<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended June 30, 1994
____________________________
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________to_________________
Commission file number 1-7697
___________________________________
Southwestern Life Corporation
__________________________________________________________________
(Exact name of registrant as specified in its charter)
Delaware 43-6069928
_____________________________________________ ___________________
(State or other jurisdiction of incorporation I.R.S. Employer
or organization) Identification No.)
100 Mallard Creek Road, Suite 400, Louisville, Kentucky 40207
__________________________________________________________________
(Address of principal executive offices) (Zip Code)
(502) 894-2100
__________________________________________________________________
(Registrant's telephone number, including area code)
I.C.H. Corporation
__________________________________________________________________
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
<TABLE>
<CAPTION>
Class and Title of Shares Outstanding
Capital Stock as of August 10, 1994
__________________ ____________________
<S> <C>
Common Stock, $1.00 Par Value 47,265,016
</TABLE>
Index to Exhibits appears on pages 30-32.
<PAGE>
<PAGE>
SOUTHWESTERN LIFE CORPORATION
(Formerly I.C.H. Corporation)
FORM 10-Q
INDEX
Page(s)
-------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at June 30, 1994
and December 31, 1993 3
Consolidated Statements of Earnings (Loss) for
the Three Months and the Six Months Ended
June 30, 1994 and 1993 4
Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 1994 and 1993 5
Notes to Financial Statements 6-14
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 15-25
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 26-27
Item 4. Submission of Matters to a Vote of
Security Holders 27-28
Item 6. Exhibits and Reports on Form 8-K 28
Index to Exhibits 30-32
<PAGE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SOUTHWESTERN LIFE CORPORATION
(Formerly I.C.H. Corporation)
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 1994 1993
___________ ___________
(In Thousands)
<S> <C> <C>
Investments:
Fixed maturities:
Available for sale at fair value $1,607,230 $1,691,693
Held to maturity at amortized cost 15,305 26,149
Equity securities, at fair value 18,144 75,831
Mortgage loans on real estate, at amortized cost 124,084 138,504
Real estate, at lower of cost or fair value 64,781 67,491
Policy loans 175,713 177,736
Collateral loans 76,432 34,099
Investments in limited partnerships 44,430 43,640
Cash and short-term investments 272,029 366,922
Other invested assets 21,004 16,058
---------- ----------
Total investments 2,419,152 2,638,123
Due from reinsurers 253,152 388,083
Notes and accounts receivable and uncollected premiums 15,528 6,951
Accrued investment income 29,587 31,633
Deferred policy acquisition costs 208,420 168,525
Present value of future profits of acquired business 81,564 50,705
Deferred income tax asset 55,274 53,033
Excess cost of investments in subsidiaries over net
assets acquired, net of accumulated amortization 302,833 307,604
Other assets 43,390 47,999
Assets held in separate accounts 5,016 5,207
---------- ----------
$3,413,916 $3,697,863
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Insurance liabilities:
Future policy benefits and
other policy liabilities $ 916,901 $ 927,303
Universal life and investment
contract liabilities 1,667,107 1,684,396
Notes payable:
Due within one year 8,235 34,546
Due after one year 379,343 383,435
Federal income taxes currently payable 21,366 29,015
Other liabilities 101,789 138,791
Liabilities related to separate accounts 5,016 5,207
---------- ----------
3,099,757 3,202,693
---------- ----------
Stockholders' equity:
Preferred stock 199,997 229,239
Common stock 71,721 71,594
Common stock, Class B 100
Additional paid-in capital 155,564 155,499
Net unrealized investment gains (losses), net of
deferred income taxes in 1993 (120,349) 20,458
Retained earnings 64,569 71,833
---------- ----------
371,502 548,723
Notes receivable collateralized by common stock (1,762) (1,729)
Treasury stock, at cost (55,581) (51,824)
---------- ----------
314,159 495,170
---------- ----------
$3,413,916 $3,697,863
========== ==========
The accompanying notes are an integral part of these financial statements.
<PAGE>
<PAGE>
SOUTHWESTERN LIFE CORPORATION
(Formerly I.C.H. Corporation)
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
(In Thousands, Except Per Share Data)
(Unaudited)
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- ------------------------
1994 1993 1994 1993
------------ ---------- ---------- -----------
(Restated)
<S> <C> <C> <C> <C>
Income:
Premium income and other
considerations $ 113,131 $ 118,213 $ 229,705 $ 236,599
Net investment income 51,997 43,762 82,004 106,186
Realized investment gains
(losses) 673 (5,766) 1,347 13,369
Equity in earnings of equity
investees and limited
partnerships 431 12,656 843 24,522
Gain on sale of stock by Bankers
Life Holding Corporation 99,376
Other income 8,826 6,699 11,325 33,346
----------- ---------- ----------- -----------
175,058 175,564 325,224 513,398
----------- ---------- ----------- ----------
Benefits, expenses and costs:
Policyholder benefits 99,584 102,547 190,269 216,553
Amortization of deferred policy
acquisition costs and present
value of future profits 13,102 14,686 25,395 27,752
Other operating expenses 34,869 42,837 72,349 91,764
Amortization of excess cost 2,398 2,402 4,796 4,803
Interest expense 12,664 17,104 25,109 36,282
----------- ---------- ----------- ----------
162,617 179,576 317,918 377,154
----------- ---------- ----------- ----------
Operating earnings (loss) before
income taxes 12,441 (4,012) 7,306 136,244
Income tax expense (credit) 7,703 4,464 6,745 39,097
----------- ---------- ----------- ----------
Operating earnings (loss) 4,738 (8,476) 561 97,147
Cumulative effect to January 1,
1993 of change in method of
accounting for post-retirement
benefits, net of tax effect (1,812)
Extraordinary losses,
net of tax effect (129) (1,360)
----------- --------- ----------- ----------
Net earnings (loss) 4,738 (8,605) 561 93,975
Less dividends on preferred stock (3,500) (7,700) (7,825) (15,400)
----------- --------- ----------- ----------
Net earnings (loss) applicable
to common stock $ 1,238 $ (16,305) $ (7,264) $ 78,575
=========== ========= =========== ==========
Weighted average shares
outstanding 47,829,460 47,918,802 47,853,939 47,913,409
=========== ========== =========== ==========
Earnings (loss) per common share:
Primary:
Operating earnings (loss)
Cumulative effect to
January 1, 1993 $ .03 $(.34) $(.15) $1.71
of change in method of accounting
for postretirement benefits (.04)
Extraordinary losses (.03)
---------- ---------- --------- ----------
Net earnings (loss) $ .03 $(.34) $(.15) $1.64
========== ========== ========= ===========
Fully diluted:
Operating earnings (loss) $ .03 $(.34) $(.15) $1.58
Cumulative effect to January 1, 1993
of change in method of accounting
for postretirement benefits (.03)
Extraordinary losses (.02)
---------- ----------- ---------- ----------
Net earnings (loss) $ .03 $(.34) $(.15) $1.53
========== =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<PAGE>
SOUTHWESTERN LIFE CORPORATION
(Formerly I.C.H. Corporation)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Six Months Ended June 30, 1994 and 1993
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
1994 1993
---- ----
(Restated)
<S> <C> <C>
Cash flows from operating activities:
Operating earnings $ 561 $ 97,147
Items not requiring (providing) cash:
Adjustments related to universal life and
investment products:
Interest credited to account balances 20,937 52,419
Charges for mortality and administration (35,778) (36,497)
Depreciation and amortization 9,352 8,623
Increase in future policy benefits 3,219 3,306
Decrease (increase) in deferred policy
acquisition costs (505) 3,471
Increase (decrease) in currently payable
income taxes (7,649) 5,482
Decrease in deferred income taxes 6,306 42,721
Decrease in policy liabilities, other
policyholder funds, accounts payable
and accrued expenses (12,725) (30,353)
Decrease (increase) in notes and accounts
receivable and accrued investment incom (2,671) 253
Decrease in asset valuation allowances (1,417) (935)
Equity in earnings of equity investees and
limited partnerships (843) (24,522)
Gain on termination of reinsurance (8,735) (17,117)
Gain on sale of stock by BLHC (99,376)
Other, net 3,299 9,282
----------- -----------
Net cash provided (used) by operating
activities (26,649) 13,904
----------- -----------
Cash flows from investing activities:
Sales and maturities of long-term invested assets 517,849 772,663
Purchases of fixed maturities (462,866) (531,284)
Purchases of other long-term invested assets (88,997) (52,765)
Additional investment in CFLIC preferred stock (21,078)
Purchase of subsidiary, net of cash acquired (3,589)
Cash received (transferred) on reinsurance
transactions 10,108 (43,152)
Other (2,500)
----------- -----------
Net cash provided (used) by investing
activities (51,073) 145,462
----------- -----------
Cash flows from financing activities:
Proceeds of collateralized mortgage note
obligations 171,000
Policyholder contract deposits 87,770 91,422
Policyholder contract withdrawals (91,664) (242,283)
Principal payments on notes payable (402) (37,923)
Early retirement of subordinated debt (38,190)
Principal payments on collateralized mortgage
note obligations (194,528)
Purchase of common stock for treasury (500) (932)
Dividends on preferred shares (7,825) (15,400)
Other (4,550)
----------- -----------
Net cash provided (used) by financing
activities (17,171) (266,834)
----------- -----------
Net decrease in cash and short-term investments (94,893) (107,468)
Cash and short-term investments at beginning of
period 366,922 421,765
----------- -----------
Cash and short-term investments at end of period $ 272,029 $ 314,297
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<PAGE>
SOUTHWESTERN LIFE CORPORATION
(Formerly I.C.H. Corporation)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
____________
1. SIGNIFICANT ACCOUNTING POLICIES:
Effective June 15, 1994, I.C.H. Corporation changed its name to
Southwestern Life Corporation (the Company or SLC).
The financial information included herein was prepared in
conformity with generally accepted accounting principles, and
such principles were applied on a basis consistent with those
reflected in the 1993 Annual Report to Shareholders.
The information furnished includes all adjustments and accruals
which are, in the opinion of management, necessary for a fair
statement of results for the interim periods.
The disclosures in the notes presume that the users of the
interim financial information have read or have access to the
audited financial statements included in the 1993 Annual Report
to Shareholders.
For the six months ended June 30, 1993, the Company had
previously reported a non-operating gain totaling $79,459,000,
net of deferred income tax effects, representing the Company's
equity in the proceeds of a common stock offering by the
Company's then-equity investee, Bankers Life Holding Corporation
(BLHC). On September 30, 1993, the Company sold its investment
in BLHC to Conseco, Inc. (Conseco) and one of Conseco's
subsidiaries for $287,639,000. Upon the sale of the investment
in BLHC, the Company reclassified its previously reported non-
operating gain as a component of operating earnings and, as a
result of the reclassification, revenues were increased by
$99,376,000 to reflect the pre-tax gain resulting from BLHC's
stock offering and income tax expense was increased $19,917,000
to reflect the tax effects associated with such gain. The
accompanying financial statements for the six months ended June
30, 1993, have been restated to reflect the above described
reclassification. As a result of the reclassification, primary
operating earnings per common share for the six months ended
June 30, 1993, increased from $.05 to $1.71 and fully diluted
operating earnings per common share increased from $.18 to
$1.58. The reclassification had no effect on net earnings or
net earnings per common share for the six months ended June 30,
1993, and had no effect on the results for the three months
ended June 30, 1993.
Primary earnings per share are computed by dividing earnings,
less preferred dividend requirements, by the weighted average
number of common shares outstanding. In computing fully diluted
earnings per share, the weighted average number of common shares
outstanding is adjusted to reflect common stock equivalents
resulting from stock options and the assumed conversion of the
Company's Series 1984-A and 1986-A Preferred Stock into common
shares if outstanding at the end of the reporting period, and
preferred dividend requirements are adjusted to eliminate
dividends on the shares assumed to have been converted. The
computation of fully diluted earnings per share excludes the
assumed conversion of such preferred shares for each period in
which the assumed conversion would be antidilutive.
<PAGE>
<PAGE>
SOUTHWESTERN LIFE CORPORATION
(Formerly I.C.H. Corporation)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
____________
1. SIGNIFICANT ACCOUNTING POLICIES, continued:
Previously reported amounts for 1993 have, in some instances,
been reclassified to conform to the 1994 presentation.
2. INVESTMENT IN BANKERS LIFE HOLDING CORPORATION:
The Company continued to reflect its equity in the earnings of
BLHC through the date of sale. Following are unaudited
condensed statement of financial results for BLHC for the six
months June 30, 1993 and the Company's equity in such results
as reflected in its consolidated statement of earnings (in
thousands):
<TABLE>
<S> <C>
Bankers Life Holding Corporation:
Revenues $ 718,500
Earnings from operations 64,300
Extraordinary loss from early debt retirement (5,600)
Net earnings attributable to common stock 54,200
Amounts recorded by the Company:
Equity in operating earnings of BLHC $ 20,539
Equity in extraordinary losses of BLHC (1,370)
-----------
Equity in earnings of BLHC $ 19,169
===========
</TABLE>
3. NOTES PAYABLE:
Notes payable at June 30, 1994 and December 31, 1993, are
summarized as follows:
<TABLE>
<CAPTION>
1994 1993
---- ----
(In Thousands)
<S> <C> <C>
Borrowings under senior secured loan $ 30,000
11 1/4% Senior Subordinated Notes due 1996 $ 266,101 266,101
11 1/4% Senior Subordinated Notes due 2003 91,161 91,161
9 1/2% unsecured note payable due 1996 25,550 25,550
Note payable, interest at prime, due in
monthly installments through 1999,
collateralized by aircraft equipment 4,469 4,872
Other 297 297
---------- ----------
$ 387,578 $ 417,981
========== ==========
</TABLE>
At June 30, 1994, the Company has notes receivable totaling
$26,500,000 from an unaffiliated third party, which are
collateralized by the Company's note payable with a carrying
value of $20,670,000. The Company has the right to set off
its obligation against the notes receivable. In the
accompanying balance sheets, the Company's notes receivable
have been reflected net of amounts due under the note payable.
