant" has the meaning set forth in Section 9.6(b).
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Person" means an individual, a corporation, a limited liability
company, a partnership, an association, a trust or any other entity or
organization, including a government or political subdivision or an agency or
instrumentality thereof.
"Plan" means, at any time with respect to either Borrower, an employee
pension benefit plan (other than a Multiemployer Plan) which is covered by
Title IV of ERISA or subject to the minimum funding standards under Section 412
of the Internal Revenue Code and either (i) is maintained, or contributed to, by
any member of the ERISA Group of such Borrower for employees of any member of
the ERISA Group of such Borrower or (ii) has at any time within the preceding
five years been maintained, or contributed to, by any Person which was a such
time a member of the ERISA Group of such Borrower for employees of any Person
which was at such time a member the ERISA Group of such Borrower.
"Pricing Schedule" means the Schedule attached hereto identified as
such.
"Prime Rate" means the rate of interest publicly announced by Morgan
Guaranty Trust Company of New York in New York City from time to time as its
Prime Rate.
"Quarterly Dates" means each March 31, June 30, September 30 and
December 31.
12
<PAGE>
"Reference Banks" means the CD Reference Banks or the Euro-Dollar
Reference Banks, as the context may require, and "Reference Bank" means any one
of such Reference Banks.
"Regulation U" means Regulation U of the Board of Governors of the
Federal Reserve System, as in effect from time to time.
"Required Banks" means at any time Banks having at least 66 2/3% of
the aggregate amount of the Commitments or, if the Commitments shall have been
terminated, holding Notes evidencing at least 66 2/3% of the aggregate unpaid
principal amount of the Loans.
"Revolving Credit Period" means the period from and including the
Effective Date to but not including the Termination Date.
"S&P" means Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc.
"Statutory Surplus" means, at any date with respect to either Borrower,
the statutory capital and surplus of such Borrower at such date, determined in
accordance with Section 1.2.
"Subsidiary" means, as to any Person, any corporation or other entity of
which securities or other ownership interests having ordinary voting power to
elect a majority of the board of directors or other persons performing similar
functions are at the time directly or indirectly owned by such Person.
"Termination Date" means August 12, 2001, or, if such day is not a
Euro-Dollar Business Day, the next succeeding Euro-Dollar Business Day unless
such Euro-Dollar Business Day falls in another calendar month, in which case
the Termination Date shall be the next preceding Euro-Dollar Business Day.
"Unfunded Liabilities" means, with respect to any Plan at any time, the
amount (if any) by which (i) the value of all benefit liabilities under such
Plan, determined on a plan termination basis using the assumptions prescribed
by the PBGC for purposes of Section 4044 of ERISA, exceeds (ii) the fair market
value of all Plan assets allocable to such liabilities under Title IV of ERISA
(excluding any accrued but unpaid contributions), all determined as of the then
most recent valuation date for such Plan, but only to the extent that such
excess represents a potential liability of
13
<PAGE>
a member of the related ERISA Group to the PBGC or any other Person under Title
IV of ERISA.
"United States" means the United States of America, including the
States and the District of Columbia, but excluding its territories and
possessions.
SECTION 1.2. Accounting Terms and Determinations. Unless otherwise
-----------------------------------
specified herein, all accounting terms used herein shall be interpreted, all
accounting determinations hereunder shall be made, and all financial statements
included in Annual Statements required to be delivered hereunder shall be
prepared in accordance with accounting practices prescribed or permitted by
applicable insurance regulatory authorities as in effect from time to time (the
"Insurance Accounting Principles"), applied on a basis consistent (except for
changes required by such insurance regulatory authorities) with the most recent
Annual Statement of the applicable Borrower delivered to the Banks; provided
--------
that, if such Borrower notifies the Agent that it wishes to amend any covenant
in Article 5 to eliminate the effect of any change in Insurance Accounting
Principles on the operation of such covenant (or if the Agent notifies such
Borrower that the Required Banks wish to amend Article 5 for such purpose), then
such Borrower's compliance with such covenant shall be determined on the basis
of accounting practices prescribed or permitted by insurance regulatory
authorities in effect immediately before the relevant change in such accounting
practices or principles became effective, until either such notice is withdrawn
or such covenant is amended in a manner satisfactory to the Borrowers and the
Required Banks.
SECTION 1.3. Types of Borrowings. The term "Borrowing" denotes the
-------------------
aggregation of Loans of one or more Banks to be made to a single Borrower
pursuant to Article 2 on the same date, all of which Loans are of the same type
(subject to Article 8) and, except in the case of Base Rate Loans, have the same
initial Interest Period. Borrowings are classified for purposes of this
Agreement either by reference to the pricing of Loans comprising such Borrowing
(e.g., a "Fixed Rate Borrowing" is a Euro-Dollar Borrowing, a CD Borrowing or a
----
Money Market Borrowing (excluding any such Borrowing consisting of Money Market
LIBOR Loans bearing interest at the Base Rate pursuant to Section 8.1), and a
"Euro-Dollar Borrowing" is a Borrowing comprised of Euro-Dollar Loans) or by
reference to the provisions of Article 2 under which participation therein is
determined (i.e., a "Committed Borrowing" is a Borrowing under Section 2.1 in
----
which all Banks participate in proportion to their Commitments, while a "Money
Market Borrowing" is a Borrowing
14
<PAGE>
under Section 2.3 in which the Bank participants are determined on the basis of
their bids in accordance therewith).
ARTICLE 2
THE CREDITS
SECTION 2.1. Commitments to Lend. During the Revolving Credit
-------------------
Period, each Bank severally agrees, on the terms and conditions set forth in
this Agreement, to make loans to either Borrower pursuant to this Section from
time to time in amounts such that the aggregate principal amount of Committed
Loans by such Bank at any one time outstanding to both Borrowers shall not
exceed the amount of its Commitment. Each Borrowing under this Section shall
be in an aggregate principal amount of $10,000,000 or any larger multiple of
$1,000,000 (except that any such Borrowing may be in the aggregate amount
available in accordance with Section 3.2) and shall be made from the several
Banks ratably in proportion to their respective Commitments. Within the
foregoing limits, the Borrowers may borrow under this Section, prepay Loans to
the extent permitted by Section 2.12 and reborrow at any time during the
Revolving Credit Period under this Section.
SECTION 2.2. Notice of Committed Borrowing. The relevant Borrower
-----------------------------
shall give the Administrative Agent notice (a "Notice of Committed Borrowing")
not later than 10:30 A.M. (New York City time) on (x) the date of each Base Rate
Borrowing, (y) the second Domestic Business Day before each CD Borrowing and
(z) the third Euro-Dollar Business Day before each Euro-Dollar Borrowing,
specifying:
(i) the date of such Borrowing, which shall be a Domestic Business
Domestic Business Day in the case of a Domestic Borrowing or a Euro-Dollar
Day in the case of a Euro-Dollar Borrowing;
(ii) the aggregate amount of such Borrowing;
(iii) whether the Loans comprising such Borrowing are to bear
interest initially at the Base Rate, a CD Rate or a Euro-
Dollar Rate; and
(iv) in the case of a Fixed Rate Borrowing, the duration of the
Interest Period applicable thereto, subject to the provisions
of the definition of Interest Period.
15
<PAGE>
SECTION 2.3. Money Market Borrowings. (a) The Money Market Option.
----------------------- -----------------------
In addition to Committed Borrowings pursuant to Section 2.1, either Borrower
may, as set forth in this Section, request the Banks during the Revolving Credit
Period to make offers to make Money Market Loans to such Borrower. The Banks
may, but shall have no obligation to, make such offers and such Borrower may,
but shall have no obligation to, accept any such offers in the manner set forth
in this Section.
(b) Money Market Quote Request. When a Borrower wishes to request
--------------------------
offers to make Money Market Loans under this Section, it shall transmit to the
Administrative Agent by telex or facsimile transmission a Money Market Quote
Request substantially in the form of Exhibit B hereto so as to be received not
later than 10:30 A.M. (New York City time) on (x) the fifth Euro-Dollar Business
Day prior to the date of Borrowing proposed therein, in the case of a LIBOR
Auction or (y) the Domestic Business Day next preceding the date of Borrowing
proposed therein, in the case of an Absolute Rate Auction (or, in either case,
such other time or date as the Borrower and the Administrative Agent shall have
mutually agreed and shall have notified to the Banks not later than the date of
the Money Market Quote Request for the LIBOR Auction or Absolute Rate Auction
for which such change is to be effective) specifying:
(i) the proposed date of Borrowing, which shall be a Euro-Dollar
Business Day in the case of a LIBOR Auction or a Domestic Business Day in
the case of an Absolute Rate Auction,
(ii) the aggregate amount of such Borrowing, which shall be
$10,000,000 or a larger multiple of $1,000,000,
(iii) the duration of the Interest Period applicable thereto, subject
to the provisions of the definition of Interest period, and
(iv) whether the Money Market Quotes requested are to set forth a
Money Market Margin or a Money Market Absolute Rate.
A Borrower may request offers to make Money Market Loans for more than one
Interest Period in a single Money Market Quote Request. No Money Market Quote
Request shall be given within five Euro-Dollar Business Days (or such other
number of days as the Borrower and the Administrative Agent may agree) of any
other Money Market Quote Request.
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<PAGE>
(c) Invitation for Money Market Quotes. Promptly upon receipt of a
----------------------------------
Money Market Quote Request, the Administrative Agent shall send to the Banks by
telex or facsimile transmission an Invitation for Money Market Quotes
substantially in the form of Exhibit C hereto, which shall constitute an
invitation by the Borrower to each Bank to submit Money Market Quotes offering
to make the Money Market Loans to which such Money Market Quote Request relates
in accordance with this Section.
(d) Submission and Contents of Money Market Quotes. (i) Each Bank
----------------------------------------------
may submit a Money Market Quote containing an offer or offers to make Money
Market Loans in response to any Invitation for Money Market Quotes. Each Money
Market Quote must comply with the requirements of this subsection (d) and must
be submitted to the Administrative Agent by telex or facsimile transmission at
its offices specified in or pursuant to Section 9.1 not later than (x) 2:00 P.M.
(New York City time) on the fourth Euro-Dollar Business Day prior to the
proposed date of Borrowing, in the case of an Absolute Rate Auction (or, in
either case, such other time or date as the Borrower and the Administrative
Agent shall have mutually agreed and shall have notified to the Banks not later
than the date of the Money Market Quote Request for the first LIBOR Auction or
Absolute Rate Auction for which such change is to be effective); provided that
--------
Money Market Quotes submitted by the Administrative Agent (or any affiliate of
the Administrative Agent) in the capacity of a Bank may be submitted, and may
only be submitted, if the Administrative Agent or such affiliate notifies the
Borrower of the terms of the offer or offers contained therein not later than
(x) one hour prior to the deadline for the other Banks, in the case of a LIBOR
Auction or (y) 15 minutes prior to the deadline for the other Banks, in the case
of an Absolute Rate Auction. Subject to Articles 3 and 6, any Money Market
Quote so made shall be irrevocable except with the written consent of the
Administrative Agent given on the instructions of the Borrower.
(ii) Each Money Market Quote shall be in substantially the form of
Exhibit D hereto and shall in any case specify:
(A) the proposed date of Borrowing,
(B) the principal amount of the Money Market Loan for which each such
offer is being made, which principal amount (w) may be greater than or less
than the Commitment of the quoting Bank, (x) must be
17
<PAGE>
$5,000,000 or a larger multiple of $1,000,000, (y) may not exceed the
principal amount of Money Market Loans for which offers were requested and
(z) may be subject to an aggregate limitation as to the principal amount of
Money Market Loans for which offers being made by such quoting Bank may be
accepted,
(C) in the case of a LIBOR Auction, the margin above or below the
applicable London Interbank Offered Rate (the "Money Market Margin")
offered for each such Money Market Loan, expressed as a percentage
(specified to the nearest 1/10,000th of 1%) to be added to or subtracted
from such base rate,
(D) in the case of an Absolute Rate Auction, the rate of interest per
annum (specified to the nearest 1/10,000th of 1%) (the "Money Market
Absolute Rate") offered for each such Money Market Loan, and
(E) the identity of the quoting Bank.
A Money Market Quote may set forth up to five separate offers by the quoting
Bank with respect to each Interest Period specified in the related Invitation
for Money Market Quotes.
(iii) Any Money Market Quote shall be disregarded if it:
(A) is not substantially in conformity with Exhibit D hereto or does
not specify all of the information required by subsection (d)(ii) above;
(B) contains qualifying, conditional or similar language;
(C) proposes terms other than or in addition to those set forth in
the applicable Invitation for Money Market Quotes; or
(D) arrives after the time set forth in subsection (d)(i)
(e) Notice to Borrower. The Administrative Agent shall promptly
------------------
notify the Borrower of the terms (x) of any Money Market Quote submitted by a
Bank that is in accordance with subsection (d) and (y) of any Money Market Quote
that amends, modifies or is otherwise inconsistent with a previous Money Market
Quote submitted by such Bank with respect to the same Money Market Quote
Request. Any such subsequent Money Market Quote shall be disregarded by the
18
<PAGE>
Administrative Agent unless such subsequent Money Market Quote is submitted
solely to correct a manifest error in such former Money Market Quote. The
Administrative Agent's notice to the Borrower shall specify (A) the aggregate
principal amount of Money Market Loans for which offers have been received for
each Interest Period specified in the related Money Market Quote Request, (B)
the respective principal amounts and Money Market Margins or Money Market
Absolute Rates, as the case may be, so offered and (C) if applicable,
limitations on the aggregate principal amount of Money Market Loans for which
offers in any single Money Market Quote may be accepted.
(f) Acceptance and Notice by Borrower. Not later than 10:30 A.M.
---------------------------------
(New York City time) on (x) the third Euro-Dollar Business Day prior to the
proposed date of Borrowing, in the case of a LIBOR Auction or (y) the proposed
date of Borrowing, in the case of an Absolute Rate Auction (or, in either case,
such other time or date as the Borrower and the Administrative Agent shall have
mutually agreed and shall have notified to the Banks not later than the date of
the Money Market Quote Request for the first LIBOR Auction or Absolute Rate
Auction for which such change is to be effective), the Borrower shall notify the
Administrative Agent of its acceptance or non-acceptance of the offers so
notified to it pursuant to subsection (e). In the case of acceptance, such
notice (a "Notice of Money Market Borrowing") shall specify the aggregate
principal amount of offers for each Interest Period that are accepted. The
Borrower may accept any Money Market Quote in whole or in part; provided that:
--------
(i) the aggregate principal amount of each Money Market Borrowing may
not exceed the applicable amount set forth in the related Money Market Quote
Request;
(ii) the principal amount of each Money Market Borrowing must be
$10,000,000 or a larger multiple of $1,000,000;
(iii) acceptance of offers may only be made on the basis of ascending
Money Market Margins or Money Market Absolute Rates, as the case may be; and
(iv) the Borrower may not accept any offer that is described in
subsection (d) (iii) or that otherwise fails to comply with the requirements
of this Agreement.
(g) Allocation by Administrative Agent. If offers are made by two or
----------------------------------
more Banks with the same Money
19
<PAGE>
Market Margins or Money Market Absolute Rates, as the case may be, for a greater
aggregate principal amount than the amount in respect of which such offers are
accepted for the related Interest Period, the principal amount of Money
Market-Loans in respect of which such offers are accepted shall be allocated by
the Administrative Agent among such Banks as nearly as possible (in multiples of
$1,000,000, or as the Administrative Agent may deem appropriate) in proportion
to the aggregate principal amounts of such offers. Determinations by the
Administrative Agent of the amounts of Money Market Loans shall be conclusive in
the absence of manifest error.
SECTION 2.4. Notice to Banks; Funding of Loans.
---------------------------------
(a) Upon receipt of a Notice of Borrowing, the Administrative Agent shall
promptly notify each Bank of the contents thereof and of such Bank's share (if
any) of such Borrowing and such Notice of Borrowing shall not thereafter be
revocable by the Borrower.
(b) Not later than 12:00 Noon (New York City time) on the date of
each Borrowing, each Bank participating therein shall make available its share
of such Borrowing, in Federal or other funds immediately available in New York
City, to the Administrative Agent at its address referred to in Section 9.1.
Unless the Administrative Agent determines that any applicable condition
specified in Article 3 has not been satisfied, the Administrative Agent will
make the funds so received from the Banks available to the Borrower at the
Administrative Agent's aforesaid address.
(c) Unless the Administrative Agent shall have received notice from a
Bank prior to the date of any Borrowing that such Bank will not make available
to the Administrative Agent such Bank's share of such Borrowing, the
Administrative Agent may assume that such Bank has made such share available to
the Administrative Agent on the date of such Borrowing in accordance with
subsection (b) of this Section and the Administrative Agent may, in reliance
upon such assumption, make available to the Borrower on such date a
corresponding amount. If and to the extent that such Bank shall not have so made
such share available to the Administrative Agent, such Bank and the Borrower
severally agree to repay to the Administrative Agent forthwith on demand such
corresponding amount together with interest thereon, for each day from the date
such amount is made available to the Borrower until the date such amount is
repaid to the Administrative Agent, at (i) in the case of the Borrower, a rate
per annum equal to the higher of the Federal Funds Rate and the interest rate
applicable thereto pursuant to Section 2.7 and (ii) in the case of such Bank,
20
<PAGE>
the Federal Funds Rate. If such Bank shall repay to the Administrative Agent
such corresponding amount, such amount so repaid shall constitute such Bank's
Loan included in such Borrowing for purposes of this Agreement.
SECTION 2.5. Notes. (a) The Loans of each Bank to each Borrower
-----
shall be evidenced by a single Note of such Borrower payable to the order of
such Bank for the account of its Applicable Lending Office in an amount equal to
the aggregate unpaid principal amount of such Bank's Loans to such Borrower.
(b) Each Bank may, by notice to a Borrower and the Administrative
Agent, request that its Loans of a particular type to such Borrower be evidenced
by a separate Note of such Borrower in an amount equal to the aggregate unpaid
principal amount of such Loans. Each such Note shall be in substantially the
form of Exhibit A hereto with appropriate modifications to reflect the fact that
it evidences solely Loans of the relevant type. Each reference in this Agreement
to the "Note" of such Bank shall be deemed to refer to and include any or all of
such Notes, as the context may require.
(c) Upon receipt of each Bank's Notes pursuant to Section 3.1(a), the
Administrative Agent shall forward such Notes to such Bank. Each Bank shall
record the date, amount and type of each Loan made by it to each Borrower and
the date and amount of each payment of principal made with respect thereto, and
may, if such Bank so elects in connection with any transfer or enforcement of
its Note of either Borrower, endorse on the schedule forming a part thereof
appropriate notations to evidence the foregoing information with respect to each
such Loan to such Borrower then outstanding; provided that the failure of any
--------
Bank to make any such recordation or endorsement shall not affect the
obligations of any Borrower hereunder or under the Notes. Each Bank is hereby
irrevocably authorized by each Borrower so to endorse its Notes and to attach to
and make a part of any Note a continuation of any such schedule as and when
required.
SECTION 2.6. Maturity of Loans. (a) Each Committed Loan shall
-----------------
mature, and the principal amount thereof shall be due and payable, together with
accrued interest thereon, on the Termination Date.
(b) Each Money Market Loan included in any Money Market Borrowing
shall mature, and the principal amount thereof shall be due and payable,
together with accrued
21
<PAGE>
interest thereon, on the last day of the Interest Period applicable to such
Borrowing.
SECTION 2.7. Interest Rates. (a) Each Base Rate Loan shall bear
--------------
interest on the outstanding principal amount thereof, for each day from the date
such Loan is made until it becomes due, at a rate per annum equal to the Base
Rate for such day. Such interest shall be payable quarterly in arrears on each
Quarterly Date and, with respect to the principal amount of any Base Rate Loan
converted to a CD Loan or a Euro-Dollar Loan, on each date a Base Rate Loan is
so converted. Any overdue principal of or interest on any Base Rate Loan shall
bear interest, payable on demand, for each day until paid at a rate per annum
equal to the sum of 2% plus the rate otherwise applicable to Base Rate Loans for
such day.
(b) Each CD Loan shall bear interest on the outstanding principal
amount thereof, for each day during each Interest Period applicable thereto, at
a rate per annum equal to the sum of the CD Margin for such day plus the
Adjusted CD Rate applicable to such Interest Period; provided that if any CD
--------
Loan shall, as a result or clause (2)(b) of the definition of Interest Period,
have an Interest Period of less than 30 days, such CD Loan shall bear interest
during such Interest Period at the rate applicable to Base Rate Loans during
such period. Such interest shall be payable for each Interest Period on the last
day thereof and, if such Interest Period is longer than 90 days, at intervals of
90 days after the first day thereof. Any overdue principal of or interest on any
CD Loan shall bear interest, payable on demand, for each day until paid at a
rate per annum equal to the sum of 2% plus the higher of (i) the rate applicable
to Base Rate Loans for such day and (ii) the sum of the CD Margin plus the
Adjusted CD Rate applicable to such Loan at the date such payment was due.
The "Adjusted CD Rate" applicable to any Interest Period means a rate
per annum determined pursuant to the following formula:
22
<PAGE>
[ CDBR ]*
ACDR = [ ---------- ] + AR
[ 1.00 - DRP ]
ACDR = Adjusted CD Rate
CDBR = CD Base Rate
DRP = Domestic Reserve Percentage
AR = Assessment Rate
----------
* The amount in brackets being rounded upward, if necessary, to the next
higher 1/100 of 1%
The "CD Base Rate" applicable to any Interest Period is the rate of
interest determined by the Administrative Agent to be the average (rounded
upward, if necessary, to the next higher 1/100 of 1%) of the prevailing rates
per annum bid at 10:00 A.M. (New York City time) (or as soon thereafter as
practicable) on the first day of such Interest Period by two or more New York
certificate of deposit dealers of recognized standing for the purchase at face
value from each CD Reference Bank of its certificates of deposit in an amount
comparable to the principal amount of the CD Loan of such CD Reference Bank to
which such Interest Period applies and having a maturity comparable to such
Interest Period.
"Domestic Reserve Percentage" means for any day that percentage
(expressed as a decimal) which is in effect on such day, as prescribed by the
Board of Governors of the Federal Reserve System (or any successor) for
determining the maximum reserve requirement (including without limitation any
basic, supplemental or emergency reserves) for a member bank of the Federal
Reserve System in New York City with deposits exceeding five billion dollars in
respect of new non-personal time deposits in dollars in New York City having a
maturity comparable to the related Interest Period and in an amount of $100,000
or more. The Adjusted CD Rate shall be adjusted automatically on and as of the
effective date of any change in the Domestic Reserve Percentage.
"Assessment Rate" means for any day the annual assessment rate in
effect on such day which is payable by a member of the Bank Insurance Fund
classified as adequately capitalized and within supervisory subgroup "A" (or a
comparable successor assessment risk classification) within the meaning of 12
C.F.R. (S) 327.4(a) (or any successor provision) to the Federal Deposit
Insurance Corporation (or any successor) for such Corporation's (or such
successor's) insuring time deposits at offices of such institution in the
23
<PAGE>
United States. The Adjusted CD Rate shall be adjusted automatically on and as of
the effective date of any change in the Assessment Rate.
(c) Each Euro-Dollar Loan shall bear interest on the outstanding
principal amount thereof, for each day during each Interest Period applicable
thereto, at a rate per annum equal to the sum of the Euro-Dollar Margin for such
day plus the London Interbank Offered Rate applicable to such Interest Period.
Such interest shall be payable for each Interest Period on the last day thereof
and, if such Interest Period is longer than three months, at intervals of three
months after the first day thereof.
The "London Interbank Offered Rate" applicable to any Interest Period
means the average (rounded upward, if necessary, to the next higher 1 /16 of 1%)
of the respective rates per annum at which deposits in dollars are offered to
each of the Euro-Dollar Reference Banks in the London interbank market at
approximately 11:00 A.M. (London time) two Euro-Dollar Business Days before the
first day of such Interest Period in an amount approximately equal to the
principal amount of the Euro-Dollar Loan of such Euro-Dollar Reference Bank to
which such Interest Period is to apply and for a period of time comparable to
such Interest Period.
"Euro-Dollar Reserve Percentage" means for any day that percentage
(expressed as a decimal) which is in effect on such day, as prescribed by the
Board of Governors of the Federal Reserve System (or any successor) for
determining the maximum reserve requirement for a member bank of the Federal
Reserve System in New York City with deposits exceeding five billion dollars in
respect of "Eurocurrency liabilities" (or in respect of any other category of
liabilities which includes deposits by reference to which the interest rate on
Euro-Dollar Loans is determined or any category of extensions of credit or other
assets which includes loans by a non-United States office of any Bank to United
States residents). The London Interbank Offered rate shall be adjusted
automatically on and as of the effective date of any change in the Euro-Dollar
Reserve Percentage.
(d) Any overdue principal of or interest on any Euro-Dollar Loan shall
bear interest, payable on demand, for each day until paid at a rate per annum
equal to the higher of (i) the sum of 2% plus the Euro-Dollar Margin for such
day plus the quotient obtained (rounded upward, if necessary, to the next higher
1/100 of 1%) by dividing (x) the average (rounded upward, if necessary, to the
next higher 1/16 of 1%) of the respective rates per annum at which one day (or,
if such amount due remains unpaid more
24
<PAGE>
than three Euro-Dollar Business Days, then for such other period of time not
longer than three months as the Administrative Agent may select) deposits in
dollars in an amount approximately equal to such overdue payment due to each of
the Euro-Dollar Reference Banks are offered to such Euro-Dollar Reference Bank
in the London interbank market for the applicable period determined as provided
above by (y) 1.00 minus the Euro-Dollar Reserve Percentage (or, if the
circumstances described in clause (a) or (b) of Section 8.1 shall exist, at a
rate per annum equal to the sum of 2% plus the rate applicable to Base Rate
Loans for such day) and (ii) the sum of 2% plus the Euro-Dollar Margin for such
day plus the Adjusted London Interbank Offered Rate applicable to such Loan at
the date such payment was due.
(e) Subject to Section 8.1, each Money Market LIBOR Loan shall bear
interest on the outstanding principal amount thereof, for the Interest Period
applicable thereto, at a rate per annum equal to the sum of the London Interbank
Offered Rate for such Interest Period (determined in accordance with Section 2.7
(c) as if the related Money Market LIBOR Borrowing were a Committed Euro-Dollar
Borrowing) plus (or minus) the Money Market Margin quoted by the Bank making
such Loan in accordance with Section 2.3. Each Money Market Absolute Rate Loan
shall bear interest on the outstanding principal amount thereof, for the
Interest Period applicable thereto, at a rate per annum equal to the Money
Market Absolute Rate quoted by the Bank making such Loan in accordance with
Section 2.3. Such interest shall be payable for each Interest Period on the last
day thereof and, if such Interest Period is longer than three months, at
intervals of three months after the first day thereof. Any overdue principal of
or interest on any Money Market Loan shall bear interest, payable on demand, for
each day until paid at a rate per annum equal to the sum of 2% plus the Base
Rate for such day.
(f) The Administrative Agent shall determine each interest rate
applicable to the Loans hereunder. The Administrative Agent shall give prompt
notice to the Borrower and the participating Banks of each rate of interest so
determined, and its determination thereof shall be conclusive in the absence of
manifest error.
(g) Each Reference Bank agrees to use its best efforts to furnish
quotations to the Administrative Agent as contemplated by this Section. If any
Reference Bank does not furnish a timely quotation, the Administrative Agent
shall determine the relevant interest rate on the basis of the quotation or
quotations furnished by the remaining Reference Bank or Banks or, if none of
such quotations is
25
<PAGE>
available on a timely basis, the provisions of Section 8.1 shall apply.
SECTION 2.8 Fees. (a) The Borrowers shall pay to the Administrative
----
Agent for the account of the Banks ratably a facility fee at the Facility Fee
Rate (determined daily in accordance with the Pricing Schedule). Such Facility
fee shall accrue for the account of each Borrower (i) from and including the
Effective Date to but excluding the date of termination of the Commitments in
their entirety, on such Borrower's Facility Fee Share of the daily aggregate
amount of the Commitments (whether used or unused) and (ii) from and including
such date of termination to but excluding the date the Loans to such Borrower
shall be repaid in their entirety, on the daily aggregate outstanding principal
amount of the Loans to such Borrower.
(b) Accrued fees under this Section shall be payable quarterly in
arrears on each Quarterly Date and on the date of termination of the Commitments
in their entirety (and, if later, each date on which the Loans to such Borrower
shall be repaid in their entirety).
SECTION 2.9. Optional Termination or Reduction of Commitments.
------------------------------------------------
During the Revolving Credit Period, the Borrowers may, upon at least three
Domestic Business Days' notice to the Administrative Agent, (i) terminate the
Commitments at any time, if no Loans are outstanding at such time or (ii)
ratably reduce from time to time by an aggregate amount of $10,000,000 or a
larger multiple of $1,000,000, the aggregate amount of the Commitments in excess
of the aggregate outstanding principal amount of the Loans.
SECTION 2.10. Method of Electing Interest Rates. (a) The Loans
---------------------------------
included in each Committed Borrowing shall bear interest initially at the type
of rate specified by the Borrower in the applicable Notice of Committed
Borrowing. Thereafter, the Borrower may from time to time elect to change or
continue the type of interest rate borne by each Group of Loans (subject in each
case to the provisions of Article 8), as follows:
(i) if such Loans are Base Rate Loans, the Borrower may elect to
convert such Loans to CD Loans as of any Domestic Business Day or to Euro-
Dollar Loans as of any Euro-Dollar Business Day;
(ii) if such Loans are CD Loans, the Borrower may elect to convert
such Loans to Base Rate Loans or Euro-Dollar Loans or elect to continue
such Loans as CD
26
<PAGE>
Loans for an additional Interest Period, subject to Section 2.14 in the
case of any such conversion or continuation effective on any day other than
the last day of the then current Interest Period applicable to such Loans;
and
(iii) if such Loans are Euro-Dollar Loans, the Borrower may elect to
convert such Loans to Base Rate Loans or CD Loans or elect to continue such
Loans as Euro-Dollar Loans for an additional Interest Period, subject to
Section 2.14 in the case of any such conversion or continuation effective
on any day other than the last day of the then current Interest Period
applicable to such Loans.
Each such election shall be made by delivering a notice (a "Notice of Interest
Rate Election") to the Administrative Agent not later than 10:00 A.M. (New York
City time) on the third Euro-Dollar Business Day before the conversion or
continuation selected in such notice is to be effective (unless the relevant
Loans are to be converted to Domestic Loans of the other type or are CD Rate
Loans to be continued as CD Rate Loans for an additional Interest Period, in
which case such notice shall be delivered to the Administrative Agent not later
than 10:00 A.M. (New York City time) on the second Domestic Business Day before
such conversion or continuation is to be effective). A Notice of Interest Rate
Election may, if it so specifies, apply to only a portion of the aggregate
principal amount of the relevant Group of Loans; provided that (i) such portion
--------
is allocated ratably among the Loans comprising such Group and (ii) the portion
to which it does not apply, are each $10,000,000 or any larger multiple of
$1,000,000. If no such notice is timely received prior to the end of an Interest
Period, the Borrower shall be deemed to have elected that all Loans having such
Interest Period be converted to Base Rate Loans.
(b) Each Notice of Interest Rate Election shall specify:
(i) the Group of Loans (or portion thereof) to which such notice
applies;
(ii) the date on which the conversion or continuation selected in such
notice is to be effective, which shall comply with the applicable clause of
subsection (a) above;
(iii) if the Loans comprising such Group are to be converted, the new
type of Loans and, if the Loans
27
<PAGE>
being converted are to be Fixed Rate Loans, the duration of the next
succeeding Interest Period applicable thereto; and
(iv) if such Loans are to be continued as CD Loans or Euro-Dollar
Loans for an additional Interest Period, the duration of such additional
Interest Period.
Each Interest Period specified in a Notice of Interest Rate Election shall
comply with the provisions of the definition of Interest Period.
(c) Upon receipt of a Notice of Interest Rate Election from the
Borrower pursuant to subsection (a) above, the Administrative Agent shall
promptly notify each Bank of the contents thereof and such notice shall not
thereafter be revocable by the Borrower.
(d) An election by the Borrower to change or continue the rate of
interest applicable to any Group of Loans pursuant to this Section shall not
constitute a "Borrowing" subject to the provisions of Section 3.2.
SECTION 2.11. Mandatory Termination of Commitments. The Commitments
------------------------------------
shall terminate on the Termination Date and any Loans then outstanding (together
with accrued interest thereon) shall be due and payable on such date.
SECTION 2.12. Optional Prepayments. (a) Subject in the case of any
Fixed Rate Borrowing to Section 2.14, the Borrower may, upon at least one
Domestic Business Day's notice to the Administrative Agent, prepay any Group of
Domestic Loans (or any Money Market Borrowing bearing interest at the Base Rate
pursuant to Section 8.1) or upon at least three Euro-Dollar Business Days'
notice to the Administrative Agent, prepay any Group of Euro-Dollar Loans, in
each case in whole at any time, or from time to time in part in amounts
aggregating $10,000,000 or any larger multiple of $1,000,000, by paying the
principal amount to be prepaid together with accrued interest thereon to the
date of prepayment. Each such optional prepayment shall be applied to prepay
ratably the Loans of the several Banks included in such Group.
(b) Except as provided in subsection (a) above, no Borrower may
prepay all or any portion of the principal amount of any Money Market Loan prior
to the maturity thereof.
28
<PAGE>
(c) Upon receipt of a notice of prepayment pursuant to this Section,
the Administrative Agent shall promptly notify each Bank of the contents thereof
and of such Bank's ratable share (if any) of such prepayment and such notice
shall not thereafter be revocable by the Borrower.
SECTION 2.13. General Provisions as to Payments.
---------------------------------
(a) The Borrowers shall make each payment of principal of, and interest on, the
Loans and of fees hereunder, not later than 12:00 Noon (New York City time) on
the date when due, in Federal or other funds immediately available in New York
City, to the Administrative Agent at its address referred to in Section 9.1. The
Administrative Agent will promptly distribute to each Bank its ratable share of
each such payment received by the Administrative Agent for the account of the
Banks. Whenever any payment of principal of, or interest on, the Domestic Loans
or of fees shall be due on a day which is not a Domestic Business Day, the date
for payment thereof shall be extended to the next succeeding Domestic Business
Day. Whenever any payment of principal of, or interest on, the Euro-Dollar Loans
shall be due on a day which is not a Euro-Dollar Business Day, the date for
payment thereof shall be extended to the next succeeding Euro-Dollar Business
Day unless Euro-Dollar Business Day falls in another calendar month, in which
case the date for payment thereof shall be the next preceding Euro-Dollar
Business Day. Whenever any payment of principal of, or interest on, the Money
Market Loans shall be due on a day which is not a Euro-Dollar Business Day, the
date for payment thereof shall be extended to the next succeeding Euro-Dollar
Business Day. If the date for any payment of principal is extended by operations
of law or otherwise, interest thereon shall be payable for such extended time.
(b) Unless the Administrative Agent shall have received notice from a
Borrower prior to the date on which any payment is due from such Borrower to the
Banks hereunder that such Borrower will not make such payment in full, the
Administrative Agent may assume that such Borrower has made such payment in full
to the Administrative Agent on such date and the Administrative Agent may, in
reliance upon such assumption, cause to be distributed to each Bank on such due
date an amount equal to the amount then due such Bank. If and to the extent that
such Borrower shall not have so made such payment, each Bank shall repay to the
Administrative Agent forthwith on demand such amount distributed to such Bank
together with interest thereon, for each day from the date such account is
distributed to such Bank until the date such Bank repays such amount to the
Administrative Agent, at the Federal Funds Rate.
29
<PAGE>
SECTION 2.14. Funding Losses. If a Borrower makes any payment of
--------------
principal with respect to any Fixed Rate Loan or any Fixed Rate Loan is
converted (pursuant to Article 2, 6, or 8 or otherwise) on any day other than
the last day of an Interest Period applicable thereto, or the last day of an
applicable period fixed pursuant to Section 2.7(d), or if a Borrower fails to
borrow, prepay, convert or continue any Fixed Rate Loans after notice has been
given to any Bank in accordance with Section 2.4(a), 2.12(c) or 2.10(c), such
Borrower shall reimburse each Bank within 15 days after demand for any resulting
loss or expense incurred by it (or by an existing or prospective Participant in
the related Loan), including (without limitation) any loss incurred in
obtaining, liquidating or employing deposits from third parties, but excluding
loss of margin for the period after any such payment or conversion or failure to
borrow, prepay, convert or continue, provided that such Bank shall have
--------
delivered to such Borrower a certificate as to the amount of such loss or
expense, which certificate shall be conclusive in the absence of manifest error.
SECTION 2.15. Computation of Interest and Fees. Interest based on
--------------------------------
the Prime Rate hereunder shall be computed on the basis of a year of 365 days
(or 366 days in a leap year) and paid for the actual number of days elapsed
(including the first day but excluding the last day). All other interest and
fees shall be computed on the basis of a year of 360 days and paid for the
actual number of days elapsed (including the first day but excluding the last
day).
SECTION 2.16. Regulation D Compensation. Each Bank may require the
-------------------------
Borrower to pay, contemporaneously with each payment of interest on the
Euro-Dollar Loans, additional interest on the related Euro-Dollar Loan of such
Bank at a rate per annum determined by such Bank up to but not exceeding the
excess of (i) (A) the applicable London Interbank Offered Rate divided by (B)
one minus the Euro-Dollar Reserve Percentage over (ii) the applicable London
-----
Interbank Offered Rate. Any Bank wishing to require payment of such additional
interest (x) shall so notify the Borrower and the Administrative Agent, in which
case such additional interest on the Euro-Dollar Loans of such Bank shall be
payable to such Bank at the place indicated in such notice with respect to each
Interest Period commencing at least three Euro-Dollar Business Days after the
giving of such notice and (y) shall notify the Borrower at least five
Euro-Dollar Business Days prior to each date on which interest is payable on the
Euro-Dollar Loans of the amount then due it under this Section.
30
<PAGE>
ARTICLE 3
CONDITIONS
SECTION 3.1. Closing. The closing hereunder shall occur on or after the
-------
Effective Date upon receipt by the Administrative Agent of the following
documents, each dated the Closing Date unless otherwise indicated:
(a) a duly executed Note of each Borrower for the account of each Bank,
dated on or before the Closing Date and complying with the provisions of
Section 2.5;
(b) an opinion of Druen, Rath & Dietrich, counsel for the Borrowers,
substantially in the form of Exhibit E hereto and covering such additional
matters relating to the transactions contemplated hereby as the Required
Banks may reasonably request;
(c) an opinion of Davis Polk & Wardwell, special counsel for the
Administrative Agent, substantially in the Form of Exhibit F hereto and
covering such additional matters relating to the transactions contemplated
hereby as the Required Banks may reasonably request:; and
(d) all documents the Administrative Agent may reasonably request
relating to the existence of the Borrowers, the corporate authority for and
the validity this Agreement and the Notes, and any other matters relevant
all in form and substance satisfactory to the Administrative Agent.
