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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM ___________________ TO ___________________
COMMISSION FILE NUMBER 1-7697
I.C.H. CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C>
DELAWARE 43-6069928
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
100 MALLARD CREEK ROAD, SUITE 400
LOUISVILLE, KENTUCKY 40207
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (502) 894-2100
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
- --------------------------------------------------------- ---------------------------------------------------------
COMMON STOCK, AMERICAN STOCK EXCHANGE
$1 PAR VALUE AND CHICAGO STOCK EXCHANGE
$1.75 CONVERTIBLE EXCHANGEABLE AMERICAN STOCK EXCHANGE
PREFERRED STOCK, SERIES 1986-A
$25 STATED VALUE
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE
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 BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT
CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE BEST OF REGISTRANT'S
KNOWLEDGE, IN DEFINITIVE PROXY OR
INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K
OR ANY AMENDMENT TO THIS FORM
10-K. /X/
AT MARCH 18, 1994, THE AGGREGATE MARKET VALUE OF THE VOTING STOCK HELD BY
NONAFFILIATES OF THE REGISTRANT
(EXCLUDING STOCK HELD BY ALL DIRECTORS AND EXECUTIVE OFFICERS, SOME OF WHOM MAY
NOT BE AFFILIATES) WAS APPROXIMATELY
$314,190,000.
AT MARCH 18, 1994, 47,834,739 SHARES OF THE REGISTRANT'S COMMON STOCK ($1.00
PAR VALUE) WERE
OUTSTANDING.
DOCUMENTS INCORPORATED BY REFERENCE
THE INFORMATION IN THE INDICATED SECTIONS OF THE FOLLOWING DOCUMENT IS
INCORPORATED BY REFERENCE INTO PART III
OF THIS ANNUAL REPORT ON FORM 10-K:
ELECTION OF DIRECTORS, EXECUTIVE COMPENSATION, SECURITY OWNERSHIP AND EXECUTIVE
COMPENSATION -- CERTAIN
TRANSACTIONS IN THE REGISTRANT'S DEFINITIVE PROXY STATEMENT TO BE FILED PURSUANT
TO REGULATION 14A IN CONNECTION
WITH REGISTRANT'S 1994 ANNUAL MEETING OF STOCKHOLDERS.
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<PAGE>
TABLE OF CONTENTS
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ITEM PAGE
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PART I
1. Business............................................................................................ 1
1a. Executive Officers of Registrant.................................................................... 17
2. Properties.......................................................................................... 19
3. Legal Proceedings................................................................................... 19
4. Submission of Matters to a Vote of Security Holders................................................. 21
PART II
5. Market for Registrant's Common Equity and Related Stockholder Matters............................... 21
6. Selected Financial Data............................................................................. 22
7. Management's Discussion and Analysis of Financial Condition and Results of Operations............... 22
8. Financial Statements and Supplementary Data......................................................... 47
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure................ 96
PART III
10. Directors and Executive Officers of the Registrant.................................................. 96
11. Executive Compensation.............................................................................. 96
12. Security Ownership of Certain Beneficial Owners and Management...................................... 96
13. Certain Relationships and Related Transactions...................................................... 96
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.................................... 96
</TABLE>
Unless otherwise specified or unless the context otherwise requires, all
information in this Annual Report on Form 10-K is as of the date of execution by
I.C.H. Corporation.
i
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PART I
ITEM 1. BUSINESS.
I.C.H. Corporation ("ICH," the "Company," or "Registrant") is an insurance
holding company that engages primarily in the business of life insurance,
accident and health insurance and the sale of annuities through its subsidiary
insurance companies (the "ICH Companies"). A chart illustrating ICH's holding
company system and identifying each ICH Company as of March 18, 1994 is included
under "ICH Holding Company System" at the end of this ITEM 1.
ICH's business strategy has undergone significant change during the past
five years. After pursuing a strategy of growth through leveraged acquisitions,
ICH has, since 1989, sold a number of subsidiaries in transactions designed to
reduce leverage. Primarily as a result of sales of subsidiaries, ICH's total
consolidated assets declined from $9.3 billion at December 31, 1988 to $3.7
billion at year end 1993. In December 1989, ICH sold Great Southern Life
Insurance Company, based in Dallas, Texas, to Financial Holding Corporation. In
March 1990, ICH sold certain other subsidiaries, including Philadelphia Life
Insurance Company, based in Dallas, Texas, and Massachusetts General Life
Insurance Company, situated in Denver, Colorado, to Life Partners Group, Inc. In
November 1992, ICH sold Bankers Life and Casualty Company ("Bankers") and
Bankers' subsidiary, Certified Life Insurance Company ("Certified"), to Bankers
Life Holding Corporation ("BLHC"), an affiliate of Conseco, Inc. ("Conseco").
These sales generated liquidity for the retirement of existing debt, and the
transactions with Life Partners Group, Inc. and BLHC were structured so that ICH
retained an interest in the subsidiaries sold, enabling it to benefit from their
future performance and appreciation. With the November 1992 sale of control of
Bankers and Certified, ICH also achieved the dual goals of balancing the mix of
its life and health insurance business and positioning ICH to restructure its
insurance operations.
Since year end 1992, ICH has pursued a strategy of rebalancing and
simplifying its capital structure. The debt reduction ICH had accomplished
through December 1992 affected primarily the Company's senior secured loans,
which carried the lowest interest rates. During 1993, the Company targeted the
more expensive elements of its capital structure. On September 30, 1993, ICH
sold its remaining interest in Bankers, represented by 13,316,168 shares of BLHC
(approximately 24.4% of those outstanding) to Conseco and one of Conseco's
subsidiaries for $287.6 million, resulting in a gain of $197.7 million. The sale
of the BLHC stock enhanced the Company's common equity, generated substantial
liquidity for use in the Company's capital restructuring and other corporate
purposes, and enabled the Company to retire its $5.50 Redeemable Preferred
Stock, Series 1987-A, stated value $50 million, held by Conseco's subsidiary.
During the fourth quarter of 1993, ICH completed a voluntary exchange offer,
pursuant to which it issued $91.2 million 11 1/4% Senior Subordinated Notes due
2003 to existing security holders, in exchange for outstanding notes and
debentures; it called for redemption all of its 16 1/2% Senior Subordinated
Debentures due 1994 that remained outstanding following the exchange offer; and
it redeemed its $8.00 Redeemable Preferred Stock, Series 1987-C, stated value
$50 million, that carried a 16% annual dividend rate. At year end 1993, ICH had
reduced the amount of its long term debt to $418.0 million, from $1,412.8
million at December 31, 1988, and had a debt to equity ratio of .8 to 1.
In February 1994, ICH retired its Class B Common Stock, a class of common
equity that carried special voting rights in the election of directors. The
Class B Common Stock was issued to Consolidated National Corporation ("CNC") in
1985, and enabled CNC to elect 75% of the Company's directors. Effective
February 11, 1994, the Company repurchased, for $500,000, all of its Class B
Common Stock from CNC, concurrently with CNC's sale of shares of ICH's Common
Stock to Torchmark Corporation ("Torchmark") and Stephens Inc. ("Stephens"). The
Company and CNC terminated the Management and Consulting Agreement, pursuant to
which CNC, through its affiliates, Robert T. Shaw and C. Fred Rice, has provided
management services to ICH since 1985, and ICH entered into ten year Independent
Contractor and Services Agreements with each of Messrs. Shaw and Rice. As a
result of these transactions, the Company now has only one class of common
equity, Common Stock, and, as of February 11, 1994, no stockholder beneficially
owned 10% or more of the outstanding Common Stock. Torchmark, a diversified
insurance and financial services company headquartered in Birmingham, Alabama,
and Stephens, an investment banking firm headquartered
<PAGE>
in Little Rock, Arkansas, are the largest stockholders of the Company,
beneficially owning, respectively, 9.78% and 9.74% of the Common Stock of the
Company as of February 11, 1994. A representative of each of Torchmark and
Stephens has been added to the Company's Board of Directors, filling existing
vacancies.
During 1994, ICH intends to continue to investigate opportunities to improve
its capital structure, to reduce the cost of its capital funds, and to
strengthen and expand its insurance operations. By May 30, 1994, ICH intends to
accomplish the termination of the reinsurance treaties that were entered into in
connection with ICH's sale of Marquette National Life Insurance Company
("Marquette") to CNC in 1990, and reacquire Marquette as part of the assets
transferred when the reinsured liabilities are recaptured, pursuant to the
agreement, dated June 15, 1993, among ICH, CNC and Consolidated Fidelity Life
Insurance Company ("CFLIC"), as amended. Upon the successful completion of the
recaptures, ICH will retire its senior secured debt, with a $30 million
outstanding principal balance, and its Series 1984-A Preferred Stock and Series
1987-B Preferred Stock that are held by CFLIC, the subsidiary of CNC that
currently acts as reinsurer under the treaties, in exchange for the preferred
stock of CFLIC that ICH acquired when the June 15, 1993 agreement was executed.
See the discussion under the heading "Transactions With Consolidated Fidelity
Life Insurance Company" appearing in ITEM 7 of this Report. After March 31,
1994, if the recaptures are not complete, CNC will have the right, subject to
regulatory approval, to transfer to ICH all of the common stock of CFLIC in
exchange for the assets of CFLIC that were to be retained by CNC upon completion
of the recaptures. Upon completion of the transactions contemplated by the June
15, 1993 agreement, CNC and its principals, Messrs. Shaw and Rice, will
beneficially own less than 3% of the Company's Common Stock, based on shares
currently outstanding.
At December 31, 1993, ICH had short-term investments and readily marketable
fixed maturity investments totaling approximately $131.3 million, substantially
all of which represents proceeds remaining from the September 1993 sale of BLHC
common stock. ICH intends to ultimately deploy these remaining proceeds in its
continuing capital restructuring program and for the strengthening and growth of
its insurance business and general corporate purposes. The actual uses of the
funds will be subject to a number of factors, including developments in the
marketplace, regulatory and competitive conditions in the industry, the
availability of capital resources and the interest rate environment.
NOTE: The financial information presented in this Report includes the
assets and results of operations of divested companies prior to their sale and,
in the case of Bankers and Certified, includes the results of their operations
from November 1992 through September 1993, based on the equity method of
accounting. For this reason, the financial data presented for years before,
during and after the years in which sales of subsidiaries occurred may not be
comparable. See Note 2 of the Notes to Financial Statements included in ITEM 8
of this Report on Form 10-K.
INSURANCE OPERATIONS
The primary ICH Companies actively marketing insurance products are:
SOUTHWESTERN LIFE INSURANCE COMPANY ("Southwestern"): Headquartered in
Dallas, Texas, Southwestern concentrates on the sale of individual life
insurance and annuities through general agents and brokers. On the basis of
reporting as required by insurance regulatory authorities ("SAP"), Southwestern
had total assets of $1,297.7 million at December 31, 1993, and markets products
in 39 states, the District of Columbia and Guam.
UNION BANKERS INSURANCE COMPANY ("Union Bankers"): Headquartered in Dallas,
Texas, Union Bankers markets individual health and life insurance products and
annuities in 45 states and the District of Columbia through general agents and
brokers. It had total assets of $209.2 million at December 31, 1993, based on
SAP.