<PAGE>
<PAGE>
SOUTHWESTERN LIFE CORPORATION
(Formerly I.C.H. Corporation)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
____________
4. FEDERAL INCOME TAXES:
The provision for income taxes on operating earnings (loss)
consists of the following components:
<TABLE>
<CAPTION>
Six Months Ended
June 30,
----------------------
1994 1993
---- ----
(In Thousands)
<S> <C> <C>
Current tax expense (credit) $ 439 $ (3,624)
Deferred tax expense 6,306 42,721
---------- -----------
$ 6,745 $ 39,097
========== ===========
</TABLE>
A reconciliation of the income tax provisions based on the
prevailing corporate income tax rates of 35% in 1994 and 34%
in 1993 to the provisions reflected in the consolidated
financial statements is as follows (in thousands):
<TABLE>
<CAPTION>
Six Months Ended
June 30,
---------------------
1994 1993
---- ----
<S> <C> <C>
Computed expected income tax expense
at statutory regular tax rate $ 2,557 $ 46,323
Amortization of excess cost 1,679 1,633
Reduction in deferred income tax asset
valuation allowance (8,790)
Permanent loss of tax deductions from
redemption of Company's equity
securities (see Note 8) 4,532
Other (2,023) (69)
---------- ----------
Income tax expense $ 6,745 $ 39,097
========== ==========
</TABLE>
Net unrealized investment gains included in stockholders'
equity at December 31, 1993, are reflected net of deferred
income taxes totaling $8,226,000. Net unrealized investment
losses included in stockholders' equity at June 30, 1994, have
not been tax effected because of the uncertainty as to the
Company's ability to generate capital gains in an amount
sufficient to offset the unrealized capital losses.
5. COMMITMENTS, LITIGATION AND CONTINGENT LIABILITIES:
The Company and its subsidiaries have been under examination
by the Internal Revenue Service (IRS) for the tax years 1983
through 1992. The IRS had previously completed its
examination for the years 1983 through 1985 and had previously
issued Preliminary Notices of Deficiencies totaling
approximately $17.5 million, before interest. In March 1994,
the Company reached agreement with the IRS relative to such
proposed deficiencies and subsequently paid settlements to the
IRS totaling $3,972,000, including interest. The Company
<PAGE>
<PAGE>
SOUTHWESTERN LIFE CORPORATION
(Formerly I.C.H. Corporation)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
____________
5. COMMITMENTS, LITIGATION AND CONTINGENT LIABILITIES, continued:
had previously provided a liability for such settlements and,
as a consequence, the settlements had no effect on the
Company's 1994 results of operations.
In July 1994, the IRS completed its examination for the tax
years 1986 through 1989 and issued Preliminary Notices of
Deficiencies totaling approximately $127.7 million, before
interest. A substantial portion of the proposed deficiencies
involves the deductibility of approximately $444 million of
interest expense on certain surplus debentures issued by the
Company's insurance subsidiaries. The examining agent
involved had previously submitted a Request for Technical
Advice to the IRS Chief Counsel's Office relative to such
interest deductions. The IRS Chief Counsel's Office did not
provide any advice on the issue and closed the case for lack
of presently available additional information. Notwith-
standing the response from the IRS Chief Counsel's Office, the
examining agent chose to include the issue in the Revenue
Agent's Report (RAR). Management intends to vigorously
protest the proposed deficiencies and is in the process of
preparing an appeal relative to the surplus debenture interest
issue and other significant issues reflected in the RAR.
Management believes the surplus debentures in question were
legally enforceable debt instruments, as opposed to equity
contributions, and that the related interest was properly
deductible. In addition, the domiciliary states of the
Company's insurance subsidiaries recognized such surplus
debentures as valid debt instruments. Further, all existing
case law has held in favor of taxpayers with regard to the
issue of whether surplus debentures represent debt, as opposed
to equity, and, as a consequence, management believes that the
Company and its subsidiaries do not have significant exposure
to additional taxes as a result of the proposed deficiencies.
Modern American Life Insurance Company (Modern) is a defendant
in a class action lawsuit filed on or about May 14, 1993 in
the Circuit Court of Jackson County, Missouri, styled WILLIAM
D. CASTLE, ET AL. V. MODERN AMERICAN LIFE INSURANCE COMPANY
(the Castle case). The suit purports to be brought on behalf
of a class of persons who own what plaintiffs denominate as
charter contracts, issued by life insurance companies merged
into or acquired by Modern and its predecessors. The suit
alleges breach of contract, and seeks declaratory judgment,
costs, expenses and such other relief as the Court deems
appropriate. As an alternative, the suit seeks rescission.
SLC was added as a defendant to the CASTLE case by an amended
petition, filed February 16, 1994, alleging that the Company
should be liable for any judgment against Modern through
either disregarding Modern's corporate existence or finding
tortious interference by the Company with plaintiff's
contracts with Modern. SLC's motion to dismiss the amended
petition as to SLC has been denied. On July 27, 1994, the
Circuit Court entered an order granting the plaintiffs' motion
for certification of the suit as a class action and certified
six subclasses composed of the persons who own or owned the
so-called charter contracts purchased from Modern and five of
its predecessor corporations. Modern believes it has
meritorious defenses to the CASTLE case and intends to defend
the case vigorously.
<PAGE>
<PAGE>
SOUTHWESTERN LIFE CORPORATION
(Formerly I.C.H. Corporation)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
____________
5. COMMITMENTS, LITIGATION AND CONTINGENT LIABILITIES, continued:
On or about October 12, 1993, the plaintiffs in the CASTLE
case also filed a lawsuit in the Circuit Court of Cole County,
Missouri, naming Modern and the Director of the Missouri
Department of Insurance (the Missouri Director) as defendants.
The second lawsuit, styled ROBERT J. MEYER, ET AL. V. JAY
ANGOFF, DIRECTOR OF THE MISSOURI DEPARTMENT OF INSURANCE AND
MODERN AMERICAN LIFE INSURANCE COMPANY (the MEYER case), was
an appeal from the regulatory proceedings before the Missouri
Department of Insurance, by which Modern received regulatory
approvals required for it to participate in a restructuring of
the Company's insurance holding company organization. The
restructuring was completed on or about September 29, 1993.
The plaintiffs in the MEYER case were seeking reversal or
remand of the Director's order of approval, declaratory
judgment and such other relief to which they claim they were
entitled. On July 16, 1994, the Cole Circuit Court issued an
order indicating it had reviewed the Department's decision on
the record pursuant to Missouri's administrative procedure act
and affirmed the Missouri Director's orders.
Various other lawsuits and claims are pending against the
Company and its subsidiaries. Based in part upon the opinion
of counsel as to the ultimate disposition of the above
discussed and other matters, management believes that the
liability, if any, will not be material.
6. REALIZED INVESTMENT GAINS (LOSSES):
Following is an analysis of the major components of gains
(losses) on investments (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- ---------------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Fixed maturities $ 225 $ (327) $ 2,245 $ 14,023
Mortgage-backed
securities (1,014)
Equity securities 740 (99) (485) 6,113
Investment in limited
partnership (5,013) (5,013)
Other (292) (327) (413) (740)
-------- -------- -------- --------
$ 673 $ (5,766) $ 1,347 $ 13,369
======== ======== ======== ========
</TABLE>
7. EXTRAORDINARY LOSSES:
For the six months ended June 30, 1993, the Company reflected
an extraordinary loss totaling $690,000, resulting from the
premium paid to effect the early redemption of $37.5 million
principal amount of the Company's 16 1/2% Senior Subordinated
Debentures due 1994. In addition, the Company reflected its
equity in the extraordinary loss of BLHC resulting from early
retirement of debt totaling $1,370,000. The extraordinary
losses have been reflected net of the estimated tax effects
totaling $700,000.
<PAGE>
<PAGE>
SOUTHWESTERN LIFE CORPORATION
(Formerly I.C.H. Corporation)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
____________
8. TRANSACTIONS WITH CONSOLIDATED FIDELITY LIFE INSURANCE
COMPANY:
On June 15, 1993, the Company, the Company's then-controlling
shareholder, Consolidated National Corporation (CNC), and
CNC's subsidiary, Consolidated Fidelity Life Insurance Company
(CFLIC), entered into an agreement (the 1993 Agreement) under
which (i) the Company was authorized, and undertook the
obligation, to negotiate the termination of reinsurance
agreements pursuant to which CFLIC reinsured certain annuity
business written by Southwestern Life Insurance Company
(Southwestern), a subsidiary of the Company, and Bankers Life
and Casualty Company (Bankers), a former subsidiary of the
Company, and (ii) the Company transferred assets, consisting
of a limited partnership interest (that has since been
liquidated) and 83% of the outstanding common stock of I.C.H.
Funding Corporation (ICH Funding), to CFLIC to acquire
preferred stock of CFLIC, with a stated value of $63,000,000.
Under the terms of the 1993 Agreement, the CFLIC preferred
stock was to be repurchased by CFLIC immediately following the
termination of the CFLIC reinsurance agreements. The reinsur-
ance agreements had been entered into in 1990 in conjunction
with the Company's sale of Marquette National Life Insurance
Company (Marquette) to CNC and its stockholders. Under the
reinsurance agreements, Employers Reassurance Corporation
(ERC), an independent third party reinsurer, retroceded to
CFLIC certain annuity business which was reinsured with ERC by
each of Southwestern and Bankers.
On June 30, 1994, the CFLIC reinsurance agreements were
terminated, and the business reinsured thereunder was recap-
tured, effective as of April 1, 1994. Immediately prior to
the termination of the CFLIC reinsurance agreements, Union
Bankers Insurance Company (Union Bankers), a subsidiary of the
Company, utilized available cash to purchase all of the
outstanding stock of Marquette, a subsidiary of CFLIC, for
$8,215,000. The purchase price was based on the fair value of
Marquette's underlying net assets, consisting primarily of
cash and U.S. Treasury obligations, adjusted for the value of
Marquette's various state insurance licenses as determined by
an independent actuarial firm. Marquette's results of
operations will be included in the Company's consolidated
results of operations for periods subsequent to June 30, 1994.
Following completion of the terminations, CFLIC repurchased
the shares of its preferred stock held by the Company by
transferring to the Company the senior secured loan of the
Company with an outstanding principal balance of $30 million,
all of the outstanding shares of the Company's Series 1984-A
Preferred Stock with a stated value of $22,242,000, all of the
outstanding shares of the Company's Series 1986-B Preferred
Stock with a stated value of $7,000,000, a U.S. Treasury note
(par value $1,050,000), and 620,423 shares of the Company's
Common Stock. Immediately following the repurchase of the
CFLIC preferred stock, SLC retired the senior secured loan and
the SLC preferred stocks. The shares of SLC Common Stock
received were placed in treasury.
Upon termination of the CFLIC reinsurance agreement relating
to the business written by Southwestern, CFLIC transferred
cash and invested assets with a fair value equal to the
reserve liabilities being recaptured, net of the ceding fees
payable. Due primarily to a requirement by insurance
regulatory authorities to transfer such investments upon
termination of the reinsurance agreements at their fair value,
the Company increased its basis in the CFLIC preferred stock
by investing an additional $26,212,000 (including $21,078,000
<PAGE>
<PAGE>
SOUTHWESTERN LIFE CORPORATION
(Formerly I.C.H. Corporation)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
____________
8. TRANSACTIONS WITH CONSOLIDATED FIDELITY LIFE INSURANCE
COMPANY, continued:
cash and a $5,134,000 receivable) immediately prior to the
terminations to enable CFLIC to have sufficient assets (other
than the Company's securities being transferred to the Company
upon redemption of the CFLIC preferred stock) to complete the
terminations. A substantial portion of such amount was
attributable to a decline in the fair value of the 83%
interest in ICH Funding subsequent to the Company's transfer
of such investment to CFLIC in June 1993.
In conjunction with the termination of the CFLIC reinsurance
agreement relating to the business written by Southwestern,
annuity reserve liabilities totaling $323,305,000 were assumed
by ERC and invested assets with a fair value of $289,414,000
were transferred by CFLIC to ERC. The difference between the
reserve liabilities assumed by ERC and the assets transferred
from CFLIC, totaling $33,891,000, represented the aggregate
ceding fee paid to CFLIC to effect the termination. Immedi-
ately thereafter, Southwestern recaptured $107,163,000 of the
reserve liabilities from ERC and received invested assets from
ERC totaling $93,942,000. The assets consisted of cash, short-
term investments and marketable fixed maturity investments
totaling $25,455,000, CFLIC's investment in ICH Funding and
certain pass-through certificates issued by a special purpose
trust with an estimated fair value totaling $12,528,000,
collateral loans due from James M. Fail and CFSB Corporation
totaling $50,640,000, and other assets, principally mortgage
loans, totaling $5,319,000. The difference between the
reserve liabilities recaptured by Southwestern and the assets
transferred from ERC, totaling $13,221,000, represented a
ceding fee paid by Southwestern, and reduced ERC's net ceding
fees incurred to effect the CFLIC reinsurance termination to
$20,670,000. The reinsurance agreement between Southwestern
and ERC was amended to provide that ERC will be permitted to
recover the net ceding fees incurred out of the future profits
on the portion of Southwestern's annuity business it retained,
together with interest at 2% per annum on the unamortized
balance of such ceding fees. For financial reporting purpos-
es, the reinsurance arrangement between Southwestern and ERC
will be reflected as a financing arrangement and, accordingly,
will not be reflected in the Company's financial statements
except for the interest paid to ERC.
The amount of the ceding fees paid to CFLIC in connection with
the recapture was determined by management of the Company
utilizing the methodology developed by an independent actuari-
al firm, with appropriate adjustments in assumptions to
reflect changes in market interest rates and other factors.
Pursuant to the 1993 Agreement, the Company agreed to bear the
federal income tax consequences resulting from the termination
of the CFLIC reinsurance agreements. Upon closing of the
CFLIC termination, the Company agreed to indemnify CNC and
CFLIC for tax liabilities of CFLIC and Marquette arising
through June 30, 1994, and deposited into an escrow account
$8,825,000 of cash which the Company was to have received upon
CFLIC's repurchase of its preferred stock as a source of funds
for the payment of taxes for which the Company is responsible.
With the payment of such tax liabilities, the Company will be
entitled to all tax refunds to which CFLIC is entitled through
the carryback of capital losses resulting from the termination
of the CFLIC reinsurance agreements or as a result of any
redetermination of CFLIC's
<PAGE>
<PAGE>
SOUTHWESTERN LIFE CORPORATION
(Formerly I.C.H. Corporation)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
____________
8. TRANSACTIONS WITH CONSOLIDATED FIDELITY LIFE INSURANCE
COMPANY, continued:
tax liabilities through the first taxable period of CFLIC and
Marquette ending after such termination. Management of the
Company has estimated that CFLIC will be entitled to tax
refunds totaling approximately $5.8 million through the
carryback of capital losses. Upon collection of the tax
refund, the Company will utilize a portion of the proceeds to
satisfy the remaining $5,134,000 receivable held by CFLIC.