The Administrative Agent shall promptly notify the Borrowers and the Banks of
the Closing Date, and such notice shall be conclusive and binding on all parties
hereto.
SECTION 3.2. Borrowings. The obligation of any Bank to make a Loan on
----------
the occasion of any Borrowing is subject to the satisfaction of the following
conditions:
(a) the fact that the Closing Date shall have occurred on or prior to
August 25, 1996;
(b) receipt by the Administrative Agent of a Notice of Borrowing as
required by Section 2.2 or 2.3, as the case may be;
31
<PAGE>
(c) the fact that, immediately after such Borrowing, the aggregate
outstanding principal amount of the Loans will not exceed the aggregate
amount of the Commitments;
(d) the fact that, immediately before and after such Borrowing, no
Default with respect to the Borrower shall have occurred and be continuing;
and
(e) the fact that the representations and warranties of the Borrower
contained in this Agreement (except, unless the Borrowing is taking place
on the Closing Date, the representations and warranties set forth in
Sections 4.4(b) and 4.5 as to any matter which has been disclosed in
writing by the Borrower to the Banks) shall be true and correct on and as
of the date of such Borrowing.
Each Borrowing hereunder shall be deemed to be a representation and warranty by
the Borrower on the date of such Borrowing as to the facts specified in clauses
(c), (d) and (e) of this Section.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
Each Borrower severally represents and warrants that:
SECTION 4.1. Corporate Existence and Power. (a) In the case of
-----------------------------
Nationwide Mutual, such Borrower is a mutual insurance company duly
incorporated, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, and has all corporate powers and all material
governmental licenses, authorizations, consents and approvals required to carry
on its business as now conducted.
(b) In the case of Nationwide Life, such Borrower is an insurance
company duly incorporated, validly existing and in good standing under the laws
of the jurisdiction of its incorporation, and has all corporate powers and all
material governmental licenses, authorizations, consents and approvals required
to carry on its business as now conducted.
32
<PAGE>
SECTION 4.2. Corporate and Governmental Authorization; No
--------------------------------------------
Contravention. The execution, delivery and performance by such Borrower of this
- -------------
Agreement and its Notes are within the corporate powers of such Borrower, have
been duly authorized by all necessary corporate action, require no action by or
in respect of, or filing with, any governmental body, agency or official and do
not contravene, or constitute a default under, any provision of applicable law
or regulation or of the certificate of incorporation or by-laws of such Borrower
or of any agreement, judgment, injunction, order, decree or other instrument
binding upon such Borrower or any of its Subsidiaries or result in the creation
or imposition of any Lien on any asset of such Borrower or any of its
Subsidiaries.
SECTION 4.3. Binding Effect. This Agreement constitutes a valid and
--------------
binding agreement of such Borrower and each Note, when executed and delivered in
accordance with this Agreement, will constitute a valid and binding obligation
of the relevant Borrower, in each case enforceable in accordance with its terms.
SECTION 4.4. Financial Information. (a) The respective financial
---------------------
statements of such Borrower (and, when applicable, its Subsidiaries and
affiliates) heretofore delivered to the Banks fairly present the financial
condition and results of operations of such Borrower at the dates and for the
periods covered thereby on the basis set forth therein.
(b) Since the date of the most recent financial statements of such
Borrower delivered prior to the date hereof, there has been no material adverse
change in the business, financial position, results of operations or prospects
of such Borrower.
SECTION 4.5. Litigation. There is no action, suit or proceeding
----------
pending against, or to the knowledge of such Borrower threatened against or
affecting, such Borrower or any of its Subsidiaries before any court or
arbitrator or any governmental body, agency or official in which there is a
reasonable possibility of an adverse decision which could materially adversely
affect the business, financial position or results of operations of such
Borrower or which in any manner draws into question the validity or
enforceability of this Agreement or the Notes.
SECTION 4.6. Compliance with ERISA. Each member of the ERISA Group
---------------------
of such Borrower has fulfilled its obligations under the minimum funding
standards of ERISA and the Internal Revenue Code with respect to each Plan and
is
33
<PAGE>
in compliance in all material respects with the presently applicable provisions
of ERISA and the Internal Revenue Code with respect to each Plan. No member of
such ERISA Group has (i) sought a waiver of the minimum funding standard under
Section 412 of the Internal Revenue Code in respect of any Plan, (ii) failed to
make any contribution or payment to any Plan or Multiemployer Plan or in respect
of any Benefit Arrangement, or made any amendment to any Plan or Benefit
Arrangement, which has resulted or could result in the imposition of a Lien or
the posting of a bond or other security under ERISA or the Internal Revenue Code
or (iii) incurred any liability under Title IV of ERISA other than a liability
to the PBGC for premiums under Section 4007 of ERISA.
SECTION 4.7. Environmental Matters. In the ordinary course of its
---------------------
business, such Borrower conducts an ongoing review of the effect of
Environmental Laws on the business, operations and properties of such Borrower,
in the course of which it identifies and evaluates associated liabilities and
costs (including, without limitation, any capital or operating expenditures
required for clean-up or closure of properties presently or previously owned,
any capital or operating expenditures required to achieve or maintain
compliance with environmental protection standards imposed by law or as a
condition of any license, permit or contract, any related constraints on
operating activities, including any periodic or permanent shutdown of any
facility or reduction in the level of or change in the nature of operations
conducted thereat, any costs or liabilities in connection with off-site
disposal of wastes or Hazardous Substances, and any actual or potential
liabilities to third parties, including employees, and any related costs and
expenses. On the basis of this review, such Borrower has reasonably concluded
that such associated liabilities and costs, including the costs of compliance
with Environmental Laws, are unlikely to have a material adverse effect on the
business, financial condition, results of operations or prospects of such
Borrower.
SECTION 4.8. Taxes. Such Borrower and its Subsidiaries have filed
-----
all United States Federal income tax returns and all other material tax returns
which are required to be filed by them and have paid all taxes due pursuant to
such returns or pursuant to any assessment received by such Borrower or any
Subsidiary. The charges, accruals and reserves on the books of such Borrower
and its Material Subsidiaries in respect of taxes or other governmental charges
are, in the opinion of such Borrower, adequate.
34
<PAGE>
SECTION 4.9. Material Subsidiaries. Each of such Borrower's
---------------------
Material Subsidiaries is duly organized, validly existing and in good standing
under the laws of its jurisdiction of organization, and has all necessary powers
and all material governmental licenses, authorizations, consents and approvals
required to carry on its business as now conducted.
SECTION 4.10. Regulatory Restrictions on Borrowing. Such Borrower is
------------------------------------
not an "investment company" within the meaning of the Investment Company Act of
1940, as amended, a "holding company" within the meaning of the Public Utility
Holding Company Act of 1935, as amended, or otherwise subject to any regulatory
scheme which restricts its ability to incur debt.
SECTION 4.11. Full Disclosure. All information heretofore furnished
---------------
by or in respect of such Borrower to the Administrative Agent or any Bank for
purposes of or in connection with this Agreement or any transaction contemplated
hereby is, and all such information hereafter furnished by or in respect of such
Borrower to the Administrative Agent or any Bank will be, true and accurate in
all material respects on the date as of which such information is stated or
certified. Such Borrower has disclosed to the Banks in writing any and all
facts which materially and adversely affect or may affect (to the extent such
Borrower can now reasonably foresee), the business, operations or financial
condition of such Borrower or the ability of such Borrower to perform its
obligations under this Agreement.
ARTICLE 5
COVENANTS
Each Borrower severally agrees that, so long as any Bank has any
Commitment hereunder or any amount payable by such Borrower under any Note
remains unpaid:
SECTION 5.1. Information. Such Borrower will deliver to each of the
-----------
Banks:
(a) as soon as available and in any event within 90 days after the
each fiscal year of such Borrower,
(i) in the case of each Borrower, the Annual Statement of such
Borrower as of the end of such
35
<PAGE>
fiscal year in the form submitted to the Insurance Department of the
State of Ohio;
(ii) in the case of Nationwide Life, the consolidated financial
statements of Nationwide Life and its consolidated Subsidiaries as of
the end of such fiscal year, setting forth in each case in comparative
form the figures for the previous fiscal year, all reported on in a
manner consistent with generally accepted accounting principles in the
United States by KPMG Peat Marwick LLP or other independent public
accountants of nationally recognized standing; and
(iii) in the case of Nationwide Mutual, the Combined Annual
Statement of the Nationwide Mutual Insurance Company and its Affiliated
Property and Casualty Insurances as of the end of such fiscal year, in
the form submitted to the Insurance Department of the State of Ohio;
(b) as soon as available and in any event within 60 days after the end
of each of the first three quarters of each fiscal year of such Borrower, the
quarterly statement of such Borrower as of the end of such fiscal quarter in the
form submitted to the Insurance Department of the State of Ohio;
(c) simultaneously with the delivery of each statement referred to in
clauses (a) and (b) above, a certificate of the chief financial officer or the
chief accounting officer of such Borrower stating whether any Default exists on
the date of such certificate and, if any Default then exists, setting forth the
details thereof and the action which such Borrower is taking or proposes to take
with respect thereto;
(d) within five Domestic Business Days after any officer of such
Borrower obtains knowledge of any Default, if such Default is then continuing, a
certificate of the chief financial officer or the chief accounting officer of
such Borrower setting forth the details thereof and the action which such
Borrower is taking or proposes to take with respect thereto;
(e) in the event that such Borrower becomes subject to the periodic
reporting requirements of the Securities Exchange Act of 1934 (as amended),
promptly upon the mailing thereof to securityholders of the Borrower generally,
copies of all financial statements, reports and proxy statements so mailed;
36
<PAGE>
(f) within five Domestic Business Days after the receipt thereof by
the Borrower, any written communication from the Insurance Department of
the State of Ohio which questions in any material respect the financial
soundness of the Borrower; and
(g) from time to time such additional information regarding the
financial position or business of the Borrower as the Administrative Agent,
at the request of any Bank, may reasonably request.
SECTION 5.2. Maintenance of Property; Insurance. (a) Such Borrower
----------------------------------
will keep, and will cause each of its Subsidiaries to keep, all property useful
and necessary in its business in good working order and condition, ordinary wear
and tear excepted.
(b) Such Borrower will maintain, and will cause each of its
Subsidiaries to maintain (either in the name of such Borrower or in such
Subsidiary's own name) with financially sound and responsible insurance
companies, insurance on all their respective properties in at least such
amounts, against at least such risks and with such risk retention as are usually
maintained, insured against or retained, as the case may be, in the same general
area by companies of established repute engaged in the same or a similar
business, and will furnish to the Banks, upon request from the Administrative
Agent, information presented in reasonable detail as to the insurance so
carried; provided that such Borrower may self-insure such risks to the extent it
--------
deems it prudent to do so.
SECTION 5.3. Conduct of Business and Maintenance of Existence. Such
------------------------------------------------
Borrower will continue, and will cause each of its Subsidiaries to continue, to
engages in the insurance business and will preserve, renew and keep in full
force and effect, and will cause each such Subsidiary to preserve, renew and
keep in full force and effect their respective corporate existence and their
respective rights, privileges and franchises necessary or desirable in the
normal conduct of business; provided that nothing in this Section 5.3 shall
--------
prohibit any consolidation, merger, sale, lease or other transfer permitted
under Section 5.5.
SECTION 5.4. Compliance with Laws. Such Borrower will comply, and
--------------------
will cause each of its Subsidiaries to comply, in all material respects with all
applicable laws, ordinances, rules, regulations, and requirements of
governmental authorities (including, without limitation, Environmental Laws and
ERISA and the rules and regulations thereunder) except where the necessity of
compliance
37
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therewith is contested in good faith by appropriate proceedings.
SECTION 5.5. Mergers and Sales of Assets. Such Borrower will not (i)
---------------------------
consolidate or merge with or into any other Person or (ii) sell, lease or
otherwise transfer, directly or indirectly, all or any substantial part of the
assets of such Borrower and its Subsidiaries, taken as a whole, to any other
Person; provided that the Borrower may merge with another Person if (x) such
--------
Borrower is the corporation surviving such merger and (y) after giving effect to
such merger, no Default shall have occurred and be continuing.
SECTION 5.6. Use of Proceeds. The proceeds of the Loans made under
---------------
this Agreement will be used by such Borrower for general corporate purposes.
None of such proceeds will be used, directly or indirectly, for the purpose,
whether immediate, incidental or ultimate, of buying or carrying any "margin
stock" within the meaning of Regulation U.
SECTION 5.7. Minimum Statutory Surplus. (a) In the case of
-------------------------
Nationwide Mutual, its Statutory Surplus shall at no time be less than
$2,750,000,000.
(b) In the case of Nationwide Life, its Statutory Surplus shall at no
time be less than $875,000,000.
SECTION 5.8. Negative Pledge. Neither such Borrower nor any Subsidiary
---------------
of such Borrower will create, assume or suffer to exist any Lien on any asset
now owned or hereafter acquired by it, except:
(a) Liens existing on the date of this Agreement securing Debt
outstanding on the date of this Agreement in an aggregate principal or face
amount not exceeding (i) in the case of Nationwide Mutual, $10,000,000 and
(ii) in the case of Nationwide Life, $10,000,000;
(b) any Lien existing on any asset of any Person at the time such
Person becomes its Subsidiary and not created in contemplation of such
event;
(c) any Lien on any asset securing Debt incurred or assumed for the
purpose of financing all or any part of the cost of acquiring such asset,
provided that such Lien attaches to such asset concurrently with or within
--------
90 days after the acquisition thereof;
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(d) any Lien on any asset of any Person existing at the time such
Person is merged or consolidated with or into such Borrower or its
Subsidiary and not created in contemplation of such event;
(e) any Lien existing on any asset prior to the acquisition thereof
by such Borrower or its Subsidiary and not created in contemplation of
such acquisition;
(f) any Lien arising out of the refinancing, extension, renewal or
refunding of any Debt secured by any Lien permitted by any of the
foregoing clause of this Section, provided that such Debt is not increased
--------
and is not secured by an additional assets;
(g) any Lien which arises by operation of law (including, without
limitation, preferences given to insurance policyholders under law);
(h) Liens arising in the ordinary course of its business which (i) do
not secure Debt or Derivatives Obligations, (ii) do not secure any
obligation in an amount exceeding $25,000,000 and (iii) do not in the
aggregate materially detract from the value of its assets or materially
impair the use thereof in the operation of its business;
(i) Liens on cash and cash equivalents securing Derivatives
Obligations, provided that the aggregate amount of cash and cash
equivalents subject to such Liens may at no time exceed $25,000,000; and
(j) Liens not otherwise permitted by the foregoing clauses of this
Section securing Debt in an aggregate principal or face amount at any date
not to exceed 5% of such Borrower's Statutory Surplus.
SECTION 5.9. Transaction with Affiliates. Such Borrower will not,
---------------------------
and will not permit any of its Subsidiaries to, directly or indirectly, pay
any funds to or for the account of, make any investment (whether by acquisition
of stock or indebtedness, by loan, advance, transfer of property, guarantee or
other agreement to pay, purchase or service, directly or indirectly, any Debt,
or otherwise) in, lease, sell, transfer or otherwise dispose of any assets,
tangible or intangible, to, or participate in, or effect, any transaction with,
any Affiliate except on an arms-length basis on terms at least as favorable to
such Borrower or such Subsidiary as could have been obtained from a third party
who was not an Affiliate; provided that the
--------
39
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foregoing provisions of this Section shall not prohibit any such Person from
declaring or paying any lawful dividend or other payment ratably in respect of
all of its capital stock of the relevent class so long as, after giving effect
thereto, no Default in respect of such Borrower shall have occurred and be
continuing.
ARTICLE 6
DEFAULTS
SECTION 6.1. Events of Default. If one or more of the following
-----------------
events ("Events of Default") shall have occurred and be continuing with respect
to any Borrower:
(a) such Borrower shall fail to pay when due any principal of any
Loan or any interest, any fees or any other amount payable by it hereunder;
(b) such Borrower shall fail to observe or perform any covenant
contained in Article 5, other than those contained in Sections 5.1 through
5.4;
(c) such Borrower shall fail to observe or perform any covenant or
agreement contained in this Agreement (other than those covered by clause
(a) or (b) above) for 10 days after notice thereof has been given to such
Borrower by the Administrative Agent at the request of any Bank;
(d) any representation, warranty, certification or statement made by
such Borrower in this Agreement or in any certificate, financial statement
or other document delivered pursuant to this Agreement shall prove to have
been incorrect in any material respect when made or deemed made;
(e) such Borrower or any of its Material Affiliates shall fail to make
any payment in respect of any Material Financial Obligations when due or
within any applicable grace period;
(f) any event or condition shall occur which results in the
acceleration of the maturity of any Material Debt of such Borrower or any
of its Material Affiliates or enables (or, with the giving of notice or
lapse of time or both, would enable) the holder of such Debt or any Person
acting on such holder's behalf to accelerate the maturity thereof;
40
<PAGE>
(g) such Borrower or any of its Material Affiliated shall commence a
voluntary case or other proceeding seeking liquidation, reorganization or other
relief with respect to itself or its debts under any bankruptcy, insolvency or
other similar law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official of it or any
substantial part of its property, or shall consent to any such relief or to the
appointment of or taking possession by any such official in an involuntary case
or other proceeding commenced against it, or shall make a general assignment for
the benefit of creditors, or shall fail generally to pay its debts as they
become due, or shall take any corporate action to authorize any of the
foregoing;
(h) an involuntary case or other proceeding shall be commenced against
such Borrower or any of its Material Affiliates seeking liquidation,
reorganization or other relief with respect to it or its debts under any
bankruptcy, insolvency or other, similar law now or hereafter in effect or
seeking the appointment of a trustee, receiver, liquidator, custodian or other
similar official of it or any substantial part of its property, and such
involuntary case or other proceeding shall remain undismissed and unstayed for a
period of 60 days; or an order for relief shall be entered against such Borrower
or any of its Material Affiliates under the federal bankruptcy laws as now or
hereafter in effect;
(i) a decree or order of a court or agency or supervisory authority
having jurisdiction in the premises for the appointment of a conservator or
receiver or liquidator in any insolvency proceedings, readjustment of debt,
marshalling of assets and liabilities or similar proceedings affecting such
Borrower or any of its Material Affiliates or all or substantially all of their
respective property, or for the winding-up or liquidation of their respective
affairs, shall have been entered, or such Borrower or any of its Material
Affiliates shall consent to the appointment of a conservator or receiver or
liquidator in any insolvency, readjustment of debt, marshalling of assets and
liabilities or similar proceedings affecting such Borrower or Material Affiliate
or all or substantially all of their respective property (including, in either
case, without limitation, the commencement of proceedings for the rehabilitation
or liquidation of such Borrower or any of its Material
41
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Affiliates in accordance with the applicable provisions of Chapter 3903 of
the Ohio Insurance Code);
(j) any member of the ERISA Group of such Borrower shall fail to pay
when due an amount or amounts aggregating in excess of $5,000,000 which it
shall have become liable to pay to the PBGC or to a Plan under Title IV of
ERISA; or notice of intent to terminate a Material Plan shall be filed under
Title IV of ERISA by any member of such ERISA Group, any plan administrator
or any combination of the foregoing; or the PBGC shall institute proceedings
under Title IV of ERISA to terminate, to impose liability (other than for
premiums under Section 4007 of ERISA) in respect of, or to cause a trustee
to be appointed to administer any Material Plan; or a condition shall exist
by reason of which the PBGC would be entitled to obtain a decree
adjudicating that any Material Plan must be terminated; or there shall occur
a complete or partial withdrawal from, or a default, within the meaning of
Section 4219(c)(5) of ERISA, with respect to, one or more Multiemployer
Plans which could cause one or more members of such ERISA Group to incur a
current payment obligation in excess of $5,000,000;
(k) the rights, privileges or franchises of such Borrower or any of
its Material Affiliates to do business shall be declared forfeited by any
governmental authority or any court of competent jurisdiction where the loss
of such rights, privileges or franchises would have a material adverse
effect on the ability of such Borrower to meet its obligations under this
Agreement or the Notes;
(l) judgments or orders for the payment of money in excess of 3% of
such Borrower's Statutory Surplus shall be rendered against such Borrower or
any of its Material Affiliates and such judgments or orders shall continue
unsatisfied and unstayed for a period of 10 days;
(m) in the case of Nationwide Life, it shall cease to be Subsidiary of
Nationwide Mutual; or
(n) in the case of Nationwide Mutual, it shall cease to be mutual
insurance company;
then, and in every such event, the Administrative Agent shall (i) if requested
by Banks having more than 50% in aggregate amount of the Commitments, by notice
to such
42
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Borrower terminate the Commitments as to such Borrower and they shall thereupon
terminate as to such Borrower, and (ii) if requested by Banks holding more than
50% of the aggregate principal amount of the Loans outstanding to such Borrower,
by notice to such Borrower declare such Loans (together with accrued interest
thereon) to be, and such Loans (together with accrued interest thereon) shall
thereupon become, immediately due and payable without presentment, demand,
protest or other notice of any kind, all of which are hereby waived by each
Borrower; provided that in the case of any of the Events of Default specified in
--------
clause 6.1(g), 6.1(h) or 6.1(i) above with respect to such Borrower, without any
notice to such Borrower or any other act by the Administrative Agent or the
Banks, the Commitments shall thereupon terminate as to such Borrower and the
Loans outstanding to such Borrower (together with accrued interest thereon)
shall become immediately due and payable without presentment, demand, protest or
other notice of any kind, all of which are hereby waived by each Borrower.
Termination of the Commitments as to either Borrower under this Section 6.1
shall not terminate the Commitments as to the other Borrower.
SECTION 6.2. Notice of Default. The Administrative Agent shall give
-----------------
notice to a Borrower under Section 6.1(c) promptly upon being requested to do so
by any Bank and shall thereupon notify all the Banks thereof.
ARTICLE 7
THE ADMINISTRATIVE AGENT
SECTION 7.1. Appointment and Authorization. Each Bank irrevocably
-----------------------------
appoints and authorizes the Administrative Agent to take such action as agent on
its behalf and to exercise such powers under this Agreement and the Notes as are
delegated to the Administrative Agent by the terms hereof or thereof, together
with all such powers as are reasonably incidental thereto.
SECTION 7.2. Administrative Agent and Affiliates. Morgan Guaranty
-----------------------------------
Trust Company of New York shall have the same rights and powers under this
Agreement as any other Bank and may exercise or refrain from exercising the same
as though it were not the Administrative Agent, and Morgan Guaranty Trust
Company of New York and its affiliates may accept deposits from, lend money to,
and generally engage in any kind of business with either Borrower or any
Subsidiary
43
<PAGE>
or affiliate of either Borrower as if it were not the Administrative Agent.
SECTION 7.3. Action by Administrative Agent. The obligations of the
------------------------------
Administrative Agent hereunder are only those expressly set forth herein.
Without limiting the generality of the foregoing, the Administrative Agent shall
not be required to take any action with respect to any Default, except as
expressly provided in Article 6.
SECTION 7.4. Consultation with Experts. The Administrative Agent may
-------------------------
consult with legal counsel (who may be counsel for any Borrower), independent
public accountants and other experts selected by it and shall not be liable for
any action taken or omitted to be taken by it in good faith in accordance with
the advice of such counsel, accountants or experts.
SECTION 7.5. Liability of Administration Agent. Neither the
---------------------------------
Administrative Agent nor any of its affiliates nor any of their respective
directors, officers, agents or employees shall be liable for any action, taken
or not taken by it in connection herewith (i) with the consent or at the request
of the Required Banks (or, when expressly required hereby, all the Banks) or
(ii) in the absence of its own gross negligence or willful misconduct. Neither
the Administrative Agent nor any of its affiliates nor any of their respective
directors, officers, agents or employees shall be responsible for or have any
duty to ascertain, inquire into or verify (i) any statement, warranty or
representation made in connection with this Agreement or any borrowing
hereunder; (ii) the performance or observance of any of the covenants or
agreements of any Borrower; (iii) the satisfaction of any condition specified in
Article 3, except receipt of items required to be delivered to the
Administrative Agent; or (iv) the validity, effectiveness or genuineness of this
Agreement, the Notes or any other instrument or writing furnished in connection
herewith. The Administrative Agent shall not incur any liability by acting in
reliance upon any notice, consent, certificate, statement, or other writing
(which may be a bank wire, telex, facsimile transmission or similar writing)
believed by it to be genuine or to be signed by the proper party or parties.
SECTION 7.6. Indemnification. Each Bank shall, ratably in accordance
---------------
with its Commitment, indemnify the Administrative Agent, its affiliates and
their respective directors, officers, agents and employees (to the extent
not reimbursed by the Borrowers) against any cost, expense (including counsel
fees and disbursements), claim, demand,
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<PAGE>
action, loss or liability (except such as result from such indemnitees' gross
negligence or willful misconduct) that such indemnities may suffer or incur in
connection with this Agreement or any action taken or omitted by such
indemnities hereunder.
SECTION 7.7. Credit Decision. Each Bank acknowledges that it has,
---------------
independently and without reliance upon the Administrative Agent or any other
Bank, and based on such documents and information as it has deemed appropriate,
made its own credit analysis and decision to enter into this Agreement. Each
Bank also acknowledges that it will, independently and without reliance upon the
Administrative Agent or any other Bank, and based on such documents, and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking any action under this Agreement.
SECTION 7.8. Successor Administrative Agent. The Administrative Agent
------------------------------
may resign at any time by giving notice thereof to the Banks and the Borrowers.
Upon any such resignation, the Required Banks shall have the right to appoint a
successor Administrative Agent. If no successor Administrative Agent shall have
been so appointed by the Required Banks, and shall have accepted such
appointment, within 30 days after the retiring Administrative Agent may, on
behalf of the Banks, appoint a successor Administrative Agent, which shall be a
commercial bank organized or licensed under the laws of the United States of
America or of any State thereof and having a combined capital and surplus of at
least $100,000,000. Upon the acceptance of its appointment as Administrative
Agent hereunder by a successor Administrative Agent, such successor
Administrative Agent shall thereupon succeed to and become vested with all the
rights and duties of the retiring Administrative Agent shall be discharged from
its duties and obligations hereunder. After any retiring Administrative Agent's
resignation hereunder as Administrative Agent, the provisions of this Article
shall inure to its benefit as to any actions taken or omitted to be taken by it
while it was Administrative Agent.
SECTION 7.9. Administrative Agent's Fee. The Borrowers shall pay to
--------------------------
the Administrative Agent for its own account fees in the amounts and at the
times previously agreed upon between the Borrowers and the Administrative Agent.
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ARTICLE 8
CHANGE IN CIRCUMSTANCES
SECTION 8.1. Basis for Determining Interest Rate Inadequate or Unfair.
--------------------------------------------------------
If on or prior to the first day of any Interest Period for any CD Loan,
Euro-Dollar Loan or Money Market LIBOR Loan:
(a) the Administrative Agent is advised by the Reference Banks that
deposits in dollars (in the applicable amounts) are not being offered to the
Reference Banks that deposits in dollars (in the applicable amounts) are not
being offered to the Reference Banks in the relevant market for such
Interest Period, or
(b) in the case of CD Loans or Euro-Dollar Loans, Banks having 50% or
more of the aggregate principal amount of the affected Loans advise the
Administrative Agent that the Adjusted CD Rate or the London Interbank
Offered Rate, as the case may be, as determined by the Administrative Agent
will not adequately and fairly reflect the cost to such Banks of funding
their CD Loans or Euro-Dollar Loans, as the case may be, for such Interest
Period,
the Administrative Agent shall forthwith give notice thereof to the Borrower and
the Banks, whereupon until the Administrative Agent notifies the Borrower that
the circumstances giving rise to such suspension no longer exist, (i) the
obligations of the Banks to make CD Loans or Euro-Dollar Loans, as the case may
be, or to continue or convert outstanding Loans as or into CD Loans or
Euro-Dollar Loans, as the case may be, shall be suspended and (ii) each
outstanding CD Loan or Euro-Dollar Loan, as the case may be, shall be converted
into a Base Rate Loan on the last day of the then current Interest Period
applicable thereto. Unless the Borrower notifies the Administrative Agent at
least two Domestic Business Days before the date of any Fixed Rate Borrowing for
which a Notice of Borrowing has previously been given that it elects not to
borrow on such date, (i) if such Fixed Rate Borrowing is a Committed Borrowing,
such Borrowing shall instead be made as a Base Rate Borrowing and (ii) if such
Fixed Rate Borrowing is a Money Market LIBOR Borrowing, the Money Market LIBOR
Loans comprising such Borrowing shall bear interest for each day from and
including the first day to but excluding the last day of the Interest Period
applicable thereto at the Base Rate for such day.
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<PAGE>
SECTION 8.2. Illegality. If, on or after the date of this Agreement.
----------
the adoption of any applicable law, rule or regulation, or any change in any
applicable law, rule or regulation, or any change in the interpretation or
administration thereof by any governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof, or compliance
by any Bank (or its Euro-Dollar Lending Office) with any request or directive
(whether or not having the force of law) of any such authority, central bank or
comparable agency shall make it unlawful or impossible for any Bank (or its
Euro-Dollar Lending Office) to make, maintain or fund its Euro-Dollar Loans to
either Borrower and such Bank shall so notify the Administrative Agent, the
Administrative Agent shall forthwith give notice thereof to the other Banks and
such Borrower, whereupon until such Bank notifies such Borrower and the
Administrative Agent that the circumstances giving rise to such suspension no
longer exist, the obligation of such Bank to make Euro-Dollar Loans to such
Borrower, or to convert outstanding Loans to such Borrower, or to convert
outstanding Loans to such Borrower into Euro-Dollar Loans, shall be suspended.
Before giving any notice to the Administrative Agent pursuant to this Section,
such Bank shall designate a different Euro-Dollar Lending Office if such
designation will avoid the need for giving such notice and will not, in the
judgment of such Bank, be otherwise disadvantageous to such Bank. If such notice
is given, each Euro-Dollar Loan of such Bank to such Borrower then outstanding
shall be converted to a Base Rate Loan either (a) on the last day of the then
current Interest Period applicable to such Euro-Dollar Loan if such Bank may
lawfully continue to maintain and fund such Loan to such day or (b) immediately
if such Bank shall determine that it may not lawfully continue to maintain and
fund such Loan to such day.
SECTION 8.3. Increased Cost and Reduced Return. (a) If on or after
---------------------------------
(x) the date hereof, in the case of any Committed Loan or any obligation to make
Committed Loans or (y) the date of the related Money Market Quote, in the case
of any Money Market Loan, the adoption of any applicable law, rule or
regulation, or any change in any applicable law, rule or regulation, or any
change in the interpretation or administration thereof by any governmental
authority, central bank or comparable agency charged with the interpretation of
administration thereof, or compliance by any Bank (or its Applicable Lending
Office) with any request or directive (whether or not having the force of law)
of any such authority, central bank or comparable agency shall impose, modify or
deem applicable any reserve (including, without limitation, any such requirement
imposed by the Board of Governors of the Federal Reserve System, but
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excluding (i) with respect to any CD Loan any such requirement included in an
applicable Domestic Reserve Percentage and (ii) with respect to any Euro-Dollar
Loan any such requirement with respect to which such bank is entitled to
compensation during the relevant Interest Period under Section 2.16), special
deposit, insurance assessment (excluding, with respect to any CD Loan, any such
requirement against assets of, deposits with or for similar requirement against
assets of, deposits with or for the account of, or credit extended by, any Bank
(or its Applicable Lending Office) or shall impose on any Bank (or its
Applicable Lending Office) or on the United States market for certification of
deposit or the London interbank market any other condition affecting its Fixed
Rate Loans and the result of any of the foregoing is to increase the cost to
such Bank (or its Applicable Lending Office) of making or maintaining any Fixed
Rate Loan, or to reduce the amount of any sum received or receivable by such
Bank (or its Applicable Lending Office) under this Agreement or under any of its
Notes with respect thereto, by an amount deemed by such Bank to be material,
then, within 15 days after demand by such Bank (with a copy to the
Administrative Agent), the Borrowers shall pay to such Bank such additional
amount or amounts as will compensate such Bank for such increased cost or
reduction. Each Borrower shall be severally liable for its Article 8 Share of
each such amount.
(b) If any Bank shall have determined that, after the date hereof, the
adoption of any applicable law, rule or regulation regarding capital adequacy,
or any change in any such law, rule or regulation, or any change in the
interpretation or administration thereof, or any request or directive regarding
capital adequacy (whether or not having the force of law) of any such authority,
central bank or comparable agency, has or would have the effect of reducing the
rate of return on capital of such Bank (or its Parent) as a consequence of such
Bank's obligations hereunder to a level below that which such Bank (or its
Parent) could have achieved but for such adoption, change, request or directive
(taking into consideration its policies with respect to capital adequacy) by an
amount deemed by such Bank to be material, then from time to time, within 15
days after demand by such Bank (with a copy to the Administrative Agent), the
Borrowers shall pay to such Bank such additional amount or amounts as will
compensate such Bank (or its Parent) for such reduction. Each Borrower
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<PAGE>
shall be severally liable for its Article 8 Share of each such amount.
(c) Each Bank will promptly notify the Borrowers and the
Administrative Agent of any event of which it has knowledge, occurring after the
date hereof, which will entitle such Bank to compensation pursuant to this
Section and will designate a different Lending Office if such designation will
avoid the need for, or reduce the amount of, such compensation and will not, in
the judgment of such Bank, be otherwise disadvantageous to such Bank. A
certificate of any Bank claiming compensation under this Section and setting
forth the additional amount or amounts to be paid to it hereunder shall be
conclusive in the absence of manifest error. In determining such amount, such
Bank may use any reasonable averaging and attribution methods.
(d) The "Article 8 Share" of any Borrower with respect to any amount
payable hereunder is the sum of (i) to the extent such amount is properly
allocable to Loans outstanding hereunder, the portion of such amount properly
allocable to the Loans outstanding to such Borrower and (ii) to the extent such
amount is not properly allocable to Loans outstanding hereunder, such Borrower's
Availability Percentage thereof.
SECTION 8.4. Taxes. (a) For the purposes of this Section 8.4, the
-----
following terms have the following meanings:
"Taxes" means any and all present or future taxes, duties, levies,
imposts, deductions, charges or withholdings with respect to any payment by any
Borrower pursuant to this Agreement or under any Note, and all liabilities with
respect thereto, excluding (i) in the case of each Bank and the Administrative
---------
Agent, taxes imposed on its income, and franchise or similar taxes imposed on
it, by a jurisdiction under the laws of which such Bank or the Administrative
Agent (as the case may be) is organized or in which its principal executive
office is located or, in the case of each Bank, in which its Applicable Lending
Office is located and (ii) in the case of each Bank, any United States
withholding tax imposed on such payments but only to the extent that such Bank
is subject to United States withholding tax at the time such Bank first becomes
a party to this Agreement.
"Other Taxes" means any present or future stamp or documentary taxes
and any other excise or property taxes, or similar charges or levies, which
arise from any payment made
49
<PAGE>
pursuant to this Agreement or under any Note or from the execution or delivery
of, or otherwise with respect to, this Agreement or any Note.
(b) Any and all payments by any Borrower to or for the account of any
Bank or the Administrative Agent hereunder or under any Note shall be made
without deduction for any Taxes or Other Taxes; provided that, if any Borrower
--------
shall be required by law to deduct any Taxes or Other Taxes from any such
payments, (i) the sum payable shall be increased as necessary so that after
making all required deductions (including deductions applicable to additional
sums payable under this Section) such Bank or the Administrative Agent (as the
case may be) receives an amount equal to the sum it would have received had no
such deductions been made, (ii) such Borrower shall make such deductions, (iii)
such Borrower shall pay the full amount deducted to the relevant taxation
authority or other authority in accordance with applicable law and (iv) such
Borrower shall furnish to the Administrative Agent, at its address referred to
in Section 9.1, the original or a certified copy of a receipt evidencing payment
thereof.
(c) The Borrowers agree to indemnify each Bank and the
Administrative Agent for the full amount of Taxes or Other Taxes (including,
without limitation, any Taxes or Other Taxes imposed or asserted by any
jurisdiction on amounts payable under this Section) paid by such Bank or the
Administrative Agent (as the case may be) and any liability (including
penalties, interest and expenses) arising therefrom or with respect thereto.
Each Borrower shall be severally liable for its Article 8 Share of each such
amount. This indemnification shall be paid within 15 days after such Bank or the
Administrative Agent (as the case may be) makes demand therefor.
(d) Each Bank organized under the laws of a jurisdiction outside the
United States, on or prior to the date of its execution and delivery of this
Agreement in the case of each Bank listed on the signature pages hereof and on
or prior to the date on which it becomes a Bank in the case of each other Bank,
and from time to time thereafter if requested in writing by the Borrowers (but
only so long as such Bank remains lawfully able to do so), shall provide the
Borrowers and the Administrative Agent with Internal Revenue Service form 1001
or 4224, as appropriate, or any successor form prescribed by the Internal
Revenue Service, certifying that such Bank is entitled to benefits under an
income tax treaty to which the United States is a party which exempts the Bank
from United States withholding tax or reduces the rate of withholding tax on
payments of interest for the
50
<PAGE>
account of such Bank or certifying that the income receivable pursuant to this
Agreement is effectively connected with the conduct of a trade or business in
the United States.
(e) For any period with respect to which a Bank has failed to provide
the Borrowers or the Administrative Agent with the appropriate form described in
Section 8.4(d) (unless such failure is due to a change in treaty, law or
regulation occurring subsequent to the date on which such form originally was
required to be provided), such Bank shall not be entitled to indemnification
under Section 8.4(b) or (c) with respect to Taxes imposed by the United States;
provided that if a Bank, which is otherwise exempt from or subject to a reduced
- --------
rate of withdrawal tax, becomes subject to Taxes because of its failure to
deliver a form required hereunder, the Borrowers shall take such steps as such
Bank shall reasonably request to assist such Bank to recover such Taxes.
(f) If any Borrower is required to pay additional amounts to or for the
account of any Bank pursuant to this Section, then such Bank will change the
jurisdiction of its Applicable Lending Office if, in the judgement of such Bank,
such change (i) will eliminate or reduce any such additional payment which may
thereafter accrue and (ii) is not otherwise disadvantageous to such Bank.