CONSTITUTION LIFE INSURANCE COMPANY ("Constitution"): Headquartered in
Louisville, Kentucky, Constitution currently concentrates on the sale of annuity
products through brokers. Licensed in 48 states and the District of Columbia,
Constitution had total assets, including separate accounts, of $555.7 million at
December 31, 1993, based on SAP.
2
<PAGE>
PHILADELPHIA AMERICAN LIFE INSURANCE COMPANY ("Philadelphia
American"): Headquartered in Houston, Texas, Philadelphia American markets
group life, health and disability insurance and provides fee-based third party
administrative services to group plans. Philadelphia American had total assets
based on SAP of $78.8 million at December 31, 1993, and conducts business in 47
states, the District of Columbia and the Virgin Islands.
BANKERS LIFE AND CASUALTY COMPANY OF NEW YORK ("Bankers New
York"): Headquartered in Woodbury, New York, this ICH Company concentrates on
the sale of life insurance and annuities in eight states through general agents,
special marketing groups and relationships with financial institutions. Bankers
New York had total assets of $193.5 million at December 31, 1993, based on SAP.
INTEGRITY NATIONAL LIFE INSURANCE COMPANY ("Integrity"): Headquartered in
Louisville, Kentucky, Integrity markets home service life insurance and health
insurance through general agents. It had total assets based on SAP of $39.5
million at December 31, 1993, and is licensed in 19 states and the District of
Columbia.
BANKERS MULTIPLE LINE INSURANCE COMPANY ("Bankers Multiple"): With
operations based in both Louisville, Kentucky, and Dallas, Texas, Bankers
Multiple offers errors and omissions insurance and group and individual health
insurance through brokers and by direct mail. It is licensed in all 50 states
and the District of Columbia, and had total assets based on SAP of $59.2 million
at December 31, 1993.
The following table summarizes the consolidated premium income and other
considerations and the consolidated premium equivalents of ICH during the past
three years. Pro forma information is also presented as if the sale of Bankers
and Certified had occurred at the beginning of the period presented. Premium
income represents gross receipts on the ICH Companies' traditional life and
health insurance for individuals and groups, and other considerations consist of
policy charges for the cost of insurance, policy administrative charges,
surrender charges, and amortization of policy initiation fees relating to
universal and interest sensitive life insurance and accumulation products such
as guaranteed investment contracts and certain annuities. In contrast, premium
equivalents represent gross receipts on universal and interest sensitive life
insurance and on accumulation products, less other considerations. Additional
information regarding ICH's industry segments is reflected in ITEM 7 and Note 17
of the Notes to Financial Statements and Schedules V and VI of the Financial
Statement Schedules included in ITEM 8 of this Report on Form 10-K.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
PREMIUM CATEGORY -------------------------------------------------
(DOLLARS IN MILLIONS) 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C>
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PREMIUM INCOME AND OTHER CONSIDERATIONS
- ------------------------------------------------------------------------------------------------------
Individual life (including premium equivalents).... $164.0 35% $ 267.9 19% $ 294.9 20%
Less premium equivalents........................... (46.0) (10) (76.3) (5) (92.7) (6)
- ------------------------------------------------------------------------------------------------------
Individual life.................................... 118.0 25 191.6 14 202.2 14
Individual health.................................. 220.3 46 859.1 62 949.9 63
Group and other.................................... 136.5 29 337.4 24 343.3 23
Accumulation products.............................. 0.2 0 0.7 0 0.3 0
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Total.......................................... $475.0 100% $1,388.8 100% $1,495.7 100%
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ACCUMULATION PRODUCT PREMIUM EQUIVALENTS
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Guaranteed investment contracts.................... $ 5.3 6% $ 292.0 63% $ 127.0 46%
Annuities.......................................... 84.6 94 168.3 37 148.6 54
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Total.......................................... $ 89.9 100% $ 460.3 100% $ 275.6 100%
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</TABLE>
3
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PRO FORMA
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<CAPTION>
YEAR ENDED DECEMBER 31,
PREMIUM CATEGORY ---------------------------------
(DOLLARS IN MILLIONS) 1992 1991
<S> <C> <C> <C> <C>
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PREMIUM INCOME AND OTHER CONSIDERATIONS
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Individual life (including premium equivalents)................... $ 185.5 42% $ 201.7 47%
Less premium equivalents.......................................... (60.9) (14) (74.4) (17)
- ------------------------------------------------------------------------------------------------------
Individual life................................................... 124.6 28 127.3 30
Individual health................................................. 216.2 49 231.1 53
Group and other................................................... 103.8 23 72.3 17
Accumulation products............................................. 0.1 0 0.0 0
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Total......................................................... $ 444.7 100% $ 430.7 100%
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ACCUMULATION PRODUCT PREMIUM EQUIVALENTS
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Guaranteed investment contracts................................... $ 292.0 92% $ 127.0 90%
Annuities......................................................... 24.4 8 14.2 10
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Total......................................................... $ 316.4 100% $ 141.2 100%
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</TABLE>
Since 1990, market, economic and regulatory conditions have challenged ICH's
strategy of significantly increasing the size of its accumulation business and
expanding its life insurance business through internal growth. Investor and
consumer confidence in the insurance industry was weakened during 1991 by the
much publicized conservatorship proceedings involving Executive Life Insurance
Company and Mutual Benefit Life Insurance Company. The commencement of these
proceedings in April and July, 1991, respectively, was followed by a series of
downgrades in the ratings of a number of insurers by nationally recognized
statistical rating organizations. While ratings do not constitute
recommendations to buy or sell, and are subject to change or withdrawal at any
time, they are considered an important measurement in some markets. Combined
with declining interest rates and weak economies in certain regions of the
country, these developments inhibited internal growth in the accumulation and
life insurance product lines, particularly affecting those insurers that did not
have the highest ratings. They prompted state insurance agencies to more
aggressively exercise regulatory jurisdiction over insurers and resulted in a
national trend to impose stricter capital and surplus requirements and more
conservative investment guidelines industrywide.
The ICH Companies were susceptible to these market, economic and regulatory
conditions. The amount of corporate debt remaining from ICH's prior
acquisitions, the perceived interdependence of the ICH Companies created by a
stacked holding company structure and losses incurred in connection with past
investment strategies contributed to a series of ratings downgrades that began
in 1991 and continued in 1993, with downgrades by Duff & Phelps Credit Rating
Company ("Duff & Phelps") in January 1993, by A.M. Best Company ("A.M. Best") in
February 1993 and by Moody's Investors Service ("Moody's") in June 1993. These
factors also contributed to increased regulatory oversight of the ICH insurance
holding company organization.
As a result of these downgrades, ICH has a subordinated debt rating of B3 by
Moody's and B- by Standard & Poor's Corporation, and a preferred stock rating of
Caa by Moody's and CCC+ by Standard and Poor's Corporation (all of which are
below investment grade). ICH's lead life insurance subsidiary, Southwestern, has
a B++ rating by A.M. Best (very good) and a claims paying rating of A by Duff &
Phelps (investment grade), BBB- by Standard & Poor's Insurance Rating Services
(adequate financial security, but capacity to meet policyholder obligations is
susceptible to adverse economic and underwriting conditions) and Ba2 by Moody's
(questionable financial security). Integrity has been assigned a rating of B+
and the remaining ICH Companies have been assigned a rating of B++ by A.M. Best.
4
<PAGE>
Since the November 1992 sale of Bankers and Certified, ICH has concentrated
on restructuring its corporate organization, rebalancing and simplifying its
capital structure and reducing and refinancing its corporate debt to alleviate
the concerns cited by the rating organizations and to restore to the ICH
Companies the excellent claims paying ratings they have historically held. The
ICH Companies have consolidated operationally, to reduce costs and increase
efficiencies. They have redesigned the manner in which they develop and market
products, targeting markets and products less sensitive to credit ratings, and
they have restructured their insurance holding company organization, from a
vertical to a substantially horizontal configuration.
INDIVIDUAL LIFE INSURANCE
The ICH Companies underwrite life insurance under a wide variety of
conventional and special whole life and interest sensitive policies ("permanent
insurance"), as well as ordinary term policies. The following table summarizes
the life insurance operations during the past five years. Certain information is
separately presented in the table below for the existing ICH Companies and for
subsidiaries sold by ICH during the indicated periods. For purposes of the
following table, the term "remaining subsidiaries" refers to insurance
subsidiaries of ICH that were owned at the end of the specified period.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
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(DOLLARS IN MILLIONS) 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
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In-force at beginning of period(1)(2):
Total................................. $ 21,437 $ 38,572 $ 39,009 $ 70,774 $ 79,800
Subsidiaries sold during period....... 0 (15,546) 0 (23,759) (12,947)
-------- ---------- -------- ---------- ----------
Remaining subsidiaries.............. $ 21,437 $ 23,026 $ 39,009 $ 47,015 $ 66,853
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Face amount of new business issued
during period(1):
Permanent............................. $ 682 $ 729 $ 2,111 $ 2,690 $ 6,032
Term.................................. 262 307 706 620 1,534
Group and other....................... 968 389 1,135 573 878
-------- ---------- -------- ---------- ----------
Total............................... $ 1,912 $ 1,425 $ 3,952 $ 3,883 $ 8,444
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Termination during period............... $ 1,759 $ 2,055 $ 4,025 $ 4,363 $ 6,705
Termination rate(3)..................... 8.2% 9.2% 10.4% 10.1% 9.7%
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In-force at all subsidiaries at end of
period(1)(2):
Permanent............................. $ 14,838 $ 15,018 $ 20,607 $ 20,030 $ 44,204
Term.................................. 3,254 3,655 6,124 6,434 13,863
Group and other....................... 3,306 2,764 11,841 12,545 12,707
-------- ---------- -------- ---------- ----------
Total............................... $ 21,398 $ 21,437 $ 38,572 $ 39,009 $ 70,774
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Financial reinsurance assumed at end of
period(4).............................. $ 0 $ 0 $ 0 $ 0 $ 1,321
Financial reinsurance ceded at end of
period(4).............................. 1,677 2,076 2,808 4,987 6,551
Reinsurance ceded at end of period(5)... 5,658 5,417 8,646 5,440 12,825
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<FN>
(1) Excludes participations in group underwriting pools for federal employees
(FEGLI) and service personnel (SGLI).
(2) Includes reinsurance assumed, but before deduction of reinsurance ceded.
</TABLE>
5
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<TABLE>
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(3) Represents the percentage of individual direct policies terminated during
the indicated period by lapse, surrender, conversion, maturity, or
otherwise.
(4) Maintained under reinsurance agreements pursuant to which unaffiliated
insurers have ceded to, or assumed from, certain ICH Companies large blocks
of life insurance in force, and the related policy reserves and premium
income, generally in return for fees. These agreements are treated as
financing arrangements under generally accepted accounting principles, and
the in-force amounts ceded or assumed under these agreements have been
excluded from the in-force amounts reflected in the table. See Note 11 of
the Notes to Financial Statements and Schedule VI of the Financial
Statement Schedules included in ITEM 8 of this Report. These agreements
will terminate during the next few years, resulting in the ceding
companies' recapture of the reinsured business and policy reserves.
(5) Excludes reinsurance ceded to other ICH Companies.
</TABLE>
The life insurance products issued by the ICH Companies consist of whole
life insurance, which provides policyholders with permanent life insurance and
fixed, guaranteed rates of return on the cash value element of policy premiums,
and universal and interest-sensitive life insurance policies. The profitability
of traditional whole life products and universal and interest-sensitive life
policies is dependent on investment income earned, the ultimate underwriting
experience and the realization of anticipated unit administrative costs.