For financial reporting purposes, the Company recorded the
redemption of its preferred stocks received from CFLIC at
their stated value, which in management's opinion, approximat-
ed the fair value of such securities as of the date the 1993
Agreement was entered into. The 620,423 shares of the
Company's Common Stock received from CFLIC were recorded at
their market value, or $5.25 per share, as of the date of
closing. The termination of the CFLIC reinsurance agreements,
the receipt of a payment-in-kind dividend from CFLIC repre-
senting dividends on such preferred stock from the date of
issuance through the date of redemption, and the redemption of
the Company's securities resulted in a pre-tax gain totaling
approximately $8,735,000 and an after-tax gain totaling
approximately $1,936,000. Because the redemption of the CFLIC
preferred stock involved the receipt by the Company of its own
equity securities, approximately $12.9 million of the tax
basis loss on such exchange cannot be deducted for federal
income tax purposes and, as a consequence, the income tax
effects associated with these transactions approximated 78% of
the pre-tax gain.
9. CHANGE IN CONTROL:
On February 11, 1994, the Company purchased all of the 100,000
shares of its Class B Common Stock held by CNC for total cash
consideration of $500,000. The Class B Common Stock had
entitled CNC to elect 75% of the Company's Board of Directors.
Upon the purchase, the Class B shares were automatically
converted into an identical number of shares of Common Stock
and at June 30, 1994, have been reflected as Treasury Shares.
Concurrently with the purchase of such stock, the Company
entered into Independent Contractor and Services Agreements
(Services Agreements) with Robert T. Shaw and C. Fred Rice,
the controlling shareholders of CNC. The Services Agreements
provide for a lump sum payment to Messrs. Shaw and Rice
totaling $2 million as of the closing date and additional
payments totaling $8,575,000 over a ten-year period. In
addition, the Company agreed to provide customary employee
benefits to Messrs. Shaw and Rice and their dependents. In
the event of the deaths of Messrs. Shaw or Rice, any amounts
not previously paid under the Services Agreements will become
immediately payable to their estates. In consideration for
the Services Agreements, Messrs. Shaw and Rice agreed that
they would attempt to identify business opportunities in the
insurance industry which may be suitable for the Company and
to consult with the Company regarding such other matters as
the Company may reasonably request. In addition, Mr. Rice
continues to serve as an executive officer of the Company and
was re-elected to serve on the Company's Board of Directors
until 1995. The Services Agreements replaced a management and
consulting contract with CNC that provided for annual payments
to CNC totaling $2 million. In addition, Mr. Shaw was granted
an option to acquire the two aircraft owned
<PAGE>
<PAGE>
SOUTHWESTERN LIFE CORPORATION
(Formerly I.C.H. Corporation)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
____________
9. CHANGE IN CONTROL, continued:
by the Company at their depreciated book values. In cash
transactions completed on June 30 and August 5, 1994, an
entity controlled by Mr. Shaw purchased one aircraft for
$1,144,000 and an unrelated third party to whom the option was
assigned purchased the other aircraft for $4,005,000, respec-
tively. The Company provided a liability for the present
value of amounts payable under the Services Agreements
totaling $9,050,000 in its financial statements for the year
ended December 31, 1993.
<PAGE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES:
On February 11, 1994, SLC purchased all of the 100,000 shares
of its Class B Common Stock from Consolidated National Corporation
(CNC) for total cash consideration of $500,000. As a result of the
repurchase, and subsequent conversion, SLC is no longer authorized
to issue Class B Common Stock and all references in SLC's Certifi-
cate of Incorporation to the Class B Common Stock have been
eliminated. Concurrent with the repurchase of the Class B Common
Stock, Stephens Inc. (Stephens) and Torchmark Corporation (Torch-
mark) purchased 4,457,000 shares and 4,667,000 shares, respective-
ly, of SLC Common Stock from CNC, which reduced CNC and its
subsidiaries' holding in SLC Common Stock to approximately
1,620,000 shares, or 3.4% of SLC's then outstanding shares.
Additional information regarding the repurchase of the Class B
Common Stock and other terms of the transaction are included in
Note 9 of the Notes to Financial Statements included elsewhere in
this Form 10-Q. Management believes the repurchase of the Class B
Common Stock is significant for various reasons. Most importantly,
management believes that SLC's access to both debt and equity
capital markets has been limited because of the control position
held by CNC through the Class B Common Stock, and that the
repurchase and conversion of the Class B Common Stock and consider-
able reduction in CNC's holdings of SLC Common Stock could
ultimately enhance SLC's ability to refinance its currently
outstanding debt. In May 1994, SLC engaged Stephens, an investment
banking firm, to conduct a review of SLC in order to provide advice
and recommendations to SLC's Board of Directors concerning SLC's
strategic plans.
On June 30, 1994, reinsurance agreements involving certain
annuity business written by SLC's subsidiary, Southwestern Life
Insurance Company (Southwestern), and SLC's former subsidiary,
Bankers Life and Casualty Company (Bankers), that had been
reinsured through an independent third party reinsurer, Employers
Reassurance Corporation (ERC), to Consolidated Fidelity Life
Insurance Company (CFLIC), a subsidiary of CNC, were terminated in
accordance with an agreement entered into among SLC, CNC and CFLIC
effective June 15, 1993, as amended. See Note 8 of the Notes to
Financial Statements included elsewhere in this Form 10-Q for
additional information and a more detailed discussion of the terms
of these transactions.
The termination of the CFLIC reinsurance agreements, the
receipt of a $3.9 million payment-in-kind dividend from CFLIC
representing dividends on its preferred stock from the date of
issuance through the date of repurchase, and the redemption of
certain of SLC's securities resulted in a pre-tax gain totaling
approximately $8.7 million and an after-tax gain totaling approxi-
mately $1.9 million which have been reflected in SLC's statement of
earnings for the three months and the six months ended June 30,
1994. In addition, there were no dividends declared or paid on the
SLC preferred stocks received in the transaction for the three
months ending June 30, 1994, resulting in dividend savings totaling
approximately $.8 million. Because the redemption of the CFLIC
preferred stock involved the receipt by SLC of its own equity
securities, approximately $12.9 million of the tax basis loss on
such exchange cannot be deducted for federal income tax purposes
and, as a consequence, the income tax effects associated with these
transactions approximated 78% of the pre-tax gain. Management
believes the completion of the CFLIC transactions as described
above and in Note 8 to the Financial Statements is significant in
that it has eliminated a significant transaction with a former
affiliate, has reduced outstanding debt and preferred stock, has
simplified SLC's structure and has reduced state insurance
regulatory concerns. Based on the prime rate in effect as of June
30, 1994, the retirement of SLC's senior secured loan is expected
to result in annual interest expense savings totaling approximately
$2.5 million, and the retirement of the SLC preferred stocks will
result in a reduction in
<PAGE>
<PAGE>
annual preferred dividend requirements totaling $3.3 million. In
addition, CNC's and CFLIC's ownership in shares of SLC Common Stock
was further reduced to 2.1% of SLC's outstanding shares as a result
of these transactions.
During the six months ended June 30, 1994, SLC experienced a
significant decline in the fair value of its available for sale
fixed maturity investments, primarily as a result of increases in
market interest rates. Because such securities are reflected at
their fair value for financial reporting purposes, the decline in
fair value, coupled with a loss after preferred dividend require-
ments in the first six months of 1994, had a significant impact on
stockholders' equity and book value per common share. Common
stockholders' equity declined $151.7 million, from $265.9 million,
or $5.55 per share, at year-end 1993 to $114.2 million, or $2.42
per share, at June 30, 1994. Of this decline, $140.8 million, or
$2.98 per share, was attributable to the change in unrealized
investment gains and losses. Because of its available liquidity
and other factors, management does not anticipate that SLC will be
required to liquidate a substantial portion of its available for
sale fixed maturity portfolio over the near-term. See "Investment
Portfolio" below for additional information regarding SLC's
available for sale fixed maturities.
At June 30, 1994, the parent company held cash, short-term
investments and readily-marketable fixed maturity investments (at
fair value) totaling approximately $69.2 million. As discussed in
more detail in the Company's 1993 Annual Report, SLC has consider-
able flexibility in determining whether it will utilize cash to
make a $100 million sinking fund installment with respect to its 11
1/4% Senior Subordinated Notes due 1996 (Old Notes). Assuming that
a sinking fund installment relative to the Old Notes is not made
utilizing available cash in 1994, management believes that SLC has
sufficient liquidity with which to meet its debt service and
preferred dividend requirements over the next twelve months.
Depending on market conditions and other factors, SLC may from
time-to-time utilize its available liquidity to purchase some of
its Old Notes or other outstanding securities in open-market or
private placement transactions.
INVESTMENT PORTFOLIO:
At December 31, 1993, SLC reflected unrealized investment
gains of $20,458,000 and at June 30, 1994, reflected unrealized
investment losses of $120,349,000. Following is an analysis of the
major components of such unrealized gains (losses) (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1994 1993
------------ -------------
<S> <C> <C>
Available for sale fixed maturities $(141,738) $ 21,424
Equity securities 1,107 7,271
Equity in unrealized gains of limited
partnerships 4,921 5,349
Other 393 (159)
--------- ---------
(135,317) 33,885
Less effect on other balance sheet
accounts:
Deferred policy acquisition costs 19,699 (16,647)
Unearned revenue reserves (4,731) 6,266
--------- ---------
Gross unrealized investment gains
(losses) (120,349) 23,504
Minority interest in unrealized losses 5,180
Deferred income taxes (8,226)
--------- ---------
Net unrealized investment
gains (losses) $(120,349) $ 20,458
========= =========
</TABLE>
<PAGE>
<PAGE>
The difference between amortized cost and fair value of SLC's
available for sale fixed maturities decreased from an approximate
$21.4 million unrealized gain at year-end 1993 to an approximate
$141.7 million unrealized loss at June 30, 1994. Approximately
$101.0 million of the decrease in fair value was related to
increases in market interest rates between the two dates and the
negative effect of such rate increases on the fair values of tradi-
tional debt securities. The remainder of the decrease in fair
value, or approximately $40.7 million, was attributable to changes
in the estimated fair value of certain investments in mortgage-
backed securities as a result of the continuation of high levels of
refinancing activity relative to underlying mortgage loans and the
resultant prepayments on such mortgage-backed securities experi-
enced during the 1994 first quarter.
The mortgage-backed securities, including SLC's and its
subsidiaries investments in certain pass-through certificates
issued by a special purpose trust sponsored by Fund America
Investors Corporation II (the Fund America certificates) and SLC's
25% residual ownership interest in a special purpose trust spon-
sored by ICH Funding (the SIST residual), were valued at June 30,
1994 by an independent investment banking firm utilizing assump-
tions materially different from those utilized at year-end 1993 and
at March 31, 1994. Such investment banking firm previously
utilized a level 400% standard prepayment assumption (SPA) and an
11% discount rate. As a result of the recent market turmoil
experienced relative to these types of investments, the investment
banking firm advised SLC that it had re-evaluated its approach to
estimating fair values and concluded that the use of an option
adjusted spread approach more accurately reflected fair value.
Based on a significant decline in mortgage loan refinancings in the
1994 second quarter and a drop in prepayment rates to levels
substantially below the previously assumed 400% SPA, management had
previously expressed its belief that the possibility existed for an
improvement in the fair value of SLC's investments in its remaining
mortgage-backed securities. However, the change in methodology by
the investment banking firm resulted in an approximate $22.7
million further decline in the estimated fair value of these
securities between March 31, 1994 and June 30, 1994. The implied
yield to maturity on these securities based on the June 30, 1994
fair values approximates 12.86%, which is a significantly higher
rate than the previously assumed 11% discount rate, and in manage-
ment's opinion, such higher rate accounts for a substantial portion
of the further decline in fair value. Following is a summary of
investments in the Fund America certificates and the SIST residual
at December 31, 1993 and June 30, 1994 (in thousands):
<TABLE>
<CAPTION>
Book Fair Unrealized
Value Value Loss
-------- -------- ----------
<S> <C> <C> <C>
December 31, 1993 $ 95,529 $ 67,108 $(28,421)
======== ======== =========
June 30, 1994 $100,308 $ 31,187 $(69,121)
======== ======== =========
</TABLE>
Changes in the fair values of available for sale fixed maturi-
ties have no effect on SLC's reported results of operations, but
can have a volatile effect on SLC's stockholders' equity and book
value per common share, as the carrying values of available for
sale fixed maturities are adjusted in SLC's balance sheet to their
fair values at each reporting date through a charge or credit to
stockholders' equity. In addition, unrealized investment losses
generally have a more significant impact on stockholders' equity
than unrealized gains because of deferred income tax effects, i.e.,
net unrealized investment gains must be tax-effected (reduced for
potential income tax expense), whereas net unrealized investment
losses usually cannot be tax-effected (reduced for potential income
tax benefits) due to the uncertainty in a rising interest rate
environment as to the Company's ability to generate sufficient
capital gains to offset capital losses. Because of its available
liquidity and other factors, such as its seasoned block of tradi-
tional life insurance business, SLC has no current plans, and man-
agement believes that SLC will not have the need over the near-term
or the foreseeable future, to liquidate any significant portion of
its available for sale fixed maturity investments at a loss.
Following is an analysis of gross
<PAGE>
<PAGE>
unrealized investment gains and losses on available for sale fixed
maturities as of June 30, 1994 and December 31, 1993 (in thou-
sands):
<TABLE>
<CAPTION>
June 30, December 31,
1994 1993
----------- -------------
<S> <C> <C>
Gross unrealized gains $ 12,602 $ 63,535
Gross unrealized losses (154,340) (42,111)
--------- ---------
Net unrealized gains (losses) $(141,738) $ 21,424
========= =========
</TABLE>
The following table sets forth the carrying value and quality
for each of the two categories of fixed maturities as of June 30,
1994, classified in accordance with the rating assigned by Standard
& Poor's Corporation (S&P) or, if not rated by S&P, based on
ratings assigned by the National Association of Insurance Commis-
sioners, with Class 1 treated as A, Class 2 treated as BBB-, Class
3 treated as BB- and Classes 4, 5 and 6 treated as B and below (in
millions):
<TABLE>
<CAPTION>
Held to
Available Maturity Percent of Percent
for Sale at Total Total of Total
Investment at Fair Amortized Fixed Fixed Invested
Quality Value Cost Maturities Maturities Assets
- ---------- -------- --------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C>
AAA $ 619.6 $ 1.8 $ 621.4 38.3% 25.7%
AA 202.2 202.2 12.4 8.4
A 446.9 446.9 27.6 18.5
BBB+ 73.3 73.3 4.5 3.0
BBB 80.0 80.0 4.9 3.3
BBB- 90.0 90.0 5.6 3.7
-------- -------- -------- ----- -----
Total
investment
grade 1,512.0 1.8 1,513.8 93.3 62.6
-------- -------- -------- ----- -----
BB+ 27.8 27.8 1.7 1.1
BB and BB- 42.6 42.6 2.6 1.8
B and Below 24.8 13.5 38.3 2.4 1.6
Total non- -------- -------- -------- ----- -----
investment-
grade 95.2 13.5 108.7 6.7 4.5
Total -------- -------- -------- ----- -----
fixed
maturi-
ties $1,607.2 $ 15.3 $1,622.5 100.0% 67.1%
======== ======== ======== ===== =====
</TABLE>
Fixed maturities classified as held to maturity are principal-
ly private placement corporate securities and gross unrealized
losses on such investments totaled $2.3 million as of June 30,
1994.