SECTION 8.5. Base Rate Loans Substituted for Affected Fixed Rate Loans.
---------------------------------------------------------
If (i) the obligation of any Bank to make, or convert outstanding Loans to,
Euro-Dollar Loans has been suspended pursuant to Section 8.2 or (ii) any Bank
has demanded compensation under Section 8.3 or 8.4 with respect to its CD Loans
or Euro-Dollar Loans and a Borrower shall, by at least five Euro-Dollar Business
Day's prior notice to such Bank through the Administrative Agent, have elected
that the provisions of this Section shall apply to such Bank with respect to
such Borrower, then, unless and until such Bank notifies such Borrower that the
circumstances giving rise to such suspension or demand for compensation no
longer exist:
(a) all Loans which would otherwise be made by such Bank to such
Borrower as (or continued as or converted into) CD Loans or Euro-Dollar
Loans, as the case may be, shall instead be Base Rate Loans (on which
interest and principal shall be payable contemporaneously with the related
Fixed Rate Loans of the other Banks); and
51
<PAGE>
(b) after each of its CD Loans or Euro-Dollar Loans, as the case may
be, to such Borrower has been repaid (or converted to a Base Rate Loan),
all payments or principal which would otherwise be applied to repay such
Fixed Rate Loans shall be applied to repay its Base Rate Loans to such
Borrower instead.
If such Bank notifies such Borrower that the circumstances giving rise to such
notice no longer apply, the principal amount of each such Base Rate Loan shall
be converted into a CD Loan or Euro-Dollar Loan, as the case may be, on the
first day of the next succeeding Interest Period applicable to the related CD
Loans or Euro-Dollar Loans of the other Banks.
SECTION 8.6. Substitution of Bank. If (a) the obligation of any
--------------------
Bank to make Loans has been suspended pursuant to Section 8.2 or (b) any Bank
has demanded compensation under Section 8.3 or 8.4, the Borrowers, acting
jointly, shall have the right to seek a substitute financial institution or
institutions (which may be one or more of the Banks) to purchase the Notes and
assume the Commitment of such Bank pursuant to Section 9.6(c).
ARTICLE 9
MISCELLANEOUS
SECTION 9.1. Notices. All notices, requests and other
-------
communications to any party hereunder shall be in writing (including bank wire,
telex, facsimile transmission or similar writing) and shall be given to such
party: (a) in the case of any Borrower or the Administrative Agent, at its
address, facsimile number or telex number set forth on the signature pages
hereof, (b) in the case of any Bank, at its address, facsimile number or telex
number set forth in its Administrative Questionnaire or (c) in the case of any
party, such other address, facsimile number or telex number as such party may
hereafter specify for the purpose by notice to the Administrative Agent and the
Borrowers. Each such notice, request or other communication shall be effective
(i) if given by telex, when such telex is transmitted to the telex number
specified in this Section and the appropriate answerback is received, (ii) if
given by facsimile transmission, when transmitted to the facsimile number
specified in this Section and confirmation of receipt is received, (iii) if
given by mail, 72 hours after such communication is deposited in the mails with
first class postage prepaid, addressed as aforesaid or (iv) if given by
52
<PAGE>
any other means, when delivered at the address specified in this Section;
provided that notices to the Administrative Agent under Article 2 or Article 8
- --------
shall not be effective until received.
SECTION 9.2. No Waivers. No failure or delay by the Administrative
----------
Agent or any Bank in exercising any right, power or privilege hereunder or under
any Note shall operate as a waiver thereof nor shall any single or partial
exercise thereof preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. The rights and remedies herein provided
shall be cumulative and not exclusive of any rights or remedies provided by law.
SECTION 9.3. Expenses; Indemnification. (a) The Borrowers jointly
-------------------------
and severally agree to pay all out-of-pocket expenses of the Administrative
Agent, including reasonable fees and disbursements of special counsel for the
Administrative Agent, in connection with the preparation and administration of
this Agreement, any waiver or consent hereunder or any amendment hereof.
(b) If any Default or alleged Default or Event of Default occurs
with respect to either Borrower, such Borrower shall pay all out-of-pocket
expenses incurred by the Administrative Agent and each Bank, including (without
duplication) the reasonable fees and disbursements of outside counsel and the
allocated cost of inside counsel, in connection with such Default, alleged
Default, or Event of Default and all collection, settlement, bankruptcy,
insolvency and other enforcement proceeding resulting therefrom.
(c) The Borrowers jointly and severally agree to indemnify the
Administrative Agent and each Bank, their respective affiliates and the
respective directors, officers, agents and employees of the foregoing (each an
"Indemnitee") and hold each Indemnitee harmless from and against any and all
liabilities, losses, damages, costs and expenses of any kind, including, without
limitation, the reasonable fees and disbursements of counsel, which may be
incurred by such Indemnitee in connection with any investigative, administrative
or judicial proceeding (whether or not such Indemnitee shall be designated a
party thereto) brought or threatened relating to or arising out of this
Agreement or any actual or proposed use of proceeds of Loans hereunder; provided
--------
that no Indemnitee shall have the right to be indemnified hereunder for such
Indemnitee's own gross negligence or willful misconduct as determined by a court
of competent jurisdiction.
53
<PAGE>
SECTION 9.4. Sharing of Set-Offs. Each Bank agrees that if it
-------------------
shall, by exercising any right of set-off or counterclaim or otherwise, receive
payment of an proportion of the aggregate amount of principal and interest then
due with respect to the Note of either Borrower held by it which is greater than
the proportion received by any other Bank in respect of the aggregate amount of
principal and interest then due with respect to the Note of such Borrower held
by such other Bank, the Bank receiving such proportionately greater payment
shall purchase such participations in the Notes of such Borrower held by the
other Banks, and such other adjustments shall be made, as may be required so
that all such payments of principal and interest with respect to the Notes of
such Borrower held by the Banks shall be shared by the Banks pro rata; provided
--------
that nothing in this Section shall impair the right of any Bank to exercise any
right of set-off or counterclaim it may have to apply the amount subject to such
exercise to the payment of indebtedness of either Borrower other than its
indebtedness hereunder. Each Borrower agrees, to the fullest extent it may
effectively do so under applicable law, that any holder of a participation in a
Note of such Borrower, whether or not acquired pursuant to the foregoing
arrangements, may exercise rights of set-offs or counterclaim and other rights
with respect to such participation as fully as if such holder of a participation
were a direct creditor of such Borrower in the amount of such participation.
SECTION 9.5. Amendments and Waivers. Any provision of this
----------------------
Agreement or the Notes may be amended or waived if, but only if, such amendment
or waiver is in writing and is signed by the Borrowers and the Required Banks
(and, if the rights or duties of the Administrative Agent are affected thereby,
by the Administrative Agent); provided that no such amendment or waiver shall,
unless signed by all the Banks, (i) increase or decrease the Commitment of any
Bank (except for a ratable decrease in the Commitments of all Banks) or subject
any Bank to any additional obligation, (ii) reduce the principal of or rate of
interest on any Loan or any fees hereunder, (iii) postpone the date fixed for
any payment of principal of or interest on any Loan or any fees hereunder or for
the scheduled termination of any Commitment, (iv) change the percentage of the
Commitments or of the aggregate unpaid principal amount of the Notes, or the
number of Banks, which shall be required for the Banks or any of them to take
any action under this Section or any other provision of this Agreement, or
(v) change this proviso.
-------
SECTION 9.6. Successors and Assigns. (a) The provisions of this
----------------------
Agreement shall be binding upon and inure
54
<PAGE>
to the benefit of the parties hereto and their respective successors and
assigns, except that no Borrower may assign or otherwise transfer any of its
rights under this Agreement without the prior written consent of all Banks.
(b) Any Bank may at any time grant to one or more banks or other
institutions (each a "Participant") participating interests in its Commitment or
any or all of its Loans. In the event of any such grant by a Bank of a
participating interest to a Participant, whether or not upon notice to either
Borrower and the Administrative Agent, such Bank shall remain responsible for
the performance of its obligations hereunder, and the Borrowers and the
Administrative Agent shall continue to deal solely and directly with such Bank
in connection with such Bank's rights and obligations under this Agreement. Any
agreement pursuant to which any Bank may grant such a participating interest
shall provide that such Bank shall retain the sole right and responsibility to
enforce the obligations of the Borrowers hereunder including, without
limitation, the right to approve any amendment, modification or waiver of any
provision of this Agreement; provided that such participation agreement may
--------
provide that such Bank will not agree to any modification, amendment or waiver
of this Agreement described in clause (i), (ii), or (iii) of Section 9.5 without
the consent of the Participant. Subject to subsection (e) below, each Borrower
agrees that each Participant shall, to the extent provided in its participation
agreement, be entitled to the benefits of Section 2.16 and Article 8 with
respect to its participating interest. An assignment or other transfer which is
not permitted by subsection (c) or (d) below shall be given effect for purposes
of this Agreement only to the extent of a participating interest granted in
accordance with this subsection (b).
(c) Any Bank may at any time assign to one or more banks or other
institutions (each an "Assignee") all, or a proportionate part (equivalent to an
initial Commitment of not less than $10,000,000.00) of all, of its rights and
obligations under this Agreement and the Notes, and such Assignee shall assume
such rights and obligations, pursuant to an Assignment and Assumption Agreement
in substantially the form of Exhibit G hereto executed by such Assignee and such
transferor Bank, with (and subject to) the subscribed consent of the Borrowers
and the Administrative Agent; provided that if an Assignee is an affiliate of
--------
such transferor Bank or was a Bank immediately prior to such assignment, no such
consent shall be required; and provided further that such assignment may, but
-------- -------
need not, include rights of the transferor Bank in respect of outstanding
55
<PAGE>
Money Market Loans; and provided further that the assignor Bank shall retain a
----------------
Commitment equivalent to an initial Commitment of not less than $10,000,000.
Upon execution and delivery of such instrument and payment by such Assignee to
such transferor Bank of an amount equal to the purchase price agreed between
such transferor Bank and such Assignee, such Assignee shall be a Bank party to
this Agreement and shall have all the rights and obligations of a Bank with a
Commitment as set forth in such instrument of assumption, and the transferor
Bank shall be released from its obligations hereunder to a corresponding extent,
and no further consent or action by any party shall be required. Upon the
consummation of any assignment pursuant to this subsection (c), the transferor
Bank, the Administrative Agent and the Borrowers shall make appropriate
arrangements so that, if required, new Notes are issued to the Assignee. In
connection with any such assignment, the transferor Bank shall pay to the
Administrative Agent an Administrative fee for processing such assignment in
the amount of $2,5000. If the Assignee is not incorporated under the laws of
the United States of America or a state thereof, it shall deliver to the
Borrowers and the Administrative Agent certification as to exemption from
deduction or withholding of any United States federal income taxes in accordance
with Section 8.4.
(d) Any Bank may at any time assign all or any portion of its rights
under this Agreement and its Notes to a Federal Reserve Bank. No such assignment
shall release the transferor Bank from its obligations hereunder.
(e) No Assignee, Participant or other transferee of any Bank's rights
shall be entitled to receive any greater payment under Section 8.3 or 8.4 than
such Bank would have been entitled to receive with respect to the rights
transferred, unless such transfer is made with the Borrower's prior written
consent or by reason of the provisions of Section 8.2, 8.3 or 8.4 requiring such
Bank to designate a different Applicable Lending Office under certain
circumstances or at a time when the circumstances giving rise to such greater
payment did not exist.
SECTION 9.7. Collateral. Each of the Banks represents to the
----------
Administrative Agent and each of the other Banks that it in good faith is not
relying upon any "margin stock" (as defined in Regulation U) as collateral in
the extension or maintenance of the credit provide for in this Agreement.
SECTION 9.8. Governing Law; Submission to Jurisdiction. This Agreement
-----------------------------------------
and each Note shall be
56
<PAGE>
governed by and construed in accordance with the laws of the State of New York.
Each Borrower hereby submits to the nonexclusive jurisdiction of the United
States District Court for the Southern District of New York and of any New York
State court sitting in New York City for purposes of all legal proceedings
arising out of or relating to this Agreement or the transactions contemplated
hereby. Each Borrower irrevocably waives, to the fullest extent permitted by
law, any objection which it may now or hereafter have to the laying of the venue
of any such proceeding brought in such a court and any claim that any such
proceeding brought in such a court has been brought in an inconvenient forum.
SECTION 9.9. Counterparts; Integration; Effectiveness; Termination of
--------------------------------------------------------
Designated Credit Facilities. (a) This Agreement may be signed in any number of
- ----------------------------
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument. This Agreement
constitutes the entire agreement and understanding among the parties hereto and
supersedes any and all prior agreements and understandings, oral or written,
relating to the subject matter hereof. This Agreement shall become effective
upon receipt by the Administrative Agent of counterparts hereof signed by each
of the parties hereto (or, in the case of any party as to which an executed
counterpart shall not have been received, receipt by the Administrative Agent
in form satisfactory to it of telegraphic, telex, facsimile or other written
confirmation from such party of execution of a counterpart hereof by such
party).
(b) The parties hereto (comprising all the parties to the Designated
Credit Facilities) agree that, on the Effective Date, the Designated Credit
Facilities shall terminate without further action by any party thereto, and any
loans outstanding thereunder and other amounts payable thereunder shall be due
and payable on such date.
SECTION 9.10. WAIVER OF JURY TRIAL. EACH OF THE BORROWERS, THE
--------------------
ADMINISTRATIVE AGENT AND THE BANKS HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT
TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
SECTION 9.11. Confidentiality. The Administrative Agent and each Bank
---------------
agree to keep any information delivered or made available by the Borrowers
pursuant to this Agreement confidential from anyone other than persons employed
or retained by such Bank or its affiliates who are engaged in evaluating,
approving, structuring or administering the credit facility.
57
<PAGE>
contemplated hereby; provided that nothing herein shall prevent any Bank from
--------
disclosing such information (a) to any other Bank or to the Administrative
Agent, (b) to any other Person if reasonably incidental to the administration of
the credit facility contemplated hereby, (c) upon the order of any court or
administrative agency, (d) upon the request or demand of any regulatory agency
or authority, (e) which had been publicly disclosed other than as a result of a
disclosure by the Administrative Agent or any Bank prohibited by this Agreement,
(f) in connection with any litigation to which the Administrative Agent, any
Bank or its affiliates or Parent may be a party, (g) to the extent necessary in
connection with the exercise of any remedy hereunder, (h) to such Bank's or
Administrative Agent's legal counsel and independent auditors and (i) subject to
provisions substantially similar to those contained in this Section, to any
actual or proposed Participant or Assignee.
58
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers as of the day and year
first above written.
NATIONWIDE MUTUAL INSURANCE
COMPANY
By
-----------------------
Name:
Title:
Address: One Nationwide Plaza
Columbus, OH 43251
Facsimile: (614) 249-2739
NATIONWIDE MUTUAL INSURANCE
COMPANY
By
-----------------------
Name:
Title:
Address: One Nationwide Plaza
Columbus, OH 43251
Facsimile: (614) 249-2739
$70,000,000 MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By
-----------------------
Title:
$65,000,000 THE BANK OF NEW YORK
By
-----------------------
Title:
59
<PAGE>
$65,000,000 BANK ONE, COLUMBUS, NA
By
-----------------------
Title:
$65,000,000 THE FIRST NATIONAL BANK
OF CHICAGO
By
-----------------------
Title:
$65,000,000 MELLON BANK, N.A.
By
-----------------------
Title:
$30,000,000 THE CHASE MANHATTAN BANK N.A.
By
-----------------------
Title:
$30,000,000 FLEET NATIONAL BANK
By
-----------------------
Title:
$30,000,000 THE HUNTINGTON NATIONAL BANK
By
-----------------------
Title:
60
<PAGE>
$30,000,000 KEYBANK NATIONAL ASSOCIATION
By
-----------------------
Title:
$30,000,000 NATIONAL CITY BANK OF COLUMBUS
By
-----------------------
Title:
$30,000,000 THE NORTHERN TRUST COMPANY
By
-----------------------
Title:
$30,000,000 ROYAL BANK OF CANADA
By
-----------------------
Title:
$30,000,000 STATE STREET BANK AND TRUST
COMPANY
By
-----------------------
Title:
$30,000,000 WELLS FARGO BANK, N.A.
By
-----------------------
Title:
Total Commitments
$600,000,000
============
61
<PAGE>
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK,
as Administrative Agent
By
-----------------------
Name:
Title:
Address: 60 Wall Street
New York, NY 10260
Facsimile: (212) 648-5249
62
<PAGE>
PRICING SCHEDULE
Each of "Euro-Dollar Margin", "CD Margin", and "Facility Fee Rate"
means, for any date, the rates set forth below in the row opposite such term and
in the column corresponding to the "Pricing Level" that applies at such date:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------
Level Level Level Level Level Level
I II III IV V VI
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CD Margin
Usage less than
and/or equal to 50% 0.2525% 0.255% 0.285% 0.375% 0.425% 0.625%
Usage greater than 50% 0.3025% 0.305% 0.335% 0.425% 0.475% 0.725%
--------------------------------------------------------------------------------------------------
Euro-Dollar Margin
Usage less than
and/or equal to 50% 0.1275% 0.130% 0.160% 0.250% 0.300% 0.500%
Usage greater than 50% 0.1775% 0.180% 0.210% 0.300% 0.350% 0.600%
--------------------------------------------------------------------------------------------------
Facility Fee 0.060% 0.070% 0.090% 0.125% 0.150% 0.250%
Rate
--------------------------------------------------------------------------------------------------
</TABLE>
For purposes of this Schedule, the following terms have the following
meanings, subject to the concluding paragraph of this Schedule:
"Level I Pricing" applies at any date if, at such date, Nationwide
Mutual's claims paying ability is rated AAA or higher by S&P or Aaa or higher
--
by Moody's.
"Level II Pricing" applies at any date if, at such date, (i)
Nationwide Mutual's claims paying ability is rated AA- or higher by S&P or Aa3
--
or higher by Moody's and (ii) Level I Pricing does not apply.
"Level III Pricing" applies at any date if, at such date, (i)
Nationwide Mutual's claims paying ability is rated A or higher by S&P or A2 or
--
higher by Moody's and (ii) neither Level I Pricing nor Level II Pricing
applies.
"Level IV Pricing" applies at any date if, at such date, (i)
Nationwide Mutual's claims paying ability is rated A- or higher by S&P or A3
--
or higher by Moody's and (ii) none of Level I Pricing, Level II Pricing and
Level III Pricing applies.
"Level V Pricing" applies at any date if, at such date, (i) Nationwide
Mutual's claims paying ability is rated BBB+ or higher by S&P or Baa1 or
--
higher by Moody's and (ii) none of Level I Pricing, Level II Pricing, Level
III Pricing or Level IV Pricing applies.
"Level VI Pricing" applies at any date if, at such date, no other
Pricing Level applies.
63
<PAGE>
"Pricing Level" refers to the determination of which of Level I, Level
II, Level III, Level IV, Level V or Level VI applies at any date.
"Usage" means at any date the percentage equivalent of a fraction (i)
the numerator of which is the aggregate outstanding principal amount of the
Loans at such date, after giving effect to any borrowing or payment on such
date, and (ii) the denominator of which is the aggregate amount of the
Commitments at such date, after giving effect to any reduction of the
Commitments on such date. For purposes of this Schedule, if for any reason any
Loans remain outstanding after termination of the Commitments, the Usage for
each date on or after the date of such termination shall be deemed to be greater
than 50%.
The rating in effect at any date is that in effect at the close of business on
such date.
For purposes of determining which Pricing Level applies: (a) if the claims
paying ability of Nationwide Mutual is split-rated and the differential is one
category, the higher rating category will apply (e.g., AAA/Aa1 results in Level
I Pricing); but (b) if the claims paying ratings of Nationwide Mutual is
split-rated and the differential is two categories or more, the rating at the
midpoint will apply (e.g., AAA/Aa2 results in Level II Pricing) and if there is
no such midpoint category, the higher of the two intermediate categories will
apply (e.g., A+/Baa1 results in Level III Pricing).
64
<PAGE>
Schedule I
Designated Credit Facilities
----------------------------
$15,000,000 lines of credit in favor of nationwide Mutual and/or Nationwide Life
from each of the following financial institutions:
1. Morgan Guaranty Trust Company of New York
2. Mellon Bank, N.A.
3. NBD Bank
4. Shawmut Bank
5. Huntington National Bank
6. Bank One, Columbus, NA
7. Fleet National Bank
8. National City Bank
65
<PAGE>
EXHIBIT A
NOTE
New York, New York
____________ __, 199_
For value received, [Name of Borrower], a [Borrower's Jurisdiction of
Incorporation] corporation (the "Borrower"), promises to pay to the order of
___________________(the "Bank"), for the account of its Applicable Lending
Office, the unpaid principal amount of each Loan made by the Bank to the
Borrower pursuant to the Credit Agreement referred to below on the maturity date
provided for in the Credit Agreement. The Borrower promises to pay interest on
the unpaid principal amount of each such Loan on the dates and at the rate or
rates provided for in the Credit Agreement. All such payments of principal and
interest shall be made in lawful money of the United States in Federal or other
immediately available funds at the office of Morgan Guaranty Trust Company of
New York, 60 Wall Street, New York, New York.
All Loans made by the Bank, the respective types thereof and all repayments
of the principal thereof shall be recorded by the Bank and, if the Bank so
elects in connection with any transfer or enforcement hereof, appropriate
notations to evidence the foregoing information with respect to each such Loans
then outstanding may be endorsed by the Bank on the schedule attached hereto, or
on a continuation of such schedule attached to and made a part hereof; provided
--------
that the failure of the Bank to make any such recordation or endorsement shall
not affect the obligations of the Borrower hereunder or under the Credit
Agreement.
This note is one of the Notes referred to in the Credit Agreement dated as
of August 12, 1996 among Nationwide Mutual Insurance Company, Nationwide Life
Insurance Company, the Banks parties thereto and Morgan
<PAGE>
Guaranty Trust Company of New York, as Administrative Agent (as amended from
time to time, the "Credit Agreement"). Terms defined in the Credit Agreement are
used herein with the same meanings. Reference is made to the Credit Agreement
for provisions for the prepayment hereof and the acceleration of the maturity
hereof.
[NAME OF BORROWER]
By
----------------------------------
Name:
Title:
2
<PAGE>
LOANS AND PAYMENTS OF PRINCIPAL
- --------------------------------------------------------------------------------
Amount Type Amount of
of of Principal Notation
Date Loan Loan Repaid Made By
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
3
<PAGE>
EXHIBIT B
Form of Money Market Quote Request
----------------------------------
[Date]
To: Morgan Guaranty Trust Company of New York (the "Administrative
Agent")
From: [Name of Borrower]
Re: Credit Agreement (as amended from time to time, the "Credit
Agreement") dated as of August 12, 1996 among Nationwide Mutual
Insurance Company, Nationwide Life Insurance Company, the
Banks parties thereto and the Administrative Agent
We hereby give notice pursuant to Section 2.3 of the Credit Agreement that
we request Money Market Quotes for the following proposed Money Market
Borrowing(s):
Date of Borrowing: _____________________
Principal Amount/1/ Interest Period/2/
- ------------------- ------------------
$
Such Money Market Quotes should offer a Money Market [Margin] [Absolute
Rate]. [The applicable base rate is the London Interbank Offered Rate.]
- --------------------
/1/ Amount must be $10,000,000 or a larger multiple of $1,000,000.
/2/ Not less than one month (LIBOR Auction) or not less than 7 days
(Absolute Rate Auction), subject to the provisions of the definition of Interest
Period.
<PAGE>
Terms used herein have the meanings assigned to them in the Credit
Agreement.
[NAME OF BORROWER]
By
---------------------------------
Name:
Title:
2
<PAGE>
EXHIBIT C
Form of Invitation for Money Market Ouotes
------------------------------------------
To: [Name of Bank]
Re: Invitation for Money Market Quotes to [Name of
Borrower] (the "Borrower")
Pursuant to Section 2.3 of the Credit Agreement dated as of August 12, 1996
among Nationwide Mutual Insurance Company, Nationwide Life Insurance Company,
the Banks parties thereto and the undersigned, as Administrative Agent, we are
pleased on behalf of the Borrower to invite you to submit Money Market Quotes to
the Borrower for the following proposed Money Market Borrowing(s):
Date of Borrowing:
_____________________
Principal Amount Interest Period
- ---------------- ---------------
$
Such Money Market Quotes should offer a Money Market [Margin] [Absolute
Rate]. [The applicable base rate is the London Interbank Offered Rate.]
Please respond to this invitation by no later than [2:00 P.M.] [9:30 A.M.]
(New York City time) on [date].
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK,
as Administrative Agent
By
---------------------------
Authorized Officer
<PAGE>
EXHIBIT D
Form of Money Market Ouote
--------------------------
To: Morgan Guaranty Trust Company of New York, as
Administrative Agent
Re: Money Market Quote to [Name of Borrower] (the
"Borrower")
In response to your invitation on behalf of the Borrower dated , we hereby
make the following Money Market Quote on the following terms:
1. Quoting Bank:_____________________________
2. Person to contact at Quoting Bank:
___________________________________
3. Date of Borrowing:________________________*
4. We hereby offer to make Money Market Loan(s) in the following principal
amounts, for the following Interest Periods and at the following rates:
Principal Interest Money Market
Amount** Period*** [Marqin****] [Absolute Rate*****]
- -------- ------------------------------------------
$
$
[Provided, that the aggregate principal amount of Money Market Loans for
which the above offers may be accepted shall not exceed $___________ .]**
________
* As specified in the related Invitation.
** Principal amount bid for each Interest Period may not exceed principal amount
requested. Specify aggregate limitation if the sum of the individual offers
exceeds the amount the Bank is willing to lend. Bids must be made for
$5,000,000 or a larger multiple of $1,000,000.
(notes continued on following page)
<PAGE>
We understand and agree that the offer(s) set forth above, subject to
the satisfaction of the applicable conditions set forth in the Credit Agreement
dated as of August 12, 1996 among Nationwide Mutual Insurance Company,
Nationwide Life Insurance Company, the Banks parties thereto and yourselves, as
Administrative Agent, irrevocably obligates us to make the Money Market Loan(s)
for which any offer(s) are accepted, in whole or in part.
Very truly yours,
[NAME OF BANK]
Dated: By:
______________ ____________________________
Authorized Officer
________
*** Not less than one month or not less than 30 days, as specified in the
related Invitation. No more than five bids are permitted for each Interest
Period.
**** Margin over or under the London Interbank Offered Rate determined for the
applicable Interest Period. Specify percentage (to the nearest l/l0,000 of 1%)
and specify whether "PLUS" or "MINUS". ***** Specify rate of interest per annum
(to the nearest 1/10,OOOth of 1%).
77
<PAGE>
EXHIBIT E
August 12, 1996
To the Banks and the Administrative Agent
Referred to Below
c/o Morgan Guaranty Trust Company
of New York, as Administrative Agent
60 Wall Street
New York, New York 10260
Dear Sirs:
We have acted as counsel for Nationwide Mutual Insurance Company and
Nationwide Life Insurance Company (each, a "Borrower") in connection with the
Credit Agreement (the "Credit Agreement") dated as of August 12, 1996 among the
Borrowers, the Banks parties thereto, and Morgan Guaranty Trust Company of New
York, as Administrative Agent. Terms defined in the Credit Agreement are used
herein as therein defined. This opinion is being rendered to you at the request
of the Borrowers pursuant to Section 3.1(b) of the Credit Agreement.
We have examined originals or copies, certified or otherwise identified
to our satisfaction, of such documents, corporate records, certificates of
public officials and other instruments and have conducted such other
investigations of fact and law as we have deemed necessary or advisable for
purposes of this opinion.
Upon the basis of the foregoing, we are of the opinion that:
1. Each Borrower is a corporation duly incorporated, validly existing
and in good standing under the laws of the jurisdiction of its incorporation
and has all corporate powers and all material governmental licenses,
authorizations, consents and approvals required to carry on its business as now
conducted.
<PAGE>
2. The execution, delivery and performance by each Borrower of the
Credit Agreement and its Notes are within the corporate powers of such Borrower,
have been duly authorized by all necessary corporate action, require no action
by or in respect of, or filing with, any governmental body, agency or official
and do not contravene, or constitute a default under, any provision of
applicable law or regulation or of the certificate of incorporation or by-laws
of such Borrower or of any agreement, judgment, injunction, order, decree or
other instrument binding upon such Borrower or any of its Subsidiaries or result
in the creation or imposition of any Lien on any asset of such Borrower or any
of its Subsidiaries.
3. The Credit Agreement constitutes a valid and binding agreement of
each Borrower and each note constitutes a valid and binding obligation of the
Borrower issuing the same, in each case enforceable in accordance with its terms
except as the same may be limited by bankruptcy, insolvency or similar laws
affecting creditors' rights generally and by general principles of equity.
4. There is no action, suit or proceeding pending against, or to the
best of our knowledge threatened against or affecting, any Borrower or any of
their Subsidiaries before any court or arbitrator or any governmental body,
agency or official, in which there is a reasonable possibility of an adverse
decision which could materially adversely affect the business, consolidated
financial position or consolidated results of operations of such Borrower or any
of its consolidated Subsidiaries, considered as a whole, or which in any manner
draws into question the validity of the Credit Agreement or the Notes.
Very truly yours,
2
<PAGE>
EXHIBIT F
August 12, 1996
To the Banks and the Administrative Agent
Referred to Below
c/o Morgan Guaranty Trust Company
of New York, as Administrative Agent
60 Wall Street
New York, New York 10260
Dear Sirs:
We have participated in the preparation of the Credit Agreement (the
"Credit Agreement") dated as of August 12, 1996 among Nationwide Mutual
Insurance Company, Nationwide Life Insurance Company, the Banks parties thereto
and Morgan Guaranty Trust Company of New York, as Administrative Agent, and have
acted as special counsel for the Administrative Agent for the purpose of
rendering this opinion pursuant to Section 3.1(c) of the Credit Agreement.
Terms defined in the Credit Agreement are used herein as therein defined.
We have examined originals or copies, certified or otherwise identified
to our satisfaction, of such documents, corporate records, certificates of
public officials and other instruments and have conducted such other
investigations of fact and law as we have deemed necessary or advisable for
purposes of this opinion.
Upon the basis of the foregoing, we are of the opinion that:
1. The execution, delivery and performance by each Borrower of the
Credit Agreement and its Notes are within such Borrower's corporate powers and
have been duly authorized by all necessary corporate action.
<PAGE>
2. The Credit Agreement constitutes a valid and binding agreement of
each Borrower and each Note constitutes a valid and binding obligation of the
Borrower issuing the same, in each case enforceable in accordance with its terms
except as the same may be limited by bankruptcy, insolvency or similar laws
affecting creditors' rights generally and by general principles of equity.
We are members of the Bar of the State of New York and the foregoing
opinion is limited to the laws of the State of New York and the federal laws of
the United States of America. In giving the foregoing opinion, (i) we express no
opinion as to the effect (if any) of any law of any jurisdiction (except the
State of New York) in which any Bank is located which the rate of interest that
such Bank may charge or collect and (ii) as to all matters governed by the laws
of Ohio, we have relied, without independent investigation, on the opinion of
counsel for the Borrowers, copies of which have been delivered to you.
This opinion is rendered solely to you in connection with the above
matter. This opinion may not be relied upon by you for other purposes or relied
upon by any other person without our prior written consent.
Very truly yours,
2
<PAGE>
EXHIBIT G
ASSIGNMENT AND ASSUMPTION AGREEMENT
AGREEMENT, dated as of ________________ among (NAME OF ASSIGNOR) (the
"Assignor"), (NAME OF ASSIGNEE) (the "Assignee"), NATIONWIDE MUTUAL INSURANCE
NATIONWIDE LIFE INSURANCE COMPANY (each, a "Borrower") and MORGAN GUARANTY TRUST
COMPANY OF NEW YORK, as Administrative Agent (the "Administrative Agent").
WHEREAS, this Assignment and Assumption Agreement (the "Agreement")
relates to the Credit Agreement dated as of August 12, 1996 among the Borrowers,
the Assignor and the other Banks parties thereto, as Banks, and the
Administrative Agent (as amended from time to time, the "Credit Agreement");
WHEREAS, as provided under the Credit Agreement, the Assignor has a
Commitment to make Loans to the Borrowers in an aggregate principal amount at
any time outstanding not to exceed $___________;
WHEREAS, Committed Loans made to the Borrowers by the Assignor under the
Credit Agreement in the aggregate principal amount of $__________ are
outstanding at the date hereof; and
WHEREAS, the Assignor proposes to assign to the Assignee all of the
rights of the Assignor under the Credit Agreement in respect of a portion of its
Commitment thereunder in an amount equal to $____________ (the "Assigned
Amount"), together with a corresponding portion of its outstanding Committed
Loans, and the Assignee proposes to accept assignment of such rights and assume
the corresponding obligations from the Assignor on such terms;
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements contained herein, the parties hereto agree as follows:
<PAGE>
SECTION 1. Definitions. All capitalized terms not otherwise defined
-----------
herein shall have the respective meanings set forth in the Credit
Agreement.
SECTION 2. Assignment. The Assignor hereby assigns and sells to the
----------
Assignee all of the rights of the Assignor under the Credit Agreement to
the extent of the Assigned Amount, and the Assignee hereby accepts such
assignment from the Assignor and assumes all of the obligations of the
Assignor under the Credit Agreement to the extent of the Assigned Amount,
including the purchase from the Assignor of the corresponding portion of
the principal amount of the Committed Loans made by the Assignor
outstanding at the date hereof. Upon the execution and delivery hereof by
the Assignor, the Assignee, [the Borrowers and the Administrative Agent]
and the payment of the amounts specified in Section 3 required to be paid
on the date hereof (i) the Assignee shall, as of the date hereof, succeed
to the rights and be obligated to perform the obligations of a Bank under
the Credit Agreement with a Commitment in an amount equal to the Assigned
Amount, and (ii) the Commitment of the Assignor shall, as of the date
hereof, be reduced by a like amount and the Assignor released from its
obligations under the Credit Agreement to the extent such obligations have
been assumed by the Assignee. The assignment provided for herein shall be
without recourse to the Assignor.
SECTION 3. Payments. As consideration for the assignment and sale
--------
contemplated in Section 2 hereof, the Assignee shall pay to the Assignor on
the date hereof in Federal funds the amount heretofore agreed between
them./1/ It is understood that facility fees accrued to the date hereof
with respect to the Assigned Amount are for the account of the Assignor and
such fees accruing from and including the date hereof are for the account
of the Assignee. Each of the Assignor and the Assignee hereby agrees that
if it receives any amount under the Credit Agreement which is for the
account of the other party hereto, it shall receive the
- --------------------------------
/1/ Amount should combine principal together with accrued interest and
breakage compensation, if any, to be paid by the Assignee, net of any portion of
any upfront fee to be paid by the Assignor to the Assignee. It may be preferable
in an appropriate case to specify these amounts generically or by formula rather
than as a fixed sum.
2
<PAGE>
same for the account of such other party to the extent of such other party's
interest therein and shall promptly pay the same to such other party.
[SECTION 4. Consent of the Borrowers and the Administrative Agent. This
-----------------------------------------------------
Agreement is conditioned upon the consent of the Borrowers and the
Administrative Agent pursuant to Section 9.6(c) of the Credit Agreement. The
execution of this Agreement by the Borrowers and the Administrative Agent is
evidence of this consent. Pursuant to Section 9.6(c), the Borrowers agree to
execute and deliver a Note payable to the order of the Assignee to evidence the
assignment and assumption provided for herein.]
SECTION 5. Non-Reliance on Assignor. The Assignor makes no
------------------------
representation or warranty in connection with, and shall have no responsibility
with respect to, the solvency, financial condition, or statements of any
Borrower, or the validity and enforceability of the obligations of any Borrower
in respect of the Credit Agreement or any Note. The Assignee acknowledges that
it has, independently and without reliance on the Assignor, and based on such
documents and information as it has deemed appropriate, made its own credit
analysis and decision to enter into this Agreement and will continue to be
responsible for making its own independent appraisal of the business, affairs
and financial condition of the Borrowers.
SECTION 6. Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of New York.
SECTION 7. Counterparts. This Agreement may be signed in any number of
------------
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
3
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered by their duly authorized officers as of the date first
above written.
[NAME OF ASSIGNOR]
By
-----------------------
Name:
Title:
[NAME OF ASSIGNOR]
By
-----------------------
Name:
Title:
[NATIONWIDE MUTUAL INSURANCE
COMPANY
By
-----------------------
Name:
Title:
NATIONWIDE LIFE INSURANCE
COMPANY
By
-----------------------
Name:
Title:
4
<PAGE>
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK,
as Administrative Agent
By
-----------------------
Name:
Title: ]
5
<PAGE>
EXHIBIT 10.7
FORM OF
OFFICE LEASE
BETWEEN
NATIONWIDE MUTUAL INSURANCE COMPANY
LANDLORD
AND
NATIONWIDE LIFE INSURANCE COMPANY
NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY
NATIONWIDE FINANCIAL SERVICES, INC.
TENANT
PREMISES
--------
365,238 Square Feet at One Nationwide Plaza
102,934 Square Feet at Three Nationwide Plaza
Columbus, Ohio 43216
<PAGE>
SECTION 1 - BASIC LEASE PROVISIONS
----------------------------------
1.01. DATE AND PARTIES. This lease ("Lease") is made December ___, 1996,
------------------------
between NATIONWIDE MUTUAL INSURANCE COMPANY ("Landlord") and NATIONWIDE LIFE
INSURANCE COMPANY, NATIONWIDE LIFE AND ANNUITY INSURANCE COMPANY and NATIONWIDE
FINANCIAL SERVICES, INC. (collectively, "Tenant"). Landlord is a corporation,
organized under the laws of Ohio, with principal offices at One Nationwide
Plaza, Columbus, Ohio. Each of Tenant is a corporation, organized under the
laws of Ohio or Delaware, as the case may be, with principal offices at One
Nationwide Plaza, Columbus, Ohio.
1.02. PREMISES. Landlord leases to Tenant 365,238 square feet in One
----------------
Nationwide Plaza and 102,934 square feet in Three Nationwide Plaza, Columbus,
Ohio ("Premises"), as further described on the attached list of offices
("Exhibit A"). The location and/or square footage of the Premises may change
from time to time as agreed to by the parties. Any changes to the size and
location of the Premises shall be contained in a monthly rent report, without
further amendment to this Lease. The Premises contain the fixtures,
improvements, and other property now installed in the Premises.