Although the ICH Companies experienced an increased demand for traditional
products during 1993, most new individual life insurance sales by the ICH
Companies, measured by premium volume, continue to be made under universal and
interest-sensitive life policies that provide whole life insurance with
adjustable rates of return based on current interest rates. The principal
difference between universal and interest-sensitive life insurance policies
centers on policy provisions affecting the amount and timing of premium
payments. Universal life policies permit policyholders to vary the frequency and
size of their premium payments, although policy benefits also may vary. Premium
payments under the interest-sensitive whole life policies are not variable by
the policyholders.
The ICH Companies' universal and interest-sensitive life products are
marketed to individuals directly and through qualified retirement plans,
deferred compensation plans, and employer-sponsored payroll deduction plans. The
principal traditional life insurance products sold by the ICH Companies consist
of a series of specially designed whole life policies that are marketed
primarily to insureds 50 years of age and older and a graded death benefit whole
life policy.
Total sales of individual life insurance by the ICH Companies declined
approximately 6% in 1993, compared to declines of 33% in each of 1992 and 1991
(excluding Bankers and Certified). During 1993, the ICH Companies implemented a
number of changes in the manner in which their individual life insurance
products are developed and marketed to reverse the decline in sales.
Southwestern and Union Bankers have created a combined distribution system for
most of the ICH Companies' life and health insurance products that are marketed
through general agents and brokers, promoting the cross marketing of products
and coordinating broker compensation arrangements across product lines to
increase the incentives for new life sales. New simplified issue life insurance
products have been introduced targeting the senior citizen market and other
markets less sensitive to credit ratings, and marketing trends are more closely
integrated into the product development process. With these changes, the ICH
Companies are focusing on a broader market where there is an increased demand
for individual life insurance policies in smaller face amounts.
In the future, ICH intends to increase the amount of its life insurance
business through both internal growth and the acquisition of blocks of business
or companies. Factors important in any acquisition transaction will include the
synergistic opportunities offered, improved economies of scale, and the
projected rate of return on the investment compared with the cost of the
Company's capital funds.
6
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INDIVIDUAL HEALTH INSURANCE
Substantially all of ICH's consolidated premium income and other
considerations for individual health insurance are received from Medicare
supplement plans, comprehensive and major medical (collectively,
"comprehensive") health plans and long-term care plans. The following table sets
forth, by policy type, the amounts and percentages of ICH's consolidated premium
income and other considerations for individual health insurance during the
indicated periods. The table also provides pro forma information as if the sale
of Bankers and Certified had taken place at the beginning of 1992. As shown in
the table, ICH sold a substantial portion of its health insurance business in
the November 1992 sale of Bankers.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
HEALTH POLICY TYPE --------------------------------------------- PRO FORMA
(DOLLARS IN MILLIONS) 1993 1992 1991 1992
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------
Comprehensive................ $108.1 49% $ 266.3 31% $ 349.7 37% $ 127.6 59%
Medicare Supplement.......... 105.5 48 502.2 58 501.0 53 81.6 38
Long-term care............... 6.7 3 90.6 11 99.2 10 7.0 3
- ---------------------------------------------------------------------------------------------
Total.................. $220.3 100% $ 859.1 100% $ 949.9 100% $ 216.2 100%
- ---------------------------------------------------------------------------------------------
</TABLE>
The ICH Companies currently underwrite Medicare supplement plans,
comprehensive health plans and long-term care plans, with an emphasis on the
sale of Medicare supplement insurance. Medicare supplement plans provide
coverage for the deductible and coinsured portions of Medicare and for major
losses exceeding Medicare maximums, and automatically adjust coverages in
accordance with changes in Medicare benefits. The comprehensive health plans
provide coverage for hospital, medical, and surgical costs within various
prescribed policy deductible and coinsurance limits and are marketed primarily
to self-employed individuals, other workers who are not fully covered by group
health insurance, and early retirees. In addition, cost containment products,
which provide specific health insurance benefits up to certain limits, and
dreaded disease policies have been designed for those who cannot afford
comprehensive coverage or who seek supplemental coverage for specific risks.
During 1993, the ICH Companies changed the commission structure and eliminated
waiting periods for entry level customers for its Medicare supplement products
to further penetrate the senior citizens market. In the "under age" market, the
ICH Companies' product development efforts have concentrated on specified risk
and cost containment products.
The ICH Companies entered the long-term care business in late 1985 and
market their products to all persons ages 50 through 84. These products are
developed to meet the needs of all persons regardless of their stature or income
status. To meet regulatory requirements adopted in various states, the ICH
Companies developed new long term care plans during 1993, which resulted in an
interruption of marketing efforts in some states. Introduced in late 1993, the
ICH Companies' new long term care products now offer a full range of benefits
for varying periods, including lifetime benefits.
The comprehensive health plans currently offered by the ICH Companies in
many states have certain built-in protections against rising policy claims due
to escalating health care costs. Under each of these plans, premiums are
increased automatically in accordance with government indices of cost escalation
and based on actuarial tables that are keyed to the insured's age at each plan
anniversary. In contrast, premiums on many traditional health plans issued by
the ICH Companies may not be increased without notice to or approval by
insurance regulatory authorities. In addition, as a part of their product
development process, the ICH Companies constantly monitor actual claims
experience and health medical loss ratios and, subject to regulatory
constraints, adjustments are made to the terms of new products as they are
developed and the availability of products. Product adjustments include changes
to the underwriting criteria used, agent commissions paid, the premiums charged
and levels of deductibles. Due to escalating health care costs and marginal
profitability, management began deemphasizing sales of comprehensive health
plans in late 1990 and has decreased the number of states in which these plans
are marketed.
7
<PAGE>
Federal and state legislation and regulations impose minimum loss ratios
with respect to Medicare supplement plans, restrict first year commissions
payable to agents and require standardized benefits under and disclosure
obligations for Medicare supplement plans. Changes to the Medicare law made by
the Omnibus Budget Reconciliation Act of 1990 have had the effect of increasing
the regulation of Medicare supplement plans in all states, requiring minimum
loss ratios of at least 65%, standardizing benefits to promote comparability of
plans, guaranteeing renewability and prohibiting those offering Medicare
supplement plans from underwriting for health conditions or claims experience of
those who first become eligible for Medicare.
The health insurance industry faces increasing government regulation as a
result of legislative efforts to increase access to health care coverage and
adopt measures to contain, and control, escalating health care costs. Health
insurance premium increases, selective underwriting procedures, the portability
of insurance and exclusions for pre-existing conditions have been the target of
many individual and group health insurance reform efforts, at both the state and
national levels. See the discussion under "Regulation" appearing in this Item
below. These reform efforts have created uncertainty in the health insurance
industry, particularly among insurers offering comprehensive health insurance
products. With their increased emphasis on supplemental and specified risk
health insurance products, the ICH Companies believe they are pursuing a
business strategy in their individual health insurance segment that coincides
with the essential elements of many of the health care reform efforts currently
under consideration. However, ICH currently cannot predict which, if any, of the
health care reform proposals under consideration by Congress and the various
states will be implemented, whether any additional health insurance measures
will be adopted in the foreseeable future or the impact such reform measures
ultimately would have on the ICH Companies' existing portfolio of products or
their established distribution systems.
ACCUMULATION PRODUCTS
The ICH Companies' accumulation products include traditional annuities,
which are sold primarily through independent agents and brokers. During 1993,
the ICH Companies significantly increased their marketing efforts for annuity
products, adopting the strategic goal of using annuities to represent their
accumulations business segment.
In the current interest rate environment, annuities have become attractive
as replacements for certificates of deposit. The ICH Companies have promoted the
sale of annuities through marketing relationships with established distribution
systems targeting the senior citizen market. During 1993, annuities accounted
for 94% of the ICH Companies' accumulation product premium equivalents, a trend
management expects to continue. Substantially all of ICH's annuity
considerations are attributable to sales of flexible premium deferred annuities
and single premium deferred annuities. Generally, such flexible premium deferred
annuities permit annual payments in such amounts as the holder deems
appropriate, and the single premium deferred annuities underwritten by the ICH
Companies require a one-time lump sum payment.
While deciding to emphasize the sale of annuities, the ICH Companies, during
1993, decided to no longer pursue growth in their accumulations business through
the sale of guaranteed investment contracts. Constitution, the ICH Company that
had been positioned in 1990 to underwrite guaranteed investment contracts, was
significantly downsized during 1993 as a part of the restructuring of the ICH
insurance holding company reorganization, and no longer actively markets
guaranteed investment contract products. A significant amount of Constitution's
in force guaranteed investment contract business was terminated in 1992 and
1993, primarily as the result of scheduled maturities and the early termination
of contracts.
8
<PAGE>
GROUP BUSINESS
Group insurance is highly competitive. Most policies are written on a
periodic basis, and competitive bids are often sought prior to renewal.
Philadelphia American is the only ICH Company making any significant new sales
to groups, although Bankers Multiple continues to underwrite health insurance
under an established Association group plan. Many of the factors affecting the
profitability of the individual comprehensive health insurance products are
equally applicable to group health insurance plans.
Philadelphia American also provides fee-based administrative services,
processing comprehensive health insurance claims under diverse group plans.
Philadelphia American does not assume any underwriting risk under its
administrative-only arrangements, which are entered into with large and
medium-sized employers. Instead, Philadelphia American merely processes and pays
claims for an administrative fee, while the employer acts as a self-insurer and
provides the policyholder benefits. Philadelphia American also provides groups
with managed care plans, under which it develops a network of providers with
negotiated cost controls and administers group claims and makes available stop
loss coverage for group benefits. The total claims administered by Philadelphia
American under these fee-based administrative arrangements increased from $288.9
million during 1992 to $310.7 million during 1993.
Many states have considered and enacted small group insurance reform
legislation. While the definitions used and requirements imposed vary
significantly from state to state, typical components of legislation targeting
small group insurance reform include community rating, limitations on
underwriting, restrictions on exclusions for pre-existing conditions and
restrictions on rate increases. If enacted by Congress, national health care
reform legislation could significantly change the manner in which group business
is conducted.
Philadelphia American incurred significant losses in its group business
during 1993, resulting in pre-tax operating losses of $12.9 million with respect
to the ICH Companies' group and other business for the year. See the discussion
under the subheading "Group and Other Insurance" under "Analysis of Operating
Results by Industry Segment" in ITEM 7 of this Report, which discussion is
incorporated herein by reference, for an analysis of the factors contributing to
the losses. Due to the unprofitable performance of its group insurance plans
during 1993 and the uncertainties created by the currently proposed national
health care reform efforts, Philadelphia American intends to further
de-emphasize the sale of fully insured traditional indemnity group plans in
favor of fee-based administrative services and managed health care programs.
MARKETING
The ICH Companies are collectively licensed to sell their insurance products
in all 50 of the United States and in certain protectorates of the United
States. The following table identifies those states which accounted for 5% or
more of the subsidiaries' 1993 combined direct premiums from life, health, and
annuity sales to residents in such states.