The amortized cost and fair value of noninvestment-grade fixed
maturities totaled $120.2 million and $108.2 million, respectively,
at June 30, 1994.
Effective March 31, 1994, SLC's subsidiaries sold substantial-
ly all of their commercial mortgage loans with remaining principal
balances of less than $300,000 for approximately $9.0 million. No
significant gains or losses were incurred as a result of such sale.
SLC is considering the sale of substantially all of its remaining
commercial mortgage loan portfolio. At June 30, 1994, mortgage
loans represented approximately 5% of ICH's total investment
portfolio.
Cash and short-term investments declined from $366.9 million
at year-end 1993 to $272.0 million at June 30, 1994, primarily as
a result of reinvestments made in higher-yielding longer duration
securities.
<PAGE>
<PAGE>
As discussed in the 1993 Annual Report, the claims-paying
ratings assigned to certain of SLC's subsidiaries by various
nationally recognized statistical rating organizations were lowered
over the past two years. Except as discussed below, management
believes SLC's subsidiaries have not experienced more than normal
policy surrenders and withdrawals as a result of these ratings
downgrades. For the six months ended June 30, 1994, policyholder
contract deposits totaled $87.8 million and policyholder contract
withdrawals totaled $91.7 million. Approximately $50.0 million of
such withdrawals represented scheduled maturities of guaranteed
investment contracts (GICs) which were not reinvested with an SLC
subsidiary. Because of its available liquidity and readily
marketable securities, the subsidiary has not encountered, and
management does not anticipate that the subsidiary will encounter,
any difficulty in meeting its obligations relative to such
withdrawals. Exclusive of the GIC withdrawals, policyholder
contract deposits exceeded policyholder withdrawals by $46.1
million.
RESULTS OF OPERATIONS:
For the six months ended June 30, 1994, SLC reflected
operating earnings and net earnings, before preferred dividend
requirements, of $.6 million. The 1994 first half results compare
to a restated gain from operations for the same period in 1993 of
$97.1 million and net earnings, before preferred dividend require-
ments, totaling $94.0 million. Preferred dividend requirements
totaled $7.8 million in the first six months of 1994, as compared
to $15.4 million in the first six months of 1993. Results in the
1993 first half also included a charge for a change in accounting
for postretirement benefits totaling $1.8 million and extraordinary
losses related to the early retirement of debt totaling $1.4
million.
The results for the first six months of 1993 have been
restated to reflect the reclassification of a previously reported
non-operating gain as a component of operating earnings and to
reflect a correction for certain accounting errors discovered
during the preparation of SLC's 1993 year-end financial statements.
See Note 1 of the Notes to Financial Statements included elsewhere
in this Form 10-Q for a summary of the effects of the reclassifica-
tion and the correction of the accounting errors.
SLC's results for the first six months of both 1994 and 1993
were affected by several items of an infrequent and non-recurring
nature, including the gain recognized on the stock offering by BLHC
in 1993 and gains from the termination of reinsurance arrangements
in both periods. In addition, in the first six months of 1993, SLC
included in its results of operations its equity in the earnings of
BLHC. Following is a condensed summary of results for the six
months ended June 30, 1994 and 1993, by major sources of income and
expense (in thousands):
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------
1994 1993
---- ----
<S> <C> <C>
Operating earnings before non-recurring
income (charges), equity in the earnings
of BLHC, realized investment gains
(losses), interest expense on long-term
debt, and provision for income taxes $ 22,333 $ 16,834
Gain on BLHC stock offering 99,376
Gain on reinsurance terminations 8,735 17,117
Equity in operating earnings of BLHC 20,539
Realized investment gains 1,347 13,369
Interest expense on long-term debt (25,109) (30,991)
Income tax expense (6,745) (39,097)
-------- --------
Operating earnings 561 97,147
Less dividends on preferred stock (7,825) (15,400)
-------- --------
Operating earnings (loss) attributable to
common stock $ (7,264) $ 81,747
======== ========
</TABLE>
For the six months ended June 30, 1994, premium income and
other considerations decreased $6.9 million, or 3%, as compared to
the corresponding period in 1993. Following is a summary of
premiums by major line of business for each of the respective
periods (in thousands):
<TABLE>
<CAPTION>
Six Months Ended
June 30,
---------------------
1994 1993
---- ----
<S> <C> <C>
Individual life and annuity $ 61,519 $ 59,286
Individual health 108,610 109,859
Group and other 59,576 67,454
-------- --------
$229,705 $236,599
======== ========
</TABLE>
Group and other premium income declined $7.9 million, or 12%,
primarily as a result of terminating several large unprofitable
group health cases in late 1993 and early 1994. SLC's subsidiaries
presently derive substantial revenues from their interest-sensitive
and universal life products; however, for financial reporting
purposes, these types of products are treated as deposit products
and, therefore, premiums received are not reflected as a component
of premium income.
During the six months ended June 30, 1994, net investment
income decreased $24.2 millon, or 23%, as compared to the corre-
sponding period in 1993. Net investment income includes 1) earn-
ings on surplus investments and assets invested to support the
reserve liabilities of the Company's traditional and interest-
sensitive life and health insurance products (general investment
portfolio) and 2) investment activity related to separately held
assets supporting a GIC product, the credited rate on which is
indexed to the S&P 500 Stocks Composite Average (S&P 500). In
addition, in 1993, net investment income included investment income
on certain mortgage-backed securities held in a special purpose
trust (the Trust) securing the Trust's collateralized mortgage note
obligation. The accounts of the Trust are no longer consolidated
with those of the Company for periods after July 30, 1993, as the
result of SLC's sale of a 75% interest in the Trust. Assets sup-
porting the S&P 500 GIC product include, among other investments,
put and call options on various equity based index futures, includ-
ing the S&P 500. The return on such investments is highly volatile
and, under certain market conditions, such as the overall decline
in equity markets experienced in the first six months of 1994, can
result in investment losses, or negative investment yields. The
negative investment yield experienced in the first six months 1994
on the assets supporting the indexed GIC product was more
<PAGE>
<PAGE>
than offset by a reduction in GIC benefits as discussed below under
the analysis of change in policyholder benefits. Following is a
summary of investment income (loss) for the three categories of
investments as described above for the six months ended June 30,
1994 and 1993 (in thousands):
<TABLE>
<CAPTION>
Six Months Ended
June 30,
---------------------
1994 1993
---- ----
<S> <C> <C>
General investment portfolio $ 93,543 $ 87,154
Investments supporting indexed GIC product (6,907) 13,139
Mortgage-backed securities held in the Trust 11,995
-------- --------
Gross investment income 86,636 112,288
Less investment expenses (4,632) (6,102)
-------- --------
Net investment income $ 82,004 $106,186
======== ========
</TABLE>
The increase in investment income from the general investment
portfolio was attributable, in part, to a $3.9 million payment-in-
kind dividend received on the CFLIC preferred stock and a $2.0
million fee received upon the prepayment of certain notes by
Financial Benefit Group. In addition, beginning April 1, 1994, the
effective date of the CFLIC reinsurance recaptures, the Company has
reflected investment income on the investments transferred from
CFLIC to ERC. Investment income on such assets approximated $5.7
million in the 1994 period. Exclusive of the non-recurring
dividend from CFLIC and the fee received from Financial Benefit
Group, yields on the general investment portfolio averaged
approximately 7.1% in 1994 as compared to 6.7% in 1993.
Realized investment gains totaled $1.3 million for the first
six months of 1994, as compared to investment gains totaling $13.4
million for the comparable 1993 period. Investment gains in 1993
included $8.2 million of gains resulting from BLHC's redemption of
certain of its securities utilizing proceeds of its stock offering.
Other gains in 1993 resulted primarily from sales of fixed
maturities and equity securities, which were offset, in part, by a
$5.0 million writeoff of the Company's investment in a partnership
owning equity securities in a company which had filed for bankrupt-
cy. See Note 6 of the Notes to Financial Statements included
elsewhere in this Form 10-Q for a comparative analysis of realized
investment gains and losses.
Equity in the earnings (losses) of equity investees and
limited partnerships includes SLC's pro rata share of the operating
earnings of BLHC and other investments in limited partnerships
which are accounted for by the equity method. Following is an
analysis of the components of such earnings (in thousands):
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------
1994 1993
------ ------
<S> <C> <C>
Equity in operating earnings of:
BLHC $ 20,539
Limited partnership investments $ 843 3,983
-------- ---------
$ 843 $ 24,522
======== =========
</TABLE>
In 1994, other income includes a $4.8 million gain on the
termination of the CFLIC reinsurance agreement and the redemption
of certain of SLC's debt and equity securities, as previously dis-
cussed. In 1993, other income included $17.1 million of non-recur-
ring income associated with the termination of a reinsurance agree-
ment between Bankers and an SLC subsidiary. Excluding the income
from the reinsurance transaction, other income decreased from $16.2
million in 1993 to $6.5 million in 1994. A substantial portion of
the decline in other income was as a result of the recapture of the
CFLIC reinsurance. Previously, the Company had reflected its share
of the profits from such reinsurance as an experience
<PAGE>
<PAGE>
refund under the other income caption. Effective April 1, 1994,
the Company recaptured such business and has subsequently reflected
the results in the various line items of its statement of earnings,
including primarily net investment income and policyholder
benefits.
Following is a summary of policyholder benefits by major
business segment (in thousands):
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------------
1994 1993
------ ------
<S> <C> <C>
Individual life and annuity $ 76,964 $ 74,539
Individual health 75,595 69,092
Group and other 38,778 45,978
Accumulation products (1,068) 26,944
-------- --------
$190,269 $216,553
======== ========
</TABLE>
Life and annuity benefits increased approximately $2.4
million, or 3%. A substantial portion of the increase in such
benefits was attributable to the recapture of the CFLIC reinsurance
effective April 1, 1994, and the reflection of the related benefits
in the 1994 second quarter, which was offset, in part, by a
reduction in credited rates on interest-sensitive life insurance
policies between the periods. Individual health benefits increased
$6.5 million, reflecting a deterioration in the individual health
benefit ratio from 62.9% in 1993 to 69.6% in 1994. Group benefits
decreased approximately $7.2 million, or 16%, primarily as a result
of the termination of several large group health cases, as
previously discussed. The group benefit ratio decreased from 68.2%
in 1993 to 65.1% in 1994. Benefits related to accumulation
products include primarily interest credited to annuity and GIC
account balances. As previously discussed, benefits attributable
to the GIC product indexed to the S&P 500 totaled a negative $8.9
million in the first six months of 1994 as compared to benefit
expense totaling $13.2 million in 1993.
Other operating expenses decreased approximately $19.4 million
from the 1993 period to the 1994 period. Following is a summary of
the major items included in other operating expenses (in thou-
sands):
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------------
1994 1993
------ ------
<S> <C> <C>
Non-deferrable commissions $ 19,603 $ 20,157
General and administrative expenses 44,153 58,783
Taxes, licenses and fees 8,593 8,411
Placement fee for collateralized mortgage
note obligations 4,413
-------- --------
$ 72,349 $ 91,764
======== ========
</TABLE>
Non-deferrable commissions decreased primarily as a result of
a reduction in the sale of new group health insurance products.
General and administrative expenses decreased primarily as a result
of the expense reduction and consolidation programs implemented
during 1993. The placement fee in 1993 relates to the refinancing
of a previously-consolidated subsidiary's collateralized mortgage
note obligations.
Interest expense declined $11.2 million, or approximately 31%
in the first six months of 1994 as compared to the same period in
1993. In 1994, SLC incurred interest expense only on its outstand-
ing long-term debt, whereas in 1993 it had two categories of
interest expense, including interest on long-term debt and
collateralized mortgage obligations. Interest expense relative to
long-term debt, declined $5.9 million, or 19%, primarily as a
result of the retirement of approximately $120.9 million of SLC's
16 1/2% Senior Subordinated Debentures during 1993. During the
first six month of 1993, SLC's consolidated results included the
accounts of the Trust that held mortgage-backed securities used to
<PAGE>
<PAGE>
collateralize certain promissory notes payable to unaffiliated
parties. SLC, through ICH Funding, sponsored the formation of and
held a residual equity interest in the Trust. Interest expense
related to the Trust's obligations and included in SLC's consoli-
dated results totaled $5.3 million for the first six months of
1993. In July 1993, SLC's and an affiliate's ownership interests
were reduced through a sale of a 75% interest in the Trust. As a
consequence of the sale, the accounts of the Trust are no longer
included in SLC's consolidated results and no similar interest
expense was incurred in 1994.
Income tax expense in the 1994 first six month period
represented 92% of SLC's pre-tax earnings, as compared to 29% of
pre-tax earnings in the corresponding period in 1993. The
effective tax rate differed from the expected 35% rate in 1994
primarily as a result of amortization of excess cost for which
there are no income tax consequences and the loss of approximately
$4.5 million of income tax benefits as a result of SLC's redemption
of its own equity securities in the CFLIC transactions (see Note 8
of the Notes to Financial Statements included elsewhere in this
Form 10-Q). In 1993, the effective tax rate differed from the
then-expected 34% rate as a result of amortization of excess cost
and an $8.8 million reduction in the valuation allowance relative
to SLC's deferred income tax assets. SLC's deferred income tax
assets, before valuation allowance, declined from $145.1 million at
year-end 1992 to $51.3 million at June 30, 1993, primarily as a
result of the gain recognized on the BLHC stock offering and other
realized and unrealized investment gains in the first six months of
1993. Accordingly, the valuation allowance relative to SLC's
deferred income tax assets totaling $24.1 million at year-end 1992
was reduced to $15.3 million at June 30, 1993, based on manage-
ment's assessment that SLC's ability to realize the benefits of its
remaining tax assets, specifically its capital loss carryforwards,
had been significantly enhanced.
SLC recognized a $1.8 million charge in 1993, net of $.9
million in deferred taxes, for the cumulative effect to January 1,
1993, of the adoption of Statement of Financial Accounting
Standards (SFAS) No. 106, "Employers' Accounting for Postretirement
Benefits Other than Pensions." SLC had previously provided a
liability totaling $20.1 million for postretirement benefits for
retirees of certain acquired companies through its purchase
accounting relative to such companies. The 1993 charge reflected
the cost of providing postretirement benefits for its remaining
employees. SLC also reported extraordinary losses in 1993 totaling
$1.4 million, net of tax effects, related to early extinguishment
of debt. See Note 7 of the Notes to Financial Statements included
elsewhere in this Form 10-Q for additional information regarding
such extraordinary losses.