Tenant and its agents, employees, and invitees, have the non-exclusive
right with others designated by Landlord, to the free use of the common areas in
the buildings in which the Premises are located (collectively, "Building") and
of the land ("Land") on which the Building is located ("Exhibit B") for the
common areas' intended and normal purpose. Common areas include walkways,
elevators, sidewalks, driveways, hallways, stairways, public bathrooms, common
entrances, lobby, and other similar public areas and access ways. Tenant or
Tenant's employees shall be entitled to such exclusive parking spaces in the
Executive Parking Garage located in the basement of the Building and such non-
exclusive parking spaces in the Front Street Parking Garage adjacent to the
Building as Landlord reasonably designates from time to time. Tenant agrees that
Landlord may charge Tenant and/or its employees for the use of such parking
spaces at a reasonable market rate as determined from time to time. The parties
may agree from time to time to change the location or number of the parking
spaces provided by Landlord hereunder. Landlord may change the common areas if
the changes do not materially and unreasonably interfere with Tenant's access to
or use of the Premises.
1.03. USE. Tenant shall use the Premises only for insurance and financial
-----------
service (or a related business) offices or for general office use, unless
Landlord gives its advance written consent to another use. Landlord warrants
that applicable laws, ordinances, regulations, and restrictive covenants permit
the Premises to be used for the above-mentioned purpose. Tenant shall not
create a nuisance or use the Premises for any immoral or illegal purposes.
<PAGE>
1.04. TERM. The Lease begins ("Beginning Date") on _____________, and
------------
ends, as may be extended, ("Ending Date") twelve (12) months after the Beginning
Date, unless ended earlier under this Lease. The Lease shall automatically
renew for successive twelve (12) month periods unless either party gives thirty
(30) days' prior written notice of its intent not to renew to the other party.
SECTION 2 - RENT AND ADJUSTMENT FORMULA
---------------------------------------
2.01. RENT. Tenant shall pay to Landlord annual Rent of $____________
------------
from the Beginning Date until December 31, 1997, payable in equal monthly
installments of $__________. The Rent is calculated based on the Rental
Adjustment Factor of $19.53 per square foot for office space and, except for
those areas for which rent is $19.67, as shown on Exhibit A, $12.71 per square
foot for concourse space in the Building. If the number of square feet in the
Premises changes after the Beginning Date, the parties agree that Rent shall be
adjusted accordingly based upon the number of square feet used by Tenant times
the Rental Adjustment Factor then in effect. From and after January 1, 1998,
the Rental Adjustment Factor will change annually based on the Rental Adjustment
Formula set forth in Section 2.02.
The Rent shall be paid:
(i) without advance notice, demand, offset, or deduction;
(ii) by the first day of each month during the Term; and
(iii) to Landlord at One Nationwide Plaza, Columbus, Ohio 43215,
Attn: Corporate Money Management, or as Landlord may specify in
writing to Tenant. At its option, Landlord may deduct the Rent
from Tenant's General Ledger Account.
If the Term does not begin on the first day or end on the last day of a
month, the Rent for that partial month shall be prorated by multiplying the
monthly Rent by a fraction, the numerator of which is the number of days of the
partial month included in the Term and the denominator of which is the total
number of days in the full calendar month.
If Tenant fails to pay part or all of the Rent within ten (10) days after
it is due, Tenant shall also pay:
(i) a late charge equal to one (1) percent of the unpaid Rent, plus
(ii) interest at ten percent (10%) per annum or the maximum then
allowed by applicable law, whichever is less, on the remaining
unpaid balance, retroactive to
-2-
<PAGE>
the date originally due until paid.
2.02. RENTAL ADJUSTMENT FORMULA.
---------------------------------
2.02(a). DEFINITIONS.
----------------------
(i) Tenant's pro-rata share means: a percentage which is calculated
by dividing the average rentable square footage of the Premises
for any calendar month ("numerator") by the rentable square
footage of the Building ("denominator").
(ii) Property means: the Building and its equipment and systems, and
the Land.
(iii) Real Estate Taxes means:
(1) real property taxes and currently due installments of
assessments, special or otherwise, imposed upon the
Property, and
(2) reasonable legal fees, costs, and disbursements incurred for
proceedings to contest, determine or reduce Real Estate
Taxes.
(iv) Operating Expenses means: Landlord's operating costs (which may
include capital improvements amortized over the life of the
Building) that are reasonable, actual and necessary (except
Landlord may use its normal accrual method of accounting), and
that are attributable to the improvement, operation,
maintenance, management and repair of the Property.
(v) Adjustment Period means: each calendar year occurring during the
Term beginning with calendar year 1998, which shall be the first
Adjustment Period.
2.02(b). OPERATING EXPENSES CONTROL. Landlord shall use reasonable
-------------------------------------
efforts to keep Operating Expenses at reasonable amounts, while maintaining a
first class office building.
2.02(c). RENTAL ADJUSTMENT FACTOR. The Rental Adjustment Factor for each
------------------------------------
Adjustment Period shall be determined by adding together Operating Expenses and
Real Estate Taxes for the Building, plus an Investment Factor as defined below,
and multiplying the sum of such numbers by Tenant's pro rata share. The
resulting number shall constitute the Rental Adjustment Factor for each
Adjustment Period. The Investment Factor shall be determined by adding 100% of
the value of the Land and 50% of the value of the Building. The sum of such
numbers shall be multiplied by five percent (5%) (or another investment return
as determined by Landlord's Board of Directors from time to time). The product
shall be the Investment Factor. Landlord may, from time to time, but not more
than once per year, adjust the Investment Factor.
-3-
<PAGE>
2.02(d) MANNER OF PAYMENT. Landlord may give Tenant notice of Landlord's
---------------------------
estimate of amounts payable under this paragraph for each Adjustment Period.
Landlord's estimate shall be reasonable and based upon generally accepted
accounting principles consistently applied. If Tenant requests, Landlord shall
give Tenant reasonably detailed documentation to support Landlord's estimate.
By the first day of each month during the Adjustment Period, Tenant shall
pay Landlord one-twelfth (1/12) of the estimated amount as Rent. If, however,
the estimate is not given before the Adjustment Period begins, Tenant shall
continue to pay on the basis of last year's estimate, if any, until the month
after the new estimate is given.
2.03. PERSONAL PROPERTY TAX. Before delinquency, Tenant shall pay taxes
-----------------------------
assessed during the Term against trade fixtures or personal property placed by
Tenant in the Premises. If these taxes are assessed against the Building,
Tenant shall pay its share of the taxes to Landlord within twenty (20) days
after receiving Landlord's written statement setting forth the amount of taxes
applicable to Tenant's property and the basis for the charge to Tenant.
Tenant's failure to pay within the twenty (20) day period shall entitle Landlord
to the same remedies it has upon Tenant's failure to pay Rent.
2.04. ADJUSTMENT TO RENT. The Landlord agrees that no increase in the rent
-------------------------
pursuant to paragraph 2.01 hereof or in the Investment Factor pursuant to
paragraph 2.02(c) hereof, which either (i) causes the amount of rent per square
foot to be paid by the Tenant to exceed the then prevailing commercial market
rent for the same or similar class of commercial office space in the downtown
Columbus, Ohio area or (ii) was determined by the Landlord using a methodology
for determining rent and/or the Investment Factor which is inconsistent with the
methodology used by the Landlord in determining increases in rent for its other
subsidiaries and affiliates, will be effective until approved by the Board of
Directors of Nationwide Financial Services, Inc., including the approval by a
majority of the directors who do not serve as an officer, director (other than
as a director of Nationwide Financial Services, Inc.) or employee of any member
of the Nationwide Insurance Enterprise.
SECTION 3 - AFFIRMATIVE OBLIGATIONS
-----------------------------------
3.01. COMPLIANCE WITH LAWS.
----------------------------
3.01(a). LANDLORD'S COMPLIANCE. Landlord warrants that, to the best of
--------------------------------
its knowledge, on the Beginning Date, the Premises comply with all applicable
laws, ordinances, rules, and regulations of governmental authorities, including,
but not limited to, The Americans with Disabilities Act ("Applicable Laws").
During the Term, Landlord shall comply with all Applicable Laws regarding the
Premises and Building except to the extent Tenant must comply under paragraph
3.01(b).
-4-
<PAGE>
3.01(b). TENANT'S COMPLIANCE. Tenant shall comply in all material
------------------------------
respects with all Applicable Laws: (i) regarding the physical condition of the
Premises, but only to the extent the Applicable Laws pertain to the particular
manner in which Tenant uses the Premises; or (ii) that do not relate to the
physical condition of the Premises but relate to the lawful use of the Premises
and with which only the occupant can comply, such as laws governing maximum
occupancy, workplace smoking, and illegal business operations, such as gambling.
3.02 SERVICES AND UTILITIES
---------------------------
3.02(a). SERVICES. Landlord shall provide, at its expense, subject to
-------------------
reimbursement under paragraph 2.02:
(i) Heating, ventilation and air conditioning (HVAC) for the
Premises during business hours to maintain temperatures for
comfortable use and occupancy;
(ii) Automatic passenger elevators providing adequate service leading
to the floors on which the Premises are located;
(iii) Freight elevators providing service to the floors on which the
Premises are located as reasonable scheduling permits;
(iv) Janitorial services to the Premises as specified in Exhibit C;
(v) Hot and cold water sufficient for drinking, lavatory, toilet and
ordinary cleaning purposes;
(vi) Electricity to the Premises during business hours that provides
electric current in reasonable amounts necessary for normal
office use, lighting and HVAC;
(vii) Replacement of lighting tubes, lamp ballasts and bulbs;
(viii) Extermination and pest control when necessary; and
(ix) Maintenance of common areas in a first class manner comparable
to other first class office buildings in the downtown Columbus
area. The maintenance shall include cleaning, HVAC,
illumination, snow shoveling, de-icing, repairs, replacements,
lawn care, trash disposal and landscaping.
3.02(b). BUSINESS HOURS. In paragraph 3.02, business hours means:
-------------------------
(i) Monday through Friday, 7:00 a.m. through 6:00 p.m., and
-5-
<PAGE>
(ii) Saturday, 8:00 a.m. through 1:00 p.m., but excludes the
following holidays or the days on which the holidays are
designated for observance: New Year's Day, Memorial Day, July
Fourth, Labor Day, Thanksgiving Day, and Christmas Day, or any
other holiday during which Landlord's or Tenant's offices are
generally closed.
3.02(c). 24 HOUR ACCESS. Tenant, its employees, agents and invitees shall
-------------------------
have access to the Premises twenty-four (24) hours a day, seven (7) days a week.
At any time, Landlord may restrict access by requiring persons to show a badge
or identification card issued by Landlord. Landlord shall not be liable for
denying entry to any person unable to show the proper identification.
3.02(d). EXCESS UTILITY USE. Tenant shall not place or operate in the
-----------------------------
Premises any electrically operated equipment or other machinery, other than
typewriters, personal computers, adding machines, reproduction machines and
other machinery and equipment normally used in offices, unless Tenant receives
Landlord's advance written consent. Landlord shall not unreasonably withhold or
delay its consent. Landlord may require payment for the extra use of
electricity caused by operating any additional equipment or machinery.
Landlord may require that special, high electricity consumption installations of
Tenant such as computer or reproduction facilities (except personal computers or
normal office photocopy machines) be separately sub-metered for electrical
consumption at Tenant's cost.
3.02(e). INTERRUPTION OF SERVICES.
------------------------------------
(i) Interruptions. Landlord does not warrant that any services
Landlord supplies will not be interrupted. Services may be
interrupted because of accidents, repairs, alterations,
improvements or any reason beyond the reasonable control of
Landlord. Except as noted in (ii) below, any interruption shall
not: (A) be considered an eviction or disturbance of Tenant's
use and possession of the Premises; (B) make Landlord liable to
Tenant for damages; (C) abate Rent; or (D) relieve Tenant from
performing Tenant's Lease obligations.
(ii) Remedy. If any essential services (such as HVAC, passenger
elevators, electricity, water) supplied by Landlord are
interrupted, and the interruption does not result from the
negligence or willful misconduct of Tenant, its employees,
invitees or agents, Tenant shall be entitled to an abatement of
Rent. The abatement shall begin on the tenth (10th) consecutive
business day of the interruption or when Tenant stops using the
Premises because of the interruption, whichever is later. The
abatement shall end when the services are restored. Tenant shall
have the option to cancel this Lease if the interruption
unreasonably and materially interferes with Tenant's use of or
access to the Premises for at least
-6-
<PAGE>
sixty (60) consecutive days and Landlord is not exercising its
best efforts to restore the services.
3.03. REPAIRS AND MAINTENANCE.
-------------------------------
3.03(a). TENANT'S CARE OF PREMISES. Tenant shall:
-------------------------------------
(i) keep the Premises and fixtures in good order;
(ii) make repairs and replacements to the Premises or Building needed
to the extent due to Tenant's misuse or primary negligence,
except to the extent that the repairs or replacements are
covered by Landlord's insurance or the insurance Landlord is
required to carry under Section 5, whichever is greater;
(iii) not commit waste; and
(iv) not use any Hazardous Substances (as defined below) in the
Premises, Building or the Land.
3.03(b). LANDLORD'S REPAIRS. Except for repairs and replacements that
------------------------------
Tenant must make under paragraph 3.03(a), Landlord shall pay for and make all
other repairs and replacements to the Premises, common areas and Building
(including Building fixtures and equipment). Landlord shall make the repairs
and replacements to maintain the Building in a first class condition comparable
to other first class buildings in the downtown Columbus area. This maintenance
shall include the roof, foundation, exterior walls, interior structural walls,
all structural components and all systems such as mechanical, electrical, HVAC
and plumbing.
3.03(c). TIME FOR REPAIRS. Repairs or replacements required under
---------------------------
paragraphs 3.03(a) or 3.03(b) shall be made within a reasonable time (depending
on the nature of the repair or replacement needed) after receiving notice or
having actual knowledge of the need for a repair or replacement.
3.03(d). SURRENDERING THE PREMISES. On the Ending Date, Tenant shall
------------------------------------
surrender the Premises to Landlord in the same condition that the Premises were
in on the Beginning Date except for:
(i) ordinary wear and tear;
(ii) damage by the elements, fire, and other casualty unless Tenant
would be required to repair under paragraph 3.03(a);
(iii) condemnation;
-7-
<PAGE>
(iv) damage arising from any cause not required to be repaired or
replaced by Tenant; and
(v) alterations as permitted by this Lease unless consent was
conditioned on their removal.
On surrender Tenant shall remove from the Premises its personal property,
trade fixtures, any alterations required to be removed under paragraph 4.01 and
repair any damage to the Premises caused by the removal. Any items not removed
by Tenant as required above shall be considered abandoned. Landlord may dispose
of abandoned items as Landlord chooses and bill Tenant for the cost of their
disposal, minus any revenues received by Landlord for their disposal.
3.04. ENVIRONMENTAL OBLIGATIONS.
--------------------------------
3.04(a). DEFINITIONS.
---------------------
(i) "Hazardous Substance" means (A) "hazardous waste" as
defined by the Resource Conservation and Recovery Act of
1976, as amended; (B) "hazardous substance" as defined
by the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended; (C)
"toxic substances" as defined by the Toxic Substances
Control Act, as amended; (D) "hazardous materials" as
defined by the Hazardous Materials Transportation Act,
as amended; (E) any other substances regulated under
applicable federal, state or local laws, and the
regulations adopted under these acts, as amended; (F)
oil or other petroleum products; (G) any highly
combustible substance; (H) polychlorinated bipheyls; (I)
any other substance whose presence could reasonably be
detrimental to the Building, the Premises or the Land,
or which could be hazardous to health or the
environment. "Hazardous Substances" excludes normal
quantities of substances customarily used in the
operation of an office provided that such substances are
used in strict compliance with all Applicable Laws.
(ii) "Release" shall be defined as transport onto or across,
storage, dumping, spilling, leaking, atmospheric
injection, generation, use, causing or permitting to
escape, onto or from the Building, the Premises, or the
Land, of any Hazardous Substance.
3.04(b). LANDLORD'S REPRESENTATIONS AND OBLIGATIONS. Landlord represents
----------------------------------------------------
that no governmental entity is currently investigating or conducting remediation
activities at the Building, nor has the Building been declared a "Superfund"
site. Landlord, its agents or employees, shall not, either with or without
negligence, Release any Hazardous Substance on or about the Building, the
Premises or the land on which the Building is located, except in strict
-8-
<PAGE>
compliance with all Applicable Laws.
3.04(c). TENANT'S REPRESENTATIONS AND OBLIGATIONS. Tenant, its agents,
--------------------------------------------------
invitees, suppliers, contractors and employees shall not, either with or without
negligence, Release any Hazardous Substance on or about the Building, the
Premises or the Land. Tenant shall execute affidavits, representations and the
like from time to time at Landlord's reasonable request concerning Tenant's best
knowledge and belief regarding the presence or Release of Hazardous Substances
about the Building, the Premises or the Land.
3.04(d). LIABILITY. If any lender, purchaser or governmental agency
--------------------
shall ever require testing of the Building, the Premises, or the Land to
ascertain whether or not there has been any Release of Hazardous Substances, and
such Release is reasonably determined to be attributable to Tenant, its agents,
invitees, suppliers, contractors or employees, Tenant shall be liable, to the
extent it caused such Release, for all testing and remediation costs, including
returning the Building, the Premises or the Land to their previous conditions,
any sums paid for settlement of claims, judgments, or any governmental fines
associated, directly or indirectly, with a Release, and Tenant shall indemnify
against, defend and hold Landlord harmless from such fines, claims and
judgments.
SECTION 4 - NEGATIVE OBLIGATIONS
--------------------------------
4.01. ALTERATIONS.
-------------------
4.01(a). DEFINITIONS. "Alterations" means alterations, additions,
----------------------
substitutions, installations, changes and improvements, but excludes minor
decorations.
4.01(b). CONSENT. Tenant shall not make alterations without Landlord's
-----------------
advance written consent. Landlord's consent shall not be unreasonably withheld
or unduly delayed for nonstructural interior Alterations to the Premises that do
not adversely affect the Building's appearance, value and structural strength.
4.01(c). CONDITIONS OF CONSENT. Landlord may condition its consent in
---------------------------------
paragraph 4.01(b) on all or any part of the following:
(i) Tenant shall furnish Landlord with reasonably detailed plans and
specifications of the Alterations;
(ii) The Alterations shall be performed and completed--
(A) in accordance in all material respects with the submitted
plans and specifications;
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<PAGE>
(B) in a workmanlike manner;
(C) in compliance in all material respects with all Applicable
Laws, regulations and building codes;
(D) using new materials and installations at least equal in
quality to the original Building materials and
installations;
(E) by not unreasonably disturbing the quiet possession of the
other tenants or Landlord's employees;
(F) by not unreasonably interfering with the construction,
operation or maintenance of the Building, and
(G) with due diligence;
(iii) Tenant shall use workers and contractors whom Landlord employs
or approves in writing, which approval shall not be unreasonably
withheld or unduly delayed;
(iv) Tenant's contractors shall carry builder's risk insurance in an
amount then customarily carried by prudent contractors and
workers' compensation insurance for its employees in statutory
limits;
(v) Tenant shall give Landlord at least fifteen (15) days advance
notice before beginning any Alterations so that Landlord may
post or record notices of nonresponsibility;
(vi) At Landlord's request, Tenant shall remove the Alterations and
repair any damage caused by their removal by the Ending Date.
4.01(d). PAYMENT AND OWNERSHIP OF THE ALTERATIONS. Alterations made under
---------------------------------------------------
this paragraph shall be at Tenant's expense. The Alterations shall belong to
Landlord on the Ending Date except for those Alterations required to be removed
by Landlord. Nevertheless, Tenant may remove its trade fixtures, furniture,
equipment and other personal property if Tenant promptly repairs any damage
caused by their removal.
4.02. ASSIGNMENT AND SUBLEASING.
---------------------------------
4.02(a). CONSENT REQUIRED. Tenant shall not transfer, mortgage,
----------------------------
encumber, assign or sublease all or part of the Premises without Landlord's
advance written consent.
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<PAGE>
4.02(b). CONDITIONS. Permitted subleases and assignments by Tenant are
---------------------
subject to:
(i) The terms of this Lease;
(ii) The term shall not extend beyond the Lease Term;
(iii) Tenant shall remain liable for all Lease obligations; and
(iv) Consent to one sublease or assignment does not waive the consent
requirement for future assignments or subleases.
SECTION 5 - INSURANCE
---------------------
5.01. INSURANCE.
-----------------
5.01(a). LANDLORD'S BUILDING INSURANCE. Landlord shall keep the
-----------------------------------------
Building, including the improvements, insured against damage and destruction by
fire, earthquake, vandalism and other perils in the amount of the replacement
value of the Building, as the value may exist from time to time. The insurance
shall include an extended coverage endorsement of the kind required by an
institutional lender to repair and restore the Building.
5.01(b). PERSONAL PROPERTY INSURANCE. Each party shall keep its personal
--------------------------------------
property and trade fixtures in the Premises and Building insured with "all
risks" insurance in an amount to cover the replacement cost of the property and
fixtures. Tenant shall also keep any non-Building standard improvements and
betterments made to the Building at Tenant's request insured to the same degree
as Tenant's personal property.
5.01(c). LIABILITY INSURANCE. Each party shall maintain contractual and
------------------------------
comprehensive general liability insurance, including public liability and
property damage, with a minimum combined single limit of liability of five
million dollars ($5,000,000.00) for personal injuries or deaths of persons
occurring in or about the Building and Premises.
5.01(d). WAIVER OF SUBROGATION. Each party waives claims arising in any
--------------------------------
manner in its ("Injured Party's") favor and against the other party for loss or
damage to its property in the Building. The waiver does not apply to claims
caused by a party's willful misconduct or negligence. This waiver applies to
the extent the loss or damage is covered by:
(i) the Injured Party's insurance; or
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<PAGE>
(ii) the insurance the Injured Party is required to carry under
Section 5, whichever is greater. The waiver also applies to each
party's directors, officers, employees, shareholders, and
agents.
5.01(e). INSURANCE CRITERIA. Insurance policies required by this Lease shall:
- -----------------------------
(i) be issued by financially sound insurance companies licensed to
do business in the State of Ohio;
(ii) name the nonprocuring party as an additional insured as its
interest may appear; other landlords or tenants may also be
added as additional insureds in a blanket policy;
(iii) provide that the insurance not be canceled or materially changed
in the scope or amount of coverage unless fifteen (15) days'
advance notice is given to the nonprocuring party;
(iv) be permitted to be carried through a "blanket policy" or
"umbrella" coverage;
(v) may include "self insurance", in whole or in part, to the extent
Landlord or Tenant meets the requirements of this paragraph
5.01(e).
5.01(f). EVIDENCE OF INSURANCE. Upon the reasonable written request of
--------------------------------
either party, the other party shall give copies of certificates of insurance to
the requesting party. The certificate shall specify amounts, types of coverage
and the insurance coverages listed in paragraphs 5.01 (a), (b) and (c). The
policies shall be renewed or replaced and maintained by the party responsible
for that policy. If either party fails to give copies of the required
certificate within thirty (30) days after notice of demand for it, the other
party may obtain and pay for that insurance and receive reimbursement from the
party required to have the insurance.
5.02. INDEMNIFICATION.
-----------------------
5.02(a). TENANT'S INDEMNITY. Subject to paragraph 5.01(d) herein, Tenant
-----------------------------
indemnifies, defends, and holds Landlord harmless from claims:
(i) for personal injury, death or property damage;
(ii) for incidents arising in or about the Premises or Building; and
(iii) caused by the negligence or willful misconduct of Tenant, its
agents, employees or invitees. When the claim is caused by the
joint negligence or willful misconduct of Tenant and Landlord or
Tenant and a third party unrelated to Tenant, except its
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<PAGE>
agents, employees or invitees, Tenant's duty to defend,
indemnify and hold Landlord harmless shall be in proportion to
Tenant's allocable share of the joint negligence or willful
misconduct.
5.02(b). LANDLORD'S INDEMNITY. Subject to paragraph 5.01(a) herein,
--------------------------------
Landlord indemnifies, defends and holds Tenant harmless from claims:
(i) for personal injury, death or property damage;
(ii) for incidents occurring in or about the Premises or Building;
and
(iii) caused by the negligence or willful misconduct of Landlord, its
agents, employees or invitees. When the claim is caused by the
joint negligence or willful misconduct of Landlord and Tenant or
Landlord and a third party unrelated to Landlord, except its
agents, employees or invitees, Landlord's duty to defend,
indemnify and hold Tenant harmless shall be in proportion to
Landlord's allocable share of the joint negligence or willful
misconduct.
5.02(c). RELEASE OF CLAIMS. Notwithstanding paragraphs 5.02(a) and (b),
----------------------------
the parties release each other from any claims either party ("Injured Party")
has against the other, except for conduct arising out of or relating to the
willful misconduct or the negligence of the other party. This release is limited
to the extent the claim is covered by the Injured Party's insurance or the
insurance the Injured Party is required to carry under Section 5, whichever is
greater.
5.03. LIMITATION OF LANDLORD'S LIABILITY.
------------------------------------------
5.03(a). TRANSFER OF PREMISES. If the Building is sold or transferred,
-------------------------------
voluntarily or involuntarily, Landlord's Lease obligations and liabilities
accruing after the transfer shall be the sole responsibility of the new owner
if:
(i) the new owner expressly agrees in writing to assume Landlord's
obligations; and
(ii) Tenant's funds that Landlord is holding, such as any security
deposits or any prepaid rent are transferred to the new owner.
SECTION 6 - LOSS OF PREMISES
----------------------------
6.01. DAMAGES.
---------------
6.01(a). DEFINITION. "Relevant Space" means:
---------------------
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<PAGE>
(i) the Premises as defined in paragraph 1.02, excluding any
improvements installed by Tenant at its sole expense or any
improvements installed by Landlord but paid for by Tenant ("Non-
Building Standard Fixtures");
(ii) access to the Premises; and
(iii) any part of the Building that provides essential
services to the Premises.
6.01(b). REPAIR OF DAMAGE. If the Relevant Space is damaged in part or
----------------------------
whole from any cause and the Relevant Space can be substantially repaired and
restored within one hundred and twenty (120) days from the date of the damage
using standard working methods and procedures, Landlord shall, at its expense,
promptly and diligently repair and restore the Relevant Space to substantially
the same condition as existed before the damage. The repair and restoration
shall be made within one hundred and twenty (120) days from the date of the
damage unless the delay is due to causes beyond Landlord's reasonable control.
If the Relevant Space cannot be repaired and restored within a one hundred
and twenty (120) day period, then either party may, within ten (10) days after
determining that the repairs and restoration cannot be made within one hundred
and twenty (120) days, cancel the Lease by giving written notice to the other
party.
6.01(c). ABATEMENT. Unless the damage is caused by Tenant's willful
--------------------
misconduct, the Rent shall abate in proportion to that part of the Premises that
is unfit for use in Tenant's business. The abatement shall consider the nature
and extent of interference to Tenant's ability to conduct business in the
Premises and the need for access and essential services. The abatement shall
continue from the date the damage occurred until the earlier of (i) ten (10)
business days after Landlord completes the repairs and restoration to the
Relevant Space or the part rendered unusable and gives notice to Tenant that the
repairs and restoration are completed, or (ii) until Tenant again uses the
Premises or the part rendered unusable.
6.01(d). TENANT'S PROPERTY. Notwithstanding anything else in Section 6,
-----------------------------
Landlord is not obligated to repair or restore damage to Tenant's trade
fixtures, furniture, equipment or other personal property, or any Tenant
improvements unless such damage is caused by the willful misconduct or
negligence of Landlord or any of its agents.
6.01(e). DAMAGE TO BUILDING. If:
------------------------------
(A) more than forty (40%) percent of the Building is damaged;
(B) any mortgagee of the Building shall not allow adequate insurance
proceeds for repair and restoration;
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<PAGE>
(C) the damage is not covered by Landlord's insurance required by
this Lease; or
(D) this Lease is in the last six (6) months of its Term, then
Landlord may cancel this Lease. To cancel, Landlord must give
notice to Tenant within thirty (30) days after Landlord knows of
the damage. The notice must specify the cancellation date, which
shall be at least thirty (30) but not more than sixty (60) days
after the date notice is given.
6.01(f). CANCELLATION. If either party cancels this Lease as permitted by
-----------------------
paragraph 6.01, then this Lease shall end on the day specified in the
cancellation notice. The Rent and other charges shall be payable up to the
cancellation date and shall account for any abatement.
6.02. CONDEMNATION.
--------------------
6.02(a). DEFINITIONS. The terms "eminent domain," "condemnation," "taken"
----------------------
and the like in paragraph 6.02 include takings for public or quasi-public use
and private purchases in place of condemnation by any authority authorized to
exercise the power of eminent domain.
6.02(b). ENTIRE TAKING. If the entire Premises or the portions of the
------------------------
Building required for reasonable access to, or the reasonable use of, the
Premises are taken by eminent domain, this Lease shall automatically end on the
earlier of:
(i) the date title vests; or
(ii) the date Tenant is dispossessed by the condemning authority.
6.02(c). PARTIAL TAKING. If the taking of a part of the Premises
-------------------------
materially interferes with Tenant's ability to continue its business operations
in substantially the same manner and space then Tenant may end this Lease on the
earlier of:
(i) the date when title vests;
(ii) the date Tenant is dispossessed by the condemning authority; or
(iii) sixty (60) days following notice to Tenant of the date when
vesting or dispossession is to occur.
If there is a partial taking and this Lease continues, then the Lease shall
end as to the part taken and the Rent and Additional Rent shall abate in
proportion to the part of the Premises taken and Tenant's pro rata share shall
be equitably reduced.
6.02(d). TERMINATION BY LANDLORD. If title to a part of the Building
-----------------------------------
other than the
-15-
<PAGE>
Premises is condemned, and in the Landlord's reasonable opinion, the Building
should be restored in a manner that materially alters the Premises, Landlord may
cancel this Lease by giving notice to Tenant. Cancellation notice shall be given
within sixty (60) days following the date title vested. This Lease shall end on
the date specified in the cancellation notice, which date shall be at least
thirty (30) days but not more than ninety (90) days after the date notice is
given.
6.02(e). RENT ADJUSTMENT. If this Lease is canceled, then the Rent and
---------------------------
other charges shall be payable up to the cancellation date and shall account for
any abatement. Landlord, considering any abatement, shall promptly refund to
Tenant any prepaid, unaccrued Rent plus security deposit, if any, less any sum
then owing by Tenant to Landlord.
6.02(f). REPAIR. If this Lease is not canceled, then Landlord, at its
------------------
expense, shall promptly repair and restore the Premises to the condition that
existed immediately before the taking, except for the part taken, to render the
Premises a complete architectural unit, but only to the extent of the:
condemnation award received for the damage; and shall not be obligated to repair
Non-Building Standard Fixtures.
6.02(g). AWARDS AND DAMAGES. Landlord reserves all rights to damages paid
-----------------------------
because of any partial or entire taking of the Premises. Tenant assigns to
Landlord any right Tenant may have to the damages or award. Further, Tenant
shall not make claims against Landlord or the condemning authority for damages.
Notwithstanding anything else in paragraph 6.02(g), Tenant may claim and
recover from the condemning authority a separate award for Tenant's moving
expenses, business dislocation damages, Tenant's personal property and fixtures,
the unamortized costs of leasehold improvements paid for by Tenant and any other
award that would not substantially reduce the award payable to Landlord. Each
party shall seek its own award, as limited above, at its own expense, and
neither shall have any right to the award made to the other.
6.02(h). TEMPORARY CONDEMNATION. If part or all of the Premises are
----------------------------------
condemned for a limited period of time ("Temporary Condemnation"), this Lease
shall remain in effect. The Rent and Tenant's obligations for the part of the
Premises taken shall abate during the Temporary Condemnation in proportion to
the part of the Premises that Tenant is unable to use in its business operations
as a result of the Temporary Condemnation. Landlord shall receive the entire
award for any Temporary Condemnation.
SECTION 7 - DEFAULT
-------------------
7.01. TENANT'S DEFAULT.
------------------------
7.01(a). DEFAULTS. Each of the following constitutes a default
--------------------
("Default"):
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<PAGE>
(i) Tenant's failure to pay Rent within seven (7) days after Tenant
receives notice from Landlord of Tenant's failure to pay Rent;
(ii) Tenant's failure to pay Rent by the due date, at any time during
a calendar year in which Tenant has already received three
notices of its failure to pay Rent by the due date;
(iii) Tenant's failure to perform or observe in all material respects
any other Tenant obligation after a period of thirty (30)
business days or the additional time, if any, that is reasonably
necessary to promptly and diligently cure the failure, after it
receives notice from Landlord setting forth in reasonable detail
the nature and extent of the failure and identifying the
applicable Lease provision(s);
(iv) Tenant's failure to vacate or stay any of the following within
ninety (90) days after they occur:
(A) a petition in bankruptcy or state rehabilitation or
insolvency proceedings are filed by or against Tenant;
(B) Tenant is adjudicated as bankrupt or insolvent;
(C) a receiver, trustee or liquidator is appointed for all or a
substantial part of Tenant's property; or
(D) Tenant makes an assignment for the benefit of creditors.
7.02. LANDLORD'S REMEDIES.
---------------------------
7.02(a). REMEDIES. Landlord, in addition to the remedies given in this
--------------------
Lease or under the law, may do any one or more of the following if Tenant
commits a Default under paragraph 7.01:
(i) end this Lease, and Tenant shall then surrender the Premises to
Landlord;
(ii) enter and take possession of the Premises either with process of
law and remove Tenant, with or without having ended the Lease;
and
(iii) alter locks and other security devices at the Premises.
Tenant waives claims for damages by reason of Landlord's reentry,
repossession, or alteration of locks or other security devices and for damages
by reason of any legal process, unless the same was done in violation of the
terms hereof.
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<PAGE>
7.02(b). NO SURRENDER. Landlord's exercise of any of its remedies or its
------------------------
receipt of Tenant's keys shall not be considered an acceptance or surrender of
the Premises by Tenant. A surrender must be agreed to in a writing signed by
both parties.
7.02(c). RENT. If Landlord ends this Lease or ends Tenant's right to
----------------
possess the Premises because of a Default, Landlord may hold Tenant liable for
Rent and other indebtedness accrued to the date the Lease ends. Tenant shall
also be liable for the Rent and other indebtedness that otherwise would have
been payable by Tenant during the remainder of the Term had there been no
Default, reduced by any sums Landlord receives by reletting the Premises during
the Term.
7.02(d). OTHER EXPENSES. Tenant shall also be liable for that part of
--------------------------
the following sums paid by Landlord and attributable to that part of the Term
ended due to Tenant's Default:
(i) reasonable broker's fees incurred by Landlord for reletting part
or all of the Premises prorated for that part of the reletting
Term ending concurrently with the then current Term of this
Lease;
(ii) the cost of removing and storing Tenant's property;
(iii) the cost of minor repairs, alterations and remodeling, necessary
to put the Premises in a condition reasonably acceptable to a
new Tenant; and
(iv) other necessary and reasonable expenses incurred by Landlord in
enforcing its remedies.
7.02(e). PAYMENT. Tenant shall pay the sums due in paragraphs 7.02(c)
-------------------
and (d) within thirty (30) days of receiving Landlord's proper and correct
invoice for the amounts.
7.02(f). MITIGATION. Landlord shall mitigate its damage by making
---------------------
reasonable efforts to relet the Premises on reasonable terms. Landlord may
relet for a shorter or longer period of time than the Lease Term and make any
necessary repairs or alterations. Landlord may relet on any reasonable terms
including a reasonable amount of free rent. If Landlord relets for a period of
time longer than the current Lease Term, then any special concessions given to
the new Tenant shall be allocated throughout the entire reletting Term to not
unduly reduce the amount of consideration received by Landlord during the
remaining period of Tenant's Term.
7.03. LANDLORD'S DEFAULT. Landlord's failure to perform or observe any of
--------------------------
its Lease obligations after a period of thirty (30) business days or the
additional time, if any, that is reasonably necessary to promptly and diligently
cure the failure after receiving notice from Tenant is a Default. The notice
shall give in reasonable detail the nature and extent of the failure and
identify the Lease provision(s) containing the obligation(s). After Tenant
receives notice of a mortgagee's name and address and request for notice upon
Landlord's Default, Tenant shall also
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<PAGE>
provide the notice required by this paragraph to the mortgagee at the same time
Tenant gives notice to Landlord.
If Landlord commits a Default, Tenant may pursue any remedies given in this
Lease or under the law or in equity.
7.04. SELF-HELP. If either party defaults ("Defaulting Party"), the other
-----------------
party ("Nondefaulting Party") may, without being obligated and without waiving
the Default, cure the Default. The Nondefaulting Party may enter the Premises or
Building to cure the Default. The Defaulting Party shall pay the Nondefaulting
Party, upon demand, all costs, expenses, and disbursements incurred by the
Nondefaulting Party to cure the Default.
7.05. SURVIVAL. The remedies permitted by Section 7, the parties'
----------------
indemnities and environmental obligations in paragraphs 5.02 and 3.04, and the
Landlord's obligation to mitigate damages in paragraph 7.02(f) shall survive the
ending of this Lease.
SECTION 8 - NONDISTURBANCE
--------------------------
8.01. SUBORDINATION.
---------------------
8.01(a). MORTGAGES. Subject to paragraph 8.01(b), this Lease is
---------------------
subordinate to prior or subsequent mortgages covering the Building.
8.01(b). FORECLOSURES. If any mortgage is foreclosed, then:
------------------------
(i) This Lease shall continue;
(ii) Tenant's quiet possession shall not be disturbed if Tenant is
not in Default;
(iii) Tenant will attorn to and recognize the mortgagee or purchaser
at foreclosure sale ("Successor Landlord") as Tenant's landlord
for the remaining Term, provided that such Successor Landlord
has executed and delivered a non-disturbance agreement in
accordance with paragraph 8.01(c); and
(iv) The Successor Landlord shall not be bound by:
(A) any payment of Rent for more than one (1) month in advance,
(B) any amendment, modification or termination of this Lease
without Successor Landlord's consent, and
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<PAGE>
(C) any liability for any act or omission of a prior Landlord.
8.01(c). SELF-OPERATING. Paragraph 8.01 is self-operating. However,
--------------------------
Landlord and Tenant shall as promptly as practicable execute and deliver any
documents reasonably needed to confirm this arrangement.