<TABLE>
<CAPTION>
Percentage
1993 Direct Premiums
-------------------------------------------------------------
5% to 10% 11% to 15% 16% or More
<S> <C> <C> <C>
- ------------------------------------------------------------------------------
California, Illinois, New
Life Jersey, New York Texas
- ------------------------------------------------------------------------------
Health Florida, Indiana Illinois Texas
- ------------------------------------------------------------------------------
Florida, New
Annuities York, Texas
- ------------------------------------------------------------------------------
Total business Florida, Illinois, New York Texas
- ------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
As of year end 1993, individual life and health insurance products offered
by the ICH Companies are sold primarily through more than 11,000 independent
agents. Substantially all independent agents selling insurance products for the
ICH Companies also represent other insurers. Group insurance is sold principally
through independent agencies that are assisted by group sales staffs employed by
an ICH subsidiary, and alternate funded plans are marketed directly by employees
of an ICH Company.
The ICH Companies develop their marketing programs essentially on three
levels. First, the ICH Companies design competitive insurance products for
targeted markets that provide an appropriate return over the life of the
product. Factors considered in designing insurance products include insurance
regulatory requirements, underwriting limitations, federal income tax laws, and
competitive features like premium rates, rates of return, and other policy
benefits. Secondly, the subsidiaries develop facilities and support staffs
designed to provide superior services to agents and policyholders. Thirdly, the
ICH Companies adopt competitive agent compensation arrangements that are
intended to provide incentives for the agents to increase their production of
new insurance and to promote continued renewals of in-force insurance written
through them. Historically, these incentives have involved awards, overrides,
and compensation scales that escalate with production and provide additional
commission payments for renewal business.
During 1993, the ICH Companies centralized the marketing strategy for most
of the ICH Company individual life and health insurance products that are
distributed through general agents and brokers. Southwestern and Union Bankers
now offer their products through shared distribution systems, with agent and
broker compensation packages coordinated across product lines. Southwestern has
terminated its exclusive marketing arrangements for individual life insurance
products, and has eliminated broker compensation based solely on insurance in
force, with no emphasis on new production.
UNDERWRITING
The ICH Companies employ professional underwriting staffs and have adopted
and follow detailed underwriting procedures designed to assess and quantify
insurance risks before issuing life and health insurance policies to individuals
and groups. Except with respect to Medicare supplement insurance, which is
heavily regulated, the underwriting practice of each ICH Company is to require
medical examinations (including blood tests, where permitted) of applicants for
certain health insurance and for life insurance in excess of prescribed policy
amounts. These requirements vary according to the applicant's age and by policy
type, and streamlined procedures have been developed based on the amount and
type of coverage sought. The ICH Companies also rely on medical records and each
potential policyholder's written application for insurance. In issuing health
insurance, the ICH Companies use information from the application and, in some
cases, inspection reports, physician statements, or medical examinations to
determine whether a policy should be issued as applied for, issued with reduced
coverage under a health rider, or rejected.
Acquired Immunity Deficiency Syndrome ("AIDS") claims identified to date, as
a percentage of total claims, have not been significant for ICH's subsidiaries.
Evaluating the impact of future AIDS claims under the life and health insurance
policies issued by ICH is extremely difficult, in part due to the insufficient
and conflicting data regarding the number of persons now infected by the AIDS
virus and uncertainty as to the speed at which the disease may spread through
the general population. The ICH Companies have implemented, where legally
permitted, underwriting procedures designed to assist in the detection of the
AIDS virus in applicants.
INVESTMENTS
The ICH Companies derive a substantial portion of their income from
investments. State insurance laws impose certain restrictions on the nature and
extent of investments by insurance companies and, in some states, may require
divestiture of assets contravening these restrictions. At December 31, 1993,
based on statutory insurance accounting practices, intercompany investments in
equity securities of ICH's subsidiaries constituted approximately 19.53% of the
combined adjusted capital and
10
<PAGE>
surplus of ICH's insurance subsidiaries. These intercompany investments have
been eliminated, in accordance with generally accepted accounting principles, in
the financial statements appearing in this Form 10-K.
The following table summarizes, for the indicated periods, certain results
of the investments of ICH and its consolidated subsidiaries. See ITEM 7 for a
description of factors affecting the comparability of the indicated periods.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------
(DOLLARS IN MILLIONS) 1993 1992 1991
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
Average cash and invested assets(1)................................. $ 2,845.2 $ 4,035.8 $ 4,138.9
Net investment income............................................... 195.6 333.1 370.8
Average yield(2).................................................... 6.9% 8.3% 9.1%
Realized investment gains (losses).................................. 34.8 (119.1) (26.4)
Change in unrealized investment gains (losses)(3)................... 1.6 22.2 4.8
- ----------------------------------------------------------------------------------------------------------------
<FN>
(1) Represents the average of the aggregate cash and invested assets amounts at
the beginning and end of the period, excluding intercompany investments.
(2) Represents net investment income divided by the average cash and invested
assets for the period.
(3) Generally represents increases or decreases in the value of equity
securities carried at fair value at the end of each period presented. In
1992 and 1993, includes difference in amortized cost and fair value of
available for sale fixed maturities, adjusted for the change in
amortization of deferred policy acquisition costs that would have been
recorded had the Company realized such gains. Unrealized investment gains
are reflected net of deferred income taxes.
</TABLE>
The investments of the ICH Companies are managed under the supervision of
management and of each company's board of directors. See the discussion under
the heading "Investment Portfolio" in ITEM 7, and Note 5 of the Notes to
Financial Statements appearing elsewhere in this Form 10-K, which are
incorporated herein by reference, for information about the composition and
performance of ICH's investment portfolio. Diversification of risk,
asset-liability management and reduction of the Company's exposure to losses
arising from prepayments of collateralized mortgage obligations are key elements
of the Company's investment policies.
Beginning in 1992, the ICH Companies have relied increasingly on independent
investment advisors in the management of their investments. Conseco Capital
Management, Inc., the investment advisory subsidiary of Conseco, provides
investment management services to the ICH Companies; it managed approximately
$430 million of their investments during 1993. Westridge Capital Corporation
managed the investment of approximately $42 million of the assets and hedged the
risk for one of Constitution's accumulation products during 1993. New England
Asset Management, Inc. provides advice in the management of substantially all of
the remaining investment portfolios of the ICH Companies and advised the ICH
Companies in connection with the sale of a substantial portion of their residual
and interest-only collateralized mortgage obligations to, and the reinvestment
of a portion of the proceeds from the sale in trust certificates sold by, Fund
America Investors Corporation II in July 1993.
REINSURANCE
In keeping with industry practices, the ICH Companies reinsure with
unaffiliated insurance companies and, to a lesser extent, other ICH Companies
portions of the life and health insurance and annuities underwritten by them.
Under most of the subsidiaries' reinsurance arrangements, new insurance and
annuity sales are reinsured automatically rather than on bases that would
require the reinsurer's prior approval. Generally, the ICH Companies enter into
indemnity reinsurance arrangements to assist in diversifying their risks and to
limit their maximum loss on large or unusually hazardous risks, including risks
that exceed the ICH Companies' respective policy-retention limits
11
<PAGE>
currently ranging up to $500,000 per insured. Indemnity reinsurance does not
discharge the ceding insurer's liability to meet policy claims on the reinsured
business. The ceding insurer remains responsible for policy claims on the
reinsured business to the extent the reinsurer fails to pay such claims.
CFLIC, a subsidiary of CNC, reinsures certain annuity business written by
Bankers and Southwestern, under reinsurance agreements that were entered into in
connection with ICH's 1990 sale of Marquette to CNC. On June 15, 1993, ICH, CNC
and CFLIC entered into an agreement that gives ICH the right, and under which
ICH has the obligation, to negotiate the termination of these reinsurance
agreements. See the discussion under the heading "Transactions With Consolidated
Fidelity Life Insurance Company" appearing in ITEM 7 of this Form 10-K, which
discussion is incorporated herein by reference. ICH, CNC and CFLIC have agreed
with Torchmark and Stephens that the reinsurance agreements will be terminated
by May 30, 1994, and CNC will have the right to transfer its ownership interest
in CFLIC to ICH, in exchange for designated assets of CFLIC, if the recaptures
are not completed by March 31, 1994. The termination of the reinsurance
agreements is dependent on the completion of successful negotiations and the
receipt of all required regulatory approvals.
In a few instances, ICH's subsidiaries have reinsured blocks of insurance
policies to provide funds for enhancing surplus, financing acquisitions and
other purposes. Under these financing arrangements, statutorily determined
profits on the reinsured business are accelerated through the reinsurer's
payment of ceding commissions representing the present value of profits on the
business over the reinsurance period. During 1993, the ICH Companies reduced by
$13.1 million the financial reinsurance ICH Companies had obtained during 1991.
In addition, a surplus relief treaty between an ICH Company and a third party
reinsurer was terminated as a part of the restructuring of the ICH holding
company organization that was completed September 29, 1993.
Historically, reinsurance has not had a significant effect on ICH's
consolidated results of operations, with net ceded premium income and other
considerations representing 5% or less of total premium income and other
considerations in each of the past three years.
ADMINISTRATIVE OPERATIONS
The administration operations of most of the ICH Companies are consolidated
through Facilities Management Installation, Inc. ("FMI"), the service
corporation subsidiary of ICH. Functioning as the employer of substantially all
of the employees performing services in ICH's insurance operations, FMI provides
management and administrative services to the ICH Companies directly and through
arrangements with third parties. Claims administration, risk underwriting,
regulatory compliance and development and marketing of insurance products are
performed on the basis of function or business segment. A significant portion of
the data processing services required in the administrative operations of the
ICH Companies is provided by a third party vendor.
Because of the operational interrelationships among the ICH Companies, the
sales of subsidiaries in prior years have required changes in the administrative
operations of various ICH Companies, including changes in executive
responsibilities and personnel requirements. The complete separation of the
operations of the ICH Companies and the subsidiaries previously sold occurred in
1993, with the expiration of the servicing arrangements that were entered into
when the former subsidiaries were sold in 1989 and 1990. Following a full-scale
review, the administrative operations of the ICH Companies have been reorganized
to remove inefficiencies, redundancies and excess capacities, and the operations
of several ICH Companies have been consolidated across product lines in a
primary location under a common management team.
COMPETITION
The insurance industry is highly competitive, with approximately 2,000 life
and health insurance companies in the United States. Certain large insurers and
insurance holding company systems have substantially greater capital and
surplus, larger and more diversified portfolios of life and health insurance
policies, and larger agency sales operations than those of the ICH Companies.
Financial and
12
<PAGE>
claims paying ratings assigned to insurers by the nationally recognized
independent rating agencies, always a key ingredient, have in some markets
become preemptive, especially in the area of accumulation products. The ICH
Companies also are encountering increased competition from banks, securities
brokerage firms, and other financial intermediaries marketing insurance products
and other investments such as savings accounts and securities.
The ICH Companies compete primarily on the basis of experience, size,
accessibility, cost structure and pricing, claims responsiveness, product design
and diversity, service and distribution. ICH believes that its insurance
subsidiaries are generally competitive based on premium rates and service, have
longstanding relationships with their agents, and offer a diverse portfolio of
products.
REGULATION
STATE INSURANCE REGULATION. The discussion under the heading "Regulatory
Environment" appearing under ITEM 7 of this Report on Form 10-K is incorporated
herein by reference.