Preferred dividend requirements declined $7.6 million from
$15.4 million in the first six months of 1993 to $7.8 million in
the 1994 comparable period. Utilizing proceeds from the sale of
its interest in BLHC, SLC redeemed $50 million stated value of its
11% Series 1987-A Preferred Stock on September 30, 1993, and $50
million stated value of its 16% Series 1987-C Preferred Stock on
December 2, 1993. In addition, SLC redeemed $29.2 million stated
value of its preferred stocks in the CFLIC transaction and there
were no dividends declared on such preferred stocks during the 1994
second quarter.
The results for the three months ended June 30, 1994 reflected
improvement over the results as reported for the three months ended
March 31, 1994. Following is condensed comparative statement of
earnings information for the respective periods (in thousands):
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended
--------------------
June 30, March 31,
1994 1994
------ ------
<S> <C> <C>
Revenues $175,058 $150,166
======== ========
Operating earnings (loss) before income
taxes $ 12,441 $ (5,135)
Income tax expense (credit) 7,703 (958)
-------- --------
Net earnings (loss) 4,738 (4,177)
Less dividends on preferred stock (3,500) (4,325)
-------- --------
Net earnings (loss) applicable to common
stock $ 1,238 $ (8,502)
======== ========
Net earnings (loss) per common share $ .03 $ (.18)
======== ========
</TABLE>
Revenues increased $24.9 million in the second quarter of 1994
as compared to the first quarter of 1994, primarily as a result of
a $22.0 million increase in net investment income. Approximately
$9.2 million of the increase in investment income was related to an
improvement in the yields on assets supporting the indexed GIC
product. As previously discussed, the earnings on such assets are
highly volatile, depending on changes in the S&P 500 Stocks
Composite Average. Investment income on such assets totaled a
negative $8.0 million during the first quarter, as compared to a
positive $1.2 million in the second quarter. Other factors
contributing to the increase in invested income included the $3.9
million dividend from CFLIC and the $2.0 million fee received from
Financial Benefit Group, both as previously discussed. In
addition, beginning in the 1994 second quarter, SLC's investment
income included approximately $5.7 million of earnings on the
assets transferred from CFLIC to ERC as a result of the CFLIC
reinsurance primarily attributable to the reinvestment of a portion
of available cash into higher yielding long-term investments. The
remaining $1.2 million increase in investment income is primarily
attributable to improvements in yields on investments.
The pre-tax operating gain in the second quarter of 1994
totaled approximately $12.4 million, as compared to a pre-tax
operating loss of $4.2 million in the 1994 first quarter, or an
improvement of $16.6 million. Of this amount, approximately $8.7
million represented the aggregate gain on the CFLIC transactions
and $2.0 million represented the termination fee from Financial
Benefit Group. The remainder, or approximately $5.9 million,
represented an improvement in the Company's pre-tax operating
results in the 1994 second quarter, as compared to the first
quarter of 1994. A substantial portion of the improvement was
attributable to decreases in individual life and group health
claims between the periods and the above discussed improvement in
investment yields. Individual life claims, which can vary
significantly from quarter to quarter, had significantly exceeded
expected claims in the 1994 first quarter but returned to more
normalized levels in the 1994 second quarter, accounting for
approximately $2.3 million of the improvement in pre-tax operating
earnings. In addition, the Company's group health operations
continued to reflect improvements resulting from the corrective
actions taken at year-end 1993 (as discussed in the 1993 Annual
Report) and improved its pre-tax operating results in the second
quarter by approximately $1.7 million. The income tax provision
for the 1994 second quarter represented 62% of pre-tax operating
earnings, primarily as a result of the loss of $4.5 million in tax
benefits as a result of SLC's redemption of certain of its equity
securities in the CFLIC transaction, as previously discussed.
Preferred dividend requirements declined an approximate $.8 million
in the 1994 second quarter, as a result of SLC's redemption of the
preferred stocks previously held by CFLIC.
<PAGE>
<PAGE>
Reporting results of insurance operations on a quarterly basis
necessitates numerous estimates throughout the year, principally in
the calculation of reserves and in the determination of the
effective rate for federal income taxes. It is the Company's
practice to review its estimates at the end of each quarter and, if
necessary, make appropriate refinements, with the resulting effect
being reported in current operations. Only at year-end is the
Company able to assess retrospectively the precision of its
previous quarter estimates. The Company's fourth quarter results
contain the effect of the difference between previous estimates and
final year end results, and therefore, the results for an interim
period may not be indicative of the results for the entire year.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Reference is made to Item 1 of Part II of the Quarterly Report
on Form 10-Q of the Registrant for the quarter ended March 31,
1994, in which developments in the following legal proceedings
numbered 1, 2 and 3 were reported:
1. WILLIAM D. CASTLE, ET AL. V. MODERN AMERICAN LIFE
INSURANCE COMPANY, CV93-10275 (the "CASTLE case"): On July 27,
1994, the Circuit Court entered an order granting the plaintiffs'
motion for certification of the suit as a class action and
certified six subclasses composed of the persons who own or owned
the so-called charter contracts purchased from Modern and five of
its predecessor corporations.
2. ROBERT J. MEYER, ET AL. V. JAY ANGOFF, DIRECTOR OF THE
MISSOURI DEPARTMENT OF INSURANCE AND MODERN AMERICAN LIFE INSURANCE
COMPANY, CV193-1331CC (the "MEYER case"): On July 16, 1994, the
Cole Circuit Court issued an order indicating it had reviewed the
Department's decision on the record pursuant to Missouri's
administrative procedure act and affirmed the orders of the
Missouri Director of Insurance.
Modern and SLC believe they have meritorious defenses to both
the CASTLE and MEYER cases and intend to defend both cases
vigorously. For further information regarding the MEYER and CASTLE
cases, see Note 5 to the Financial Statements included elsewhere in
this Form 10-Q, which Note is incorporated herein by reference in
its entirety.
3. MUTUAL SECURITY LIFE INSURANCE COMPANY, BY ITS LIQUIDA-
TOR, JOHN F. MORTELL V. JAMES M. FAIL, EMILY S. FAIL, JACK A.
GOCHENAUR, ALVIN R. TOWNSEND, SR. JANICE T. TOWNSEND, CHARLES D.
CASPER, HARRY T. CARNEAL, CLIFFORD G. SMITH, KATHERYN F. SMITH,
THOMAS K. PENNINGTON, MICHAEL BOEDEKER, MELVIN R. SCHOCK, LIFE-
SHARES GROUP, INC. LSC-MARKETING, INC., LIFESHARES SERVICES
COMPANY, MICHAEL S. LANG, LANG ASSOCIATES, INC., BETA FINANCIAL
CORPORATION, THE OKLAHOMA BANK, ROBERT T. SHAW, CONSOLIDATED
NATIONAL CORPORATION, I.C.H. CORPORATION, BANKERS LIFE AND CASUALTY
COMPANY, MARQUETTE NATIONAL LIFE INSURANCE COMPANY, ROBERT L.
BEISENHERZ, MARILYN BEISENHERZ, THEODORE L. KESSNER, AND CROSBY,
GUENZEL, DAVIS, KESNER & KUESTER (the "MUTUAL SECURITY case"): No
developments to report for the quarter ended June 30, 1994. The
Company believes it has meritorious defenses to the MUTUAL SECURITY
case and intends to defend the suit vigorously.
Registrant is also reporting the following legal proceedings:
1. On May 31, 1994, the Department of Insurance of the State
of California (the "Department") issued to Philadelphia American
Life Insurance Company ("PALICO"), an indirect wholly owned sub-
sidiary of Southwestern Life Corporation, an Order to Show Cause
and Statement of Charges in which the Department alleged that
PALICO had committed 225 individual violations of Section 2695.5(a)
of the Unfair Claims Settlement Practices Regulations (California
Code of Regulations, Title 10, Chapter 5, Subchapter 7.5) and of
Section 790.03(h)(2) and (3) of the California Insurance Code. The
cited sections require insurers doing business in the state of
California either to acknowledge receipt of notice of a claim or
make payment on a claim within 15 days after receipt of the notice
of a claim. Under Section 790.05 of the California Insurance Code,
if PALICO is found to have violated the cited insurance statute and
regulations, the California insurance commissioner would have the
authority to order PALICO to cease and desist from engaging in such
unfair acts or practices and to pay a civil penalty not to exceed
$5,000 for each violation, or if it was proved that PALICO acts or
practices were willful, a civil penalty not to exceed $10,000 for
each violation. No date for an appearance before the California
Department by PALICO has been set. PALICO believes it has
meritorious defenses to the allegations that PALICO has engaged in
a pattern or practice of violating the
<PAGE>
<PAGE>
Unfair Claims Practices Regulations and to the allegations that
such violations, if any, were willful.
2. For information relating to certain Preliminary Notices
of Deficiencies issued by the IRS for the tax years 1986 through
1989, see Note 5 to the Notes to Financial Statements included
elsewhere in this Form 10-Q.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Annual Meeting of Stockholders of SLC was held May 26,
1994. At the Annual Meeting, stockholders voted on four matters:
1. AMENDMENT TO CERTIFICATE OF INCORPORATION TO CHANGE THE
NAME OF THE COMPANY TO SOUTHWESTERN LIFE CORPORATION. 33,352,270
votes were cast FOR this proposal, 2,613,251 votes were cast
AGAINST this proposal, and there were a total of 384,379 absten-
tions. There were no broker nonvotes.
2. ELECTION OF DIRECTORS. All of the nominees to serve as
members of the Board of Directors were reelected as directors. The
following identifies each nominee by name and tabulates the votes
cast in his election:
<TABLE>
<CAPTION>
Votes cast FOR Votes WITHHELD
<S> <C> <C>
Robert L. Beisenherz 35,020,484 1,329,416
Charles L. Duncan 35,695,890 654,010
Robert P. Ewing 35,742,702 607,198
Jon E.M. Jacoby 36,129,062 220,838
C. Fred Rice 35,848,140 501,760
Stanley Leroy Stegner 35,913,994 435,906
Keith A. Tucker 36,132,315 217,585
Vernon K. Zimmerman 35,752,606 597,294
</TABLE>
3. RATIFICATION OF COOPERS & LYBRAND AS REGISTRANT'S
INDEPENDENT ACCOUNTANTS FOR THE 1994 FISCAL YEAR: 36,067,413 votes
were cast FOR this proposal, 107,023 votes were cast AGAINST this
proposal, and there were a total of 175,464 abstentions. There
were no broker nonvotes.
4. MATTERS INCIDENT TO THE MEETING: The motion to waive the
reading of the minutes of the last meeting of stockholders and the
motion to adjourn the meeting were carried by a unanimous voice
vote.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
The exhibits listed on the Index to Exhibits appearing on page
30 are filed herewith.
During the quarter ended June 30, 1994, SLC filed a Report on
Form 8-K, dated June 15, 1994, to report under Item 5 of that form,
the amendment to SLC's Certificate of Incorporation to change its
name from I.C.H. Corporation to Southwestern Life Corporation and
to report the new trading symbols and CUSIP numbers under which
SLC's Common Stock and $1.75 Convertible Exchangeable Preferred
Stock, Series 1986-A, are now listed.
On July 15, 1994, SLC filed a Report on Form 8-K, dated June
30, 1994, to report, under Item 5 of that form, the recapture of
insurance business and repurchase of securities contemplated by
that certain agreement, dated June 15, 1993, among SLC, CFLIC and
CNC, as amended, including (1) termination of the agreement
pursuant to which CFLIC reinsured certain business written by a
subsidiary of the SLC, and (2) SLC's acquisition from CFLIC of the
following debt and equity securities of SLC that CFLIC held: a
senior secured loan, with an
<PAGE>
<PAGE>
outstanding principal balance of $30 million; 541,563 shares of
Series 1984-A Preferred Stock, stated value $22,242,000, constitut-
ing all of the shares of that series then outstanding; 140,000
shares of $4.50 Redeemable Preferred Stock, Series 1987-B, stated
value $7,000,000, constituting all of the shares of that series
then outstanding; and 620,423 shares of Common Stock.
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
SOUTHWESTERN LIFE CORPORATION
BY: /s/ Robert L. Beisenherz
-------------------------------
Robert L. Beisenherz, Chairman
of the Board, Chief Executive
Officer and President
BY: /s/ John T. Hull
-------------------------------
John T. Hull, Executive Vice
President, Chief Financial
Officer and Principal Account-
ing Officer
Date: August 12, 1994
<PAGE>
<PAGE>
INDEX TO EXHIBITS
-----------------
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NO. DESCRIPTION PAGE NO.
------- ----------- ----------
<S> <C> <C>
2.1 Stock Purchase Agreement dated June 29, 1990,
among Consolidated National Corporation, Robert
T. Shaw and Bankers Life and Casualty Company
with respect to all outstanding capital stock
of Marquette National Life Insurance Company,
including Exhibit 1.35 thereto governing the
coinsurance relationship between Southwestern
Life Insurance Company and Marquette National
Life Insurance Company (filed as Exhibits 2.1
and 2.3 to the Registrant's Report on Form 10-Q
for the quarter ended June 30, 1990, and incor-
porated herein by reference) . . . . . . . . .
2.2 Coinsurance Annuity Reinsurance Agreement --
October 1, 1990, for Bankers Life and Casualty
Company (filed as Exhibit 19-1 to Registrant's
Current Report on Form 8-K dated November 9,
1990, and incorporated herein by reference) and
amendments thereto (filed as Exhibit 2.11 to
the Registrant's Annual Report on Form 10-K for
year ended December 31, 1991, and Exhibit 2.11
to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1992, and
incorporated herein by reference). . . . . . .
2.3 Coinsurance Annuity Retrocession Agreement
(Bankers Business) -- October 1, 1990 for Mar-
quette National Life Insurance Company (filed
as Exhibit 19-2 to the Registrant's Current
Report on Form 8-K dated November 9, 1990, and
incorporated herein by reference) and amend-
ments thereto (filed as Exhibit 2.12 to the
Registrant's Annual Report on Form 10-K for
year ended December 31, 1991, and Exhibit 2.12
to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1992, and
incorporated herein by reference). . . . . . .
2.4 Coinsurance Annuity and Supplemental Contract
Reinsurance Agreement II -- June 30, 1990, for
Southwestern Life Insurance Company (filed as
Exhibit 19-3 to the Registrant's Current Report
on Form 8-K dated November 9, 1990, and incor-
porated herein by reference) and amendments
thereto (filed as Exhibit 2.13 to the Regis-
trant's Annual Report on Form 10-K for year
ended December 31, 1991, Exhibit 2.13 to the
Registrant's Annual Report on Form 10-K for the
year ended December 31, 1992, Exhibit 2.18 to
the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1993, and Exhibit
2.23 to the Registrant's Current Report on Form
8-K dated June 30, 1994 and incorporated herein
by reference). . . . . . . . . . . . . . . . .