8.02. ESTOPPEL CERTIFICATE.
----------------------------
8.02(a). OBLIGATION. Either party ("Answering Party") shall from time to
----------------------
time, within ten (10) business days after receiving written request by the other
party ("Asking Party"), execute and deliver to the Asking Party a written
statement. This written statement, which may be relied upon by the Asking Party
and any third party with whom the Asking Party is dealing shall certify:
(i) the accuracy of the Lease document;
(ii) the Beginning and Ending Dates of the Lease;
(iii) that the Lease is unmodified and in full effect (or in full
effect as modified and stating the date and nature of the
modification);
(iv) whether, to the Answering Party's knowledge, the Asking Party is
in default or whether the Answering Party has any claims or
demands against the Asking Party and, if so, specifying the
Default, claim or demand; and
(v) to other correct and reasonably ascertainable facts that are
covered by the Lease terms.
8.02(b). QUIET ENJOYMENT. If Tenant is not in default, and subject to
---------------------------
the Lease terms and the above encumbrances, Tenant's peaceable and quiet
enjoyment of the Premises shall not be disturbed.
SECTION 9 - LANDLORD'S RIGHTS
-----------------------------
9.01. RULES. Tenant, its employees and invitees, shall comply (following
-------------
a reasonable time after receipt in writing thereof by Tenant) with any rules and
reasonable modifications and additions to rules adopted by Landlord that do not
unreasonably and materially interfere with Tenant's conduct of its business or
Tenant's use and enjoyment of the Premises and that are delivered to Tenant in
writing.
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<PAGE>
9.02. MECHANICS LIENS.
-----------------------
9.02(a). DISCHARGE LIEN. Tenant shall, within twenty (20) days after
--------------------------
receiving notice of any mechanic's lien for material or work claimed to have
been furnished to the Premises on Tenant's behalf and at Tenant's request:,
(i) discharge the lien; or
(ii) post a bond equal to the amount of the disputed claim with
companies reasonably satisfactory to Landlord.
9.02(b). LANDLORD'S DISCHARGE. If Tenant does not discharge the lien or
--------------------------------
post the bond within the twenty (20) day period, Landlord may pay any amounts,
including interest and legal fees, to discharge the lien. Tenant shall then be
liable to Landlord for the amounts paid by Landlord.
9.03. RIGHT TO ENTER.
----------------------
9.03(a). PERMITTED ENTRIES. Landlord and its agents, servants and
-----------------------------
employees may enter the Premises at reasonable times, and at any time in an
emergency, without charge, liability or abatement of Rent, to:
(i) examine the Premises;
(ii) make repairs, alterations, improvements, and additions either
required by this Lease or advisable to preserve the integrity,
safety and good order of part or all of the Premises or
Building;
(iii) provide janitorial and other services required by this Lease;
(iv) comply with Applicable Laws;
(v) show the Premises to prospective lenders or purchasers and,
during the ninety (90) days immediately before this Lease ends,
to prospective tenants, accompanied, if requested by Tenant, by
a Tenant representative;
(vi) post notices of nonresponsibility;
(viii) remove any Alterations made by Tenant in violation of this
Lease.
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<PAGE>
9.04. HOLDOVER.
----------------
9.04(a). HOLDOVER STATUS. If Tenant continues occupying the Premises
---------------------------
after the Term ends ("Holdover") then:
(i) if the Holdover is with Landlord's written consent, this Lease
shall be a tenancy from month-to-month, terminable on thirty
(30) days advance written notice by either party;
(ii) if the Holdover is without Landlord's written consent, then
Tenant shall be a tenant-at-sufferance. Tenant shall pay by the
first day of each month 150% of the amount of Rent due in the
last full month immediately preceding the Holdover period and
shall be liable for any damages suffered by Landlord because of
Tenant's Holdover, as well as any other remedies permitted by
law.
9.05. SIGNS.
-------------
9.05(a). PERMITTED SIGNS. Landlord shall provide Tenant, at Landlord's
---------------------------
expense, the following listings and signs:
(i) Appropriate floor directories;
(ii) A sign on the exterior wall or door of the Premises inside the
Building.
9.05(b). NONPERMITTED SIGNS. Other than the signs and listings permitted
------------------------------
in paragraph 9.05(a), Tenant shall not place or have placed any other signs,
listings, advertisements or any other notices anywhere else in the Building.
SECTION 10 - MISCELLANEOUS
--------------------------
10.01. BROKER'S WARRANTY. The parties warrant that they have not dealt
--------------------------
with any broker with respect to this Lease. The party who breaches this
warranty shall defend, hold harmless and indemnify the nonbreaching party from
any claims or liability arising from the breach.
10.02. ATTORNEYS' FEES. In any litigation between the parties regarding
------------------------
this Lease, the losing party shall pay to the prevailing party all reasonable
expenses and court costs (including attorneys' fees) incurred by the prevailing
party. A party shall be considered the prevailing party if:
(i) it initiated the litigation and substantially obtains the relief
it sought, either through a judgment or the losing party's
voluntary action before arbitration (after
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<PAGE>
it is scheduled), trial or judgment;
(ii) the other party withdraws its action without substantially
obtaining the relief it sought; or
(iii) it did not initiate the litigation and judgment is entered for
either party, but without substantially granting the relief
sought.
10.03. NOTICES. Unless a Lease provision expressly authorizes verbal
----------------
notice, all notices under this Lease shall be in writing and sent by registered
or certified mail, postage prepaid, as follows:
To Tenant:
Nationwide Financial Services, Inc.
Nationwide Life Insurance Company
Nationwide Life and Annuity Insurance Company
One Nationwide Plaza
Columbus, Ohio 43215
Attn: President
To Landlord:
Nationwide Mutual Insurance Company
One Nationwide Plaza
Columbus, Ohio 43215
Attn: Properties Development - Leasing
Either party may change these persons or addresses by giving notice as
provided above. Tenant shall also give required notices to Landlord's mortgagee
after receiving written notice from Landlord of the mortgagee's name and
address. Notice shall be considered given and received on the latest original
delivery or attempted delivery date as indicated on the postage receipt(s) of
all persons and addresses to which notice is to be given.
10.04. PARTIAL INVALIDITY. If any Lease provision is invalid or
---------------------------
unenforceable to any extent, then that provision and the remainder of this Lease
shall continue in effect and be enforceable to the fullest extent permitted by
law.
10.05. WAIVER. The failure of either party to exercise any of its rights
---------------
is not a waiver of those rights. A party waives only those rights specified in
writing and signed by the party waiving its rights.
10.06. RECORDING. Recording of this Lease is prohibited except as allowed
------------------
in this paragraph. At the request of either party, the parties shall promptly
execute and record, at the
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<PAGE>
cost of the requesting party, a short form memorandum describing the Premises
and stating this Lease's Term, its Beginning and Ending Dates, and other
information the parties agree to include.
10.07. SURVIVAL OF REMEDIES. The parties' remedies shall survive the
-----------------------------
ending of this Lease when the ending is caused by the Default of the other
party.
10.08. AUTHORITY OF PARTIES. Each party warrants that (a) it is
-----------------------------
authorized to enter into this Lease, (b) that the person signing on its behalf
is duly authorized to execute this Lease and that no other signatures are
necessary, (c) no consents or approvals are necessary with respect to the
effectiveness of this transaction and (d) this lease is the legal, valid and
binding obligation of such party.
10.09. BUSINESS DAYS. Business days means Monday through Friday
----------------------
inclusive, excluding holidays identified at paragraph 3.02(b). Throughout this
Lease, wherever "days" are used, the term shall refer to calendar days.
Wherever the term "business days" is used, the term shall refer to business
days.
10.10. ENTIRE AGREEMENT. This Lease contains the entire agreement between
-------------------------
the parties with respect the Premises and Building.
10.11. AMENDMENTS AND MODIFICATIONS. This Lease shall be modified only
-------------------------------------
by a writing signed by both parties.
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<PAGE>
10.11. DEFINITION OF LEASE. This Lease includes Exhibits A - C attached.
----------------------------
LANDLORD
NATIONWIDE MUTUAL INSURANCE
COMPANY
By: __________________________
Its: __________________________
TENANT
NATIONWIDE LIFE INSURANCE COMPANY
By: ____________________________
Its: ____________________________
NATIONWIDE LIFE AND ANNUITY INSURANCE
COMPANY
By: ____________________________
Its: ____________________________
NATIONWIDE FINANCIAL SERVICES, INC.
By: _____________________________
Its: _____________________________
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<PAGE>
EXHIBIT A
---------
DESCRIPTION OF PREMISES
-----------------------
<PAGE>
EXHIBIT 10.8
Nationwide Financial Services, Inc.
1996 Long-Term Equity
Compensation Plan
December 1996
<PAGE>
Contents
- ----------------------------------------------------------------
Page
Article 1. Establishment, Objectives, and Duration 1
Article 2. Definitions 1
Article 3. Administration 4
Article 4. Shares Subject to the Plan and Maximum Awards 5
Article 5. Eligibility and Participation 6
Article 6. Stock Options 6
Article 7. Stock Appreciation Rights 8
Article 8. Restricted Stock 9
Article 9. Performance Units and Performance Shares 10
Article 10. Performance Measures 12
Article 11. Beneficiary Designation 12
Article 12. Deferrals 13
Article 13. Rights of Employees 13
Article 14. Change in Control 13
Article 15. Amendment, Modification, and Termination 14
Article 16. Withholding 14
Article 17. Indemnification 15
Article 18. Successors 15
Article 19. Legal Construction 15
<PAGE>
Nationwide Financial Services, Inc. 1996 Long-Term
Equity Compensation Plan
Article 1. Establishment, Objectives, and Duration
1.1. ESTABLISHMENT OF THE PLAN. Nationwide Financial Services, Inc., a
Delaware corporation (hereinafter referred to as the "Company"), hereby
establishes an incentive compensation plan to be known as the "Nationwide
Financial Services, Inc. 1996 Long-Term Equity Compensation Plan" (hereinafter
referred to as the "Plan"), as set forth in this document and individual award
agreements setting forth certain terms and conditions applicable to awards
granted under the Plan. The Plan permits the grant of Nonqualified Stock
Options, Incentive Stock Options, Stock Appreciation Rights, Restricted Stock,
Performance Shares and Performance Units.
Subject to approval by the Company's stockholders, the Plan shall become
effective as of December 11, 1996 (the "Effective Date") and shall remain in
effect as provided in Section 1.3 hereof.
1.2. OBJECTIVES OF THE PLAN. The objectives of the Plan are to optimize
the profitability and growth of the Company through incentives which are
consistent with the Company's goals and which link the personal interests of
Participants to those of the Company's stockholders; to provide Participants
with an incentive for excellence in individual performance; and to promote
teamwork among Participants.
The Plan is further intended to provide flexibility to the Company in its
ability to motivate, attract, and retain the services of Participants who make
significant contributions to the Company's success and to allow Participants to
share in the success of the Company.
1.3. DURATION OF THE PLAN. The Plan shall commence on the Effective Date,
as described in Section 1.1 hereof, and shall remain in effect, subject to the
right of the Board of Directors to amend or terminate the Plan at any time
pursuant to Article 15 hereof, until all Shares subject to it shall have been
purchased or acquired according to the Plan's provisions. However, in no event
may an Award be granted under the Plan on or after December 11, 2006.
Article 2. Definitions
Whenever used in the Plan, the following terms shall have the meanings set
forth below, and when the meaning is intended, the initial letter of the word
shall be capitalized:
2.1. "AFFILIATE" means Nationwide Mutual Insurance Company, Nationwide
Mutual Fire Insurance Company, EMPLOYERS INSURANCE OF WAUSAU A Mutual Company,
Farmland Mutual Insurance Company, and the Subsidiaries of each such company,
other than the Company.
1
<PAGE>
2.2. "AWARD" means, individually or collectively, a grant under this Plan
of Nonqualified Stock Options, Incentive Stock Options, Stock Appreciation
Rights, Restricted Stock, Performance Shares or Performance Units.
2.3. "AWARD AGREEMENT" means an agreement entered into by the Company and
each Participant setting forth the terms and provisions applicable to Awards
granted under this Plan.
2.4. "BENEFICIAL OWNER" or "BENEFICIAL OWNERSHIP" shall have the meaning
ascribed to such term in Rule 13d-3 of the General Rules and Regulations under
the Exchange Act.
2.5. "BOARD" or "BOARD OF DIRECTORS" means the Board of Directors of the
Nationwide Financial Services, Inc.
2.6. "CHANGE IN CONTROL" will be deemed to have occurred as of the first
day any one (1) or more of the following paragraphs shall have been satisfied:
(a) At any times when Nationwide Mutual Insurance Company and its
Subsidiaries cease to be the Beneficial Owner, directly or indirectly, of
securities of the Company representing fifty and one-tenth percent (50.1%) or
more of the combined voting power of the Company's then outstanding
securities; or
(b) The stockholders of the Company approve: (i) a plan of complete
liquidation of the Company; or (ii) an agreement for the sale or disposition
of all or substantially all the Company's assets.
2.7. "CODE" means the Internal Revenue Code of 1986, as amended from time
to time.
2.8. "COMMITTEE" means the Compensation Committee of the Board, as
specified in Article 3 herein, or such other Committee appointed by the Board to
administer the Plan with respect to grants of Awards.
2.9. "COMPANY" means Nationwide Financial Services, Inc., a Delaware
corporation, including any and all of its Subsidiaries, and any successor
thereto as provided in Article 18 herein.
2.10. "DIRECTOR" means any individual who is a member of the Board of
Directors of a member of Enterprise.
2.11. "DISABILITY" shall have the meaning ascribed to such term in the
employee health care plan maintained by the Participant's employer, or if no
such plan exists, at the discretion of the Committee.
2.12. "EFFECTIVE DATE" shall have the meaning ascribed to such term in
Section 1.1 hereof.
2
<PAGE>
2.13. "EMPLOYEE" means any employee of the Enterprise. Directors who are
not employed by the Enterprise shall not be considered Employees under this
Plan.
2.14. "ENTERPRISE" means the Company and the Affiliates.
2.15. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended
from time to time, or any successor act thereto.
2.16. "FAIR MARKET VALUE" shall be equal to the closing sale price of a
Share on the principal securities exchange on which the Shares are traded or, if
there is no such sale on the relevant date, then on the last previous day on
which a sale was reported.
2.17. "FREESTANDING SAR" means an SAR that is granted independently of any
Options, as described in Article 7 herein.
2.18. "INCENTIVE STOCK OPTION" or "ISO" means an option to purchase Shares
granted under Article 6 herein and which is designated as an Incentive Stock
Option and which is intended to meet the requirements of Code Section 422.
2.19. "INSIDER" shall mean an individual who is, on the relevant date, an
officer, director or ten percent (10%) beneficial owner of any class of the
Company's equity securities that is registered pursuant to Section 12 of the
Exchange Act, all as defined under Section 16 of the Exchange Act.
2.20. "NAMED EXECUTIVE OFFICER" means a Participant who, as of the date of
vesting and/or payout of an Award, as applicable, is one of the group of
"covered employees," as defined in the regulations promulgated under Code
Section 162(m), or any successor statute.
2.21. "NONEMPLOYEE DIRECTOR" shall have the meaning ascribed to such term
in Rule 16b-3 of the Exchange Act.
2.22. "NONQUALIFIED STOCK OPTION" or "NQSO" means an option to purchase
Shares granted under Article 6 herein and which is not intended to meet the
requirements of Code Section 422.
2.23. "OPTION" means an Incentive Stock Option or a Nonqualified Stock
Option, as described in Article 6 herein.
2.24. "OPTION PRICE" means the price at which a Share may be purchased
by a Participant pursuant to an Option.
2.25. "PARTICIPANT" means an Employee or Director who has outstanding an
Award granted under the Plan.
2.26. "PERFORMANCE-BASED EXCEPTION" means the performance-based
3
<PAGE>
exception from the tax deductibility limitations of Code Section 162(m).
2.27. "PERFORMANCE SHARE" means an Award granted to a Participant, as
described in Article 9 herein.
2.28. "PERFORMANCE UNIT" means an Award granted to a Participant, as
described in Article 9 herein.
2.29. "PERIOD OF RESTRICTION" means the period during which the transfer
of Shares of Restricted Stock is limited in some way (based on the passage of
time, the achievement of performance goals, or upon the occurrence of other
events as determined by the Committee, at its discretion), and the Shares are
subject to a substantial risk of forfeiture, as provided in Article 8 herein.
2.30. "PERSON" shall have the meaning ascribed to such term in Section
3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof,
including a "group" as defined in Section 13(d) thereof.
2.31. "RESTRICTED STOCK" means an Award granted to a Participant pursuant
to Article 8 herein.
2.32. "RETIREMENT" means a Participant's termination of employment with
all members of the Enterprise on or after the date on which he or she shall
have:
(a) Attained Normal Retirement Age,
(b) Attained age 55 and completed 180 Months of Vesting Service; or
(c) Attained age 62 and completed 60 Months of Vesting Service, whichever
is earliest.
For purposes of this Section, Normal Retirement Age and Months of Vesting
Service shall have the meanings assigned to them in the Nationwide Insurance
Enterprise Retirement Plan.
2.33. "SHARES" means the shares of Class A Common Stock of the Company, no
par value.
2.34. "STOCK APPRECIATION RIGHT" or "SAR" means an Award, granted alone or
in connection with a related Option, designated as an SAR, pursuant to the terms
of Article 7 herein.
2.35. "SUBSIDIARY" means any corporation in which an organization owns
directly, or indirectly through subsidiaries, at least fifty percent (50%) of
the total combined voting power of all classes of stock, or any other entity
(including, but not limited to, partnerships and joint ventures) in which the
organization owns at least fifty percent (50%) of the combined equity thereof.
2.36. "TANDEM SAR" means an SAR that is granted in connection with a
4
<PAGE>
related Option pursuant to Article 7 herein, the exercise of which shall require
forfeiture of the right to purchase a Share under the related Option (and when a
Share is purchased under the Option, the Tandem SAR shall similarly be
canceled).
Article 3. Administration
3.1. THE COMMITTEE. The Plan shall be administered by the Compensation
Committee of the Board, or by any other Committee appointed by the Board. The
members of the Committee shall be Nonemployee Directors and shall be appointed
from time to time by, and shall serve at the discretion of, the Board of
Directors.
3.2. AUTHORITY OF THE COMMITTEE. Except as limited by law or by the
Certificate of Incorporation or Bylaws of the Company, and subject to the
provisions herein, the Committee shall have full power to select Employees who
shall participate in the Plan; determine the sizes and types of Awards;
determine the terms and conditions of Awards in a manner consistent with the
Plan; construe and interpret the Plan and any agreement or instrument entered
into under the Plan as they apply to Employees; establish, amend, or waive rules
and regulations for the Plan's administration as they apply to Employees; and
(subject to the provisions of Article 15 herein) amend the terms and conditions
of any outstanding Award to the extent such terms and conditions are within the
discretion of the Committee as provided in the Plan. Further, the Committee
shall make all other determinations which may be necessary or advisable for the
administration of the Plan, as the Plan applies to Employees. As permitted by
law, the Committee may delegate its authority as identified herein.
3.3. DECISIONS BINDING. All determinations and decisions made by the
Committee pursuant to the provisions of the Plan and all related orders and
resolutions of the Board shall be final, conclusive and binding on all persons,
including the Company, its stockholders, Directors, Employees, Participants, and
their estates and beneficiaries.
Article 4. Shares Subject to the Plan and Maximum Awards
4.1. NUMBER OF SHARES AVAILABLE FOR GRANTS. Subject to adjustment as
provided in Section 4.2 herein, the number of Shares hereby reserved for
issuance to Participants under the Plan shall be two million six hundred
thousand (2,600,000). The Committee shall determine the appropriate methodology
for calculating the number of shares issued pursuant to the Plan.
Unless and until the Committee determines that an Award to a Named Executive
Officer shall not be designed to comply with the Performance-Based Exception,
the following rules shall apply to grants of such Awards under the Plan:
(a) STOCK OPTIONS: The maximum aggregate number of Shares that may be
granted in the form of Stock Options, pursuant to any Award granted
5
<PAGE>
in any one fiscal year to any one Participant shall be one hundred thousand
(100,000).
(b) SARS: The maximum aggregate number of Shares that may be subject to
Stock Appreciation Rights, pursuant to any Award granted in any one fiscal
year to any one Participant shall be one hundred thousand (100,000).
(c) RESTRICTED STOCK: The maximum aggregate grant with respect to Awards of
Restricted Stock granted in any one fiscal year to any one Participant shall
be one hundred thousand (100,000) Shares.
(d) PERFORMANCE SHARES/PERFORMANCE UNITS: The maximum aggregate payout with
respect to Awards of Performance Shares or Performance Units granted in any
one fiscal year to any one Participant shall be the value of one hundred
thousand (100,000) Shares at the end of the Performance Period.
4.2. ADJUSTMENTS IN AUTHORIZED SHARES. In the event of any change in
corporate capitalization, such as a stock split, or a corporate transaction,
such as any merger, consolidation, separation, including a spin-off, or other
distribution of stock or property of the Company, any reorganization (whether or
not such reorganization comes within the definition of such term in Code Section
368) or any partial or complete liquidation of the Company, such adjustment
shall be made in the number and class of Shares which may be delivered under
Section 4.1, in the number and class of and/or price of Shares subject to
outstanding Awards granted under the Plan, and in the Award limits set forth in
subsections 4.1(a) and 4.1(b), as may be determined to be appropriate and
equitable by the Committee, in its sole discretion, to prevent dilution or
enlargement of rights; provided, however, that the number of Shares subject to
any Award shall always be a whole number.
Article 5. Eligibility and Participation
5.1. ELIGIBILITY. Persons eligible to participate in this Plan include all
Employees of the Enterprise, including Employees who are members of the Board,
and all Directors.
5.2. ACTUAL PARTICIPATION. Subject to the provisions of the Plan, the
Committee may, from time to time, select from all eligible Employees and
Directors, those to whom Awards shall be granted and shall determine the nature
and amount of each Award.
Article 6. Stock Options
6.1. GRANT OF OPTIONS. Subject to the terms and provisions of the Plan,
Options may be granted to Participants in such number, and upon such terms, and
at any time and from time to time as shall be determined by the Committee.
6
<PAGE>
6.2. AWARD AGREEMENT. Each Option grant shall be evidenced by an Award
Agreement that shall specify the Option Price, the duration of the Option, the
number of Shares to which the Option pertains, and such other provisions as the
Committee shall determine. The Award Agreement also shall specify whether the
Option is intended to be an ISO within the meaning of Code Section 422, or an
NQSO whose grant is intended not to fall under the provisions of Code Section
422.
6.3. OPTION PRICE. The Option Price for each grant of an Option under this
Plan shall be at least equal to one hundred percent (100%) of the Fair Market
Value of a Share on the date the Option is granted.
6.4. DURATION OF OPTIONS. Each Option granted to an Employee shall expire
at such time as the Committee shall determine at the time of grant; provided,
however, that no Option shall be exercisable later than the tenth (10th)
anniversary date of its grant.
6.5. EXERCISE OF OPTIONS. Options granted under this Article 6 shall be
exercisable at such times and be subject to such restrictions and conditions as
set forth in the Award Agreement and as the Committee shall in each instance
approve, which need not be the same for each grant or for each Participant.
Options which are intended to be ISOs within the meaning of Code Section 422
shall be subject to the limitation set forth in Code Section 422(d).
6.6. PAYMENT. Options granted under this Article 6 shall be exercised by
the delivery of a written notice of exercise to the Company, setting forth the
number of Shares with respect to which the Option is to be exercised,
accompanied by full payment for the Shares.
The Option Price upon exercise of any Option shall be payable to the Company
in full either: (a) in cash or its equivalent, or (b) by tendering previously
acquired Shares having an aggregate Fair Market Value at the time of exercise
equal to the total Option Price (provided that the Shares which are ten dered
must have been held by the Participant for at least six (6) months prior to
their tender to satisfy the Option Price), or (c) by a combination of (a) and
(b).
The Committee also may allow cashless exercise as permitted under Federal
Reserve Board's Regulation T, subject to applicable securities law restrictions,
or by any other means which the Committee determines to be consistent with the
Plan's purpose and applicable law.
Subject to any governing rules or regulations, as soon as practicable after
receipt of a written notification of exercise and full payment, the Company
shall deliver to the Participant, in the Participant's name, Share certificates
in an appropriate amount based upon the number of Shares purchased under the
Option(s).
6.7. RESTRICTIONS ON SHARE TRANSFERABILITY. The Committee may impose such
restrictions on any Shares acquired pursuant to the exercise of an Option
7
<PAGE>
granted under this Article 6 as it may deem advisable and as are set forth in
the Award Agreement, including, without limitation, restrictions under
applicable federal securities laws, under the requirements of any stock exchange
or market upon which such Shares are then listed and/or traded, and under any
blue sky or state securities laws applicable to such Shares.
6.8. TERMINATION OF EMPLOYMENT. Each Participant's Option Award Agreement
shall set forth the extent to which the Participant shall have the right to
exercise the Option following termination of the Participant's employment with
the Company. Such provisions shall be determined in the sole discretion of the
Committee, shall be included in the Award Agreement entered into with each
Participant, need not be uniform among all Options issued pursuant to this
Article 6, and may reflect distinctions based on the reasons for termination of
employment.
6.9. NONTRANSFERABILITY OF OPTIONS.
(a) INCENTIVE STOCK OPTIONS. No ISO granted under the Plan may be sold,
transferred, pledged, assigned, or otherwise alienated or hypothecated, other
than by will or by the laws of descent and distribution. Further, all ISOs
granted to a Participant under the Plan shall be exercisable during his or her
lifetime only by such Participant.
(b) NONQUALIFIED STOCK OPTIONS. Except as otherwise provided in a
Participant's Award Agreement, no NQSO granted under this Article 6 may be
sold, transferred, pledged, assigned, or otherwise alienated or hypothecated,
other than by will or by the laws of descent and distribution. Further, except
as otherwise provided in a Participant's Award Agreement, all NQSOs granted to
a Participant under this Article 6 shall be exercisable during his or her
lifetime only by such Participant.
Article 7. Stock Appreciation Rights
7.1. GRANT OF SARs. Subject to the terms and conditions of the Plan, SARs
may be granted to Participants at any time and from time to time as shall be
determined by the Committee. The Committee may grant Freestanding SARs, Tandem
SARs, or any combination of these forms of SAR.
The Committee shall have complete discretion in determining the number of SARs
granted to each Participant (subject to Article 4 herein) and, consistent with
the provisions of the Plan, in determining the terms and conditions pertaining
to such SARs.
The grant price of a Freestanding SAR shall equal the Fair Market Value of a
Share on the date of grant of the SAR. The grant price of Tandem SARs shall
equal the Option Price of the related Option.
8
<PAGE>
7.2. EXERCISE OF TANDEM SARs. Tandem SARs may be exercised for all or part
of the Shares subject to the related Option upon the surrender of the right to
exercise the equivalent portion of the related Option. A Tandem SAR may be
exercised only with respect to the Shares for which its related Option is then
exercisable.
Notwithstanding any other provision of this Plan to the contrary, with respect
to a Tandem SAR granted in connection with an ISO: (i) the Tandem SAR will
expire no later than the expiration of the underlying ISO; (ii) the value of the
payout with respect to the Tandem SAR may be for no more than one hundred
percent (100%) of the difference between the Option Price of the underlying ISO
and the Fair Market Value of the Shares subject to the underlying ISO at the
time the Tandem SAR is exercised; and (iii) the Tandem SAR may be exercised only
when the Fair Market Value of the Shares subject to the ISO exceeds the Option
Price of the ISO.
7.3. EXERCISE OF FREESTANDING SARs. Freestanding SARs may be exercised
upon whatever terms and conditions the Committee, in its sole discretion,
imposes upon them and sets forth in the Award Agreement.
7.4. SAR AGREEMENT. Each SAR grant shall be evidenced by an Award
Agreement that shall specify the grant price, the term of the SAR, and such
other provisions as the Committee shall determine.
7.5. TERM OF SARs. The term of an SAR granted under the Plan shall be
determined by the Committee, in its sole discretion; provided, however, that
such term shall not exceed ten (10) years.
7.6. PAYMENT OF SAR AMOUNT. Upon exercise of an SAR, a Participant shall
be entitled to receive payment from the Company in an amount determined by
multiplying:
(a) The difference between the Fair Market Value of a Share on the date of
exercise over the grant price; by
(b) The number of Shares with respect to which the SAR is exercised.
At the discretion of the Committee, the payment upon SAR exercise may be in
cash, in Shares of equivalent value, or in some combination thereof.
7.7. TERMINATION OF EMPLOYMENT. Each SAR Award Agreement shall set forth
the extent to which the Participant shall have the right to exercise the SAR
following termination of the Participant's employment with the Enterprise. Such
provisions shall be determined in the sole discretion of the Committee, shall be
included in the Award Agreement entered into with Participants, need not be
uniform among all SARs issued pursuant to the Plan, and may reflect distinctions
based on the reasons for termination of employment.
7.8. NONTRANSFERABILITY OF SARs. Except as otherwise provided in a
9
<PAGE>
Participant's Award Agreement, no SAR granted under the Plan may be sold,
transferred, pledged, assigned, or otherwise alienated or hypothecated, other
than by will or by the laws of descent and distribution. Further, except as
otherwise provided in a Participant's Award Agreement, all SARs granted to a
Participant under the Plan shall be exercisable during his or her lifetime only
by such Participant.
Article 8. Restricted Stock
8.1. GRANT OF RESTRICTED STOCK. Subject to the terms and provisions of the
Plan, the Committee, at any time and from time to time, may grant Shares of
Restricted Stock to Participants in such amounts as the Committee shall
determine.
8.2. RESTRICTED STOCK AGREEMENT. Each Restricted Stock grant shall be
evidenced by a Restricted Stock Award Agreement that shall specify the Period(s)
of Restriction, the number of Shares of Restricted Stock granted, and such other
provisions as the Committee shall determine.
8.3. TRANSFERABILITY. Except as provided in this Article 8, the Shares of
Restricted Stock granted herein may not be sold, transferred, pledged, assigned,
or otherwise alienated or hypothecated until the end of the applicable Period of
Restriction established by the Committee and specified in the Restricted Stock
Award Agreement, or upon earlier satisfaction of any other conditions, as
specified by the Committee in its sole discretion and set forth in the
Restricted Stock Award Agreement. All rights with respect to the Restricted
Stock granted to a Participant under the Plan shall be available during his or
her lifetime only to such Participant.
8.4. OTHER RESTRICTIONS. Subject to Article 11 herein, the Committee shall
impose such other conditions and/or restrictions on any Shares of Restricted
Stock granted pursuant to the Plan as it may deem advisable and as are set forth
in the Award Agreement including, without limitation, a requirement that
Participants pay a stipulated purchase price for each Share of Restricted Stock,
restrictions based upon the achievement of specific performance goals (Company-
wide, divisional, and/or individual), time-based restrictions on vesting
following the attainment of the performance goals, and/or restrictions under
applicable Federal or state securities laws.
The Company shall retain the certificates representing Shares of Restricted
Stock in the Company's possession until such time as all conditions and/or
restrictions applicable to such Shares have been satisfied.
Except as otherwise provided in this Article 8, Shares of Restricted Stock
covered by each Restricted Stock grant made under the Plan shall become freely
transferable by the Participant after the last day of the applicable Period of
Restriction.
8.5. VOTING RIGHTS. During the Period of Restriction, Participants holding
10
<PAGE>
Shares of Restricted Stock granted hereunder may exercise full voting rights
with respect to those Shares.
8.6. DIVIDENDS AND OTHER DISTRIBUTIONS. During the Period of Restriction,
Participants holding Shares of Restricted Stock granted hereunder may be
credited with regular cash dividends paid with respect to the underlying Shares
while they are so held. The Committee may apply any restrictions to the
dividends that the Committee deems appropriate and as are set forth in the Award
Agreement. Without limiting the generality of the preceding sentence, if the
grant or vesting of Restricted Shares granted to a Named Executive Officer is
designed to comply with the requirements of the Performance-Based Exception, the
Committee may apply any restrictions it deems appropriate to the payment of
dividends declared with respect to such Restricted Shares, such that the
dividends and/or the Restricted Shares maintain eligibility for the Performance-
Based Exception.
8.7. TERMINATION OF EMPLOYMENT. Each Restricted Stock Award Agreement
shall set forth the extent to which the Participant shall have the right to
receive unvested Restricted Shares following termination of the Participant's
employment with the Company. Such provisions shall be determined in the sole
discretion of the Committee, shall be included in the Award Agreement entered
into with each Participant, need not be uniform among all Shares of Restricted
Stock issued pursuant to the Plan, and may reflect distinctions based on the
reasons for termination of employment; provided, however that, except in the
cases of terminations connected with a Change in Control and terminations by
reason of death or Disability, the vesting of Shares of Restricted Stock which
qualify for the Performance-Based Exception and which are held by Named
Executive Officers shall occur at the time they otherwise would have, but for
the employment termination.
Article 9. Performance Units and Performance Shares
9.1. GRANT OF PERFORMANCE UNITS/SHARES. Subject to the terms of the Plan,
Performance Units and/or Performance Shares may be granted to Participants in
such amounts and upon such terms, and at any time and from time to time, as
shall be determined by the Committee and as shall be set forth in the Award
Agreement.
9.2. VALUE OF PERFORMANCE UNITS/SHARES. Each Performance Unit shall have
an initial value that is established by the Committee at the time of grant. Each
Performance Share shall have an initial value equal to the Fair Market Value of
a Share on the date of grant. The Committee shall set performance goals in its
discretion which, depending on the extent to which they are met, will determine
the number and/or value of Performance Units/Shares that will be paid out to the
Participant. For purposes of this Article 9, the time period during which the
performance goals must be met shall be called a "Performance Period."
9.3. EARNING OF PERFORMANCE UNITS/SHARES. Subject to the terms of this
Plan,
11
<PAGE>
after the applicable Performance Period has ended, the holder of Performance
Units/Shares shall be entitled to receive payout on the number and value of
Performance Units/Shares earned by him or her over the Performance Period, to be
determined as a function of the extent to which the corresponding performance
goals have been achieved.
9.4. FORM AND TIMING OF PAYMENT OF PERFORMANCE UNITS/ SHARES. Payment of
earned Performance Units/Shares shall be made in a single lump sum follow ing
the close of the applicable Performance Period. Subject to the terms of this
Plan, the Committee, in its sole discretion, may pay earned Performance
Units/Shares in the form of cash or in Shares (or in a combination thereof)
which have an aggregate Fair Market Value equal to the value of the earned
Performance Units/Shares at the close of the applicable Performance Period. Such
Units/Shares may be granted subject to any restrictions deemed appropriate by
the Committee and set forth in the Award Agreement.
At the discretion of the Committee, Participants may be entitled to receive
any dividends declared with respect to Shares which have been earned in
connection with grants of Performance Units and/or Performance Shares which have
been earned, but not yet distributed to Participants (such dividends shall be
subject to the same accrual, forfeiture, and payout restrictions as apply to
dividends earned with respect to Shares of Restricted Stock, as set forth in
Section 8.6 herein). In addition, Participants may, at the discretion of the
Committee, be entitled to exercise their voting rights with respect to such
Shares.
9.5. TERMINATION OF EMPLOYMENT DUE TO DEATH, DISABILITY, OR RETIREMENT.
Unless determined otherwise by the Committee and set forth in the Participant's
Award Agreement, in the event the employment of a Participant is terminated by
reason of death, Disability, or Retirement during a Performance Period, the
Participant shall receive a payout of the Performance Units/Shares which is
prorated, as specified by the Committee in its discretion.
Payment of earned Performance Units/Shares shall be made at a time specified
by the Committee in its sole discretion and set forth in the Participant's Award
Agreement. Notwithstanding the foregoing, with respect to Named Executive
Officers who retire during a Performance Period, payments shall be made at the
same time as payments are made to Participants who did not terminate employment
during the applicable Performance Period.
9.6. TERMINATION OF EMPLOYMENT FOR OTHER REASONS. In the event that a
Participant's employment terminates for any reason other than those reasons set
forth in Section 9.5 herein, all Performance Units/Shares shall be forfeited by
the Participant to the Company unless determined otherwise by the Committee, as
set forth in the Participant's Award Agreement.
9.7. NONTRANSFERABILITY. Except as otherwise provided in a Participant's
Award Agreement, Performance Units/Shares may not be sold, transferred, pledged,
assigned, or otherwise alienated or hypothecated, other than by will or by the
laws of descent and distribution. Further, except as otherwise provided in
12
<PAGE>
a Participant's Award Agreement, a Participant's rights under the Plan shall be
exercisable during the Participant's lifetime only by the Participant or the
Participant's legal representative.
Article 10. Performance Measures
Unless and until the Committee proposes for shareholder vote and shareholders
approve a change in the general performance measures set forth in this Article
10, the attainment of which may determine the degree of payout and/or vesting
with respect to Awards to Named Executive Officers which are designed to qualify
for the Performance-Based Exception, the performance measure(s) to be used for
purposes of such grants shall be chosen from among earnings per share, economic
value added, market share (actual or targeted growth), net income (before or
after taxes), operating income, return on assets (actual or targeted growth),
return on capital (actual or targeted growth), return on equity (actual or
targeted growth), return on investment (actual or targeted growth), revenue
(actual or targeted growth), share price, stock price growth, or total
shareholder return.
The Committee shall have the discretion to adjust the determinations of the
degree of attainment of the preestablished performance goals; provided, however,
that Awards which are designed to qualify for the Performance-Based Exception,
and which are held by Named Executive Officers, may not be adjusted upward (the
Committee shall retain the discretion to adjust such Awards downward).
In the event that applicable tax and/or securities laws change to permit
Committee discretion to alter the governing performance measures without
obtaining shareholder approval of such changes, the Committee shall have sole
discretion to make such changes without obtaining shareholder approval. In
addition, in the event that the Committee determines that it is advisable to
grant Awards which shall not qualify for the Performance-Based Exception, the
Committee may make such grants without satisfying the requirements of Code
Section 162(m).
Article 11. Beneficiary Designation
Each Participant under the Plan may, from time to time, name any beneficiary
or beneficiaries (who may be named contingently or successively) to whom any
benefit under the Plan is to be paid in case of his or her death before he or
she receives any or all of such benefit. Each such designation shall revoke all
prior designations by the same Participant, shall be in a form prescribed by the
Nationwide Financial Services, Inc., and will be effective only when filed by
the Participant in writing with the Company's Compensation Officer during the
Participant's lifetime. In the absence of any such designation, benefits
remaining unpaid at the Participant's death shall be paid to the Participant's
estate.