In recent years, an increasing number of legislative proposals have been
introduced or proposed in Congress and in some state legislatures that would
effect major changes in the health care system, either nationally or at the
state level. In addition, some states have already enacted health care and
insurance reforms and others continue to consider additional reforms. Among the
proposals under consideration in Congress and some state legislatures are
insurance market reforms to increase the availability of group health insurance
to small business and control the cost of insurance, requirements that all
businesses offer health insurance coverage to their employees and the creation
of a single government health insurance plan that would cover all citizens.
Reform legislation proposed by the Clinton administration would ultimately
guarantee universal access to health care coverage and create purchasing
alliances for government established health care plans. Alternative legislative
proposals that have been developed to reform the health care system have goals
ranging from universal access to health care coverage through managed
competition to health care cost containment through, among other things, health
insurance reform. ICH currently cannot predict what impact health care reform
proposals will have on the health insurance industry, whether any additional
health insurance measures will be adopted in the foreseeable future or, if
adopted, whether such reform proposals or measures will have a material effect
on its operations.
Certain subsidiaries of ICH have entered into agreements with state
insurance departments which impose restrictions or reporting requirements in
connection with their operation of business or their payment of dividends. In
management's view, none of these regulatory agreements have adversely affected
the insurance business of the ICH Companies.
In conjunction with the receipt of the approval of the Texas Department of
Insurance required for the restructuring of the ICH insurance holding company
organization in September 1993, ICH and its Texas-based subsidiaries,
Southwestern and Union Bankers, entered into an agreement with the Texas
Department of Insurance, which superseded the regulatory agreement they had
entered into on March 31, 1993. Among other things, the agreement with the Texas
Department of Insurance requires ICH, Southwestern and Union Bankers to provide
the Texas Department with designated information on an on-going basis; requires
Southwestern to provide 30 days prior notice of any stockholder dividend, to
limit the amount it invests in private placement securities, and to not invest
in interest-only collateralized mortgage obligations; and requires 30 days prior
notice of any financial reinsurance transaction or acquisition of business
through assumption reinsurance by either Southwestern or Union Bankers. The
agreement with the Texas Department also addresses the reinsurance agreements
under which CFLIC reinsures business written by Southwestern, and provides that
any recapture of the reinsured business by Southwestern can occur only after
receipt of the written concurrence of the Texas Department. In March 1993, ICH
had agreed with the Texas Department to develop a plan addressing the
enhancement and diversification of the asset portfolio supporting the reserve
liabilities reinsured by CFLIC, and in June 1993 ICH entered into an agreement
with CFLIC and CNC giving ICH the authority, and responsibility, for negotiating
the termination of CFLIC's reinsurance agreements.
13
<PAGE>
In connection with the restructuring of the ICH holding company organization
in September 1993, Constitution and the Kentucky Department of Insurance
terminated a stipulation that required Constitution to maintain adjusted surplus
of at least $100 million or discontinue the sale of insurance. Primarily as a
result of actions taken in connection with the restructuring, as reported in its
annual statutory financial statements, Constitution had approximately $55.6
million in adjusted surplus (statutory capital and surplus plus the asset
valuation reserve) as of December 31, 1993.
ICH's subsidiary, Modern American Life Insurance Company ("Modern
American"), signed an agreement with the Missouri Department of Insurance in
December 1992 that, among other things, currently restricts Modern American's
ability to invest in securities of affiliates and requires Modern American to
obtain the consent of the Missouri Department before paying any stockholder
dividends. During 1992, Modern American also agreed with the Florida Department
of Insurance that it would suspend writing insurance and not enter into any
reinsurance agreements in Florida.
FEDERAL INCOME TAXATION. ICH's life insurance subsidiaries are taxed under
the life insurance company provisions of the Internal Revenue Code of 1986, as
amended (the "Code"). Under the Code, a life insurance company's taxable income
incorporates income from all sources, including life and health premiums,
investment income, and certain decreases in reserves. The Code currently
establishes the maximum corporate tax rate of 35% and imposes a corporate
alternative minimum tax at a 20% rate. SEE Note 13 of the Notes to Financial
Statements included in ITEM 8 of this Report on Form 10-K. Beginning in 1992,
ICH and its subsidiaries file life-nonlife consolidated federal income tax
returns.
Amendments to the Code adopted in 1990 require the capitalization and
amortization over a ten year period of certain policy acquisition costs incurred
in connection with the sale of certain insurance products. Prior tax laws
permitted these costs to be deducted as they were incurred. This new rule
applies to the life, health and annuity business issued by the ICH Companies. By
deferring deductions, this new rule has the effect of increasing the current tax
incurred, and decreasing deferred taxes payable by a corresponding amount. The
lost after-tax earnings caused by accelerating the current tax liability is the
primary effect of this provision on the statutory net income of ICH's insurance
subsidiaries.
Certain proposals to make additional changes in the federal income tax laws
and regulations affecting insurance companies or insurance products continue to
be considered at various levels in the United States Congress and the Internal
Revenue Service. ICH currently cannot predict whether any additional tax reform
measures will be adopted in the foreseeable future or, if adopted, whether such
measures will have a material effect on its operations.
RESERVES. In accordance with applicable insurance laws, ICH's insurance
subsidiaries have established and carry as liabilities actuarial reserves to
meet their respective policy obligations. Life insurance reserves, when added to
interest thereon at certain assumed rates and premiums to be received on
outstanding policies, are calculated to be sufficient to meet policy
obligations. The actuarial factors used in determining such reserves are based
on statutorily prescribed mortality and interest rates. Reserves maintained for
health insurance include the unearned premiums under each policy, reserves for
claims that have been reported but are not yet due, and reserves for claims that
have been incurred but have not been reported. Furthermore, for all health
policies under which renewability is guaranteed, additional reserves are
maintained in recognition of the actuarially calculated probability that the
frequency and amount of claims will increase as the attained age of the insured
increases. The ICH Companies maintain reserves on reinsured business once it is
assumed by them and take credit for reserves on reinsured business after it is
ceded to other insurers by them. Reserves for the assumed reinsurance are
computed on bases essentially comparable to direct insurance reserves.
The reserves carried in the financial statements included elsewhere in this
Form 10-K are calculated based on generally accepted accounting principles and
may differ from those specified by the laws of the various states and carried in
the statutory financial statements of the insurance
14
<PAGE>
subsidiaries. These differences arise from the use of different mortality and
morbidity tables and interest assumptions, the introduction of lapse assumptions
into the reserve calculation, and the use of the level premium reserve method on
all insurance business. In addition, beginning in 1993, to the extent the ICH
Companies remain primarily liable for benefits on policies which have been ceded
to other insurers, the reserve credits taken for regulatory reporting purposes
are eliminated under generally accepted accounting principles. See Note 1 of the
Notes to Financial Statements included in ITEM 8 of this Report on Form 10-K for
certain additional information regarding reserve assumptions under generally
accepted accounting principles.
EMPLOYEES
At March 1, 1994, ICH and its subsidiaries employed a total of approximately
1,320 persons, excluding agents, who are not employees but are independent
contractors.
15
<PAGE>
ICH HOLDING COMPANY SYSTEM
ICH was organized in 1966 as a Missouri corporation and was reincorporated
in Delaware during 1977. The following chart summarizes as of March 18, 1994 the
relationships among ICH and its significant subsidiaries. Each percentage used
in the chart represents the parent's percentage ownership interest in the
outstanding voting securities of the respective subsidiary company. The years in
which ICH formed, or acquired more than 50% of, the indicated subsidiaries are
set forth parenthetically.
[GRAPHIC]
The above chart reflects the restructuring of the ICH insurance holding
company system, from a vertical to a substantially horizontal structure, that
was effected September 29, 1993. The restructuring was designed to increase the
financial independence of the ICH Companies and reduce the effect of
multi-jurisdictional regulation that results when insurance subsidiaries are
held indirectly, through other insurance subsidiaries.
- ---------
*The following companies are direct or indirect subsidiaries of ICH, but do
not have any significant operations: American MedCAP Inc.; BML Agency, Inc.; BML
Agency, Inc. of Ohio; Dallas Insurance Services Company; I.C.H. Financial
Services, Inc.; Independence National, Inc.; Investment Dissolution Corporation;
Philadelphia American Property Company; Quail Creek Communications, Inc.; Quail
Creek Recreation, Inc.; Quail Creek Water Company, Inc.; REO Holding
Corporation; Southeast Title & Insurance Company; and Western Pioneer
Corporation.
16
<PAGE>
Prior to the restructuring, Southwestern and Philadelphia American were held
by ICH indirectly through Modern American, and Union Bankers, Bankers Multiple,
Bankers New York, and Constitution were held by ICH indirectly through
Southwestern. By virtue of the restructuring, which involved a series of
transactions including the retirement of debt and equity securities, the payment
of dividends, the termination of a reinsurance agreement between Modern American
and Constitution, and the execution of a new reinsurance agreement between
Modern American and Southwestern, Modern American eliminated its investment in
securities of affiliates, Southwestern reduced its investment in insurance
subsidiaries to Constitution and Bankers New York, and ICH made its ownership of
its insurance subsidiaries more direct. The restructuring was completed
following the receipt of approvals by the Missouri, Texas, Illinois, Kentucky
and Pennsylvania Insurance Departments. See ITEM 2 of this Form 10-K for a
description of an appeal of the approvals granted by the Missouri Department of
Insurance.
ITEM 1A. EXECUTIVE OFFICERS OF REGISTRANT.
Set forth below is certain information regarding the current executive
officers of I.C.H. Corporation as of March 1, 1994.
ROBERT L. BEISENHERZ, age 48. Chairman of the Board and Chief Executive
Officer since October 1992, a director since March 1992 and President since
February 1992. Mr. Beisenherz served as Executive Vice President of ICH from
June, 1990, when he joined ICH, until February 1992. Throughout 1991 and until
his election as President in February 1992, Mr. Beisenherz also served as an
executive officer of subsidiaries of Consolidated National Corporation. For the
previous 17 years, he was a consulting actuary with Lewis & Ellis, Inc.,
consulting actuaries, Dallas, Texas.
JOSEPH P. CROWLEY, age 49. Senior Vice President -- Group Marketing and
Claims since March 1993. Mr. Crowley has served as President of ICH's
subsidiary, Philadelphia American Life Insurance Company, since 1984 and
President and Chief Operating Officer since 1987. He is responsible for the
group and managed care operations of Philadelphia American and, during 1993, he
was also responsible for overseeing individual health claims.
ROBERT C. GREVING, age 42. Senior Vice President and Chief Actuary since
September 1992. Mr. Greving joined the ICH organization in 1990 and serves as
Executive Vice President, Chief Actuary and a director of ICH's subsidiary,
Southwestern Life Insurance Company, and as an officer of various other ICH
subsidiaries. Mr. Greving was a Senior Vice President and Actuary of American
Founders Life Insurance Company from January 1988 until July 1990.
American Founders Life Insurance Company was placed under protective
receivership by the Texas Insurance Department from April 14, 1989 until its
release on September 19, 1989. The commencement of the supervisory proceedings
was prompted by the Chapter 11 bankruptcy of its ultimate parent, American
Continental Corporation.
JOHN T. HULL, age 50. Executive Vice President since March 1993 and
Treasurer since 1983. Mr. Hull served from 1983 to 1993 as Senior Vice President
and from 1979 to 1982 as the chief accountant for ICH and certain of its
affiliates. He has served since 1983 as Treasurer of several ICH subsidiaries.