2.5 Coinsurance Annuity and Supplementary Contract
Retrocession Agreement II -- June 30, 1990, for
Marquette National Life Insurance Company
(filed as Exhibit 19-4 to the Registrant's
Current Report on Form 8-K dated November 9,
1990, and incorporated herein by reference) and
amendments
<PAGE>
<PAGE>
thereto (filed as Exhibit 2.14 to the Regis-
trant's Annual Report on Form 10-K for year
ended December 31, 1991, and Exhibit 2.14 to
the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1992, and Exhibit
2.19 to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1993, and
incorporated herein by reference). . . . . . .
2.17 Agreement, dated June 15, 1993, among I.C.H.
Corporation, Consolidated National Corporation
and Consolidated Fidelity Life Insurance Compa-
ny (filed as Exhibit 2.1 to the Registrant's
Current Report on Form 8-K dated June 15, 1993
and incorporated herein by reference). . . . .
2.18 Agreement, dated June 3, 1994, between Consoli-
dated Fidelity Life Insurance Company and Union
Bankers Insurance Company (filed as Exhibit
2.18 to the Registrant's Current Report on Form
8-K dated June 30, 1994 and incorporated herein
by reference). . . . . . . . . . . . . . . . .
2.19 Termination and Recapture Agreement among Con-
solidated Fidelity Life Insurance Company,
Southwestern Life Corporation, Southwestern
Life Insurance Company and Employers Reassur-
ance Corporation (filed as Exhibit 2.19 to the
Registrant's Current Report on Form 8-K dated
June 30, 1994 and incorporated herein by refer-
ence). . . . . . . . . . . . . . . . . . . . .
2.20 Amendment to Agreement, effective April 1,
1994, among Consolidated National Corporation,
Consolidated Fidelity Life Insurance Company
and Southwestern Life Corporation (filed as
Exhibit 2.20 to the Registrant's Current Report
on Form 8-K dated June 30, 1994 and incorporat-
ed herein by reference). . . . . . . . . . . .
2.21 Letter Agreement, dated June 30, 1994, among
Southwestern Life Corporation, Consolidated
Fidelity Life Insurance Company and Consolidat-
ed National Corporation (filed as Exhibit 2.21
to the Registrant's Current Report on Form 8-K
dated June 30, 1994 and incorporated herein by
reference) . . . . . . . . . . . . . . . . . .
2.22 Escrow Agreement, dated June 30, 1994, among
Southwestern Life Corporation, Consolidated
Fidelity Life Insurance Company and Mid-America
Bank of Louisville and Trust Company (filed as
Exhibit 2.22 to the Registrant's Current Report
on Form 8-K dated June 30, 1994 and incorporat-
ed herein by reference). . . . . . . . . . . .
10.1 Amended and Restated 1990 Stock Option Incen-
tive Plan of Registrant dated June 10, 1994. .
10.2 Note of CFSB Corporation, dated January 25,
1993, payable to Southwestern Life Insurance
Company (filed as Exhibit 10.21 to the Regis-
trant's Current Report on Form 10-K for the
year ended December 31, 1992, and incorporated
herein by reference) . . . . . . . . . . . . .
<PAGE>
<PAGE>
10.3 Loan Agreement, dated January 25, 1993, between
CFSB Corporation and Southwestern Life Insur-
ance Company (filed as Exhibit 10.22 to the
Registrant's Annual Report on Form 10-K for the
year ended December 31, 1992, and incorporated
herein by reference) . . . . . . . . . . . . .
10.4 Note of James M. Fail, dated January 25, 1993,
payable to Southwestern Life Insurance Company
(filed as Exhibit 10.23 to the Registrant's
Annual Report on Form 10-K for the year ended
December 31, 1992, and incorporated herein by
reference) . . . . . . . . . . . . . . . . . .
10.5 Loan Agreement, dated January 25, 1993, between
James M. Fail and Southwestern Life Insurance
Company (filed as Exhibit 10.24 to the Regis-
trant's Annual Report on Form 10-K for the year
ended December 31, 1992, and incorporated
herein by reference) . . . . . . . . . . . . .
10.6 Schedule of Omitted Documents. . . . . . . . .
10.7 Assignment Agreement between Southwestern Life
Insurance Company and Consolidated Fidelity
Life Insurance Company, dated June 30, 1994,
relating to Notes and Loan Agreements refer-
enced as Exhibits 10.3, 10.4, 10.5, and 10.6
above. . . . . . . . . . . . . . . . . . . . .
10.8 Form of Agreement entered into by the Regis-
trant and certain of its employees, including
John T. Hull and W. Sherman Lay (filed as
Exhibit 10.40 to the Registrant's Annual Report
on Form 10-K for the year ended December 31,
1993 and incorporated herein by reference) . .
10.9 Form of Amendment to Agreement referenced as
Exhibit 10.8 above, entered into between the
Registrant and certain of its employees, in-
cluding John T. Hull and W. Sherman Lay. . . .
11.1 Computation of Earnings (Loss) Per Share of
Common Stock on Average Shares Outstanding and
Fully Diluted Bases for the Three Months and
the Six Months ended June 30, 1994 and 1993. .
<PAGE>
<PAGE>
EXHIBIT 10.1
SOUTHWESTERN LIFE CORPORATION
AMENDED AND RESTATED 1990 STOCK OPTION INCENTIVE PLAN
(AS AMENDED EFFECTIVE DECEMBER 14, 1990,
AUGUST 7, 1991 AND JUNE 30, 1994)
1. PURPOSES OF THE PLAN
1.1 The purposes of this Plan are to promote the growth and
profitability of Southwestern Life Corporation (formerly I.C.H.
Corporation, the "Corporation") by enabling it and its subsidiaries
to attract and retain the best available personnel for positions of
substantial responsibility, and to provide key employees of the
Corporation and its subsidiaries with an opportunity for investment
in the Corporation's $1.00 par value common stock ("Common Stock")
and to give them an additional incentive to increase their efforts
on behalf of the long term success of the Corporation and its
subsidiaries.
1.2 The Corporation may, from time to time, on or before
December 31, 1999, grant to such officers and other employees as
may be selected in the manner hereinafter provided, options to
purchase shares of Common Stock of the Corporation ("Options"),
subject to the conditions hereinafter provided.
2. ADMINISTRATION OF THE PLAN
2.1 This Plan shall be administered by a Stock Option
Committee (the "Committee") of not less than three members of the
Board of Directors of the Corporation who shall be appointed
annually by the Board of Directors. No employee of the Corporation
or of any of its subsidiaries who is eligible to participate in
this Plan or who was eligible within the twelve months preceding
appointment to the Committee, or will be eligible within the twelve
months following service on the Committee, to participate in this
Plan or any other stock plan of the Corporation shall be appointed
as a member of the Committee. Vacancies occurring in the member-
ship of the Committee shall be filled by appointment by the Board
of Directors.
2.2 A majority of the Committee shall constitute a quorum.
The acts of the majority of the members of the Committee present at
any meeting at which a quorum is present (or acts approved in
writing by a majority of the Committee) shall be the acts of the
Committee. The Committee shall keep minutes of its proceedings,
and from time to time shall make such reports to the Board of
Directors as the Board of Directors shall direct.
<PAGE>
<PAGE>
3. STOCK SUBJECT TO THE PLAN
3.1 The shares to be issued upon exercise of Options shall be
made available, at the discretion of the Board of Directors, either
from the authorized but unissued Common Stock of the Corporation or
from shares of Common Stock reacquired by the Corporation (whether
before or after the date of this Plan), including shares purchased
in the open market.
3.2 Subject to the provisions of Section 3.3 of this Plan,
the aggregate number of shares which may be delivered on exercise
of Options shall not exceed 2,900,000 shares. If prior to
December 31, 1999, an Option shall have expired or terminated
without having been exercised in full for any reason, the unpur-
chased shares shall (unless this Plan shall have been terminated)
become available for grant of Options to other employees.
3.3 In the event that (i) the number of outstanding shares of
Common Stock of the Corporation shall be changed by reason of
split-ups, combinations or reclassifications of shares or other-
wise, or (ii) any stock dividends are distributed to the holders of
Common Stock of the Corporation, or (iii) the Common Stock of the
Corporation is converted into or exchanged for other shares as a
result of any merger or consolidation (including a sale of assets)
or other recapitalization then, in any such case, the number of
shares for which Options theretofore granted and the price per
share payable upon exercise of such Options shall be appropriately
adjusted by the Committee so as to reflect such change.
4. OPTION PRICE
4.1 The purchase price of the shares subject to each Option
shall be determined by the Committee ("Option Price"). The Option
Price shall not be less than the fair market value (as defined in
Section 4.2) of the shares of the Common Stock of the Corporation
on the day preceding the date on which such Option is granted;
provided, however, that if the sale prices required to determine
the fair market value are not available for such day, the fair
market value shall be determined as of the next preceding day for
which the required sale prices are available.
4.2 For purposes of this Plan, the fair market value of a
share of the Common Stock of the Corporation shall be the mean
between the highest and lowest sale prices of the Common Stock of
the Corporation as reflected on the consolidated tape of issues
listed for trading on the American Stock Exchange (or such other
principal national securities exchange on which the Common Stock is
so listed, as determined by the Committee) on the applicable day
specified by this Plan for determining such fair market value.
5. ELIGIBILITY OF OPTIONEES
5.1 Options may be granted only to key employees of the
Corporation or of its subsidiaries who are in positions of
substantial responsibility in the Corporation or in a subsidiary,
<PAGE>
<PAGE>
as determined by the Committee. The term "key employees" shall
include officers and other employees but shall not include
Directors who are neither officers nor employees devoting their
full time to the Corporation or to a subsidiary. Members of the
Committee shall not be eligible to receive an Option.
5.2 Subject to the terms and conditions of this Plan, the
Committee shall have exclusive authority (i) to select the
employees to be granted Options (it being understood that more than
one grant may be made to the same employee), (ii) to determine the
number of shares subject to each grant, (iii) to determine the time
or times when Options will be granted, (iv) to determine the Option
Price of the shares subject to each Option, (v) to prescribe the
form, which shall be consistent with this Plan, of the instruments
evidencing any Options, and (vi) to impose such other conditions,
in addition to those otherwise required by this Plan, which the
Committee may deem to be necessary or desirable to effect the
purposes of this Plan.
6. NON-TRANSFERABILITY OF OPTIONS
6.1 No Option shall be transferable by the grantee otherwise
than by the grantee's last will and testament (including without
limitation a testamentary trust or similar vehicle), or by the laws
of descent and distribution, and during the grantee's lifetime,
such Option shall be exercised only by such grantee or such
grantee's guardian or legal representative.
7. EXERCISE OF OPTION
7.1 Each Option shall terminate on its respective expiration
date as established by the Committee (the "Expiration Date"), which
date shall not be later than the expiration of ten years from the
date on which the grant was made.
7.2 Each Option shall vest in accordance with the respective
vesting schedule established for such Option by the Committee
("Vested Option"), except that no Option shall vest before the
expiration of six (6) months from the date on which the Option is
granted; provided, however, that in the event of a Change of
Control Termination (as hereinafter defined) all Options granted to
any grantee more than six (6) months prior to the Change of Control
Termination Date (as hereinafter defined) shall be Vested Options;
further, provided, however, that if the present value of all
compensation to be paid to a grantee upon a Change of Control
Termination, including, without limitation, the value of the
accelerated vesting of the Options and any all other payments and
benefits to be paid or provided to the grantee as severance
compensation, would constitute a "parachute payment" (as defined in
Section 280G(b)(2) of the Internal Revenue Code of 1986, as
amended), then the accelerated vesting of the Options shall be
deferred and the vesting of the Options shall be restructured so
that such payments no longer constitute a "parachute payment," as
so defined. Except in cases provided in Section 8 hereof, each
Vested Option may be exercised only during the continuance of the
<PAGE>
<PAGE>
grantee's employment with the Corporation or a subsidiary. Subject
to the provisions of Section 7 and of Section 8 hereof, each Vested
Option may be exercised in whole or, from time-to-time, in part
with respect to the number of shares as to which it is has been
exercisable in accordance with the terms of this Plan.
7.3 (a) To exercise a Vested Option granted under this
Plan, the grantee shall complete and deliver to the
Secretary of the Corporation, no later than the
close of business on the date of exercise, a Notice
of Exercise of Stock Option, stating:
(i) the number of shares the grantee has elected
to purchase;
(ii) the method of payment of the purchase price
and withholding taxes; and
(iii) whether the amount of the payment or withhold-
ing for applicable federal and state withhold-
ing taxes will be the minimum amount required
to be withheld or will include an additional
sum (and the amount of such additional sum).
(b) Subject to subparagraph (d), a Grantee may, at his
election, pay for the shares and applicable federal
and state withholding taxes:
(i) in cash;
(ii) by surrender of shares of the Corporation's
Common Stock having a total fair market value
equal to the purchase price and/or withholding
taxes;
(iii) by having the Corporation withhold a portion
of the shares that would otherwise be distrib-
utable upon exercise of the option having a
fair market value equal to the purchase price
and/or withholding taxes; or
(iv) by any combination of methods (i), (ii) and
(iii) above.
(c) Upon the exercise of a Vested Option or, in the
case of an election by grantee under Section 83 of
the Internal Revenue Code, on or before the Tax
Date (as defined in Paragraph (d)), the grantee
shall pay to the Corporation an amount equal to not
less than the minimum state and federal tax liabil-
ity required to be withheld and not more than the
total anticipated state and federal tax liability
with respect to such exercise, in accordance with
his or her election under paragraph (b). Unless
grantee shall notify the Corporation in the notice
<PAGE>
<PAGE>
given pursuant to paragraph (a) or (d) of his
desire to pay some other amount, the minimum with-
holding tax liability shall be paid to the Corpora-
tion upon exercise of the Vested Option.
(d) Any election of the payment methods described in
subparagraph (b)(i) shall be given in the Notice of
Exercise of Stock Option. Grantees must make their
election of a payment method described in subpara-
graph (b)(ii), (b)(iii) or (b)(iv) (to the extent
it involves the method of payment described in
subparagraph (b)(ii) or (b)(iii)) before the date
the option exercise becomes taxable ("Tax Date")
(normally this would be the date of exercise of the
option; if the grantee has not made an election
under Section 83(b) of the Internal Revenue Code,
however, the date would be six months following the
date of exercise of the Option); provided that to
the extent required by the Securities Exchange Act
of 1934 ("Act") or any rules and regulations adopt-
ed pursuant thereto, as may be amended, grantees
subject to the reporting requirements of Section
16(a) of the Act must make an election of a payment
method described in subparagraph (b)(ii), (b)(iii)
or (b)(iv) (to the extent it involves the payment
method described in subparagraph (b)(ii) or
(b)(iii)) not sooner than six months following the
date of the grant of the option and within one of
two time periods:
(i) during the ten day period beginning on
the third business day following the date
of the Corporation releases quarterly and
annual summary statements of sales and
earnings; or
(ii) at least six months before the Tax Date.