13
<PAGE>
Article 12. Deferrals
The Committee may permit or require a Participant to defer such Participant's
receipt of the payment of cash or the delivery of Shares that would otherwise be
due to such Participant by virtue of the exercise of an Option or SAR, the lapse
or waiver of restrictions with respect to Restricted Stock, or the satisfaction
of any requirements or goals with respect to Performance Units/Shares. If any
such deferral election is required or permitted, the Committee shall, in its
sole discretion, establish rules and procedures for such payment deferrals.
Article 13. Rights of Employees
13.1. EMPLOYMENT. Nothing in the Plan shall interfere with or limit in any
way the right of the Company to terminate any Participant's employment at any
time, nor confer upon any Participant any right to continue in the employ of the
Company.
13.2. PARTICIPATION. No Employee shall have the right to be selected to
receive an Award under this Plan, or, having been so selected, to be selected to
receive a future Award.
Article 14. Change in Control
14.1. TREATMENT OF OUTSTANDING AWARDS. Upon the occurrence of a Change in
Control, unless otherwise specifically prohibited under applicable laws, or by
the rules and regulations of any governing governmental agencies or national
securities exchanges:
(a) Any and all Options and SARs granted hereunder shall become immediately
exercisable, and shall remain exercisable throughout their entire term;
(b) Any restriction periods and restrictions imposed on Restricted Shares
shall lapse;
(c) The target payout opportunities attainable under all outstanding Awards
of Restricted Stock, Performance Units and Performance Shares shall be deemed
to have been fully earned for the entire Performance Period(s) as of the
effective date of the Change in Control. The vesting of all Awards denominated
in Shares shall be accelerated as of the effective date of the Change in
Control, and there shall be paid out in cash to Participants within thirty
(30) days following the effective date of the Change in Control a pro rata
amount based upon an assumed achievement of all relevant performance goals and
upon the length of time within the Performance Period which has elapsed prior
to the Change in Control.
14
<PAGE>
14.2. TERMINATION, AMENDMENT, AND MODIFICATIONS OF CHANGE-IN-CONTROL
PROVISIONS. Notwithstanding any other provision of this Plan or any Award
Agreement provision, the provisions of this Article 14 may not be terminated,
amended, or modified on or after the date of a Change in Control to affect
adversely any Award theretofore granted under the Plan without the prior written
consent of the Participant with respect to said Participant's outstanding
Awards; provided, however, the Board of Directors, upon recommendation of the
Committee, may terminate, amend, or modify this Article 14 at any time and from
time to time prior to the date of a Change in Control. This Section 14.2 shall
not operate to reduce any rights granted to a Participant under Section 15.3.
Article 15. Amendment, Modification, and Termination
15.1. AMENDMENT, MODIFICATION, AND TERMINATION. The Board may at any time
and from time to time, alter, amend, suspend or terminate the Plan in whole or
in part; provided, however, that no amendment which requires shareholder
approval in order for the Plan to continue to comply with Rule 16b-3 under the
Exchange Act, including any successor to such Rule, shall be effective unless
such amendment shall be approved by the requisite vote of shareholders of the
Company entitled to vote thereon.
15.2. ADJUSTMENT OF AWARDS UPON THE OCCURRENCE OF CERTAIN UNUSUAL OR
NONRECURRING EVENTS. The Committee may make adjustments in the terms and
conditions of, and the criteria included in, Awards in recognition of unusual or
nonrecurring events (including, without limitation, the events described in
Section 4.3 hereof) affecting the Company or the financial statements of the
Company or of changes in applicable laws, regulations, or accounting principles,
whenever the Committee determines that such adjustments are appropriate in order
to prevent dilution or enlargement of the benefits or potential benefits
intended to be made available under the Plan; provided that no such adjustment
shall be authorized to the extent that such authority would be inconsistent with
the Plan's meeting the requirements of Section 162(m) of the Code, as from time
to time amended.
15.3. AWARDS PREVIOUSLY GRANTED. No termination, amendment, or
modification of the Plan shall adversely affect in any material way any Award
previously granted under the Plan, without the written consent of the
Participant holding such Award.
15.4. COMPLIANCE WITH CODE SECTION 162(M). At all times when Code Section
162(m) is applicable, all Awards granted under this Plan shall comply with the
requirements of Code Section 162(m); provided, however, that in the event the
Committee determines that such compliance is not desired with respect to any
Award or Awards available for grant under the Plan, then compliance with Code
Section 162(m) will not be required. In addition, in the event that changes are
made to Code Section 162(m) to permit greater flexibility with respect to any
Award or Awards available under the Plan, the Committee may, subject to this
Article 15, make any adjustments it deems appropriate.
15
<PAGE>
Article 16. Withholding
16.1. TAX WITHHOLDING. The Company shall have the power and the right to
deduct or withhold, or require a Participant to remit to the Company, an amount
sufficient to satisfy Federal, state, and local taxes, domestic or foreign,
required by law or regulation to be withheld with respect to any taxable event
arising as a result of this Plan.
16.2. SHARE WITHHOLDING. With respect to withholding required upon the
exercise of Options or SARs, upon the lapse of restrictions on Restricted Stock,
or upon any other taxable event arising as a result of Awards granted hereunder,
Participants may elect, subject to the approval of the Committee, to satisfy the
withholding requirement, in whole or in part, by having the Company withhold
Shares having a Fair Market Value on the date the tax is to be determined equal
to the minimum statutory total tax which could be imposed on the transaction.
All such elections shall be irrevocable, made in writing, signed by the
Participant, and shall be subject to any restrictions or limitations that the
Committee, in its sole discretion, deems appropriate.
Article 17. Indemnification
Each person who is or shall have been a member of the Committee, or of the
Board, shall be indemnified and held harmless by the Company to the fullest
extent permitted by Delaware law against and from any loss, cost, liability, or
expense that may be imposed upon or reasonably incurred by him or her in
connection with or resulting from any claim, action, suit, or proceeding to
which he or she may be a party or in which he or she may be involved by reason
of any action taken or failure to act under the Plan and against and from any
and all amounts paid by him or her in settlement thereof, with the Company's
approval, or paid by him or her in satisfaction of any judgement in any such
action, suit, or proceeding against him or her, provided he or she shall give
the Company an opportunity, at its own expense, to handle and defend the same
before he or she undertakes to handle and defend it on his or her own behalf.
The foregoing right of indemnification is subject to the person having been
successful in the legal proceedings or having acted in good faith and what is
reasonably believed to be a lawful manner in the Company's best interests. The
foregoing right of indemnification shall not be exclusive of any other rights of
indemnification to which such persons may be entitled under the Company's
Articles of Incorporation of Bylaws, as a matter of law, or otherwise, or any
power that the Company may have to indemnify them or hold them harmless.
Article 18. Successors
All obligations of the Company under the Plan with respect to Awards granted
hereunder shall be binding on any successor to the Company, whether the
existence of such successor is the result of a direct or indirect purchase,
merger, consolidation, or otherwise, of all or substantially all of the business
and/or assets of the Company.
16
<PAGE>
Article 19. Legal Construction
19.1. GENDER AND NUMBER. Except where otherwise indicated by the context,
any masculine term used herein also shall include the feminine; the plural shall
include the singular and the singular shall include the plural.
19.2. SEVERABILITY. In the event any provision of the Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of the Plan, and the Plan shall be construed and enforced as
if the illegal or invalid provision had not been included.
19.3. REQUIREMENTS OF LAW. The granting of Awards and the issuance of
Shares under the Plan shall be subject to all applicable laws, rules, and
regulations, and to such approvals by any governmental agencies or national
securities exchanges as may be required.
19.4. SECURITIES LAW COMPLIANCE. With respect to Insiders, transactions
under this Plan are intended to comply with all applicable conditions or Rule
16b-3 or its successors under the 1934 Act. To the extent any provision of the
plan or action by the Committee fails to so comply, it shall be deemed null and
void, to the extent permitted by law and deemed advisable by the Committee.
19.5. GOVERNING LAW. To the extent not preempted by federal law, the Plan,
and all agreements hereunder, shall be construed in accordance with and governed
by the laws of the state of Delaware.
IN WITNESS WHEREOF, this document has been duly executed by Nationwide Financial
Services, Inc.
NATIONWIDE FINANCIAL SERVICES, INC.
By:_________________________________
Attest:
__________________________________________
17
<PAGE>
Nationwide Financial Services, Inc.
1996 Long-Term Equity Compensation Plan
[Nonqualified/Incentive] Stock Option Award Agreement
Dear ________________:
Congratulations on your selection as a Participant in the Nationwide Financial
Services, Inc. Long-Term Equity Compensation Plan (the "Plan"). This Agreement
provides a brief summary of your rights under the Plan.
The Plan provides a complete detail of all of your rights under the Plan and
this Agreement, as well as all of the conditions and limitations affecting such
rights. If there is any inconsistency between the terms of this Agreement and
the terms of the Plan, the Plan's terms shall completely supersede and replace
the conflicting terms of this Agreement.
The options granted to you under this Agreement are ["NONQUALIFIED/ INCENTIVE"]
options, as defined in the Plan. Accordingly, [ADD LIMITATIONS HERE, IF AN
"INCENTIVE" OPTION.]
Overview of Your Stock Option
1. NUMBER OF SHARES GRANTED UNDER THESE OPTIONS: ___________________
2. DATE OF GRANT: __________________________________________________
3. EXERCISE PRICE: [$ FMV]
_________________________________________________
4. OPTION TERM: The Options have been granted for a period of ten years from the
Date of Grant (the "Option Term").
5. VESTING AND EXERCISE OF OPTIONS: Options do not provide you with any rights
or interests therein until they vest and become exercisable in accordance
with the following:
(a) Upon your termination of employment due to death or disability.
(b) Upon your termination of employment with the Enterprise due to
Retirement.
(c) At the sole discretion of the Committee, upon your termination of
employment by reason of dismissal for the convenience of the Enterprise
or your termination of employment (other than your Retirement) coincident
with the receipt of benefits under a funded or unfunded retirement plan
or arrangement of the Enterprise.
(d) One-third of the stock subject thereto, on a cumulative basis, on each of
the first, second, and third anniversaries of the Date of Grant, provided
you have continued in the employment of the Enterprise through such
anniversary or anniversaries.
Options which are exercisable at the time of termination of employment
continue to be exercisable until terminated as described in paragraph 7
below.
<PAGE>
Options which are not and do not become exercisable at the time of your
termination of employment shall, coincident therewith, terminate and be of no
force or effect.
6. HOW TO EXERCISE: The Options hereby granted shall be exercised by written
notice to the Company's Compensaton Officer, specifying the number of shares
you then desire to purchase, which may not be fewer than twenty-five (25),
together with a check payable to the order of Nationwide Financial Services,
Inc. for an amount in United States dollars equal to the option price of such
shares or, if the Committee permits, shares of Common Stock having an
aggregate fair market value (as of the trading date immediately preceding the
date of exercise) equal to such option price, or a combination of cash and
such shares.
As soon as practicable after receipt of such written notification and
payment, the Company shall issue or transfer to you the number of shares with
respect to which such Options shall be so exercised and shall, upon receipt
of applicable withholding taxes, deliver to you a certificate or certificate
thereof, registered in your name.
7. TERMINATION OF OPTIONS: The Options, which become exercisable as provided in
paragraph 5 above, shall terminate and be of no force or effect as follows:
(a) If your employment with the Enterprise terminates during the Option Term
by reason of death or Disability, the Options terminate and have no force
or effect one year after the date of death or Disability;
(b) If your employment with the Enterprise terminates during the Option Term
by reason of retirement, the Options terminate and have no force or
effect upon the earlier of five (5) years after termination of employment
or the expiration of the option term;
(c) If your employment with the Enterprise terminates during the Option Term
due to your dismissal for the convenience of the Enterprise, the Options
terminate and have no force of effect on the expiration of three (3)
months after your termination, as may be determined at the sole
discretion of the Committee, but in no event later than the expiration of
the Option Term;
(d) If your employment with the Enterprise terminates during the Option Term
for any other reason, the Options terminate and have no force or effect
upon the expiration of three (3) months after your termination of
employment or the expiration of the Option Term, whichever occurs first;
and
(e) If you continue in the employ of the Company through the Option Term, the
Options terminate and have no force or effect upon the expiration of the
Option Term.
8. CHANGE IN CONTROL: In the event of a Change in Control, all Options under
this Agreement shall become immediately vested 100 percent, and shall remain
exercisable for their entire term.
9. WHO CAN EXERCISE: During your lifetime the Options shall be exercisable only
by you. No assignment or transfer of the Options, whether voluntary or
involuntary, by
<PAGE>
operation of law or otherwise, except by will or the laws of descent and
distribution or pursuant to a domestic relations order, shall vest in the
assignee or transferee any interest whatsoever.
Please refer any questions you may have regarding your stock options to the
Company's Compensation Officer. Once again, congratulations on receipt of your
stock option.
Sincerely,
Nationwide Financial Services, Inc.
- -----------------------------------
Please acknowledge your agreement to participate in the Plan and this Agreement,
and to abide by all of the governing terms and provisions, by signing the
following representation:
AGREEMENT TO PARTICIPATE
By signing a copy of this Agreement and returning it to the Compensation Officer
of the Company, I acknowledge that I have read the Plan, and the I fully
understand all of my rights under the Plan, as well as all of the terms and
conditions which may limit my eligibility to exercise this option. Without
limiting the generality of the preceding sentence, I understand that my right to
exercise these options are conditioned upon my continued employment with the
Enterprise.
-----------------------------
Participant
<PAGE>
Nationwide Financial Services, Inc.
1996 Long-Term Equity Compensation Plan
Restricted Stock Award
Dear _____________:
Congratulations on your selection as a Participant in the Nationwide Financial
Services, Inc. Long-Term Equity Compensation Plan (the "Plan").
The Plan provides a complete detail of all of your rights under the Plan and
this Agreement, as well as all of the conditions and limitations affecting such
rights. If there is any inconsistency between the terms of this Agreement and
the terms of the Plan, the Plan's terms shall completely supersede and replace
the conflicting terms of this Agreement.
The following shares of Restricted Stock are being awarded under the Plan, the
terms of which shall govern this grant.
Overview of Your Shares of Restricted Stock
NUMBER OF RESTRICTED SHARES GRANTED: ___________________________________
DATE OF GRANT: _____________________________
DATE(S) OF LAPSE OF RESTRICTIONS: ______________________________________
________________________________________________________________________
________________________________________________________________________
1. EMPLOYMENT BY THE ENTERPRISE. This Restricted Stock is awarded on the
condition that the Participant remain in the employ of the Company and the
Affiliates (the "Enterprise") from the Date of Grant through (and including) the
Date(s) of Lapse of Restrictions. The Award of this Restricted Stock, however,
shall not impose upon the Enterprise any obligation to retain the Participant in
its employ for any given period or upon any specific terms of employment.
<PAGE>
2. CERTIFICATE LEGEND. Each certificate representing Shares of Restricted
Stock granted pursuant to the Plan shall bear the following legend:
"The sale or other transfer of the shares of stock
represented by this certificate, whether voluntary,
involuntary, or by operation of law, is subject to certain
restrictions on transfer set forth in the Nationwide
Financial Services, Inc. Long-Term Equity
Compensation Plan and in a Restricted Stock
Agreement. A copy of the Plan and such Restricted
Stock Agreement may be obtained from the Secretary of
Nationwide Financial Services, Inc."
3. REMOVAL OF RESTRICTIONS. Except as otherwise provided in the Plan, one
hundred percent (100%) of the _______ Shares of Restricted Stock granted under
this Agreement shall become freely transferable by the Participant on the
"Date(s) of Lapse of Restrictions" set forth on page 1 herein.
Once the shares are released from the restrictions, the Participant shall be
entitled to receive certificates representing the Shares of stock which have
vested, and to have the legend required by Paragraph 2 of this Agreement removed
from his or her Common Stock certificate.
4. VOTING RIGHTS AND DIVIDENDS. During the Period of Restriction, the
Participant may exercise full voting rights and is entitled to receive all
dividends and other distributions paid with respect to the Shares of Restricted
Stock while they are held. If any such dividends or distributions are paid in
shares of Common Stock of the Company, the Shares shall be subject to the same
restrictions on transferability as the Shares of Restricted Stock with respect
to which they were paid.
5. TERMINATION OF EMPLOYMENT BY REASON OF DEATH, DISABILITY, RETIREMENT,
AND VESTING IN CONNECTION WITH A CHANGE IN CONTROL. In the event the
Participant's employment is terminated by reason of death, Disability,
Retirement, or in the event of a Change in Control prior to the Date(s) of Lapse
of Restrictions, all Shares of Restricted Stock then outstanding shall
immediately vest one hundred percent (100%), and as soon as is administratively
practicable, the stock certificates representing the Shares of Restricted Stock
without any restrictions or legend thereon, shall be delivered to the
Participant or the Participant's beneficiary or estate.
6. TERMINATION OF EMPLOYMENT FOR OTHER REASONS. In the event the
Participant's employment is terminated for reasons other than those described in
Section 5 herein prior to the Date(s) of the Lapse of Restrictions, all
outstanding Shares of unvested Restricted Stock granted hereunder shall
immediately be forfeited by the Participant.
<PAGE>
7. TRANSFERABILITY. This Restricted Stock is not transferable by the
Participant, whether voluntarily or involuntarily, by operation of law or
otherwise, during the Restriction Period, except as provided in the Plan. If any
assignment, pledge, transfer, or other disposition, voluntary or involuntary, of
this Restricted Stock shall be made, or if any attachment, execution,
garnishment, or lien shall be issued against or placed upon the Restricted
Stock, then the Participant's right to the Restricted Stock shall immediately
cease and terminate and the Participant shall promptly forfeit to the Company
all Restricted Stock awarded under this Agreement.
Please refer any questions you may have regarding your shares of Restricted
Stock to the Company's Compensation Officer. Once again, congratulations on
receipt of your Restricted Stock.
Sincerely,
Nationwide Financial Services, Inc.
___________________________________
Please acknowledge your agreement to participate in the Plan and this Agreement
and to abide by all of the governing terms and provisions, by signing the
following representation:
AGREEMENT TO PARTICIPATE
By signing a copy of this Agreement and returning it to the Compensation
Officer of the Company, I acknowledge that I have read the Plan, and that I
fully understand all of my rights under the Plan, as well as all of the
terms and conditions which may limit my eligibility to receive these Shares
of Restricted Stock. Without limiting the generality of the preceding
sentence, I understand that my right to transfer these Shares of Restricted
Stock is conditioned upon my continued employment or other applicable
restrictions with the Enterprise.
___________________________________
Participant
<PAGE>
EXHIBIT 10.9
NATIONWIDE INSURANCE ENTERPRISE
EXECUTIVE INCENTIVE PLAN
GENERAL DESCRIPTION*
INTRODUCTION
- ------------
Nationwide Mutual Insurance Company and certain of its subsidiaries and
affiliates, including Nationwide Life Insurance Company, maintain the Nationwide
Insurance Enterprise Executive Incentive Plan (the "EIP"). The following is a
general description of the EIP and its provisions.
ELIGIBILITY AND PARTICIPATION
- -----------------------------
Eligibility is limited to elected officers of the participating companies who
are key management employees. Individual eligibility generally commences upon an
employee being hired or assigned into an eligible position. Payments under the
EIP are pro-rated, based upon the time employed in an eligible position during
the final calendar year of each EIP three-year performance cycle. The
performance cycle is defined as the preceding three consecutive calendar years.
GENERAL PROVISIONS
- ------------------
. An annual cash payment opportunity exists under the EIP.
. Payments are earned based on the achievement of several predetermined key
company performance measures that vary according to the business strategy
of the various participating companies and business units.
. The performance measures are generally comprised of profitability and growth
objectives for the relevant business segment of the Nationwide Insurance
Enterprise (the "Enterprise") in which the participant is a member of the
management team. The performance measures are established in advance by
senior management, and approved by the Board of Directors of the
participating company as a part of the operating plan.
. A participant will be granted a target incentive amount that represents a
percentage of the participant's annual base salary at the close of the
performance cycle. Target incentive amounts vary from 5% to 25% of this
annual base salary depending on the participant's position within the
participating company.
. The actual amount received by a participant under the EIP will be determined
solely by the achievement of the performance measures. The extent or degree
of achievement of the performance measure objectives will result in a payment
ranging from zero to twice the target incentive amount. The determination of
the extent of the achievement of the objectives is made by the Enterprise
Management Incentive Committee and the Chairman and Chief Executive Officer
of the Enterprise, and approved by the Board of Directors.
. Payments are made annually before March 15, to those participants who were
employed by the Enterprise on December 31 of the prior year and those who had
retired during the year.
PLAN ADMINISTRATION
- -------------------
The EIP is administered under the auspices of the Enterprise Management
Incentive Committee. The Committee is comprised of key employees who report
directly to the Chairman and Chief Executive Officer of the Enterprise.
* There is no formal written plan document other than this general description.
The performance measures, target incentive amounts and various other provisions
of the EIP are conveyed in writing to the individual participants annually. The
information presented herein is general in nature, and is provided as an
overview of the EIP. Neither the EIP nor this description constitute an
employment contract between the participating companies and any individual. The
participating companies each reserve the right to modify, terminate, or make
exceptions to its participation in the EIP without prior notice to the
participants.
<PAGE>
EXHIBIT 10.10
NATIONWIDE INSURANCE ENTERPRISE
MANAGEMENT INCENTIVE PLAN
GENERAL DESCRIPTION*
INTRODUCTION
- ------------
Nationwide Mutual Insurance Company and certain of its subsidiaries and
affiliates, including Nationwide Life Insurance Company, maintain the Nationwide
Insurance Enterprise Management Incentive Plan (the "MIP"). The following is a
general description of the MIP and its provisions.
ELIGIBILITY AND PARTICIPATION
- -----------------------------
Eligibility is limited to elected officers and certain other key management
employees of the participating companies who have significant impact on
operations and business results of those companies. Eligibility generally
includes all officers of a participating company, and certain other management
employees. Individual eligibility generally commences upon an employee being
hired or assigned into an eligible position. Payments under the MIP are pro-
rated, based upon the time employed in an eligible position during the plan
year. The plan year is defined as the calendar year.
GENERAL PROVISIONS
- ------------------
. An annual cash payment opportunity exists under the MIP.
. Payments are earned based on the achievement of several predetermined key
company and individual performance measures that vary according to the
business strategy of the various participating companies and business units.
. For each participant, the performance measures are generally divided into
three major categories or elements. Those are the Nationwide Insurance
Enterprise (the "Enterprise") element, the business unit element (which may
be comprised of a combination of the relevant operating company and relevant
business unit), and the individual element.
. The Enterprise and business unit performance measures are generally comprised
of profitability, growth, expense management and key strategic objectives.
These performance measures are established in advance by senior management,
and approved by the Board of Directors, of the participating company as a
part of the operating plan.
. The individual performance measures are objectives related to the function of
each participant, are designed to enhance the performance of that
individual's business unit or the Enterprise, and are established in advance
by the participant's manager.
1
<PAGE>
. An opportunity weight is used to determine what value or proportional impact
each element has in the participant's overall payment calculation. The
opportunity weights vary by operating company, business unit and level of
job.
. A participant will be granted a target incentive amount that represents a
percentage of the participant's annual base salary at the close of the plan
year. Target incentive amounts vary from 5% to 15% of annual base salary
depending on the participant's position within the participating company.
. The actual amount received by a participant under the MIP will be determined
solely by the achievement of the performance measures. The extent or degree
of achievement of the performance measure objectives will result in a payment
ranging from zero to twice the target incentive amount. The determination of
the extent of the achievement of the objectives is made by the Nationwide
Insurance Enterprise Management Incentive Committee and the Chairman and
Chief Executive officer of the Enterprise, and approved by the Board of
Directors, with respect to the Enterprise and business unit performance
measures. The determination is made by the responsible member of senior
management with respect to the individual performance measures.
. Payments are made annually before March 15, to those participants who were
employed by a member of the Enterprise on December 31 of the prior year and
those who had retired during that year.
PLAN ADMINISTRATION
- -------------------
The MIP is administered under the auspices of the Nationwide Insurance
Enterprise Management Incentive Committee. The Committee is comprised of key
employees who report directly to the Chairman and Chief Executive Officer of the
Enterprise.
* There is no formal written plan document other than this general description.
The performance measures, target incentive amounts and various other provisions
of the MIP are conveyed in writing to the individual participants annually. The
information presented herein is general in nature, and is provided as an
overview of the MIP. Neither the MIP nor this description constitute an
employment contract between the participating companies and any individual. The
participating companies each reserve the right to modify, terminate, or make
exceptions to its participation in the MIP without prior notice to the
participants.
2
<PAGE>
EXHIBIT 10.11
NATIONWIDE INSURANCE ENTERPRISE
EXCESS BENEFIT PLAN
-------------------
WHEREAS, certain Participating Employers as that term is defined in the
Nationwide Insurance Enterprise Retirement Plan (the "Retirement Plan") have
previously adopted the Nationwide Insurance Companies and Affiliates Excess
Benefit Plan for the benefit of certain of its employees;
WHEREAS, said Participating Employers do now desire to amend and restate such
plan as the Nationwide Insurance Enterprise Excess Benefit Plan (this "Plan"),
effective December 31, 1996;
WHEREAS, Wausau Service Corporation hereby adopts the Nationwide Insurance
Enterprise Excess Benefit Plan, effective December 31, 1996;
NOW THEREFORE, the Participating Employers do hereby adopt, amend and restate
this Plan set forth in this instrument, effective as of December 31, 1996.
ARTICLE I
Definitions
-----------
Any word or term used in this instrument, if defined in the Retirement Plan,
shall have the same meaning as set forth in such definition.
ARTICLE II
Eligibility
-----------
Each Participant in the Retirement Plan will become a Participant in this Plan
on the later of the date that the Participating Employer adopts this Plan or the
first date that such Participant's Projected Annual Benefit exceeds the maximum
amount of annual straight life annuity that may be payable to him or her under
the Retirement Plan at his or her Normal Retirement Date due to application of
the Maximum Benefit provisions set forth in Section 3.06 of the Retirement Plan
(the "Maximum Benefit Provisions"). Any individual who is a Participant in this
Plan at any time will cease to be a Participant on the first date that his or
her Projected Annual Benefit shall fall below such maximum amount set forth in
the Retirement Plan.
Each spouse of a Participant in the Retirement Plan will become a Participant in
this Plan on the first date that such spouse receives an annuity payment under
Article V of the Retirement Plan which is less than the amount of payment such
spouse would have received thereunder due to the application of the Maximum
Benefit Provisions.
"Projected Annual Benefit" means the annual amount of Straight Life Annuity that
would be payable to a Participant on his or her Normal Retirement Date under the
Retirement Plan, without taking into account the Maximum Benefit Provisions, on
the assumptions that (i) he or she continues employment with the Participating
Employers until his or her Normal Retirement Date, (ii) that his or her Covered
Compensation at date of determination continues without change until Normal
Retirement Date, and (iii) that all other factors relevant to the determination
of benefits under the Retirement Plan remain constant until his or her Normal
Retirement Date.
<PAGE>
ARTICLE III
Benefit Payable
---------------
3.1 Each time that a Participant, or his or her contingent annuitant receives a
life contingent annuity payment from the Retirement Plan, he or she shall
receive a payment from this Plan equal to the difference between
(a) the amount of payment he or she received from the Retirement Plan, and
(b) the amount of payment he or she would have received from the
Retirement Plan except for the Maximum Benefit Provisions.
3.2 In no event shall the calculation of benefits payable under this Plan under
Section 3.1 consider compensation excluded from the calculation of the
Retirement Plan benefit by reason of application of the annual compensation
limit required under Code Section 401(a)(17).
ARTICLE IV
Liability for Payment
---------------------
4.1 Each Participating Employer shall be liable for payments due under this
Plan which are based upon its employees' participation in the Retirement
Plan.
In the event that a payment due hereunder is based upon participation in
the Retirement Plan during employment with two or more Participating
Employers, the Actuary for the Retirement Plan shall determine each such
Participating Employer's share of the liability for such payment after
taking into account each such Participating Employer's liability under the
Retirement Plan as to the person to whom such payment is due.
4.2 The Actuary for the Retirement Plan shall also determine each Participating
Employer's liability for post-retirement increases in benefits from the
Retirement Plan, which are applied to increase benefits payable under
Article III.
4.3 The value of the benefit under this Plan shall be determined on the
Participant's Severance Date or, if later, the date the Maximum Benefit
Provisions first apply, and any resulting employment tax consequences of
the Participating Employers shall be allocated among them by the Actuary at
such time.
ARTICLE V
Method of Payment
-----------------
5.1 The dollar amount of each payment due under this Plan shall be paid from
the general assets of the Participating Employer(s) liable for such
payment. Such payments shall not be funded. As an unfunded plan, this
Plan has no assets and each Participant's right to a payment due hereunder
is that of an unsecured creditor of the Participating Employer(s) liable
for such payment.
5.2 Regardless of which annuity form is selected under the Retirement Plan, the
survivor benefit election made by the Participant under the Retirement Plan
shall apply to benefits under this
<PAGE>
Plan. No separate annuity form or beneficiary designation is permitted
under this Plan.
5.3 Notwithstanding Sections 3.1 or 5.2 of this Plan, the Level Income Option
is not available on benefits otherwise payable under this Plan.
ARTICLE VI
Amendment; Termination; Administration
--------------------------------------
6.1 This Plan may be amended or terminated at any time by means of an action of
the Board of Directors of each Participating Employer.
If this Plan is terminated or amended, there shall be established a minimum
benefit under this Plan equal to the benefit accrued under this Plan as if
the Participant had terminated employment on the effective date of the
amendment or termination, but not more than (a) reduced by (b):
(a) the accrued benefit of the Participant under the Retirement Plan as of
the date of the amendment or termination, determined as if the Maximum
Benefit provisions did not apply; and
(b) The accrued benefit of the Participant under the Retirement Plan as of
his or her Retirement Date.
Any amendment or termination of this Plan shall not affect benefits in pay
status for any Participant, beneficiary or contingent annuitant.
When another organization becomes a Participating Employer under the
Retirement Plan, this Plan shall be amended to include such organization as
a Participating Employer under this Plan.
In the event that a Participating Employer hereunder ceases to be a
Participating Employer under the Retirement Plan, termination of this Plan
shall be deemed to have occurred with respect to such Participating
Employer effective as of the date it ceased to be a Participating Employer
under the Retirement Plan without the need for amendment of this
instrument, provided, however, that such termination of plan shall not
discharge such Participating Employer from any liability it may have
hereunder as to any persons who are Participants or contingent annuitants
immediately prior to the Effective Date of such termination of plan.
6.2 The Nationwide Mutual Insurance Company shall be the Administrator of the
Plan. The Administrator shall have the discretion and authority to
construe/interpret the Plan to determine eligibility to participate in the
Plan and to issue such regulations as it deems appropriate. The
Administrator shall have the duty and responsibility of maintaining
records, making the requisite calculations and disbursing payments
hereunder. The Administrator's interpretations, determinations,
regulations and calculations shall be final and binding on all
Participants, persons
<PAGE>
and parties concerned. The Administrator may appoint such agents as it
shall deem appropriate from time to time to assist in carrying out its
functions hereunder.
6.3 The benefits payable under this Plan or the right to receive future
benefits under this Plan may not be anticipated, alienated, pledged,
encumbered, or subjected to any charge or legal process, and if any
attempts are made to do so, or a person eligible for any benefits becomes
bankrupt, the interest under the Plan of the person affected may be
terminated by the Administrator which, in its sole discretion, may cause
the same to be held or applied for the benefit of one or more of the
dependents of such person or make any other disposition of such benefits
that it deems appropriate.
6.4 Nothing contained in this Plan shall be construed as a contract of
employment between a Participating Employer and any Participant, or as a
right of any Participant to be continued in employment of the Participating
Employer, or as a limitation on the right of the Participating Employer to
discharge any of its employees, with or without cause.
ARTICLE VII
Construction
------------
The provisions of this Plan shall be construed, regulated, administered, and
enforced according to the laws of the State of Ohio.
ARTICLE VIII
Execution
---------
This Plan has been established by the Participating Employers in conformity with
resolutions adopted by their respective Boards of Directors and may be executed
in any number of counterparts, each of which will be considered an original.
ARTICLE IX
Benefit Exceptions
------------------
Anything in the Plan to the contrary notwithstanding, any Participant in the
Gates, McDonald & Company, Unfunded Deferred Compensation Excess Benefit Plan as
of January 1, 1990 shall become a participant in this Plan on January 2, 1990.
Effective February 1, 1990, all payments that would have been paid from the
Gates, McDonald & Company, Unfunded Deferred Compensation Excess Benefit Plan
shall be paid from this Plan.
Effective December 31, 1996, all payments that would have been paid from the
Wausau Insurance Company Excess Defined Benefit Plan (the "Wausau Excess Plan")
shall be paid from this Plan. Any benefit in a pay status under the Wausau
Excess Plan as of December 31, 1996, shall not be affected by any amendment or
termination of this Plan.
<PAGE>
IN WITNESS WHEREOF, this agreement has been duly executed by the officers of the
parties thereunto duly authorized.
NATIONWIDE MUTUAL INSURANCE COMPANY
NATIONWIDE MUTUAL FIRE INSURANCE COMPANY
NATIONWIDE GENERAL INSURANCE COMPANY
NATIONWIDE LIFE INSURANCE COMPANY
NATIONWIDE COMMUNICATIONS INC.
NATIONWIDE CORPORATION
COLONIAL INSURANCE COMPANY OF CALIFORNIA
NATIONWIDE FINANCIAL INSTITUTION DISTRIBUTORS
AGENCY, INC.
GATES, MCDONALD & COMPANY
GATES, MCDONALD & COMPANY OF NEVADA
GATES, MCDONALD & COMPANY OF NEW YORK, INC.
NEA VALUEBUILDER INVESTOR SERVICES, INC.
SCOTTSDALE INSURANCE COMPANY
WEST COAST LIFE INSURANCE COMPANY
Attest: FARMLAND MUTUAL INSURANCE COMPANY
By:
- -------------------------- ---------------------------------------
Attest: NATIONWIDE DEVELOPMENT COMPANY
By:
- -------------------------- ---------------------------------------
Attest: NATIONWIDE ADVISORY SERVICES, INC.
By:
- -------------------------- ---------------------------------------
Attest: PEOPLES TRAVEL SERVICE, INC.
By:
- -------------------------- ---------------------------------------
<PAGE>
Attest: INSURANCE INTERMEDIARIES, INC.
By:
- -------------------------- ---------------------------------------
Attest: PUBLIC EMPLOYEES BENEFIT SERVICES CORPORATION
By:
- -------------------------- ---------------------------------------
Attest: NATIONAL CASUALTY COMPANY
By:
- -------------------------- ---------------------------------------
Attest: NATIONWIDE HMO, INC.
By:
- -------------------------- ---------------------------------------
Attest: EMPLOYERS INSURANCE OF WAUSAU A MUTUAL COMPANY
WAUSAU SERVICE CORPORATION
By:
- -------------------------- ---------------------------------------
Attest: KEY HEALTH PLAN, INC.
By:
- -------------------------- ---------------------------------------
<PAGE>
EXHIBIT 10.12
Nationwide Insurance Enterprise Supplemental Retirement Plan
------------------------------------------------------------
WHEREAS, the Participating Employers have previously adopted the Predecessor
Plans, for the benefit of certain of their employees; and
WHEREAS, the Participating Employers now desire to merge, amend and restate the
Predecessor Plans; and
NOW, THEREFORE, said Participating Employers do hereby merge, amend and restate
the Predecessor Plans as the Nationwide Insurance Enterprise Supplemental
Retirement Plan, effective as of December 31, 1996, as set forth below:
ARTICLE I
----------
DEFINITIONS
-----------
Any word or term used in this document, if defined in the Retirement Plan shall
have the same meaning as set forth in such definition, unless otherwise defined
herein.
Company shall mean the Nationwide Mutual Insurance Company
- -------
Covered Compensation, Farmland Covered Compensation, Nationwide Covered
- -----------------------------------------------------------------------
Compensation and Wausau Covered Compensaton shall each have the meaning assigned
- -------------------------------------------
in the Retirement Plan, adjusted as follows:
(a) Ignoring any maximum dollar limitation that may be applied under
Section 401(a)(17) of the Code,
(b) Excluding sales compensation where such compensation is based on an
open-ended sales compensation program, and
(c) Excluding compensation paid to an individual prior to his or her
election as an officer of a Participating Employer.
Effective Date shall mean December 31, 1996.
- --------------
Excess Plan shall mean the Nationwide Insurance Enterprise Excess Benefit Plan.
- -----------
Final Average Compensation shall mean:
- --------------------------
1
<PAGE>
(a) for purposes of Section 3.1(a)(i), the average of the highest five (5)
consecutive Covered Compensations in effect with respect to a
Participant during his or her last ten (10) years of Service, or, if
he or she has accrued less than five (5) such Covered Compensations,
the average of all such Covered Compensations accrued;
(b) for purposes of Section 3.1(a)(ii), the average of the highest four
(4) Farmland Covered Compensations of the Participant's last ten (10)
consecutive Farmland Covered Compensations determined as of the end of
the calendar year ending coincident with or immediately preceding the
Participant's Severance Date, or, if he or she has accrued less than
four (4) such Farmland Covered Compensations, the average of all such
Covered Compensations accrued;
(c) for purposes of Section 3.1(a)(iii), the average of the highest three
(3) consecutive Nationwide Covered Compensations in effect with
respect to a Participant during his or her last ten (10) years of
Service or, if he or she has accrued less than three (3) such
Nationwide Covered Compensations, the average of all such Nationwide
Covered Compensations accrued, provided, however, that for years prior
to January 1, 1988, Nationwide Covered Compensations for calendar
years after an employee attained Normal Retirement Age were excluded
from consideration under this Section; and
(d) for purposes of Section 3.1(a)(iv), the average of the highest three
(3) consecutive Wausau Covered Compensations in effect with respect to
a Participant during his or her last ten (10) years of Service
determined as of the end of the calendar year ending coincident with
or immediately preceding the Participant's Severance Date, or, if he
or she has accrued less than three (3) such Wausau Covered
Compensations, the average of all such Covered Compensations accrued.
Highly Compensated Employee or HCE shall mean an Employee of a Participating
- ----------------------------------
Employer whose Covered Compensation, for any year beginning on or after the
Effective Date, exceeds the maximum dollar limitation set forth in Code Section
401(a)(17), except those individuals excluded by Article IX.
Officer shall mean an elected officer of a Participating Employer whose Covered
- -------
Compensation, for any year beginning on or after the Effective Date, exceeds the
maximum dollar limitation set forth in Code Section 401(a)(17), except those
individuals excluded by Article IX.
Plan shall mean the Nationwide Insurance Enterprise Supplemental Retirement
- ----
Plan.