W. SHERMAN LAY, age 54. Executive Vice President -- Operating Companies
since September 1993. Mr. Lay served as Senior Vice President from 1986 until
1993 and has served as an officer of various affiliates of ICH since 1971. Mr.
Lay serves as an officer and a director of various ICH insurance subsidiaries,
including the position of Chief Executive Officer of Philadelphia American,
President of Constitution Life Insurance Company and, since October 1993,
President of Southwestern.
EDWARD R. MEKEEL, JR., age 47. Executive Vice President and Chief Financial
Officer since September 1992. Mr. Mekeel also serves as a director and chief
financial officer of various ICH subsidiaries. Before joining ICH in 1992, Mr.
Mekeel was employed as the Senior Vice President and Chief Financial Officer and
a director of First Capital Life Insurance Company from July 1989 until October
1991, and
17
<PAGE>
from August 1983 until June 1989, he was employed as the Senior Vice President
and Controller of Mutual Benefit Life Insurance Company and served as an officer
and director of various of its affiliates.
In May 1991, the California Commissioner of Insurance commenced involuntary
conservatorship proceedings against First Capital Life Insurance Company while
Mr. Mekeel was still an executive officer and director. When the Commissioner
was appointed Conservator, Mr. Mekeel was appointed one of the conservation
managers, a function he performed until his employment relationship ended in
October 1991.
C. FRED RICE, age 55. Senior Executive Vice President--Marketing and Real
Estate since 1985. A director since 1975 and a member of the Executive
Committee, Investment Committee, Compensation Committee, and Stock Option
Committee, Mr. Rice is an employee of CNC. Mr. Rice has served as Vice
President, Secretary, and a director of CNC since 1984. He also has served since
1970 as an officer and director of various affiliates of ICH. Mr. Rice currently
serves as a director of Financial Benefit Group, Inc.
H. DON RUTHERFORD, age 57. Senior Vice President--Individual Marketing since
March 1993. Mr. Rutherford joined Union Bankers Insurance Company in 1967, and
serves as Senior Executive Vice President and Senior Marketing Officer of that
subsidiary. Mr. Rutherford serves as Marketing Director for the individual life
and health products of ICH's insurance organization.
SHERYL G. SNYDER, age 47. Executive Vice President since March 1992 and
General Counsel since December 1990. Mr. Snyder had been a partner of the law
firm of Wyatt, Tarrant & Combs, Louisville, Kentucky since 1978 and associated
with the firm since 1973. He has served as president of the Louisville and
Kentucky State Bar Associations.
Officers are elected by the Board of Directors of ICH and hold office until
their respective successors are duly elected and qualified. All of the executive
officers of ICH are employed by its wholly-owned subsidiary, Facilities
Management Installation, Inc., except Mr. Rice.
Set forth below is certain information regarding other former directors
and/or executive officers of ICH.
PHILLIP E. ALLEN, age 63. Vice Chairman of the Board and Secretary from
April 1990 until his retirement in May 1993. Mr. Allen served as Secretary of
ICH from 1986 and as an officer and director of various affiliates of ICH from
1983 until his retirement. He served as General Counsel of ICH and certain of
its affiliates from 1978, and as Executive Vice President--Corporate Operations
of ICH from 1983, until his election as Vice Chairman of the Board of ICH in
April, 1990. Mr. Allen continues to provide services to the Company pursuant to
the Retirement/Retainer Agreement he and the Company entered into at the time of
his retirement.
THOMAS J. BROPHY, age 58. Executive Vice President from 1986 until September
1993. Mr. Brophy served as President of Southwestern from June 1990, and as its
Chief Operating Officer from 1987, until September 1993. From 1987 until 1990,
he was Senior Executive Vice President of Southwestern. Mr. Brophy was employed
by Great Southern Life Insurance Company from 1974 until the closing of ICH's
sale of Great Southern in December 1989 and served as Senior Executive Vice
President and Chief Operating Officer of Great Southern from 1983 until such
closing.
FMI had an administrative services agreement with Mutual Security Life
Insurance Company ("MSL") when, on October 5, 1990, the Indiana Insurance
Department placed MSL in rehabilitation. Under the agreement, FMI provided
administrative services for a closed block of business written by MSL, and to
facilitate the performance of these services, Mr. Brophy was appointed, in April
1990, a Vice President of MSL, to serve without compensation or other benefit.
While the Indiana Office of Rehabilitation requested FMI to continue providing
the administrative services after the rehabilitation proceedings were commenced,
Mr. Brophy immediately resigned as an officer of MSL, effective October 9, 1990.
18
<PAGE>
ROBERT T. SHAW, age 59, served as Chairman of the Board from 1975 and Chief
Executive Officer from 1975 to 1989 and from February 1992 until his resignation
in October 1992. He also served from 1966 until 1992 as an officer and director
of various affiliates of ICH. Mr. Shaw is an employee of CNC and has served as
President, Treasurer, and a director of CNC since 1984. Throughout 1993, Mr.
Shaw provided services to ICH by virtue of CNC's management and consulting
agreement with ICH, and he currently provides services pursuant to a ten year
Independent Contractor and Services Agreement he and the Company entered into
February 11, 1994.
ITEM 2. PROPERTIES.
The following table sets forth certain information regarding the principal
physical properties of I.C.H. Corporation and its subsidiaries as of March 1,
1994. A 2,600-acre residential and recreational real estate development in Perry
Park, Kentucky is owned by ICH. ICH's subsidiaries own certain real estate
located in Chicago, Illinois, which was acquired from Bankers Life and Casualty
Company at the time of its sale in November 1992, and an office building with
129,000 square footage, at 2551 Elm Street, Dallas, Texas, where Union Bankers
Insurance Company was formerly headquartered; they also hold, for investment
purposes, certain real estate, none of which is included in the table below.
<TABLE>
<CAPTION>
PRINCIPAL HEADQUARTERS SQUARE OWNED
COMPANY LOCATION FOOTAGE OR LEASED
- --------------------------------------- ----------------------------- --------- -----------------
<S> <C> <C> <C>
I.C.H. Corporation 100 Mallard Creek Road, 21,800 Leased, expiring
Suite 400 May 2000
Louisville, Kentucky 40207
Philadelphia American Life Insurance 3121 Buffalo Speedway 221,000 Owned
Company Houston, Texas 77098
Southwestern Life Insurance Company and 500 North Akard Street 182,000 Leased, expiring
Union Bankers Insurance Company Dallas, Texas 75201 November 1995
Bankers Life and Casualty Company of 65 Froehlich Farm Blvd. 14,400 Leased, expiring
New York Woodbury, New York 11797 February, 1997
</TABLE>
ITEM 3. LEGAL PROCEEDINGS.
Modern American Life Insurance Company is a Defendant in a class action
lawsuit filed by William D. Castle and others 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, CV93-10275 (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 American Life Insurance Company and its predecessors. The
petition alleges breach of contract, and seeks declaratory judgment, costs,
expenses and such other relief as the Court deems appropriate. As an
alternative, the petition seeks rescission.
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 American
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, CV193-1331CC (the "MEYER case"), is an appeal from the
regulatory proceedings before the Missouri Department of Insurance, by which
Modern American received regulatory approvals required for it to participate in
the restructuring of the ICH insurance holding company organization. The
restructuring was completed on or about September 29, 1993. The Plaintiffs in
the MEYER case are seeking reversal or remand of the Director's order of
approval. The Cole Circuit Court has determined that it will review the
Department's decision on the record pursuant to Missouri's administrative
procedure act.
Modern American believes it has meritorious defenses to both the CASTLE and
MEYER cases and intends to defend both cases vigorously.
19
<PAGE>
A subsidiary of ICH, together with six other solvent parties, has been
notified by the Texas Natural Resource Conservation Commission (formerly known
as the Texas Water Commission) that it is a potentially responsible party under
Texas environmental legislation with respect to certain property owned by that
subsidiary and leased to a third party in Texas. That property is part of a
tract of approximately 17 acres that allegedly has been contaminated with
creosote. The potentially responsible parties have engaged an environmental
consulting firm to investigate the extent of the contamination and develop a
clean-up plan, after which the costs of the clean-up can be estimated. The Phase
I Remedial Investigation was completed during the first half of 1993, and the
Phase I Remedial Investigation Technical Memorandum (Phase I Report) was
finalized by the end of 1993. Phase II of the Remedial Investigation and the
risk assessment are to be performed during 1994. ICH's subsidiary has agreed to
pay 6% of the cost of the investigation, and a former ICH subsidiary, which ICH
has agreed to indemnify, has also agreed to pay 6% of the cost of the
investigation. There is no agreement among the potentially responsible parties
with regard to any responsibility for or the allocation of costs of any remedial
action which may ultimately be determined necessary. A potentially responsible
party brought an action, TOWNE SQUARE ASSOCIATES AND MILLENNIUM III REAL ESTATE
CORPORATION V. GSV PROPERTIES, ET AL., Cause No. 91-15951, filed November 1991
in the 250th Judicial District, Travis County, Texas, naming the other
potentially responsible parties defendants, including ICH's subsidiary and
former subsidiary. ICH's subsidiary and former subsidiary asserted a
counter-claim against the plaintiff as well as the other defendants, contesting
their status as potentially responsible parties and seeking contribution and/or
indemnity. The claims between the plaintiff and ICH's subsidiary and former
subsidiary have now been resolved and the Texas Natural Resource Conservation
Commission is contesting the Court's jurisdiction over the remaining claims.
ICH and Robert L. Beisenherz, Chairman and Chief Executive Officer of the
Company (collectively "the Company"), as well as Robert T. Shaw, former Chairman
of the Company, and certain former affiliates of the Company, were added by an
Amended Complaint, filed December 3, 1993, as Defendants in a lawsuit pending in
Marion Circuit Court in Indianapolis, Indiana. MUTUAL SECURITY LIFE INSURANCE
COMPANY, BY ITS LIQUIDATOR, 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, LIFESHARES 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, KESSNER &
KUESTER (the "MUTUAL SECURITY case"). On January 3, 1994, the suit was removed
to the United States District Court, the Southern District of Indiana at
Indianapolis, Case No. IP94-0001 C. A motion to remand the MUTUAL SECURITY case
back to State Court, filed by the Plaintiff Liquidator, is currently pending.
The Plaintiff, the Commissioner of Insurance, who had been appointed Liquidator
of Mutual Security Life Insurance Company ("MSL") pursuant to a Final Order of
Liquidation, entered on December 6, 1991, alleges in the amended complaint that
the Defendant Fail and others acquired control of MSL through a series of
transactions, and misused assets of MSL to acquire control of Bluebonnet Savings
Bank, FSB, thereby contributing to the insolvency of MSL. The allegations
against the Company arise primarily from a loan that was made to James Fail in
1989 by Bankers Life and Casualty Company, at that time a subsidiary of the
Company. The Plaintiff alleges that the Company and others are liable for the
acts of James Fail under doctrines of joint venture and conspiracy, including
alleged violations of the Racketeer Influenced & Corrupt Organizations Act
("RICO"), 18 U.S.C. Section 1961, ET SEQ. The complaint seeks unspecified
compensatory damages, treble damages, costs, attorney fees and all other
appropriate relief. Pleadings responsive to the Amended Complaint have not yet
been filed, and discovery has not yet commenced. The Company believes it has
meritorious defenses to the MUTUAL SECURITY case and intends to defend the suit
vigorously.