An election of the payment method described in
subparagraph (b)(ii), (b)(iii) or (b)(iv) (to the
extent it involves a payment method described in
subparagraph (b)(ii) or (b)(iii) shall be given in
writing to the Secretary of the Corporation within
the time periods set forth above, shall be irrevo-
cable and shall be subject to disapproval by the
Committee. If the Committee shall, in its sole
discretion, approve an election to permit delivery
or to withhold the Corporation's Common Stock in
payment of the Exercise Price or withholding tax
obligations, it shall pass a resolution to such
effect, but any such approval shall be subject to
revocation by the Committee prior to the exercise
of a Vested Option.
<PAGE>
<PAGE>
(e) Payment of the purchase price for shares under any
of the methods described in subparagraphs (b)(i),
(b)(ii) or (b)(iv) (to the extent it does not
involve withholding of shares) must accompany the
Notice of Exercise of Stock Option. Until a grant-
ee has made full payment of the purchase price in
cash, shares, withholding or in any combination
thereof, and until a certificate covering the
shares purchased has been issued to the grantee,
such grantee shall not possess any stockholder
rights with respect to any of such shares.
7.4 For purposes of this Section 7, the fair market value (as
defined in Section 4.2) of a share of the Common Stock of the
Corporation shall be determined as of the day preceding the date on
which the Option is exercised in accordance with Section 7.3;
provided, however, that if the sale prices required to determine
the fair market value are not available for such day, then the fair
market value shall be determined as of the next preceding day for
which the required sale prices are available.
7.5 For purposes of this SECTION 7:
(a) "Change of Control Termination" means a Termination
(as defined in Section 8.1) that occurs after a Change of Control.
(b) "Change of Control" means (i) the occurrence of an
event of a nature that would be required to be reported in response
to Item 1 or Item 2 of a Form 8-K Current Report of the Corporation
promulgated pursuant to Sections 13 and 15(d) of the Act (as
hereinafter defined); provided that, without limitation, such a
Change of Control shall be deemed to have occurred if (a) any
"person," as such term is used in Sections 13(d) and 14(d) of the
Act (other than the Corporation, any trustee or other fiduciary
holding securities under any employee benefit plan of the Corpora-
tion, or any company owned, directly or indirectly, by the
stockholders of the Corporation in substantially the same propor-
tions as their ownership of stock of the Corporation), is or
becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Act), directly or indirectly, of securities of the Corporation
representing thirty-five percent (35%) or more of the combined
voting power of the Corporation's then outstanding securities or
(b) during any period of two consecutive years, individuals who at
the beginning of such period constitute the Board cease for any
reason to constitute at least a majority thereof, unless the
election by the Board or the nomination for election by the
Corporation's stockholders was approved by a vote of at least sixty
percent (60%) of the directors then still in office who either were
directors at the beginning of the two-year period or whose election
or nomination for election was previously so approved; (ii) the
stockholders of the Corporation approve a merger or consolidation
of the Corporation with any other corporation, other than a merger
or consolidation that would result in the voting securities of the
Corporation outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted
<PAGE>
<PAGE>
into voting securities of the surviving entity) more than eighty
percent (80%) of the combined voting power of the voting securities
of the Corporation or such surviving entity outstanding immediately
after such merger or consolidation; or (iii) the stockholders of
the Corporation approve a plan of complete liquidation of the
Corporation or any agreement for the sale or disposition by the
Corporation of all or substantially all of the Corporation's
assets.
(c) "Change of Control Termination Date" means the date
Termination occurs in contemplation of or following a Change of
Control, which date shall be not earlier than 60 days prior to nor
later than one year after the effective date of the Change of
Control.
8. TERMINATION OF EMPLOYMENT
8.1 If a grantee's employment with the Corporation or a
subsidiary shall cease for any reason other than the grantee's
retirement, disability, or death, including, without limitation, a
Change of Control Termination ("Termination"), the grantee may
exercise each Vested Option to the extent that such Vested Option
was exercisable pursuant to Section 7.2 when Termination occurred,
at any time within three (3) months after Termination (but in no
event after the Expiration Date of such Option). If the grantee's
employment with the Corporation or a subsidiary shall cease due to
death, each Vested Option of the grantee may be exercised by the
grantee's estate or by the person designated in the grantee's last
will and testament (including, without limitation, a testamentary
trust or similar vehicle) to the full extent that such Vested
Option could have been exercised by such deceased grantee after
such grantee's death (but in no event after the Expiration Date of
such Option). Any questions as to whether and when there has been
a cessation of employment shall be determined by the Committee and
its determination on such questions shall be final.
8.2 If a grantee's employment with the Corporation or a
subsidiary shall cease due to retirement after attainment of normal
retirement age or to disability, the grantee may exercise each
Vested Option of such grantee at any time within two years after
such grantee shall cease to be an employee (but in no event after
the Expiration Date of such Option). The Committee shall from time
to time specify the normal retirement age which shall be applicable
to all grantees under this Plan.
9. INTERPRETATION OF PLAN
9.1 The Committee shall have full power and authority to
construe and interpret this Plan. Decisions of the Committee shall
be final, conclusive and binding on all parties, including the
Corporation, its subsidiaries and stockholders, and the grantees,
their estates, executors, administrators, heirs and assigns.
9.2 It is intended that this Plan be interpreted and
administered so as to exempt the Options (including without
<PAGE>
<PAGE>
limitation the grant and exercise of the Options), to the fullest
extent permitted by law (as from time to time in effect), from all
liability provisions of Section 16(b) of the Act and the regula-
tions promulgated thereunder.
9.3 Nothing in this Plan or in grant hereunder shall confer
any right to remain in the employment of the Corporation or of a
subsidiary or in any way impair the right of the Corporation or of
a subsidiary to terminate a grantee's employment at any time.
10. AMENDMENTS TO PLAN
10.1 The Committee, from time to time, may prescribe, amend
and rescind rules and regulations relating to this Plan and,
subject to the approval of the Board of Directors of the Corpora-
tion, may at any time terminate, modify or suspend the operation of
this Plan; provided, however, that, without the approval of the
stockholders of the Corporation, no such modification shall:
(i) materially increase the benefits accruing to
participants under this Plan;
(ii) except as provided in Section 3.3, increase the
number of shares of the Corporation which may be issued under
this Plan; or
(iii) materially modify the requirements as to eligibility
for participation in this Plan.
11. APPLICABLE LAW AND REGULATIONS
11.1 The obligation of the Corporation to sell and deliver
shares under Options shall be subject to (i) all applicable laws,
rules and regulations, and such approvals by any governmental
agency as may be required, including but not limited to, the
effectiveness of a Registration Statement under the Securities Act
of 1933, as deemed necessary or appropriate by counsel for the
Corporation, and (ii) the condition that the shares of Common Stock
reserved for issuance upon the exercise of Options shall have been
duly listed upon any stock exchange on which the Corporation's
Common Stock may then be listed. Certificates representing shares
issued upon exercise of any Option shall bear a legend with respect
to each applicable restriction set forth in this Section 11.1.
12. EFFECTIVE DATE
12.1 This Plan shall be effective as of April 12, 1990,
subject to its approval by the stockholders of the Corporation at
the 1990 annual meeting of stockholders.
<PAGE>
<PAGE>
EXHIBIT 10.6
In accordance with Instruction 2 to Item 601(a) of Regulations
S-K, the following documents have been omitted from filing with the
Registrant's Form 10-Q since they are substantially identical in
all material respects to documents that have been previously filed
by the Registrant and which are incorporated herein by reference.
Set forth below is the name of each such omitted document and the
material details in which each such document differs from the
previously filed document:
1. Note of CFSB Corporation, dated January 25, 1993, payable
to Southwestern Life Insurance Company as assignee of
Consolidated Fidelity Life Insurance Company is omitted
from filing since it is substantially similar to Exhibit
10.2 to this Form 10-Q, with the exception of the parties
thereto and the principal amount ($____________).
2. Loan Agreement, dated January 25, 1993, between CFSB
Corporation and Southwestern Life Insurance Company, as
assignee of Consolidated Fidelity Life Insurance Company
is omitted from filing herewith since it is substantially
similar to Exhibit 10.3 to this Form 10-Q, with the
exception of the parties thereto and the principal amount
($____________).
3. Note of James M. Fail, dated January 25, 1993, payable to
Southwestern Life Insurance Company as assignee of
Consolidated Fidelity Life Insurance Company is omitted
from filing herewith since it is substantially similar to
Exhibit 10.4 to this Form 10-Q, with the exception of the
parties thereto and the principal amount ($____________).
4. Loan Agreement, dated January 25, 1993, between James M.
Fail and Southwestern Life Insurance Company as assignee
of Consolidated Fidelity Life Insurance Company is
omitted from filing herewith since it is substantially
similar to Exhibit 10.5 to this Form 10-Q, with the
exception of the parties thereto and the principal amount
($____________).
<PAGE>
<PAGE>
EXHIBIT 10.7
ASSIGNMENT AND TRANSFER OF NOTES, LIENS AND OTHER RIGHTS
THIS ASSIGNMENT AND TRANSFER OF NOTES, LIENS AND OTHER RIGHTS
(the "Assignment") is made and entered into this 30th day of June
1994, by and between CONSOLIDATED FIDELITY LIFE INSURANCE COMPANY,
a Kentucky life insurance corporation ("Seller") and SOUTHWESTERN
LIFE INSURANCE COMPANY, a Texas life insurance corporation
("Purchaser").
RECITALS:
A. Seller and CFSB Corporation ("CFSB") have previously
entered into that certain Loan Agreement dated as of January 25,
1993 (the "CFSB Loan Agreement") pursuant to which Seller has made
a loan to CFSB in an aggregate principal amount of up to
$46,266,675 (the "CFSB Loan").
B. The CFSB Loan is evidenced by that certain Promissory
Note dated as of January 25, 1993 executed by CFSB and payable to
the order of Seller in the original principal amount of
$46,266,675.00 (the "CFSB Note").
C. Payment of the CFSB Loan is guaranteed by James M. Fail
("Fail") pursuant to that certain Guaranty Agreement dated as of
January 25, 1993 (the "Guaranty").
D. Seller and Fail have previously entered into that certain
Loan Agreement dated as of January 25, 1993 (the "Fail Loan
Agreement", and together with the CFSB Loan Agreement, the "Loan
Agreements") pursuant to which Seller has made a loan to Fail in an
aggregate principal amount of up to $32,210,202 (the "Fail Loan",
and together with the CFSB Loan, the "Loans").
E. The Fail Loan is evidenced by that certain Promissory
Note dated as of January 25, 1993 executed by Fail and payable to
the order of Seller in the original principal amount of $32,210,202
(the "Fail Note", and together with the CFSB Note, the "Notes").
F. The Loans are secured by (i) that certain Pledge Agree-
ment (herein so called) dated as of January 25, 1993 between Fail
and Seller pursuant to which Fail has pledged to Seller all of his
right, title and interest in and to, among other things, the
capital stock of CFSB, and that (ii) certain Security Agreement
(herein so called) dated as of January 25, 1993 between Seller and
CFSB, pursuant to which CFSB has pledged to Seller all of its
right, title and interest in and to, among other things, the cap-
ital stock of Bluebonnet Savings Bank FSB, a federal savings bank
("BSB").
G. Seller and BSB have entered into that certain BSB
Agreement (herein so called) dated as of January 25, 1993 pursuant
to which BSB has made certain representations and warranties to,
and certain covenants for the benefit of, Seller.
<PAGE>
<PAGE>
H. Seller, CFSB and Mid-America Bank of Louisville and Trust
Company (the "Bank") have entered into that certain Collateral
Account Agreement (herein so called) dated as of January 25, 1993
pursuant to which CFSB has (i) granted to Seller a lien on and
security interest in the Collateral Account (as defined in the
Collateral Account Agreement), (ii) authorized Seller to exercise
all rights and privileges with respect to the Collateral Account,
and (iii) instructed the Bank not to permit any withdrawals or
transfers from the Collateral Account except in accordance with the
instructions of the Seller in accordance with the Collateral
Account Agreement.
I. The Seller, CFSB, BSB and Fail have entered into that
certain Collection and Payment Agreement (herein so called) dated
as of January 25, 1993 pursuant to which the parties thereto have
agreed to the application of funds collected in the Collateral
Account.
J. Purchaser now desires to purchase the Notes and Seller's
rights in, to and under the Loan Agreements, the Guaranty, the
Pledge Agreement, the Security Agreement, the BSB Agreement, the
Collateral Account Agreement, the Collection and Payment Agreement
and any and all other agreements, documents, instruments or
certificates executed in connection therewith (collectively, the
"Loan Documents"), in exchange for certain consideration as set
forth in that (i) certain Agreement (the "CFLIC/ICH Agreement")
dated June 15, 1993 by and among Seller, I.C.H. Corporation (now
known as Southwestern Life Corporation) and Consolidated National
Corporation and (ii) certain Termination and Recapture Agreement
(the "Termination Agreement") of even date herewith by and between
Employers Reassurance Corporation, Seller, Purchaser and Southwest-
ern Life Corporation (formerly known as I.C.H. Corporation) (the
"Consideration").
K. Seller is willing to sell the Notes and all of its right,
title and interest in, to and under each of the Loan Documents,
together with the collateral securing the Notes, to Purchaser upon
the terms and conditions set forth herein.
NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. ASSIGNMENT.
Subject to the terms and conditions hereof and in exchange for
the Consideration, Seller hereby sells, assigns, grants, transfers,
and conveys unto Purchaser (i) the Notes and the obligations
evidenced thereby, (ii) all of Seller's right, title, and interest
in and to each of the Loan Documents, and (iii) any and all
security interests and liens securing the Notes, including without
limitation the liens and security interests granted pursuant to the
Pledge Agreement, the Security Agreement and the Collateral Account
Agreement.
2. CONDITIONS. The obligations of Purchaser hereunder are
subject to the following conditions precedent:
<PAGE>
<PAGE>
(a) DELIVERY OF LOAN DOCUMENTS.