Plan Administrator shall mean the Nationwide Mutual Insurance Company.
- ------------------
2
<PAGE>
Predecessor Plans shall mean the Nationwide Supplemental Retirement Plan, the
- -----------------
Wausau Insurance Companies Supplemental Benefit Plan or the Farmland Mutual
Insurance Company Supplemental Retirement Plan.
Retirement Plan means the Nationwide Insurance Enterprise Retirement Plan.
- ---------------
3
<PAGE>
ARTICLE II
----------
ELIGIBILITY
-----------
Each Employee who:
(a) Is a Participant in the Retirement Plan; and
(b) Is an Officer or is entitled to a Minimum Benefit under Section 3.2 of
this Plan; and
(c) Terminates employment with all Participating Employers and Non-
Participating Employers on or after completing 60 Months of Vesting
Service, or whose death results in his or her beneficiary becoming
eligible for a death benefit under the Retirement Plan,
shall be eligible for a benefit under this Plan on his or her Severance Date.
4
<PAGE>
ARTICLE III
-----------
BENEFIT PAYABLE
---------------
3.1 Benefit Payable
---------------
An eligible Officer shall have an annual accrued benefit under this Plan
equal to (a) reduced by (b):
(a) the sum of:
(i) an annual amount equal to the product of (A) and (B) plus the
product of (A) and (C):
(A) the number of Months of Participation Service, converted to
years, prior to the date of determination, to a maximum of
the lesser of
(I) 40 years, or
(II) 40 years reduced, but not below zero (0), by the sum of
the Participant's Months of Farmland Participation
Service, Months of Nationwide Participation Service,
and Months of Wausau Participation Service, each
converted to years;
(B) one and a quarter percent (1.25%) of his or her Final
Average Compensation on the date of determination; and
(C) three quarters of one percent (.75%) of his or her Final
Average Compensation in excess of his or her Social Security
Covered Compensation;
(ii) an annual amount equal to the product of (A) and (B) plus the
product of (A) and (C):
(A) the number of Months of Farmland Participation Service,
converted to years, prior to the date of determination, to a
maximum of 40 years,
(B) one and a quarter percent (1.25%) of his or her Final
Average Compensation on the date of determination; and
5
<PAGE>
(C) three quarters of one percent (.75%) of his or her Final
Average Compensation in excess of his or her Social Security
Covered Compensation;
(iii) an annual amount equal to the product of (A) and (B) plus the
product of (A) and (C):
(A) the number of Months of Nationwide Participation Service,
converted to years, prior to the date of determination, to a
maximum of 40 years,
(B) one and a quarter percent (1.25%) of his or her Final
Average Compensation on the date of determination; and
(C) three quarters of one percent (.75%) of his or her Final
Average Compensation in excess of his or her Social Security
Covered Compensation;
(iv) an annual amount equal to the product of (A) and (B) plus the
product of (A) and (C):
(A) the number of Months of Wausau Participation Service,
converted to years, prior to the date of determination, to a
maximum of 40 years,
(B) one and a quarter percent (1.25%) of his or her Final
Average Compensation on the date of determination; and
(C) three quarters of one percent (.75%) of his or her Final
Average Compensation in excess of his or her Social Security
Covered Compensation; and
(b) the accrued benefit of the Participant from the Retirement Plan, the
Excess Plan and all other defined benefit retirement plans maintained
by one or more of the Participating Employers at any time.
The benefit payable to any eligible Officer under this Section shall be
adjusted as provided in Section 3.03 of the Retirement Plan in the same
manner as a benefit provided under Section 3.01(a) of that plan in the
event such benefit commences prior to such Officer's Normal Retirement
Date.
3.2 Minimum Benefit
---------------
6
<PAGE>
The minimum benefit for each eligible Employee is the greater of (a) or
(b):
(a) the sum of (i) and (ii):
(i) for such eligible Employee who had a Benefits Salary in 1993
which was greater than or equal to $150,000, and who would have
been eligible to receive a benefit from this Plan had employment
terminated effective December 31, 1993, the benefit accrued under
the Nationwide Supplemental Retirement Plan as of December 31,
1993; and
(ii) for such eligible Employee who would have been eligible to
receive a benefit from the Nationwide Insurance Companies and
Affiliates Excess Benefit Plan had his or her employment
terminated on December 31, 1993, the benefit accrued under that
plan as of December 31, 1993, to the extent it exceeds the
benefit actually paid under that plan.
The benefit payable to any eligible Employee under this Section 3.2(a)
shall be adjusted, as provided in this Plan as in effect on December
31, 1993, in the event such benefit commences prior to such eligible
Employee's Normal Retirement Date.
(b) for each eligible Employee whose Severance Date is on or after January
1, 1997, and who was either:
(i) a participant in the Nationwide Plan (other than an Employee of
Wausau) who had Covered Compensation in excess of $150,000 during
the ten calendar year period 1987 through 1996, or
(ii) an elected Vice President or more senior officer who was an
Employee of Wausau and participated in the Wausau Plan for a Plan
Year prior to 1996,
the benefits he or she would have received under the Predecessor Plans
where such benefits are calculated as if he or she terminated
employment on December 31, 1996. Any eligible Employee who was an
Officer on January 1, 1997, shall not be eligible for a benefit under
this Section.
The benefit payable to any eligible Employee under this Section 3.2(b)
shall be adjusted, as provided in the Predecessor Plans as in effect
on December 31, 1996, in the event such benefit commences prior to
such eligible Employee's Normal Retirement Date.
7
<PAGE>
ARTICLE IV
----------
FORM OF PAYMENT
---------------
4.1 Form of Payment
---------------
The payment from this Plan shall be payable to a Participant in the same
form and manner, shall begin at the same time, and shall be subject to the
same adjustments as the life contingent annuity payable from the Retirement
Plan. However, the Level Income Option does not apply to this Plan.
Optional forms of payment shall be calculated using the Actuarial
Equivalent factors defined in the Retirement Plan.
4.2 Small Benefit Amounts
---------------------
At the election of the Plan Administrator, any benefit payable under this
Plan which is less than $83.33 per month, under the annuity form selected,
may be paid in one payment in the month of retirement for the year of
retirement, and in an annual payment in January of each subsequent year for
that year. Any adjustment necessary to offset an overpayment (or
underpayment ) of benefits in a calendar year shall be made in the
following January payment (without adjustment for interest).
8
<PAGE>
ARTICLE V
---------
VARIABLE PAYMENT
----------------
The benefit determined under Section 3.1(a)(iii) shall increase on the same date
and in the same percentage as benefits determined under Section 3.01(c) of the
Retirement Plan.
9
<PAGE>
ARTICLE VI
----------
LIABILITY AND METHOD OF PAYMENT
-------------------------------
6.1 Liability for Payment
---------------------
Each Participating Employer shall be liable for payments under this Plan
which are based upon its employees' participation in the Retirement Plan.
In the event that a payment due hereunder is based upon participation in
the Retirement Plan during employment with two or more Participating
Employers, the Actuary for the Retirement Plan shall determine each such
Participating Employer's share of the liability for such payment after
taking into account each such Participating Employer's liability under the
Retirement Plan and the Excess Plan as to the person to whom such payment
is due.
The value of the benefit under this Plan shall be determined on the
Participant's Severance Date, and any resulting tax consequences of the
Participating Employers shall be allocated among them by the Actuary at
that time.
6.2 Method of Payment
-----------------
The dollar amount of each payment and all costs, charges and expenses
relating thereto under this Plan shall be paid from the general assets of
the Participating Employer(s) liable for such payment. Such payments shall
not be funded in advance.
As an unfunded plan, this Plan has no assets and each Participant's right
to a payment due hereunder is that of an unsecured creditor of the
Participating Employer(s) liable for such payment.
10
<PAGE>
ARTICLE VII
-----------
AMENDMENT AND TERMINATION
-------------------------
7.1 Amendment
---------
This Plan may be amended at any time in whole or in part by means of a
resolution adopted by the Board of Directors of each Participating
Employer. In the event that this Plan is amended, benefits may be limited
to payments made on or prior to the date of termination. When another
organization becomes a Participating Employer under the Retirement Plan,
this Plan shall be deemed to have been amended to include such organization
as a Participating Employer under this Plan, without the need for formal
action by any party.
7.2 Termination
-----------
The Participating Employers may terminate this Plan at any time by means of
amendment. In the event that a Participating Employer hereunder ceases to
be a Participating Employer under the Retirement Plan, termination of this
Plan shall be deemed to have occurred with respect to such Participating
Employer effective as of the date it ceased to be a Participating Employer
under the Retirement Plan without the need for amendment of this Plan.
11
<PAGE>
ARTICLE VIII
------------
ADMINISTRATION OF THE PLAN
--------------------------
8.1 Administrator
-------------
The Plan Administrator shall have the discretion and authority to
construe/interpret the Plan, to determine the eligibility to participate in
this Plan, and to issue such regulations as it deems appropriate. The Plan
Administrator shall have the duty and responsibility of maintaining
records, making the requisite calculations and disbursing the payments
hereunder. The Plan Administrator's interpretations, determinations,
regulations and calculations shall be final and binding on all persons and
parties concerned.
8.2 Non-Assignability of Benefits
-----------------------------
The benefits payable hereunder or the right to receive future benefits
under this Plan may not be anticipated, alienated, pledged, encumbered, or
subjected to any charge or legal process, and if any attempt is made to do
so, or a person eligible for any benefits becomes bankrupt, the interest
under this Plan of the person affected may be terminated by the Plan
Administrator which, in its sole discretion, may cause the same to be held
or applied for the benefit of one or more of the dependents of such person
or make any other disposition of such benefits that it deems appropriate.
8.3 Nonguarantee of Employment
--------------------------
Nothing contained in this Plan shall be construed as a contract of
employment between the Participating Employers and any eligible Employee,
or as a right of any eligible Employee to be continued in employment of the
Participating Employers, or as a limitation on the right of the
Participating Employers to discharge any of its employees, with or without
cause.
8.4 Construction
------------
The provisions of this Plan shall be construed, regulated, administered,
and enforced according to the laws of the State of Ohio.
8.5 Execution
---------
This Plan has been established by the Participating Employers in conformity
with resolutions adopted by their respective Boards of Directors and may be
executed in any number of counterparts, each of which will be considered an
original.
12
<PAGE>
ARTICLE IX
----------
BENEFIT EXCEPTIONS
------------------
9.1 Coordination With Other Agreements
----------------------------------
Anything in this Plan to the contrary, in no event shall the calculation of
benefits payable under this Plan as determined under Section 3.1, consider
any compensation paid to any eligible Employee prior to termination of
employment through an individual deferred compensation agreement, if such
individual deferred compensation specifically precludes consideration of
such payment in the calculation of retirement benefits.
9.2 Specific Individuals Excluded
-----------------------------
Certain individuals, who might otherwise be eligible for a benefit under
Section 3.2(b) of this Plan, shall not receive such a benefit. Such
individuals are:
(a) the National Sales Manager-Wholesaler, the National Sales Manager-
Pensions, Regional Sales Managers-Wholesalers, Regional Sales
Managers-Pensions, Regional Pension Consultants, Life Sales
Specialists, Pension Sales Representatives, Regional Life Consultants;
(b) Public Employees Benefit Services Corporation President and Regional
Vice Presidents; and
(c) NEA Valuebuilder Investor Services, Inc. President, Vice President-
Affiliate Relations, Vice President-Sales, Vice President-Sales
Operations, Affiliate Relations Manager, Communications Manager,
Director-Education and Training, Member Services Manager, Regional
Sales Managers, and Valuebuilder Investment Professionals.
13
<PAGE>
IN WITNESS WHEREOF, this agreement has been duly executed by the officers of the
parties thereunto duly authorized, and their respective seals have been affixed.
NATIONWIDE MUTUAL INSURANCE COMPANY
NATIONWIDE MUTUAL FIRE INSURANCE COMPANY
NATIONWIDE GENERAL INSURANCE COMPANY
NATIONWIDE LIFE INSURANCE COMPANY
NATIONWIDE CORPORATION
NATIONWIDE COMMUNICATIONS INC.
COLONIAL INSURANCE COMPANY OF CALIFORNIA
SCOTTSDALE INSURANCE COMPANY
GATES, McDONALD & COMPANY
GATES, McDONALD & COMPANY OF NEW YORK, INC.
GATES, McDONALD & COMPANY OF NEVADA
WEST COAST LIFE INSURANCE COMPANY
NATIONWIDE FINANCIAL INSTITUTION DISTRIBUTORS AGENCY, INC.
NEA VALUEBUILDER INVESTOR SERVICES, INC.
FARMLAND MUTUAL INSURANCE COMPANY
Attest:
____________________ By:___________________________________________________
NATIONWIDE DEVELOPMENT COMPANY
Attest:
____________________ By:___________________________________________________
NATIONWIDE ADVISORY SERVICES, INC.
Attest:
____________________ By:___________________________________________________
14
<PAGE>
PEOPLES TRAVEL SERVICE, INC.
Attest:
____________________ By:___________________________________________________
INSURANCE INTERMEDIARIES, INC.
Attest:
____________________ By:___________________________________________________
PUBLIC EMPLOYEES BENEFIT SERVICES CORPORATION
Attest:
____________________ By:___________________________________________________
NATIONAL CASUALTY COMPANY
Attest:
____________________ By:___________________________________________________
NATIONWIDE HMO, INC.
Attest:
____________________ By:___________________________________________________
KEY HEALTH PLAN, INC.
Attest:
____________________ By:___________________________________________________
15
<PAGE>
EMPLOYERS INSURANCE OF WAUSAU A MUTUAL COMPANY
WAUSAU SERVICE CORPORATION
Attest:
____________________ By:___________________________________________________
16
<PAGE>
Exhibit 10.13
THE NATIONWIDE SALARIED EMPLOYEES SEVERANCE PAY PLAN
This plan is available to employees of the following Participating Employers:
Nationwide Mutual Insurance Company
Nationwide Mutual Fire Insurance Company
Nationwide Life Insurance Company
Nationwide General Insurance Company
Scottsdale Insurance Company
Public Employees Benefit Services Corporation
Nationwide Financial Services, Inc.
Nationwide Development Company
Peoples Travel Service, Inc.
Insurance Intermediaries, Inc.
West Coast Life Insurance Company
Financial Horizons Distributors Agency, Inc.
NEA Valuebuilder Investor Services, Inc.
Nationwide Health Care Corporation
Gates, McDonald & Company
Gates, McDonald & Company of New York, Inc.
Gates, McDonald & Company of Nevada
Farmland Mutual Insurance Company
Nationwide Corporation
Nationwide Communications Inc.
Colonial Insurance Company of California
Hickey-Mitchell Insurance Agency, Inc.
National Casualty Company
<PAGE>
Table of Contents
-----------------
<TABLE>
<S> <C> <C>
Article I DEFINITIONS 1
Article II ELIGIBILITY 4
2.1 Eligibility for Participation 4
2.2 Eligibility for Severance Pay 4
Article III AMOUNT OF SEVERANCE PAY 4
3.1 Determination of Severance Pay 4
3.2 Payment of Severance Pay 5
Article IV CLAIMS 5
Article V APPEALS 5
Article VI ADMINISTRATION 6
6.1 Appointment of the Plan Administrator 6
6.2 Conduct of Plan Administrator Business 6
6.3 Records and Reports of the Plan Administrator 6
6.4 Administrative Powers and Duties 7
6.5 Fiduciary Duties 7
6.6 Allocation or Delegation of Duties and Responsibilities 8
6.7 Procedure for the Allocation or Delegation of Fiduciary Duties 8
6.8 Compensation and Indemnification 8
Article VII FUNDING OF THE PLAN 9
Article VIII FUTURE OF THE PLAN 9
Article IX EXCLUSIVE BENEFIT OF EMPLOYEES 9
Article X LEGALLY ENFORCEABLE 9
</TABLE>
<PAGE>
ARTICLE I - Definitions
- ------------------------
Section 1.1
- -----------
"Board" means the Board of Directors of a Participating Employer.
Section 1.2
- -----------
"Effective Date" shall mean January 1,1987 for any Participating Employer who
adopts the Plan for its Employees on the Plan's Effective Date, January 1, 1987.
For all other Participating Employers, Effective Date shall mean the date
specified by the Participating Employer's Board in its resolution adopting the
Plan.
Section 1.3
- -----------
"Employee" means a person employed by a Participating Employer on a salaried
basis as a common law employee, excluding any such person who is participating
in any new agents' development plan maintained and operated by any Participating
Employer (called NADP - NBAP agent).
Section 1.4
- -----------
"Involuntary Termination" means the termination of the employment relationship
between an Employee and the Participating Employers solely as a result of an
action taken by one or more of the Participating Employers. An Involuntary
Termination occurs only if the employment relationship is terminated on the date
chosen by the Participating Employer(s). If the Employee resigns prior to such
date, the termination will be deemed to be voluntary.
Section 1.5
- -----------
"Most Recent Date of Hire" means the most recent date on which an individual
commenced or recommenced employment with a Participating or Non-Participating
Employer.
Section 1.6
- -----------
"Non-Participating Employer" means the Nationwide Mutual Insurance Company, the
Nationwide Mutual Fire Insurance Company, Employers Insurance of Wausau A Mutual
Company, Farmland Mutual Insurance Company or any subsidiary of such companies,
if such company or subsidiary is not a Participating Employer under the Plan.
Section 1.7
- -----------
"Participant" means any Employee who has terminated employment by reason of job
elimination or job performance and who is eligible to receive severance pay.
<PAGE>
Section 1.8
- -----------
"Participating Employer" or "Employer" means the Nationwide Mutual Insurance
Company, Nationwide Mutual Fire Insurance Company, Employers Insurance of Wausau
A Mutual Company, Farmland Mutual Insurance Company, or any subsidiary of such
companies, whose Board of Directors has duly adopted this Plan for its
Employees.
Section 1.9
- -----------
"Pay" means the product of:
(a) the Employee's biweekly benefits salary as shown on the Employee's Human
Resources Profile on the date the Employee's employment relationship ends
due to an Involuntary Termination, divided by the Employee's regularly
scheduled hours of work for each biweekly pay period at that time, and
(b) the Employee's regularly scheduled hours of work at the time the Employee
receives written notice from the Employer that his or her employment
relationship is expected to end.
Section 1.10
- ------------
"Plan" means the Nationwide Enterprise Salaried Employees Severance Pay Plan, as
set forth in this document or as it may be hereafter amended.
Section 1.11
- ------------
"Plan Administrator" means the Benefits Administrative Committee as described in
Article VI.
Section 1.12
- ------------
"Plan Year" means a period of 12 consecutive months beginning January 1 and
ending the next following December 31.
Section 1.13
- ------------
"Severance Pay" means the benefit determined in accordance with Article III
applicable to an Employee as of a termination date, based upon such Employee's
Pay and Years of Service completed at such termination date.
Section 1.14
- ------------
"Successor Employer" means an employer which acquires assets, stock or
operations from any of the Participating Employers and continues the existing
operation in whole or in part.
<PAGE>
Section 1.15
- ------------
"Suitable Replacement Employment" means:
(a) any position accepted by the Employee with a Participating, Non-
Participating or Successor Employer;
(b) any position with a Participating, Non-Participating or Successor Employer
which was offered but not accepted by the Employee where the
offered/rejected position:
(1) was similar to the eliminated position in that the responsibilities
and duties of such position did not require extensive retraining, and
(2) such position offered compensation of not less than eighty percent
(80%) of the level of pay and benefits provided by the eliminated
position; or
(c) a position as an agent licensed to sell the products of a Participating or
Non-Participating Employer.
Suitable Replacement Employment does not include any position with a
Participating, Non-Participating or Successor Employer which was offered but not
accepted by the Employee if the Employee's new principal place of work would
have been:
(d) at least fifty (50) miles farther from the Employee's former residence than
was the former principal place of work; or
(e) if the Employee had no former principal place of work, would have been at
least fifty (50) miles from the Employee's former residence.
An Employee's principal place of work is the location at which the Employee
spends most of his or her working time and at which he or she performs services,
or, if no one place of work dominates, the location at which business activities
are centered (such as the reporting location).
A position with a Participating or Non-Participating Employer will be deemed to
have been accepted upon the earliest to occur of the following:
(f) commencement of duties in the new position;
(g) receipt of payment under the transfer expense policy of the Participating
or Non-Participating Employer; or
(h) written acknowledgment of the decision to accept the new position.
Section 1.16
- ------------
<PAGE>
"Years of Service Completed" means, as to an Employee employed by a
Participating Employer, each twelve consecutive month period of continuous
employment on a salaried or non-salaried basis commencing from the Employee's
Most Recent Date of Hire, including all types of continuous salaried or non-
salaried employment with any Non-Participating Employer. Termination of
employment with a Participating or Non-Participating Employer, coincident with
commencement of employment with any such employer, shall not change the Most
Recent Date of Hire, for purposes of this determination.
ARTICLE II - Eligibility
- -------------------------
Section 2.1 - Eligibility for Participation
- --------------------------------------------
All salaried Employees of Participating Employers are eligible to participate in
the Plan.
Section 2.2 - Eligibility for Severance Pay
- --------------------------------------------
An Employee of a Participating Employer becomes a Participant, eligible for
Severance Pay, when the employment relationship with all Participating Employers
ends due to an Involuntary Termination due to job performance (the inability to
meet performance standards or unsatisfactory work performance) or job
elimination. In no event shall an Employee be eligible for Severance Pay where
the Employee was terminated for the following reasons, which are illustrative
and not exclusive: theft, dishonesty, an offense involving moral turpitude,
tardiness, absenteeism, failure to report for work, company rule violation,
gross misconduct, insubordination, mutual agreement of the Employee and the
Employer, illness, or termination of temporary employment.
Job elimination means that the Employee's current position with the
Participating Employer is eliminated due to workforce reduction, office closure
or organizational change and no Suitable Replacement Employment is offered. Job
---
elimination includes any job eliminated due to consolidation, termination or
sale of operations, or a reduction in work force. Job elimination occurs on the
latter of the day an Employee's position is eliminated or the last day of
employment with a Participating Employer by the Employee.
ARTICLE III- Amount of Severance Pay
- -------------------------------------
Section 3.1 - Determination of Severance Pay
- ---------------------------------------------
Severance Pay is provided in accordance with the following schedule:
Years of Service Completed Amount of Severance Pay
-------------------------- ------------------------
Less than 6 months N/A
6 months but less than 2 years Pay divided by 2 times 2
2 years but less than 4 years Pay divided by 2 times 3
4 years but less than 6 years Pay divided by 2 times 4
6 years but less than 8 years Pay divided by 2 times 5
<PAGE>
8 years but less than 10 years Pay divided by 2 times 6
10 years but less than 11 years Pay divided by 2 times 7
11 years or more Pay divided by 2 times 8 plus
Pay divided by 2 for each
complete or partial Year of
Service Completed over eleven (11).
Severance Pay is not reduced by reason of entitlement to any other employer or
government-sponsored benefit.
Section 3.2 - Payment of Severance Pay
- ---------------------------------------
Severance Pay is paid in a lump sum amount as soon as practical following
termination of employment. Severance Pay is paid through the payroll system of
the applicable Participating Employer.
ARTICLE IV - Claims
- --------------------
Generally, eligible Employees are identified by the appropriate personnel or
human resources representative of the Office of Human Resources and are notified
of the amount of Severance Pay to which they are entitled. A claim form is not
required. Should the appropriate representative not identify an Employee
eligible for Severance Pay, that Employee may submit a claim in accordance with
Article V.
ARTICLE V - Appeals
- --------------------
Any Employee or former Employee who does not receive benefits from the Plan to
which he or she feels entitled shall have the right to file a written claim with
the Plan Administrator for such benefit.
If a claim is denied (in whole or in part), the Employee or former Employee will
receive - within 90 days after receipt of a claim (180 days if special
circumstances apply) - a written explanation from the Plan Administrator or its
designee detailing:
(a) the specific reasons for the denial,
(b) specific references to plan provisions to support those reasons,
(c) the additional information needed to be provided to improve the claim and
the reasons why that information is necessary, and
(d) the procedures available for a further review of the claim.
Each claimant shall have the right to appeal that denial by submitting a written
application to the
<PAGE>
Plan Administrator within 60 days after the claim has been denied. The claimant
or a representative may review the Plan document and submit any written comments
in the appeal. A request for review of a claim should be submitted through the
Human Resources Department.
The Plan Administrator will conduct a full and fair review of all claim appeals
and notify the claimant of the decision within 60 days (120 if special
circumstances apply). That decision will be in writing and will include the
specific reasons and the plan references on which the decision was based.
ARTICLE VI - Administration
- ----------------------------
Section 6.1 - Appointment of the Plan Administrator
- ----------- --------------------------------------
The administration of the Plan, as provided herein, including the payment of all
benefits to Participants, shall be the responsibility of the Plan Administrator.
In addition, the Plan Administrator shall be Named Fiduciary of the Plan. The
Plan Administrator shall be the Benefits Administrative Committee consisting of
at least 3 persons appointed from time to time by the Chief Executive Officer of
the Company (herein called the "CEO"). Any person appointed a member of the
Benefits Administrative Committee shall signify his or her acceptance by filing
written acceptance with the CEO and with the Secretary of the Benefits
Administrative Committee. Any member of the Benefits Administrative Committee
may resign by delivering his or her written resignation to the CEO and the
Secretary of the Benefits Administrative Committee, and such resignation shall
become effective on the date that such resignation is "accepted by the remainder
of the Benefits Administrative Committee, if any, and the CEO, or some specified
future date.
Section 6.2 - Conduct of Plan Administrator Business
- ----------- ---------------------------------------
The Benefits Administrative Committee shall elect a Chairman and a Secretary who
may be, but need not be, members of the Benefits Administrative Committee. It
may appoint agents including, but not limited to, the Office of Human Resources
and the Payroll Department of the Nationwide Mutual Insurance Company, and a
committee, who may be, but need not be, members of the Benefits Administrative
Committee, with such powers as it shall determine, and it may authorize one or
more of its number, or any agent, or agents, to execute or deliver any
instrument or make any payment in its behalf.
A majority of the members of the Benefits Administrative Committee shall
constitute a quorum for the transaction of business. All resolutions or other
action taken by the Benefits Administrative Committee shall be by the vote of a
majority of the members of the Benefits Administrative Committee present at any
meeting or without a meeting by an instrument in writing signed by a majority of
the members of the Benefits Administrative Committee.
Section 6.3 - Records and Reports of the Plan Administrator
- ----------- ----------------------------------------------
The Plan Administrator shall keep such written records as it shall deem
necessary or proper, and
<PAGE>
such records shall be open to inspection by the Company. The Plan Administrator
shall prepare and submit to the Participating Employers an annual report which
shall include such information as the Plan Administrator deems necessary or
advisable.
Section 6.4 - Administrative Powers and Duties
- ----------- ---------------------------------
The Plan Administrator shall have the power to take all actions required to
carry out the provisions of the Plan and shall further have the following powers
and duties, which shall be exercised in a manner consistent with the provisions
of the Plan:
(a) exercise discretion and authority to construe and interpret the provisions
of the Plan, to determine eligibility to participate in the Plan, and to
make rules and regulations under the Plan to the extent deemed advisable by
the Chairperson, Secretary, other Committee Members and Subcommittees;
(b) decide all questions as to the rights of Participants under the Plan;
(c) file or cause to be filed all such annual reports, returns, schedules,
descriptions, financial statements and other statements as may be required
by any federal or state statute, agency, or authority;
(d) obtain from the Participating Employer and Employees such information as
shall be necessary to the proper administration of the Plan;
(e) determine the amount, manner, and time of payment of benefits hereunder;
(f) notify the Employees, in writing, of any amendment or termination of the
Plan, or of a change in any benefits available under the Plan;
(g) prescribe such actions as may be required for Employees to make elections
under this Plan; and
(h) do such other acts as it deems reasonably required to administer the Plan
in accordance with its provisions, or as may be provided for or required by
law.
Section 6.5 - Fiduciary Duties The Plan Administrator and any other fiduciary
- ----------- -----------------
within the meaning of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), shall discharge their duties solely in the interest of
Participants and:
(a) for the exclusive purpose of providing benefits to Participants and
defraying reasonable expenses of administering the Plan;
(b) with the care, skill, prudence, and diligence under the circumstances then
prevailing that a prudent man acting in a like capacity and familiar with
such matters would use in the conduct of an enterprise of a like character
and with like aims;
<PAGE>
(c) in accordance with the documents and instruments governing the Plan insofar
as such documents and instruments are consistent with the provisions of
ERISA.
Section 6.6 - Allocation or Delegation of Duties and Responsibilities
- ----------- --------------------------------------------------------
In furtherance of their duties and responsibilities under the Plan, the Plan
Administrator may, subject always to the requirements of Section 6.5 and except
as may be prohibited by law,
(a) employ agents to carry out nonfiduciary responsibilities;
(b) employ agents to carry out fiduciary responsibilities (other than trustee
responsibilities as defined in section 405(c)(3) of ERISA);
(c) consult with counsel, who may be counsel to the Participating Employers;
and
(d) provide for the allocation of fiduciary responsibilities (other than
trustee responsibilities as defined in section 405(c)(3) of ERISA).
Section 6.7 - Procedure for the Allocation or Delegation of Fiduciary Duties
- ----------- ---------------------------------------------------------------
Any action described in subsections (b) or (d) of Section 6.6 may be taken by
the Plan Administrator only in accordance with the following procedures:
(a) such action shall be taken by a majority of the Benefits Administrative
Committee in a resolution approved by the Benefits Administrative
Committee;
(b) a vote cast by a member of the Benefits Administrative Committee for or
against the adoption of such resolution shall be recorded and made a part
of the written record of the Plan Administrator's proceedings; and
(c) any delegation of fiduciary responsibilities or any allocation of fiduciary
responsibilities by the Plan Administrator may be modified or rescinded by
the Plan Administrator according to the procedure set forth in subsections
(a) and (b) of this Section 6.7.
Section 6.8 - Compensation and Indemnification No member of the Benefits
- ----------- ---------------------------------
Administrative Committee shall receive any compensation for his or her services
as such, and no bond or other security need be required of him or her in such
capacity in any jurisdiction.
The members of the Benefits Administrative Committee and the Participating
Employers shall not be liable for any action taken, suffered or omitted by them
in good faith or for any action in reliance upon certificates, reports, opinions
made or given by any actuary, accountant, or counsel selected by the Benefits
Administrative Committee.
Each member of the Benefits Administrative Committee, and any person appointed
as agent of the Benefits Administrative Committee or employed by the Benefits
Administrative Committee in accordance with Section 6.6 or Section 6.7, shall be
reimbursed and indemnified by the Participating Employers for any loss or
expenses incurred by him or her by reason of any claims
<PAGE>
for asserted liability, so long as he or she acts in good faith and is not
guilty of willful misconduct, gross negligence, or willful failure to act.
Article VII - Funding of the Plan
- ----------------------------------
Severance Pay is funded entirely by the Participating Employers and is paid out
of the general assets of the Participating Employers.
Article VIII - Future of the Plan
- ----------------------------------
The Plan is intended to be maintained for an indefinite period of time, however,
the Participating Employers reserve the right to amend, alter, or terminate the
Plan, or any portion thereof, at any time, without the consent of Employees or
other participants of the Plan, by an action properly taken, in accordance with
state law, by their Boards of Directors. If a former Employee has "qualified for
Severance Pay (as outlined in Section 2.2) prior to termination of the Plan,
Severance Pay will be paid in accordance with the schedule of benefits and other
plan provisions in effect on the date of his or her termination of employment.
Article IX - Exclusive Benefit of Employees
- --------------------------------------------
This Plan shall be maintained for the exclusive benefit of Employees.
Article X - Legally Enforceable
- --------------------------------
It is intended that Employee's rights under the Plan are legally enforceable.
<PAGE>
Exhibit 10.14
NATIONWIDE INSURANCE ENTERPRISE
SUPPLEMENTAL DEFINED CONTRIBUTION PLAN
WHEREAS, the Participating Employers (as that term is defined in the Nationwide
Insurance Enterprise Savings Plan) have previously adopted the Nationwide
Insurance Companies and Affiliates Supplemental Defined Contribution Plan (the
"Supplemental DC Plan") for the benefit of certain employees; and
WHEREAS, said Participating Employers do now desire to amend, rename, and
restate the Supplemental DC Plan as the Nationwide Insurance Enterprise
Supplemental Defined Contribution Plan (this "Plan") effective January 1, 1996;
and
WHEREAS, Wausau Service Corporation hereby adopts this Plan effective January 1,
1996.
NOW THEREFORE, the Participating Employers do hereby adopt, amend and restate
this plan as set forth in this instrument.
ARTICLE I
DEFINITIONS
-----------
1.1 Any word or term used in this instrument, if defined in the Savings Plan or
the Wausau Plan, shall have the same meaning as set forth in such
definition.
1.2 "Covered Compensation" shall have the meanings set forth below.
(a) For Plan Years commencing prior to January 1, 1997.
"Covered Compensation" means compensation as defined in Section
414(s) of the Code and Treasury Regulation Section 1.414(s)-1(c)(2)
and (4), but excluding (i) severance pay and other amounts paid after
a Participant's Severance Date, (ii) reimbursement for relocation
expenses and related payments, (iii) company car value or subsidy or
reimbursement for loss of company car, (iv) a lump sum payment for
vacation days made at severance of employment, or (v) expense
reimbursements or expense allowances; and is the compensation earned
for a calendar year which is taken into account in determining his or
her Final Average Compensation hereunder, as herein determined.
For the purpose of determining a Neckura employee's Covered
Compensation, remuneration, based on the inclusions and exclusions set
forth in this Section, paid to him or her by Neckura shall be deemed
to have been paid by the Plan
1
<PAGE>
Sponsor.
(b) For Plan Years beginning on or after January 1, 1997.
Covered Compensation means compensation as defined in Section 414(s)
of the Code and Treasury Regulation Section 1.414(s)-1(c)(2) and (4),
but excluding (i) severance pay, (ii) reimbursement for relocation
expenses and related payments, (iii) company car value or subsidy or
reimbursement for loss of company car, (iv) a lump sum payment for
vacation days made at severance of employment, (v) for purposes of
Article IV, any payment made to an Employee to offset, in whole or
part, the tax cost of other amounts paid by a Participating Employer
which are included in the Employee's income for federal income tax
purposes, or (vi) for Agency Managers who are not employed by Wausua,
recurring payments to the extent additional recurring payments do
represent payments of or reimbursements for agency business expenses.
For the purpose of determining a Neckura employee's Covered
Compensation, remuneration, based on the inclusions and exclusions set
forth in this Section, paid to him or her by Neckura shall be deemed
to have been paid by the Plan Sponsor.
1.3 "Highly Compensated Employee" means an Employee of a Participating Employer
whose Covered Compensation, for any year beginning on or after the
Effective Date, exceeds the maximum dollar limitation set forth in Code
Section 401(a)(17).
1.4 "NIERP" means the Nationwide Insurance Enterprise Retirement Plan.
1.5 "Officer" means an elected officer of a Participating Employer whose
Covered Compensation, for any year beginning on or after the Effective
Date, exceeds the maximum dollar limitation set forth in Code Section
401(a)(17).
1.6 "Participating Employer" means any organization defined as such in the
Savings Plan or the Wausau Plan.
1.7 "Plan" means the Nationwide Insurance Enterprise Supplemental Defined
Contribution Plan.
1.8 "Predecessor Plan" means the Nationwide Insurance Companies and Affiliates
Supplemental Defined Contribution Plan or the Wausau Insurance Companies
Supplemental Defined Contribution Plan.
2
<PAGE>
1.9 "Savings Plan" means the Nationwide Insurance Enterprise Savings Plan.
1.10 "Wausau Plan" means the Wausau Insurance Companies Employees' Savings Plan.
3
<PAGE>
ARTICLE II
ELIGIBILITY
-----------
2.1 Each Participant in the Savings Plan or the Wausau Plan who is an Officer
as of December 31 of any Plan Year, will become a Participant in this Plan
on the later of: (a) January 1 preceding the first date in the Plan Year
that the Employer Matching Contribution which would otherwise have been
made to the account of such Participant in the Savings Plan or Wausau Plan
exceeds the maximum Employer Matching Contribution that may be made for him
or her under the Savings Plan or the Wausau Plan due to application of the
maximum benefit and the maximum deferral provisions set forth in the
Savings Plan or the Wausau Plan, the maximum salary provisions in the
Savings Plan or the Wausau Plan, the nondiscrimination provisions in the
Savings Plan or the Wausau Plan, and any limitations imposed by the
Administrative Committee, as permitted under the Savings Plan or the Wausau
Plan; and (b) January 1 preceding the date the Participant becomes an
Officer.
2.2 Highly Compensated Employees are eligible to participate during Plan Years
after 1995 if they: (a) had an account balance in a Predecessor Plan as of
December 31, 1995, (b) participated in the Savings Plan or the Wausau Plan
during the Plan Year, and (c) had not terminated employment prior to
December 31 of the Plan Year or terminated employment after qualifying for
an immediately payable monthly NIERP benefit. For Plan Years beginning on
or after January 1, 1997, additional amounts shall be credited only for
those individuals described in Section 2.1.
4
<PAGE>
ARTICLE III
CREDITS
-------
3.1 Following the end of the Plan Year beginning on January 1, 1996, an amount
will be credited to the account of each Officer and any other eligible
Highly Compensated Employee described in Section 2.2 of this Plan.
Following the end of each Plan Year beginning on or after January 1, 1997,
an amount will be credited to the account of each Officer who had not
terminated employment prior to December 31 of the Plan Year or terminated
employment after qualifying for an immediately payable monthly NIERP
benefit. The credited amount will be equal to the difference between
(a) and (b):
(a) The total company matching credit calculated as follows:
(1) Determine the deferral percentage ("DP") for the Officer for the
preceding Plan Year. For the 1996 Plan Year, use the
Participant's total deferrals under the Savings Plan and the
Wausau Plan for the Plan Year, divided by his or her base salary
(or Benefits Salary for those employees whose Covered
Compensation is determined on the basis of Benefits Salary)
compensation used to determine. For Plan Years after 1996,
divide the total deferrals in the Savings Plan by the Savings
Plan Covered Compensation (up to the Code Section 401(a)(17)
limit).