20
<PAGE>
Except as described above, ICH and its subsidiaries are not parties, and
their property is not subject, to any material pending legal proceedings other
than ordinary routine litigation incidental to their respective businesses. SEE
Note 12 of the Notes to Financial Statements included elsewhere in this Form
10-K.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Common Stock of I.C.H. Corporation is listed for trading on the American
and Chicago Stock Exchanges under the symbol "ICH". The following table sets
forth for the periods indicated the high and low sale prices per share of the
Common Stock as reported by the American Stock Exchange.
<TABLE>
<CAPTION>
HIGH LOW
<S> <C> <C>
- ----------------------------------------------------------------------------------------
1992:
First quarter..................................................... 6 3/8 3
Second quarter.................................................... 4 3/4 3
Third quarter..................................................... 4 1/2 3
Fourth quarter.................................................... 4 7/8 3 1/2
1993:
First quarter..................................................... 7 1/4 3 3/4
Second quarter.................................................... 7 3/8 4 9/16
Third quarter..................................................... 6 3/4 4 7/8
Fourth quarter.................................................... 6 3/4 4 3/4
- ----------------------------------------------------------------------------------------
</TABLE>
At March 18, 1994, 47,834,739 shares of Common Stock of ICH were outstanding
and were owned of record by approximately 52,000 stockholders. No cash dividends
have been declared by ICH on its Common Stock since 1985. ICH anticipates that
it will continue for the foreseeable future to follow a policy of retaining
substantially all its earnings, and that as a result no cash dividends on the
Common Stock will be declared. Certain indentures currently restrict ICH from
declaring or paying dividends on its capital stock in excess of specified
amounts, and ICH's senior secured loan agreement prohibits the payment of cash
dividends on Common Stock. See the discussion under the heading "Liquidity and
Capital Resources--Parent Company" in ITEM 7 and Note 3 of the Notes to
Financial Statements included in ITEM 8 in this Form 10-K.
On February 11, 1994, ICH repurchased from Consolidated National Corporation
100,000 shares of the Class B Common Stock of ICH, representing all of the
shares of that class authorized, issued and outstanding. As a result of that
repurchase, ICH is no longer authorized to issue Class B Common Stock. No cash
dividends had been declared on the shares of ICH's Class B Common Stock since
1985.
21
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth for the indicated periods selected historical
financial information for ICH and its consolidated subsidiaries. Such
information should be read in conjunction with the consolidated financial
statements of ICH, and the related notes and schedules, included elsewhere
herein. Factors affecting the comparability of certain indicated periods are
discussed under "Management's Discussion and Analysis of Financial Condition and
Results of Operations" in ITEM 7.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
(DOLLARS IN MILLIONS, ----------------------------------------------------------
EXCEPT PER SHARE DATA) 1993(1) 1992 1991(2) 1990 1989
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
Revenues............................................ $ 1,082.4 $ 1,740.3 $ 1,887.6 $ 1,826.5 $ 1,870.8
Operating earnings (loss)........................... 211.9 50.9 25.4 (11.4) (348.8)
Net earnings (loss)................................. 203.3 46.5 34.2 (5.6) (346.2)
Net earnings (loss) applicable to common stock...... 174.5 15.7 3.4 (36.4) (377.0)
- ----------------------------------------------------------------------------------------------------------------
Per common share data:
Primary:
Operating earnings (loss)....................... $ 3.82 $ .42 $ (.11) $ (.88) $ (7.81)
Net earnings (loss)............................. 3.64 .33 .07 (.76) (7.76)
Fully diluted:
Operating earnings (loss)....................... 3.53 .42 (.11) (.88) (7.81)
Net earnings (loss)............................. 3.38 .33 .07 (.76) (7.76)
Common stockholders' equity....................... 5.55 1.88 1.16 .99 2.04
Cash dividends.................................... -- -- -- -- --
- ----------------------------------------------------------------------------------------------------------------
Balance sheet data at end of period:
Total assets...................................... $ 3,697.9 $ 3,868.1 $ 5,598.2 $ 5,474.1 $ 8,599.0
Long-term debt.................................... 418.0 543.3 706.1 781.6 1,179.6
Stockholders' equity.............................. 495.2 419.2 384.9 376.7 427.7
Common stockholders' equity....................... 265.9 90.0 55.7 47.5 98.5
- ----------------------------------------------------------------------------------------------------------------
<FN>
(1) Net earnings in 1993 includes charges for the cumulative effect to January
1, 1993 of a change in the method of accounting for postretirement benefits
totaling $1.8 million, or $(.04) per share, and the cumulative effect at
December 31, 1993 of a change in accounting for certain debt and equity
securities totaling $4.9 million, or $(.10) per share.
(2) Net earnings in 1991 include a benefit for the cumulative effect to January
1, 1991 of a change in the method of accounting for income taxes totaling
$8.8 million, or $.18 per share.
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following is an analysis of the results of operations and financial
condition of ICH and its consolidated subsidiaries. The consolidated financial
statements and related notes and schedules included elsewhere in this Form 10-K
should be read in conjunction with this analysis.
RECENT EVENTS AND OTHER FACTORS
During 1993, ICH successfully completed the sale for cash of its interest in
Bankers Life Holding Corporation ("BLHC"), completed an exchange offer for a
substantial portion of its debt scheduled to mature over the next several years,
significantly reduced its and its subsidiaries' exposure to the risks associated
with highly volatile mortgage-backed securities, and realized significant gains
from the sale of investments in CCP Insurance, Inc. ("CCP Insurance"). These
transactions resulted in a significant improvement in ICH's financial position,
and the sale of the interest in BLHC provided ICH with substantial liquidity
with which to meet its financial obligations. In addition, ICH completed the
restructuring of its insurance holding company system, reduced its subsidiaries'
dependence on
22
<PAGE>
financial reinsurance by in excess of 40%, and began the process of terminating
significant reinsurance arrangements with an affiliated company. ICH utilized a
portion of the proceeds from its sale of BLHC and cash remaining from its sale
of Bankers Life and Casualty Company ("Bankers") in 1992 to further reduce some
of the more expensive components of its capital structure. In management's
opinion, ICH made significant progress in improving its relationship with
regulatory authorities, and continued progress in consolidating the operations
of its Texas-based insurance subsidiaries and in further reducing operating
expenses. The successes in 1993 were offset, in part, by lower than anticipated
earnings from continuing operations and additional losses and writedowns in the
Company's investment portfolio. Subsequent to year-end, in February 1994, ICH
purchased and retired its Class B Common Stock which had given its previous
holders the ability to elect 75% of the members of ICH's Board of Directors.
Following is an analysis of these various events and factors, including
management's assessment of their impact on the financial position and liquidity
of ICH, as well as management's future expectations.
SALE OF INVESTMENT IN BANKERS LIFE HOLDING CORPORATION
At year-end 1992, ICH's subsidiaries held direct and indirect common equity
interests in BLHC totaling approximately 39.9%. Such interests had been acquired
in conjunction with the sale of ICH's subsidiary, Bankers, in November 1992.
During the first quarter of 1993, ICH acquired such interests from its
subsidiaries. Effective March 31, 1993, BLHC completed an initial public
offering of 19.55 million shares of its common stock, or an aggregate 35.8%
interest in BLHC, at $22 per share. Proceeds of the offering, after underwriting
expenses, approximated $405 million. Effective the same day, Conseco Capital
Partners, L.P. ("CCP") announced a plan of dissolution and BLHC common shares
held by CCP were subsequently distributed to the respective partners. ICH
received 2,917,318 shares of BLHC common stock as a result of such distribution,
increasing its direct ownership in BLHC common stock to 13,316,168 shares, or
approximately 24.4% of BLHC's outstanding common shares following the offering.
ICH reflected a pre-tax gain on the BLHC offering totaling approximately $99.4
million, primarily representing ICH's equity in the net proceeds of such
offering. BLHC utilized a portion of the offering proceeds to redeem certain of
its outstanding securities, including $50 million stated value of BLHC preferred
stock and $34.7 million principal amount of BLHC junior subordinated notes held
by ICH's subsidiaries. Because a portion of the purchase price paid for such
investments had been allocated to ICH's common equity investments in BLHC, such
redemptions resulted in additional pre-tax gains totaling approximately $8.3
million.
On September 30, 1993, ICH sold its investment in BLHC to Conseco, Inc.
("Conseco") and one of Conseco's subsidiaries for $287.6 million cash. ICH
utilized $50 million of the proceeds to redeem $50 million stated value of its
Series 1987-A Preferred Stock held by a Conseco subsidiary. The sale of the BLHC
shares resulted in a pre-tax gain totaling approximately $197.6 million. For
financial reporting purposes, the gains resulting from BLHC's offering and the
sale of ICH's remaining interest in BLHC totaling approximately $297.0 million
have been reflected as a single line item in the 1993 statement of earnings. ICH
continued to reflect its equity in the operating results of BLHC through the
date of sale.
Effective March 31, 1993, Bankers and an ICH subsidiary terminated a
reinsurance agreement under which Bankers had previously ceded substantially all
of its directly underwritten participating life insurance business to ICH's
subsidiary. Assets, primarily fixed maturities and cash, with a fair value of
approximately $163.6 million were transferred to Bankers and Bankers assumed
policy liabilities on the reinsured business totaling approximately $186.2
million. ICH realized a gain on the termination of the reinsurance agreement
totaling approximately $22.6 million which has been reflected in other income in
the 1993 statement of earnings.
CHANGES IN CAPITAL STRUCTURE
During 1993, ICH completed an exchange offer for a portion of its
outstanding debt and significantly reduced some of the more expensive components
of its debt and equity structure. Subsequent to year-end, a significant
transaction occurred affecting control of the Company.
23
<PAGE>
As discussed above, $50 million stated value of ICH's Series 1987-A
Preferred Stock was redeemed in conjunction with the sale of the interest in
BLHC. In addition, on December 2, 1993, ICH redeemed for $50 million cash all of
its Series 1987-C Preferred Stock at its stated value. These redemptions reduced
ICH's annual preferred dividend requirements by $13.5 million.
Utilizing a portion of the proceeds from the sale of BLHC and cash remaining
from the sale of Bankers in 1992, ICH retired all of the remaining $124.9
million principal amount of its 16 1/2% Senior Subordinated Debentures due 1994
("Debentures") during 1993. Approximately $37.5 million of the Debentures were
redeemed through a scheduled sinking fund payment in January 1993, an additional
$37.5 million were called in March 1993 at a price of 101.84% of the amount
redeemed, approximately $4.1 million were exchanged for new debt of the Company
in November 1993, and the remaining Debentures were redeemed at par effective
for financial reporting purposes as of December 30, 1993. Interest savings on
the retired Debentures, excluding the exchanged debt, will approximate $20.2
million annually.
In November 1993, ICH completed an exchange offer whereby $4.1 million of
the Debentures and $87.1 million of its 11 1/4% Senior Subordinated Notes due
1996 ("Old Notes") were exchanged for $91.2 million of 11 1/4% Senior
Subordinated Notes due 2003 ("New Notes"). See Note 3 of the Notes to Financial
Statements for additional information regarding terms of the New Notes. Prior to
the exchange offer, ICH and its subsidiaries held $46.8 million of the Old Notes
which can, at ICH's option and upon repurchase of the $34.1 million of such Old
Notes held by its subsidiaries, be utilized to partially satisfy its first $100
million sinking fund obligation relative to the Old Notes on December 1, 1994.