Simultaneously with the execution of this Assignment
Seller shall have irrevocably instructed the Bank to deliver
to Purchaser each of the following : (a) the original Notes,
(b) the Loan Agreements, (c) the original Guaranty, (d) the
original Pledge Agreement, (e) the original Security Agree-
ment, (f) the original BSB Agreement, (g) the original
Collateral Account Agreement, (h) the original Escrow Agree-
ment, (i) the original Collection and Payment Agreement; (j)
all other original agreements, documents, instruments or
certificates executed in connection with the CFSB Loans; and
(k) CFSB Stock Certificate No. 4 and CFSB Stock Certificate
No. 5 (the "CFSB Stock Certificates").
(b) ENDORSEMENTS.
Seller shall have endorsed the following language on each
Note:
Pay to the order of Southwestern Life Insurance Company,
without recourse, representation or warranty, except as
provided in that certain Assignment and Transfer of
Notes, Liens and Other Rights dated June ___, 1994, among
Consolidated Fidelity Life Insurance Company and South-
western Life Insurance Company.
Consolidated Fidelity Life
Insurance Company
By:________________________________
Name:___________________________
Title:__________________________
(c) CONSIDERATION. Each and every obligation of Seller
shall have been performed under and pursuant to CFLIC/ICH
Agreement and the Termination Agreement.
(d) FURTHER ASSURANCES.
Seller shall execute and deliver such further agreements,
notices, assignments and instruments, including without
limitation, UCC-3 assignments, as may be deemed necessary or
desirable by Purchaser to carry out the provisions and
purposes of this Assignment and to preserve and continue the
liens and security interests created by the Loan Documents.
3. REPRESENTATIONS AND WARRANTIES.
(a) Seller hereby represents and warrants to Purchaser
that:
(1) Seller has all requisite power and authority to
execute and deliver, and to perform all of its obliga-
tions under this Assignment and all instruments and other
<PAGE>
<PAGE>
documents executed and delivered by Seller in connection
herewith.
(2) The execution, delivery and performance of this
Assignment have been duly authorized by all necessary
action on the part of Seller and do not and will not
(i) require any consent or approval that has not been
obtained, or (ii) violate any law, rule, regulation,
order, writ, judgment, injunction, decree, determination
or award presently in effect having applicability to the
Seller.
(3) This Assignment constitutes a legal, valid and
binding obligation of Seller enforceable against Seller
in accordance with its terms.
(4) Seller is the owner of the Notes, the Guaranty
and the liens evidenced by the Security Agreement, the
Pledge Agreement and the Collateral Account Agreement.
Seller has not transferred, assigned or pledged to any
third party any interest of Seller in the Notes, the
Guaranty, the liens evidenced by the Security Agreement,
the Pledge Agreement or the Collateral Account Agreement,
or its rights under any of the other Loan Documents.
(5) Seller has, simultaneously with the execution
hereof, irrevocably instructed the Bank to deliver to
Purchaser the original executed Loan Documents.
(b) Purchaser hereby represents and warrants to Seller
that:
(1) Purchaser has all requisite power and authority
to execute and deliver, and to perform all of its
obligations under this Assignment and all instruments and
other documents executed and delivered by Purchaser in
connection herewith.
(2) The execution, delivery and performance of this
Assignment have been duly authorized by all necessary
action on the part of Purchaser and do not and will not
(i) require any consent or approval that has not been
obtained, or (ii) violate any law, rule, regulation,
order, writ, judgment, injunction, decree, determination
or award presently in effect having applicability to the
Purchaser.
(3) This Assignment constitutes a legal, valid and
binding obligation of Purchaser enforceable against Pur-
chaser in accordance with its terms.
(4) Except as expressly set forth herein neither
Seller nor Purchaser makes any representation or warranty
in relation to this Assignment.
<PAGE>
<PAGE>
4. TERMINATION OF INTERCREDITOR AGREEMENT.
Seller and Purchaser hereby agree that the certain Inter-
creditor Agreement dated as of January 25, 1993 between Seller and
Purchaser shall be terminated as of the date hereof, is no longer
in force and effect and the parties thereto shall have no further
duties or obligations thereunder.
5. MISCELLANEOUS.
This Assignment shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and assigns.
This Assignment may be executed in any number of multiple counter-
parts and by different parties on separate counterparts, and each
such counterpart shall be deemed an original, but all such
counterparts together shall constitute one and the same Assignment.
This Agreement constitutes the entire agreement of the parties with
respect to the subject matter hereof, and supersedes all written or
oral agreements, conditions or understandings related to the
subject matter hereof. This Assignment has been executed and
delivered in, and shall be governed by and construed in accordance
with the substantive laws of, the State of Texas.
IN WITNESS WHEREOF, the undersigned have executed this
Assignment as of the 30th day of June 1994.
SELLER:
CONSOLIDATED FIDELITY LIFE
INSURANCE COMPANY
By:________________________________
Name:___________________________
Title:__________________________
PURCHASER:
SOUTHWESTERN LIFE INSURANCE COMPANY
By:________________________________
Name:___________________________
Title:__________________________
<PAGE>
<PAGE>
EXHIBIT 10.9
SECOND ADDENDUM TO AGREEMENT
THIS ADDENDUM TO AGREEMENT is made and entered to be effective
as of November 30, 1993, by and between FACILITIES MANAGEMENT
INSTALLATION, INC., a Delaware corporation, ("FMI"), SOUTHWESTERN
LIFE CORPORATION, a Delaware corporation, formerly known as I.C.H.
Corporation ("SLC") and ______________ ("Employee"),
INTRODUCTORY PROVISIONS
-----------------------
The following provisions are true and correct and form the
basis for this Agreement:
A. FMI, SLC and Employee entered into an agreement dated
November 30, 1993 under which FMI and SLC agreed to provide certain
supplemental severance and other benefits to Employee, as the same
was amended by Addendum To Agreement dated as of February 21, 1994
(the "Supplemental Benefit Agreement").
B. It has been determined that the Supplemental Benefit
Agreement does not correctly express the intent of the parties
thereto with respect to certain matters as of the date the
Supplemental Benefit Agreement was initially entered into.
C. The parties hereto wish to modify the Supplemental
Benefit Agreement to correct such error.
NOW, THEREFORE, in consideration of the premises and the
mutual promises of the parties hereto, the parties hereby covenant
and agree as follows:
1. AMENDMENTS TO SUPPLEMENTAL BENEFIT AGREEMENT.
(a) Paragraph 1(g) of the Supplemental Benefit Agreement be
and the same is hereby amended to read in its entirety as follows:
"(g) 'Payment Date' means the first business day that is
at least thirty (30) calendar days after the Employee or
the Employee's Estate has sold all of Employee's Re-
stricted Stock Purchase Shares and Stock Option Shares."
(b) Paragraph 1(h) of the Supplemental Benefit Agreement be
and the same is hereby amended to read in its entirety as follows:
"(h) 'Prevailing Market Price' means the price per share
for shares of $1 par value common stock of SLC as
reported on the American Stock Exchange, Inc. composite
tape immediately prior to the sale by Employee of the
Stock Option Shares then being sold by Employee."
<PAGE>
<PAGE>
(c) Paragraph 1(j) of the Supplemental Benefit Agreement be
and the same is hereby amended to read in its entirety as follows:
"(j) 'Sale Date' means any one or more of the following
dates: November 25, 1994 and each April 10, May 25,
August 25 and November 25 of each calendar year thereaf-
ter; provided that if any of said dates falls on a day on
which the Stock Exchange is closed, the Sale Date shall
be the first day thereafter on which the Stock Exchange
is opened."
(d) Paragraph 1(p) of the Supplemental Benefit Agreement be
and the same is hereby amended to read in its entirety as follows:
"(p) 'Transaction Period' means the period commencing
with the date of this Agreement and ending on the first
Sale Date occurring at least thirty (30) calendar days
after the Date of Termination; provided, however, if
Termination of Employment does not occur prior to the
death of the Employee, 'Transaction Period' means the
period commencing with the date of this Agreement and
ending on the first Sale Date occurring at least ninety
(90) calendar days after the date of the Employee's
death."
(e) Paragraph 1(q) of the Supplemental Benefit Agreement be
and the same is hereby amended to read in its entirety as follows:
"(q) 'Termination of Employment' means the voluntary or
involuntary termination of Employee's employment with SLC
and/or FMI and/or with their Affiliates or Successors for
any reason other than the Employee's gross misconduct.
Should Employee continue as an employee of an Affiliate
or Successor or become an employee of an Affiliate or
Successor within thirty (30) calendar days of any event
which would otherwise constitute a Termination of
Employment, a Termination of Employment shall be deemed
to have occurred unless: (i) SLC's and FMI's obligations
hereunder are not terminated, or (ii) such Affiliate or
Successor expressly assumes in writing all of SLC's and
FMI's obligations hereunder."
(f) Paragraph 6 of the Supplemental Benefit Agreement be and
the same is hereby amended to read in its entirety as follows:
"6. ASSIGNMENT. This Agreement may not be assigned by
Employee or by Employee's Estate without the prior
written consent of SLC and FMI or their permitted
assignees. This Agreement may be assigned by SLC and/or
FMI to their Affiliates or Successors provided each such
Affiliate or Successor assumes and agrees to perform all
of SLC's and/or FMI's obligations hereunder, as the case
may be. Otherwise, this Agreement shall not be assigned
by SLC's and/or FMI without the prior written consent of
Employee or Employee's Estate."
<PAGE>
<PAGE>
(g) The Supplemental Benefit Agreement be and the same is
hereby amended by substituting "SLC" for "ICH" in every instance.
2. CONFIRMATION. Except as expressly provided for herein,
the Supplemental Benefit Agreement shall otherwise remain unchanged
and in full force and effect.
3. ENTIRE AGREEMENT. The Supplemental Benefit Agreement, as
amended hereby, constitutes the entire agreement of the parties
hereto with respect to the subject matter thereof and shall not be
further modified or amended except in writing signed by the parties
hereto.
EXECUTED to be effective as of date first above written.
SLC:
SOUTHWESTERN LIFE CORPORATION,
a Delaware corporation
By: /s/ Robert L. Beisenherz
------------------------------
Robert L. Beisenherz
Chairman, Chief Executive Offi-
cer and President
FMI:
FACILITIES MANAGEMENT INSTALLATION,
INC., a Delaware corporation
By: /s/ C. Fred Rice
------------------------------
C. Fred Rice
Senior Executive Vice President
EMPLOYEE:
_____________________________________
(name)
<PAGE>
<PAGE>
EXHIBIT 11.1
I.C.H. CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS (LOSS) PER SHARE OF COMMON STOCK
ON AVERAGE SHARES OUTSTANDING AND FULLY DILUTED BASES
(Unaudited)
(Dollars in Thousands, Except Per Share Data)
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
1994 1993 1994 1993
---- ---- ---- ----
(Restated)
<S> <C> <C> <C> <C>
Computation for statements of earnings:
Operating earnings (loss) $ 4,738 $ (8,476) $ 561 $ 97,147
Less dividends on
preferred stock (3,500) (7,700) (7,825) (15,400)
----------- ----------- ----------- ----------
Operating earnings (loss) applicable
to common stock 1,238 (16,176) (7,264) 81,747
Cumulative effect to January 1, 1993
of change in method of accounting
for postretirement benefits (1,812)
Extraordinary losses (129) (1,360)
------------ ----------- ----------- ----------
Net earnings (loss) applicable
to common stock $ 1,238 $ (16,305) $ (7,264) $ 78,575
============ =========== =========== ==========
Weighted average common
shares outstanding 47,829,460 47,918,802 47,853,939 47,913,409
============ =========== =========== ===========
Earnings (loss) per common share:
Operating earnings (loss) $ .03 $(.34) $(.15) $1.71
Cumulative effect to January 1,
1993 of change in method of
accounting for postretirement
benefits (.04)
Extraordinary losses (.03)
----------- ----------- ----------- ----------
Net earnings (loss) $ .03 $ (.34) $ (.15) $ 1.64
=========== =========== ============ ==========
Additional computations(A):
Weighted average common
shares outstanding 47,829,460 47,918,802 47,853,939 47,913,409
Incremental common shares
applicable to common
stock options based on
the common stock daily
average market price
during the period 528,046 873,128 688,831 933,785
----------- ----------- ----------- -----------
Weighted average common
shares, as adjusted 48,357,506 48,791,930 48,542,770 48,847,194
=========== =========== =========== ===========
Weighted average common
shares outstanding 47,829,460 47,918,802 47,853,939 47,913,409
Incremental common shares
applicable to common
stock options based on
the more dilutive of the
common stock ending or
daily average market
price during the period 528,046 873,128 689,018 960,635
Assumed conversion of
convertible preferred
shares 6,153,755 7,867,466 6,153,755 7,867,466
----------- ----------- ----------- -----------
Weighted average common
shares, assuming full
dilution 54,511,261 56,659,396 54,702,712 56,741,510
=========== =========== =========== ===========
Net earnings (loss)
applicable to common
stock assuming conversion
of convertible preferred
stock $ 4,738 $ (12,127) $ 561 $ 86,931
=========== =========== =========== ===========
<FN>
______________
(A) These calculations are submitted in accordance with Securities Exchange
Act of 1934 Release No. 9083, although not required by footnote 2 to para-
graph 14 of Accounting Principles Board Opinion No. 15 because they result in
dilution of less than 3% or antidilution.
</TABLE>
(Continued)
<PAGE>
<PAGE>
I.C.H. CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS (LOSS) PER SHARE OF COMMON STOCK
ON AVERAGE SHARES OUTSTANDING AND FULLY DILUTED BASES, Continued
(Unaudited)
(Dollars in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- --------------------
1994 1993 1994 1993
---- ---- ---- ----
(Restated)
<S> <C> <C> <C> <C>
Additional computations, continued(A):
Earnings (loss) per common share:
Average shares outstanding:
Operating earnings (loss) $ .03 $(.33) $(.15) $1.68
Cumulative effect to January 1,
1993 of change in method of
accounting for postretirement
benefits (.04)
Extraordinary losses (.03)
----- ----- ----- -----
Net earnings (loss) $ .03 $(.33) $(.15) $1.61
===== ===== ===== =====
Fully diluted, assuming conversion
of all applicable securities(B):
Operating earnings (loss) $ .09 $(.21) $ .01 $1.58
Cumulative effect to January 1,
1993 of change in method of
accounting for postretirement
benefits (.03)
Extraordinary losses (.02)
----- ----- ----- -----
Net earnings (loss) $ .09 $(.21) $ .01 $1.53
===== ===== ===== =====
<FN>
______________
(B) Fully diluted earnings in 1994 and the three months ended June 30, 1993
as reflected in this exhibit are considered "antidilutive" because they
result in per share earnings that exceed per share earnings as determined on
the primary basis or per share losses that are less than per share losses as
determined on the primary basis. Fully diluted earnings per share in 1994
and the three months ended June 30, 1993 as reflected in the consolidated
statement of earnings (loss) were determined based on primary earnings per
share calculations as a result of such antidilution.
</TABLE>