(2) Determine the appropriate matching contribution percentage based
on the DP determined in (1) and the provisions of Section 5.02 of
the Savings Plan, provided, however, that the matching
contribution percentage for an Officer or Highly Compensated
Employee who defers, under the Savings Plan or the Wausau Plan,
the maximum amount permitted under Section 402(g) of the Code in
any year shall be the aggregate percentage of Employer Matching
Contribution provided under Section 5.02 of the Savings Plan for
such year. For 1996, multiply such percentage by the total
compensation used in determining the actual deferral percentage
("ADP") discrimination test result under the Savings Plan and the
Wausau Plan in 1996 (without applying the Code Section 401(a)(17)
limit). For Plan Years after 1996, multiply such percentage by
the Covered Compensation for the Plan Year to determine the total
company matching credit.
(b) The actual Employer Matching Contribution credited to the Savings Plan
or Wausau Plan account for such Plan Year.
The credit amount will be credited as of the first day of such Plan Year.
5
<PAGE>
3.2 Interest shall accrue on amounts credited to this Plan at the highest
annualized yield credited on the Guaranteed Fund assets of the Savings Plan
during such Plan Year.
3.3 Eligible Officers and Highly Compensated Employees shall vest in the
amounts credited under this Plan at the same time as they become vested in
the Employer Matching Contributions under the Savings Plan.
6
<PAGE>
ARTICLE IV
LIABILITY FOR PAYMENT
---------------------
Each Participating Employer shall be liable for payments due under this Plan
which are based upon its employees' participation in the Savings Plan.
In the event that a payment due hereunder is based upon participation in the
Savings Plan during employment with two or more Participating Employers, each
such Participating Employer's share of the liability will be based on amounts
credited and interest accrued due to participation in the Savings Plan while
employed with each such Participating Employer.
7
<PAGE>
ARTICLE V
METHOD OF PAYMENT
-----------------
5.1 The dollar amount of each payment due under this Plan shall be paid from
the general assets of the Participating Employers liable for such payment.
Such payments shall not be funded.
As an unfunded plan, this Plan has no assets and each Participant's right
to a payment due hereunder is that of an unsecured creditor of the
Participating Employers liable for such payment.
5.2 Credits made to the Predecessor Plans for Plan Years prior to 1996, and
earnings thereon are to be paid in January of the year following the year
the Participant ceases employment with all Participating Employers and Non-
Participating Employers. Unless otherwise elected credits made to this
Plan for Plan Years after 1995, and earnings thereon will be paid as
follows:
(a) For each Participant who qualifies for an immediately payable monthly
benefit from the NIERP, and whose post 1995 account balance exceeds
$10,000, 10 installment payments.
(b) For all other Participants, a single sum payment.
Employees may elect to receive distributions in the form of approximately
equal annual installments over a period of one to ten years if that
election is received within 60 days following the later of the
determination of the 1996 credit amount or the determination of the initial
amount to be credited to the account of the Participant. Such payment
shall be calculated by dividng the Participant's account balance as of the
last day of the preceding Plan Year by the remaining number of annual
installments.
5.3 Should a Participant die, payment shall be made to the Savings Plan
beneficiary in January of the year following the Participant's death.
Where installment payments have commenced pursuant to Section 5.2, such
payments will continue to the Savings Plan beneficiary at the same time and
in the same amount as would be paid to the Participant had he or she
survived.
8
<PAGE>
ARTICLE VI
AMENDMENT; TERMINATION
----------------------
6.1 This Plan may be amended at any time by means of an action of the Board of
Directors of each Participating Employer, provided, however, that no such
amendment may reduce the benefits payable hereunder with respect to persons
who are Participants or beneficiaries on the effective date of amendment.
When another organization becomes a Participating Employer under the
Savings Plan, this Plan shall be amended to include such organization as a
Participating Employer under this Plan.
6.2 The Participating Employers may terminate this Plan at any time by means of
amendment provided, however, that any such termination shall not apply to
persons who are Participants or beneficiaries on the effective date of
termination.
In the event that a Participating Employer hereunder ceases to be a
Participating Employer under the Savings Plan, termination of this Plan
shall be deemed to have occurred with respect to such Participating
Employer effective as of the date it ceased to be a Participating Employer
under the Savings Plan without the need for amendment of this instrument,
provided, however, that such termination of this Plan shall not discharge
such Participating Employer from any liability it may have hereunder as to
any persons who are Participants or beneficiaries immediately prior to the
effective date of such termination of this Plan.
6.3 The Nationwide Mutual Insurance Company shall be the Administrator of this
Plan. The Administrator shall have the authority to interpret the Plan and
issue such regulations as it deems appropriate. The Administrator shall
have the duty and responsibility of maintaining records, making the
requisite calculations and disbursing payments hereunder. The
Administrator's interpretations, determinations, regulations and
calculations shall be final and binding on all Participants, beneficiaries,
persons and parties concerned.
6.4 The benefits payable under this Plan or the right to receive future
benefits under this Plan may not be anticipated, alienated, pledged,
encumbered, or subjected to any charge or legal process, and if any attempt
is made to do so, or a person eligible for any benefits becomes bankrupt,
the interest under this Plan of the person affected may be terminated by
the Administrator which, in its sole discretion, may cause the same to be
held or applied for the benefit of one or more of the dependents of such
person or make any other disposition of such benefits that it deems
appropriate.
6.5 Nothing contained in this Plan shall be construed as a contract of
employment between a
9
<PAGE>
Participating Employer and any Participant, or as a right of any
Participant to be continued in employment of the Participating Employer, or
as a limitation on the right of the Participating Employer to discharge any
of its employees, with or without cause.
10
<PAGE>
ARTICLE VII
CONSTRUCTION
------------
The provisions of this Plan shall be construed, regulated, administered, and
enforced according to the laws of the State of Ohio.
11
<PAGE>
ARTICLE VIII
EXECUTION
---------
This Plan has been established by the Participating Employers in conformity with
resolutions adopted by their respective Boards of Directors and may be executed
in any number of counterparts, each of which will be considered an original.
12
<PAGE>
ARTICLE IX
WAUSAU
------
The Wausau Insurance Companies Supplemental Defined Contribution Plan was
eliminated effective December 31, 1995. Individuals who would have been
eligible for benefits under that plan as of December 31, 1995, shall receive a
credit under this Plan in the same amount as of January 1, 1996.
13
<PAGE>
IN WITNESS WHEREOF, this amendment had been duly executed by the parties
thereto, being hereunto duly authorized.
NATIONWIDE MUTUAL INSURANCE COMPANY
NATIONWIDE MUTUAL FIRE INSURANCE COMPANY
NATIONWIDE GENERAL INSURANCE COMPANY
NATIONWIDE LIFE INSURANCE COMPANY
NATIONWIDE CORPORATION
NATIONWIDE COMMUNICATIONS, INC.
COLONIAL INSURANCE COMPANY OF CALIFORNIA
SCOTTSDALE INSURANCE COMPANY
GATES, McDONALD & COMPANY
GATES, McDONALD & COMPANY OF NEW YORK, INC.
GATES, McDONALD & COMPANY OF NEVADA
WEST COAST LIFE INSURANCE COMPANY
NATIONWIDE FINANCIAL INSTITUTION DISTRIBUTORS
AGENCY, INC.
NEA VALUEBUILDER INVESTOR SERVICES, INC.
NEA VALUEBUILDER INVESTOR SERVICES OF OHIO, INC.
FARMLAND MUTUAL INSURANCE COMPANY
Attest:
By:
- -------------------- ----------------------------------
NATIONWIDE DEVELOPMENT COMPANY
Attest:
By:
- -------------------- ----------------------------------
NATIONWIDE ADVISORY SERVICES, INC.
Attest:
By:
- -------------------- ----------------------------------
14
<PAGE>
PEOPLES TRAVEL SERVICE, INC.
Attest:
By:
- -------------------- ----------------------------------
INSURANCE INTERMEDIARIES, INC.
Attest:
By:
- -------------------- ----------------------------------
PUBLIC EMPLOYEES BENEFIT SERVICES
CORPORATION
Attest:
By:
- -------------------- ----------------------------------
NATIONAL CASUALTY COMPANY
Attest:
By:
- -------------------- ----------------------------------
NATIONWIDE HMO, INC.
Attest:
By:
- -------------------- ----------------------------------
15
<PAGE>
EMPLOYERS INSURANCE OF WAUSAU A MUTUAL
COMPANY
WAUSAU SERVICE CORPORATION
Attest:
By:
- -------------------- ----------------------------------
KEY HEALTH PLAN, INC.
Attest:
By:
- -------------------- ----------------------------------
16
<PAGE>
EXHIBIT 10.15
NATIONWIDE INSURANCE ENTERPRISE
INDIVIDUAL DEFERRED COMPENSATION PROGRAM
GENERAL DESCRIPTION*
INTRODUCTION
- ------------
Nationwide Mutual and certain of its subsidiaries and affiliates, including
Nationwide Life Insurance Company, maintain the Individual Deferred Compensation
Program. The following is a general description of the Individual Deferred
Compensation Program.
ELIGIBILITY
- -----------
Eligibility is limited to officers of the participating companies.
GENERAL PROVISIONS
- ------------------
. Each officer may elect, before the beginning of each calendar year, to defer
payment of a portion of his or her salary or incentive compensation earned
during that year.
. Amounts deferred are credited with interest at a rate equal to that paid under
the Nationwide Insurance Enterprise Savings Plan (the "Savings Plan") fixed
rate investment option.
. Participants are also credited with amounts equal to any employer matching
contributions that would have been made under the Savings Plan and Nationwide
Insurance Enterprise Supplemental Defined Contribution Plan, and any benefits
that would have accrued under the Nationwide Insurance Enterprise Retirement
Plan, the Nationwide Insurance Enterprise Supplement Retirement Plan, or the
Nationwide Insurance Enterprise Excess Benefit Plan, if the elected amounts
had not been deferred.
. Benefits are paid from the program in annual installments commencing in the
January following a participant's termination of employment.
. A copy of a sample agreement is attached as Exhibit A.
PLAN ADMINISTRATION
- -------------------
The Individual Deferred Compensation Program is administered by the Nationwide
Mutual Insurance Company, through its Human Resources Department.
* There is no formal written plan document other than this general description.
The information presented herein is general in nature, and is provided as an
overview of the Individual Deferred Compensation Program. Neither the
Individual Deferred Compensation Program nor this description constitute an
employment contract between the participating companies and any individual. The
participating companies each reserve the right to modify, terminate, or make
exceptions to its participation in the Individual Deferred Compensation Program
without prior notice to the participants.
<PAGE>
EXHIBIT A
---------
DEFERRED COMPENSATION AGREEMENT
-------------------------------
This Agreement, made this ____ day of _________________, 19____, by and between
_______________________________________________(hereinafter referred to as the
"Company"), and ___________________________ (hereinafter referred to as
"Employee"):
WITNESSETH:
----------
WHEREAS, Employee currently occupies a position of key significance with the
Company, and the Company desires to encourage Employee to remain with the
Company and to continue Employee's contributions to the Company's growth;
NOW, THEREFORE, for and in consideration of the mutual covenants herein
contained, the Company and Employee agree as follows:
1. Employment; Salary; Amount to be Deferred. Company hereby employs Employee,
-----------------------------------------
and Employee hereby accepts such employment and agrees to perform his or her
duties to the best of his or her ability and in conformity with the
directions of the Company's management and the Board of Directors. The
Company shall annually determine the Employee's base salary. Employee does
hereby elect to defer _______________________ Dollars ($_______________) of
Employee's base salary to be paid as provided in Paragraph 2. Employee does
hereby elect to defer either __________ Dollars ($__________), of his or her
annual Management Incentive Plan (MIP) payment, but in no event more than
the entire amount otherwise payable under that plan, or __________ percent
(__________%) of such MIP payment, whichever is greater, to be paid as
provided in Paragraph 2. The MIP shall include, for purposes of this
Agreement, all elements of such plan which apply to Employee. The remainder
of the base salary shall be paid currently on a biweekly basis or in such
other periodic payments as the Company may hereafter adopt for its employees
generally. The balance of the MIP payment, if any, shall be paid in a single
payment in the year following the year in which it is earned.
2. Payment of Amounts Deferred; Interest credits; and Designation of
-----------------------------------------------------------------
Beneficiary. A deferred compensation liability account shall be established
by the Company to which the following amounts shall be credited or debited,
as appropriate:
A. An amount equal to the deferred compensation specified in Paragraph 1.
B. In the event Employee has vested rights under the Company's employee
retirement plans, including any qualified retirement plan and any non-
qualified supplemental or excess retirement plans (other than the Nationwide
Insurance Enterprise Savings Plan (the Savings Plan)) upon termination of
employment, an amount equal to the present value of the additional amount of
retirement benefits to which Employee would have obtained a vested right if
the amount of compensation deferred under paragraph 1 had
<PAGE>
been included in computing Employee's retirement benefits under the
Company's retirement plans.
C. Should the Employee become a participant in the Savings Plan, the amount
which would have been contributed by the Company as a matching contribution
based on the Employee's election had the Employee's contribution been based
on his or her Covered Compensation (as defined in the Savings Plan),
including the amount of compensation deferred under Paragraph 1.
The amounts described in items B and C will be credited effective as of the end
of the calendar year in which the deferral or the termination of employment
occurs. The Company shall credit to such account interest on the amounts
described, at the same rate of interest established for the Savings Plan-
Guaranteed Fund for the period from the date on which they are credited to the
account until the date on which payments commence.
Employee will receive quarterly reports of the amount of compensation deferred
under this program.
Upon Employee's termination of employment with all members of the Enterprise,
the total of the amounts described in A, B and C above, together with interest
and any additional amounts credited to such account, will be paid to Employee
in equal annual installments payable during the period (hereinafter called the
"installment payment period") commencing with the first calendar year after his
termination of employment and continuing for the number of years equal to the
number of years in the term of this Agreement, each such installment to be
payable on the last day of January of each year during the installment payment
period. Each of such installments other than the final installment, shall be
increased by a pro rata share of the interest which the Company estimates will
be credited to the deferred compensation liability account during the
installment payment period. The final installment shall be the entire
remaining balance in such account, after the crediting of interest for the
final year. During the installment payment period interest shall be credited
to the account at the same interest rate as is credited to the Savings Plan-
Guaranteed Fund. All payments made under this Agreement shall be debited to the
deferred compensation liability account.
It is distinctly understood and agreed that the Company's only obligation
hereunder is to make the payments provided for under this Agreement when and as
they become payable pursuant to the terms hereof, and that any amount credited
to the deferred compensation liability account shall be solely for record-
keeping purposes and shall not be considered to be held in trust for Employee.
Installments due after Employee's death will be paid to the beneficiary
designated by Employee or, if no such designation is in effect at the time of
death, then to the estate or legal representative of Employee. A designation
of beneficiary must be in writing, signed by Employee and filed with the
Company. It may be changed by any subsequent written designation so signed and
filed.
<PAGE>
For purposes of this Agreement, Enterprise shall mean the Nationwide Mutual
Insurance Company, the Nationwide Mutual Fire Insurance Company, Employers
Insurance of Wausau A Mutual Company, the Farmland Mutual Insurance Company,
their subsidiaries and affiliates.
3. Payments may not be assigned or attached. No payment hereunder may be
----------------------------------------
assigned by Employee, a beneficiary, or estate, and, to the extent permitted
by law, no sum payable under the Agreement shall be subject to legal process
or attachment for payment of any claim against any payee hereunder.
4. No obligation to continue employment. It is distinctly understood and
------------------------------------
agreed that nothing contained in this Agreement shall in any way obligate
the Company to retain Employee in its employment for any period of time, nor
in any way affect the Company's right to change at any time Employee's
future rate of salary, the method or conditions for payment thereof, or any
other aspect of his employment.
5. Term. The term of this Agreement shall commence on
----
__________________________________, ______, and terminate on the date of
termination of Employee's employment with the Company.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of
the day and year first above written.
__________________________________
EMPLOYEE
COMPANY
By________________________________
Vice President
<PAGE>
EXHIBIT 10.16
NATIONWIDE MUTUAL INSURANCE COMPANY
DIRECTORS DEFERRED COMPENSATION PROGRAM
GENERAL DESCRIPTION*
INTRODUCTION
- ------------
Nationwide Mutual and certain of its subsidiaries, including Nationwide Life
Insurance Company, maintain the Directors Deferred Compensation Program (the
"Directors Program"). The following is a general description of the Directors
Program.
ELIGIBILITY
- -----------
Eligibility is limited to individuals who have served on the Board of Directors
of a participating company for at least three years as a result of having been
elected to such Board at least twice by the members or shareholders of the
participating company or by the members of such Board, and who shall have for
any reason retired from the Board of Directors.
GENERAL PROVISIONS
- ------------------
. Each eligible former Director receives payments following his or her
retirement for the number of months which he or she served on the Board of
Directors (other than months during which he or she was also a salaried
officer of the participating company).
. The monthly payment amount is the monthly director's fee paid at the time of
his or her retirement from the Board of Directors.
. In the event the former Director dies prior to receiving all payments under
the program, his or her surviving spouse generally is entitled to reduced
payments until the earlier of the date payments to the former Director would
have terminated or the death of the surviving spouse.
. The former Director may elect to receive payments as a life annuity or a
joint and survivor annuity, which are actuarially equivalent to the standard
form of benefit.
PLAN ADMINISTRATION
- -------------------
The Directors Program is administered by the Nationwide Mutual Insurance
Company, through its Human Resources Department.
* There is no formal written plan document other than this general description.
The information presented herein is general in nature, and is provided as an
overview of the Directors Program. Neither the Directors Program nor this
description constitute a service contract between the participating companies
and any individual. The participating companies each reserve the right to
modify, terminate, or make exceptions to its participation in the Directors
Program without prior notice to the participants.
<PAGE>
EXHIBIT 10.17
DEFERRED COMPENSATION AGREEMENT
-------------------------------
This Agreement made as of September 3, 1979, by and between Nationwide
Mutual Insurance Company, an Ohio corporation having its principal office at One
Nationwide Plaza, Columbus, Ohio (hereinafter referred to as the "Company") and
D. Richard McFerson, residing at 8562 Torwoodlee Court, Dublin, Ohio
(hereinafter referred to as "Executive").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, as an inducement to Executive to enter into employment of Company
commencing September 3, 1979, Company agreed to provide Executive with a
supplemental retirement income outside the Nationwide Retirement Plan in an
amount which, when added to Executive's retirement income from the Nationwide
Retirement Plan and from the New England Life Home Office Retirement Plan, would
equal the amount of retirement income Executive would have received under the
Nationwide Retirement Plan had executive commenced employment with Nationwide
on January 31, 1973; and
WHEREAS, Executive commenced employment as a Vice President with Company on
September 3, 1979, and is continuing such employment in reliance upon Company's
agreement as aforesaid, and Company and Executive desire to reduce their
aforesaid agreement to writing,
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, Company and Executive agree as follows:
1. Employment. Company hereby employs Executive as Vice President.
----------
Executive hereby accepts such employment and agrees to perform the duties
assigned to him to the best of his ability and in conformity with the directions
of Company's Board of Directors, General Chairman and President.
2. Deferred Compensation Payments. In addition to Executive's current
------------------------------
salary as fixed by the Board of Directors, and other compensation and employee
benefits to which Executive is entitled, Company agrees, that if Executive
continues to work for Company or any of its affiliates or subsidiaries until
his 55th birthday on March 30, 1992, the following shall apply:
In the event of Executive's retirement or death after his 55th birthday,
Company will pay Executive or his spouse, whichever is applicable, an
additional monthly retirement income under a non-qualified, unfunded, deferred
compensation arrangement in an amount equal to the excess of (b) over (a),
reduced by (c), where
<PAGE>
(a) is the monthly amount of variable annuity actually payable to
Executive or his spouse under the Nationwide Insurance Companies
and Affiliates 1976 Restated Retirement Plan.
(b) is the monthly amount of variable annuity that would have been
payable to Executive or his spouse under said Retirement Plan had
Executive's Nationwide date of hire been January 31, 1973, instead
of September 3, 1979, and
(c) is the monthly amount of retirement benefit payable to Executive or
his spouse under the New England Life Home Office Retirement Plan,
provided that such retirement benefit is payable on the same
annuity form as Executive's Nationwide variable annuity. If it is
payable on a different annuity form, the monthly amount to be taken
into account under this item (C) shall be:
(i) the monthly amount of New England Life retirement benefit
payable to Executive (or which could have been payable to
Executive) on the "Life Income With Payments Guaranteed For
Ten Years" form, divided by
(ii) the appropriate Nationwide Retirement Plan annuity factor
for the "Ten Year Certain and Continuous" form, multiplied
by
(iii) the appropriate Nationwide Retirement Plan annuity factor
for the form of annuity on which Executive's Nationwide
variable annuity is payable.
Executive's New England Life retirement benefit will be deemed to be payable
when payments actually begin.
Anything in the foregoing to the contrary notwithstanding, in the event
Executive's benefit under the New England Life Home Office Retirement Plan is
paid to him or to his spouse in a lump sum, whether before or after commencement
of his benefits under the Nationwide Insurance Companies and Affiliates 1973
Restated Retirement Plan, the monthly amount to be taken into account under (c)
above shall be the actuarial equivalent of such lump sum payment, as determined
by the Company on the basis of the assumptions then being used to determine
actuarial equivalency under said Nationwide Plan.
2
<PAGE>
3. Payments May Not Be Assigned Or Attached. No payment hereunder may be
----------------------------------------
assigned by Executive, his spouse or his estate, and to the extent permitted by
law no sum payable under the Agreement shall be subject to legal process or
attachment for payment of any claim against any payee hereunder.
4. No Obligation To Continue Employment. It is distinctly understood and
------------------------------------
agreed that nothing in this Agreement shall in any way obligate the Company to
retain the Executive in its employment for any period of time, nor in any way
affect the Company's right to change at any time the Executive's future rate of
salary or other compensation or any other aspect of Executive's employment
except payment of the deferred compensation set forth in paragraph 2 hereof.
IN WITNESS WHEREOF, the parties have duly executed this Agreement this 7th
day of October, 1980.
NATIONWIDE MUTUAL INSURANCE COMPANY
By /s/ Jack A. Baughn
------------------------------------------
Jack A. Baughn, Vice President-Personnel
/s/ D. Richard McFerson
------------------------------------------
D. Richard McFerson
Approved: Date: October 1, 1980
/s/ Frank B. Sollars
- ----------------------------------------------
Frank B. Sollars, Chairman of the Board
/s/ John C. Wagner
- ----------------------------------------------
John C. Wagner, Sr. Vice President and
General Counsel
/s/ Jack A. Baughn
- ----------------------------------------------
Jack A. Baughn, Vice President-Personnel
3
<PAGE>
AMENDMENT #1
DEFERRED COMPENSATION AGREEMENT
-------------------------------
This amendment made by and between Nationwide Mutual Insurance Company,
hereinafter called the Company, and D. Richard McFerson, hereinafter called the
Executive.
WHEREAS, the Company and Executive did enter into a Deferred Compensation
Agreement on October 17, 1980 (the Agreement); and
WHEREAS, the Company desires to retain the services of Executive; and
WHEREAS, the Company and Executive desire to amend the Agreement to incorporate
additional benefits;
NOW, THEREFORE, in consideration of the premises and the mutual covenants herein
contained, Company and Executive agree to amend the Agreement, as follows:
1. Company agrees that, if Executive continues to work for Company or any
of its affiliates or subsidiaries until completing 15 years of service or
attaining age 55, whichever shall occur first, Paragraph 2(a) and (b) of the
Agreement shall be amended to read:
(a) is the total monthly amount of variable straight life annuity actually
payable to Executive under the Nationwide Insurance Companies and
Affiliates 1976 Restated Retirement Plan, the Nationwide Insurance
companies and Affiliates Unfunded Deferred Compensation Excess Benefit
Plan, and the Nationwide Supplemental Retirement Plan (hereinafter
collectively referred to as the Nationwide Retirement Plan.)
(b) is the total monthly amount of variable straight life annuity that
would have been payable to Executive under the Nationwide Retirement
Plan, if the Executive's date of hire by Nationwide had been January
1, 1973, instead of September 3, 1979.
The balance of the Agreement shall be unaffected by this amendment.
IN WITNESS WHEREOF, the parties have duly executed this Agreement this 12th day
of Oct., 1991.
NATIONWIDE MUTUAL INSURANCE COMPANY
by
----------------------------------
/s/ D. Richard McFerson
-------------------------------------
D. Richard McFerson
4
<PAGE>
Approved:
- ----------------------------------
General Chairman
- ----------------------------------
General Counsel
- ----------------------------------
Vice President, Human Resources
<PAGE>
EXHIBIT 10.18
NATIONWIDE FINANCIAL SERVICES, INC.
STOCK RETAINER PLAN FOR NON-EMPLOYEE DIRECTORS
1. Name of Plan. This plan shall be known as the "Nationwide Financial
Services, Inc. Stock Retainer Plan for Non-Employee Directors" and is
hereinafter referred to as the "Plan."
2. Purpose of Plan. The purpose of the Plan is to enable Nationwide
Financial Services, Inc. (the "Company") to attract and retain qualified persons
to serve as directors, to enhance the equity interest of directors in the
Company, and to solidify the common interests of its directors and stockholders
in enhancing the value of the Company's Class A common stock (the "Common
Stock"). The Plan seeks to encourage the highest level of director performance
by providing such directors with a proprietary interest in the Company's
performance and progress by paying a portion of their annual retainer in the
form of Common Stock.
3. Effective Date and Term. The Plan shall be effective as of the date
on which the Company's Registration Statement on Form S-1 (N. 333-18527) filed
under the Securities Act of 1933, as amended (the "Securities Act") with respect
to the Common Stock is declared effective by the Securities and Exchange
Commission (the "Effective Date").
4. Eligible Participants. Each member of the Board of Directors of the
Company (the "Board") from time to time who is not a full-time employee of the
Company or any of its subsidiaries or of any controlling affiliate or its
subsidiaries shall be a participant ("Participant") in the Plan.
5. Delivery of Shares.
(a) Commencing on the Effective Date, each payment of all or any
portion of the retainer payable to each Participant for service on the
Board (the "Retainer"), shall be made by delivering one-half in cash and
one-half in the form of shares of Common Stock (such shares, the "Stock
Retainer") having a Fair Market Value (as defined below) as of the date of
payment, equal to one-half of the amount of the Retainer that is being
paid; provided, that if the number of shares that would otherwise be so
paid to any Participant includes a fractional share, such number shall be
rounded down to the nearest whole number of shares and the Fair Market
Value of such fractional share shall instead be paid in cash. The payment
of all Stock Retainers shall be made subject to any applicable restrictions
set forth in Section 6 hereof.
(b) The "Fair Market Value" of a share of Common Stock as of any date
of determination shall mean the closing price of a share of Common Stock on
the trading day immediately preceding the date of the valuation. The
closing price for such day shall be the
<PAGE>
last sale price, regular way, or, in case no such sale takes place on such
day, the average of the closing bid and asked prices, regular way, in
either case as reported on the principal consolidated transaction reporting
system with respect to securities listed or admitted to trading on the New
York Stock Exchange or, if the Common Stock is not listed or admitted to
trading on the New York Stock Exchange, as reported on the principal
consolidated transaction reporting system with respect to securities listed
on the principal national securities exchange on which the Common Stock is
listed or admitted to trading or, if the Common Stock is not listed or
admitted to trading on any national securities exchange, the last quoted
price or, if not so quoted, the average of the high bid and low asked
prices in the over-the-counter market, as reported by the National
Association of Securities Dealers, Inc. Automated Quotations System
("NASDAQ") or such other system then in use, or, if on any such date the
Common Stock is not quoted by any such organization, the average of the
closing bid and asked prices as furnished by a professional market maker
making a market in the Common Stock.
6. Share Certificates; Voting and other Rights; Restrictions.
(a) All Stock Retainers shall be paid by delivering to the Participant
share certificates issued in the name of the Participant or registering
such shares of Common Stock in the name of the Participant, and upon such
delivery or registration the Participant shall be entitled to all rights of
a stockholder with respect to Common Stock for all such shares issued or
registered in his or her name, including the right to vote the shares, and
the Participant shall receive all dividends and other distributions paid or
made with respect thereto.
(b) Notwithstanding any other provision of the Plan, the Company shall
not be required to issue or deliver any certificate or certificates for
shares or register any shares of Common Stock under the Plan prior to
fulfillment of all of the following conditions:
(i) Any registration or other qualification of such shares of
Common Stock under any state or federal law or regulation, or the
maintaining in effect of any such registration or other qualification which
the Company shall, in its absolute discretion upon the advice of counsel,
deem necessary or advisable; and
(ii) Obtaining any other consent, approval, or permit from any
state or federal governmental agency which the Company shall in its
absolute discretion after receiving the advice of counsel, determine to be
necessary or advisable.
(c) Nothing contained in the Plan shall prevent the Company from
adopting other or additional compensation arrangements for the
Participants.
(d) No Common Stock received by a Participant pursuant to the Plan may
be pledged, sold, transferred or otherwise disposed of unless and until
either:
(i) the Common Stock has been held by the Participant for six
months from the date of issuance, or
2
<PAGE>
(ii) the Common Stock is otherwise transferred in a manner that
complies with the requirements of Rule 16b-3 ("Rule 16b-3")
promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), so that the transaction is exempt from
characterization as a "sale" under Section 16(b) of the Exchange Act.
The Common Stock issued to any Participant shall bear an appropriate
restrictive legend, if issued in certificated form, and be subject to
appropriate "stop transfer" orders. Any additional Common Stock or
other securities or property that may be issued with respect to the
Common Stock issued under the Plan as a result of any stock dividend,
stock split, business combination or other event shall be subject to
the restrictions and other terms and conditions of the Plan.
7. Shares Available. Shares of Common Stock issuable under the Plan
shall be taken from authorized but unissued or treasury shares of the Company as
shall from time to time be necessary for issuance pursuant to the Plan.
8. Amendment.
(a) The Board may from time to time make such amendments to the Plan
as it may deem proper and in the best interest of the Company without
further approval of the Company's stockholders; provided, however, that no
amendment which impairs or adversely affects a Participant's previously
accrued entitlements under the Plan shall be effective with respect thereto
without the Participant's written consent; and provided, further, that to
the extent required to qualify transactions under the Plan for exemption
under Rule 16b-3 no amendment to the Plan shall be adopted without the
approval of the Company's stockholders; and, provided, further, that no
amendment to the Plan shall be made more than once in any six-month period
other than to comply with changes in the Internal Revenue Code of 1986, as
amended; the Exchange Act; the Employee Retirement Income Security Act of
1974, as amended; or the regulations thereunder.
(b) The Board may terminate the Plan on a prospective basis at any
time.
(c) Notwithstanding any other provision of the Plan, no member of the
Board shall be authorized to exercise any discretion with respect to his or
her own selection as a person to receive Stock Retainers under the Plan or
concerning the amount or timing of the delivery of his or her Stock
Retainers under the Plan.
(d) This Plan shall terminate on the earlier of April 1, 2006 or the
date on which all shares provided for under Section 7(a) have been issued
and delivered to Participants.
9. Administration of the Plan. The Plan shall be administered by the
Compensation Committee of the Board, which shall adopt such rules as it may deem
appropriate in order to carry out the purpose of the Plan. All questions of
interpretation, administration and application of the Plan shall be determined
by the Compensation Committee, except that the Compensation Committee may
authorize any one or more of its members, or any officer of the Company, to
execute and deliver documents on behalf of the Compensation Committee. The
Compensation Committee shall take all steps necessary to ensure that the Plan
complies with the law at all times, and the determination of
3
<PAGE>
the Compensation Committee shall be final and binding in all matters relating to
the Plan.
10. Miscellaneous.
(a) Nothing in the Plan shall be deemed to create any obligation on
the part of the Board to nominate any director for reelection by the
Company's stockholders or to limit the rights of the stockholders to remove
any director.
(b) The Company shall have the right to require, prior to the issuance
or delivery of any shares of Common Stock pursuant to the Plan, payment by
a Participant to the Company of any taxes required by law to be withheld
with respect to the issuance or delivery of such shares.
11. Governing Law. The Plan and all actions taken thereunder shall be
governed by and construed in accordance with the laws of the State of Delaware.
4
<PAGE>
EXHIBIT 12.1
NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES
STATEMENTS REGARDING COMPUTATION OF RATIOS
($000,000'S OMITTED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
PRO
FORMA(1) HISTORICAL
-------- ------------------------------------------
1996 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
Earnings:
Income from continuing
operations before
federal income tax
expense and
cumulative effect of
accounting changes... $ 232.9 $ 328.1 $ 281.2 $ 240.4 $ 275.8 $116.4
Fixed charges......... 1,013.0 982.3 950.3 844.6 823.9 802.4
-------- -------- -------- -------- -------- ------
$1,245.9 $1,310.4 $1,231.5 $1,085.0 $1,099.7 $918.8
======== ======== ======== ======== ======== ======
Fixed charges:
Interest credited to
policyholder
account balances..... $ 982.3 $ 982.3 $ 950.3 $ 844.6 $ 823.9 $802.4
Interest on debt...... 30.7 -- -- -- -- --
-------- -------- -------- -------- -------- ------
$1,013.0 $ 982.3 $ 950.3 $ 844.6 $ 823.9 $802.4
======== ======== ======== ======== ======== ======
Ratio of earnings to
fixed charges.......... 1.2x 1.3x 1.3x 1.3x 1.3x 1.1x
======== ======== ======== ======== ======== ======
Ratio of earnings to
fixed charges,
excluding interest
credited to
policyholder account
balances............... 8.6x N/A N/A N/A N/A N/A
======== ======== ======== ======== ======== ======
</TABLE>
- --------
(1) Pro Forma results are presented as if the Special Cash Dividends, Equity
Offerings, the Note Offering and the Capital Securities Offering had been
consummated at the beginning of the period indicated.
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Nationwide Financial Services, Inc.:
We consent to the use of our reports included herein and to the reference to
our firm under the headings "Experts", "Summary Consolidated Financial Data"
and "Selected Consolidated Financial Data" in the prospectus. Our reports
dated January 31, 1997 included herein refer to a change in accounting
principle. In 1994, the Company changed its accounting for investments in debt
and equity securities. Our reports also refer to the formation of the Company
as a holding company for Nationwide Life Insurance Company and the other
companies within the Nationwide Insurance Enterprise that offer or distribute
long-term savings and retirement products. The consolidated financial
statements are presented as if these companies were consolidated for all
periods presented.
Columbus, Ohio
February 25, 1997
<PAGE>
EXHIBIT 24.2
The person whose signature appears below hereby appoints and constitutes
Joseph J. Gasper, W. Sidney Druen and Mark B. Koogler, and each of them, as his
or her attorney-in-fact, with full power of substitution, for him or her in any
and all capacities, to execute in the name and on behalf of such person any
amendment to the registration statement on Form S-1 (File No. 333-18531)(the
"Registration Statement"), including any post-effective amendment, and to file
the same, with exhibits thereto, and other documents in connection therewith,
making such changes in the Registration Statement as the person so acting deems
appropriate, hereby ratifying and confirming all that said attorney-in-fact, or
his or her substitute may do or cause to be done by virtue hereof.
/s/ Lydia Micheaux Marshall
----------------------------
Lydia Micheaux Marshall
Dated: February 7, 1997
<PAGE>
EXHIBIT 24.3
The person whose signature appears below hereby appoints and constitutes
Joseph J. Gasper, W. Sidney Druen and Mark B. Koogler, and each of them, as his
or her attorney-in-fact, with full power of substitution, for him or her in any
and all capacities, to execute in the name and on behalf of such person any
amendment to the registration statement on Form S-1 (File No. 333-18531)(the
"Registration Statement"), including any post-effective amendment, and to file
the same, with exhibits thereto, and other documents in connection therewith,
making such changes in the Registration Statement as the person so acting deems
appropriate, hereby ratifying and confirming all that said attorney-in-fact, or
his or her substitute may do or cause to be done by virtue hereof.
/s/ Donald M. McWhorter
-----------------------------
Donald M. McWhorter
Dated: February 7, 1997
<PAGE>
EXHIBIT 24.4
The person whose signature appears below hereby appoints and constitutes
Joseph J. Gasper, W. Sidney Druen and Mark B. Koogler, and each of them, as his
or her attorney-in-fact, with full power of substitution, for him or her in any
and all capacities, to execute in the name and on behalf of such person any
amendment to the registration statement on Form S-1 (File No. 333-18531)(the
"Registration Statement"), including any post-effective amendment, and to file
the same, with exhibits thereto, and other documents in connection therewith,
making such changes in the Registration Statement as the person so acting deems
appropriate, hereby ratifying and confirming all that said attorney-in-fact, or
his or her substitute may do or cause to be done by virtue hereof.
/s/ Gerald D. Prothro
-----------------------------
Gerald D. Prothro
Dated: February 18, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
NATIONWIDE FINANCIAL SERVICES, INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL
STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996
<PERIOD-START> JAN-01-1995 JAN-01-1996
<PERIOD-END> DEC-31-1995 SEP-30-1996
<DEBT-HELD-FOR-SALE> 12,495,878 11,963,214
<DEBT-CARRYING-VALUE> 5,720 5,854
<DEBT-MARKET-VALUE> 5,989 5,983
<EQUITIES> 37,570 52,941
<MORTGAGE> 4,627,387 5,140,401
<REAL-ESTATE> 229,442 235,525
<TOTAL-INVEST> 17,837,013 17,919,913
<CASH> 52,726 186,034
<RECOVER-REINSURE> 0 0
<DEFERRED-ACQUISITION> 1,020,356 1,349,450
<TOTAL-ASSETS> 37,754,156 44,362,711
<POLICY-LOSSES> 16,113,359 16,601,996
<UNEARNED-PREMIUMS> 0 0
<POLICY-OTHER> 348,027 358,003
<POLICY-HOLDER-FUNDS> 65,297 65,686
<NOTES-PAYABLE> 0 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 2,110,053 2,074,554
<TOTAL-LIABILITY-AND-EQUITY> 37,754,156 44,362,711
199,106 151,057
<INVESTMENT-INCOME> 1,294,033 1,009,618
<INVESTMENT-GAINS> (1,724) 4,300
<OTHER-INCOME> 59,089 52,960
<BENEFITS> 1,115,493 867,652
<UNDERWRITING-AMORTIZATION> 82,695 96,782
<UNDERWRITING-OTHER> 317,743 252,229
<INCOME-PRETAX> 281,170 252,860
<INCOME-TAX> 96,314 88,685
<INCOME-CONTINUING> 184,856 164,175
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 184,856 164,175
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
<RESERVE-OPEN> 0 0
<PROVISION-CURRENT> 0 0
<PROVISION-PRIOR> 0 0
<PAYMENTS-CURRENT> 0 0
<PAYMENTS-PRIOR> 0 0
<RESERVE-CLOSE> 0 0
<CUMULATIVE-DEFICIENCY> 0 0
</TABLE>