The results of the exchange offer provided ICH additional flexibility in meeting
such sinking fund obligation, since the amount of the Old Notes exchanged for
New Notes can, also at ICH's option, be taken into consideration in determining
what portion, if any, of the Old Notes it wishes to redeem through operation of
the sinking fund. Assuming ICH utilizes its available Old Notes and defers
sinking fund payments by an amount equivalent to the Old Notes which were
exchanged, ICH would not have any sinking fund obligation in 1994 and its
obligation in 1995 would total $66.1 million. Alternatively, and assuming its
ability to generate the required liquidity, ICH may, at its option, determine to
retire up to $100 million of the Old Notes at their par value through operation
of the sinking fund in each of 1994 and 1995. ICH also has the option of calling
any portion of the Old Notes at a 3% premium through November 30, 1994, and at a
2% premium during the following twelve month period. Thereafter, the Old Notes
may be called at their par value.
On February 11, 1994, ICH 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. The Class B Common Stock had entitled CNC to elect
75% of ICH's Board of Directors and, by virtue of such voting power, CNC was
considered to be ICH's controlling shareholder. The Class B Common Stock was
immediately cancelled and retired following ICH's purchase. Concurrently,
Stephens Inc. ("Stephens") and Torchmark Corporation ("Torchmark") purchased
4,457,000 shares and 4,667,000 shares, respectively, of ICH Common Stock from
CNC. Stephens is an investment banking firm with its principal offices located
in Little Rock, Arkansas, and Torchmark is a diversified insurance and financial
services company headquartered in Birmingham, Alabama. One officer each from
Stephens and Torchmark was elected to fill vacancies on the ICH Board of
Directors. In addition, a management and services agreement between ICH and CNC
was cancelled, and new ten-year services agreements were entered into with the
two principal shareholders of CNC. As a result of these transactions and the
transactions with Consolidated Fidelity Life Insurance Company as described
below, CNC's ownership in ICH will be reduced to approximately one million
shares, or 2%, of ICH's outstanding Common Stock. Management believes these
transactions are significant for various reasons. Most importantly, management
believes that ICH's access to both debt and equity capital markets has
previously been limited because of the control position held by CNC through the
Class B stock, and that the retirement of the Class B stock and considerable
reduction in CNC's holdings of ICH Common Stock could ultimately enhance ICH's
ability to refinance its currently outstanding debt.
24
<PAGE>
TRANSACTIONS WITH CONSOLIDATED FIDELITY LIFE INSURANCE COMPANY
Effective June 15, 1993, ICH entered into an agreement (the "Agreement")
which initiated the process of terminating certain reinsurance arrangements
involving Consolidated Fidelity Life Insurance Company ("CFLIC"), a subsidiary
of CNC. The reinsurance arrangements involve certain annuity business with
reserves totaling approximately $330.0 million as of December 31, 1993, which
was transferred by a subsidiary of ICH, Southwestern Life Insurance Company
("Southwestern"), to an unaffiliated reinsurer in 1990. The unaffiliated
reinsurer, in turn, transferred the business to another CNC subsidiary,
Marquette National Life Insurance Company ("Marquette"). In 1991, Marquette
transferred the annuity business to CFLIC.
The reinsurance arrangements have been under review by the Texas Department
of Insurance ("Texas Department") and, in March 1993, ICH and Southwestern
agreed with the Texas Department that they would, among other things, develop a
plan to enhance and diversify the assets supporting the liabilities reinsured by
CFLIC, including possibly recapturing the reinsured annuity business. The
recapture is subject to negotiations with the unaffiliated reinsurer and
approval by the Texas Department.
CNC and CFLIC agreed to structure the proposed recapture in a manner that
will permit ICH to redeem or retire certain of its outstanding securities,
provided that CFLIC would be allowed to retain certain assets following the
recapture. CFLIC holds ICH's senior secured debt, with a current balance of $30
million, which it acquired in 1992 from ICH's bank lenders. In addition, CFLIC
holds approximately $22.2 million stated value of ICH's Series 1984-A Preferred
Stock, $7 million stated value of Series 1987-B Preferred Stock, and 620,423
shares of ICH's Common Stock.
CFLIC also intends to terminate another reinsurance arrangement under which
business written by Bankers is reinsured by CFLIC. Under terms of the Agreement,
ICH is responsible for the negotiation on CFLIC's behalf of both the
Southwestern and Bankers recaptures and the management of the affairs of CFLIC
and Marquette, including management of their investments, until the recaptures
are effected. Upon completion of the recaptures, CFLIC will have no remaining
insurance business.
To facilitate the recaptures of the reinsured business, ICH acquired $63
million of CFLIC preferred stock in exchange for its ownership interest in
certain investments with an estimated fair value as of June 15, 1993, of $63
million, including its ownership in a limited partnership (HMC/Life Partners,
L.P.) and 83% of ICH's ownership interest in I.C.H. Funding Corporation ("ICH
Funding"). ICH Funding is a special purpose entity that was formed in 1992 to
hold ICH's residual interest in a pool of mortgage-backed securities acquired
from Bankers. The CFLIC preferred stock is non-redeemable and non-voting with
cumulative 6% annual dividends that are payable "in-kind" until the recaptures
are completed. ICH and CFLIC anticipate that the assets received by CFLIC from
ICH in consideration for the preferred stock, along with other assets held by
CFLIC, including its ownership in Marquette, will be transferred to Southwestern
upon recapture of the annuity business. Following the recaptures, CFLIC is
obligated to repurchase its preferred stock by transferring its ownership
interest in the ICH debt and preferred securities and additional assets to ICH.
Upon their receipt, ICH intends to retire the ICH securities.
For financial reporting purposes, no gain or loss was recognized on the
transfer of assets to CFLIC. The Agreement identifies the specific assets and
liabilities plus, subject to certain conditions, an amount of cash that will be
retained by CFLIC following the recaptures. All remaining assets held by CFLIC,
including the ICH securities, will revert to ICH in redemption of CFLIC's
preferred stock. As a consequence, ICH will benefit or suffer the consequences
to the extent of any appreciation or depreciation in the value of the assets
transferred to CFLIC. At December 31, 1993, ICH has reflected its investment in
the CFLIC preferred stock at its approximate fair value of $54 million, or $9
million less than the value assigned to such preferred stock at June 15, 1993.
The reduction in fair value between the two dates was primarily attributable to
a decline in the fair value of the 83% interest in ICH Funding transferred to
CFLIC.
25
<PAGE>
Management believes the transactions with CFLIC will be beneficial for
several reasons. In addition to eliminating $30 million in scheduled debt
principal requirements, the redemption or retirement of the ICH securities will
reduce ICH's interest and preferred dividend requirements by approximately $5.4
million annually. Further, the recapture of the Southwestern annuity business
will substantially eliminate the possibility for conflicts of interest between
CNC and its subsidiaries and ICH. Management's present goal is to complete the
transactions with CFLIC as soon as possible.
RESTRUCTURING OF ICH HOLDING COMPANY SYSTEM
In September 1993, ICH completed the restructuring of its insurance holding
company system, from a vertical to a substantially horizontal structure. The
restructuring was designed to increase the financial independence of ICH's
subsidiary insurance companies and reduce the effect of multi-jurisdictional
regulation that results when such subsidiaries are held indirectly, through
other insurance subsidiaries. In the process of such restructuring, a surplus
debenture due to ICH from a subsidiary with an outstanding principal balance of
$105.8 million was retired and added to ICH's investment in its subsidiaries. As
a consequence, there are no remaining surplus debentures due to ICH from its
subsidiaries. The restructuring is expected to facilitate more accurate analysis
and understanding of the Company by ratings agencies, securities analysts, and
regulators, and will permit the direct payment of dividends from subsidiaries to
ICH in future periods. Following such restructuring, ICH's subsidiaries affected
by the restructuring have maintained risk-based capital levels substantially in
excess of those required by applicable regulatory authorities.
RATINGS
ICH's subordinated debt and preferred stock are rated by various nationally
recognized statistical rating organizations, such as Moody's Investors Service,
Inc. ("Moody's") and Standard and Poor's Corporation ("S&P"). These agencies,
along with Duff & Phelps Credit Rating Company ("Duff & Phelps"), have also
rated the claims paying ability of certain of ICH's insurance subsidiaries. In
addition, A.M. Best, an agency specializing in the rating of insurance
companies, has assigned ratings to each of ICH's insurance subsidiaries. Over
the last two years, substantially all of the ratings issued by these agencies
have reflected ratings downgrades. Virtually all ratings downgrades experienced
by ICH and its subsidiaries were attributed to high or continuing leverage at
the parent company level.
Moody's has rated ICH's subordinated debt at "B3" and its preferred stock at
"Caa," both of which are below investment grade. S&P has rated ICH's debt at
"B-" and its preferred stock at "CCC+," both of which are also below investment
grade. Southwestern has been assigned claims paying ratings of "Ba2" by Moody's
(questionable financial security), "BBB-" by S&P (adequate financial security,
but capacity to meet policyholder obligations susceptible to adverse economic
and underwriting conditions) and "A" by Duff & Phelps (high claims paying
ability). A.M. Best has assigned "B++" ratings (very good) to all of ICH's
significant insurance subsidiaries.
The ratings assigned to ICH by ratings agencies have a significant effect on
ICH's ability to borrow funds, as well as the interest rates that ICH must pay
in order to borrow funds. The claims paying ratings assigned to ICH's
subsidiaries could have a significant effect on a given subsidiary's ability to
market its products, as well as its ability to retain its presently existing
insurance in force. Except for an increase in the level of withdrawals of
guaranteed investment contracts ("GICs") as discussed in "Liquidity and Capital
Resources -Insurance Operations," management does not believe that ICH's
insurance subsidiaries have experienced more than normal policy surrenders and
withdrawals as a result of the ratings downgrades received in 1992 and 1993. In
addition and notwithstanding such ratings downgrades, total new business
produced by ICH's insurance subsidiaries, excluding GIC business, increased in
1993 as compared to 1992.
Substantially all of ICH's and its subsidiaries' present ratings were issued
prior to ICH's sale of its investment in BLHC, the restructuring of its
insurance holding company system, the completion of its debt exchange offer, the
retirement of its remaining Debentures, and the redemptions of $100 million in
preferred stocks and the Class B Common Stock. Management believes, as a result
of these
26
<PAGE>
previously discussed events, that the financial condition of ICH and its
insurance subsidiaries has significantly improved and that, as a result, the
possibility exists for upgrades in such financial and claims paying ratings. ICH
has arranged for meetings with all applicable rating agencies in March 1994, but
there can be no assurance that ICH's or its subsidiaries' ratings will be
upgraded following such meetings.
REGULATORY ENVIRONMENT
ICH's insurance subsidiaries are subject to comprehensive regulation in the
various states in which they are authorized to do business. The laws of these
states establish supervisory agencies with broad administrative powers, among
other things, to grant and revoke licenses for transacting business, to regulate
trade practices, reserve requirements, the form and content of policies, and the
type and amount of investments, and to review premium rates for fairness and
adequacy. These supervisory agencies periodically examine the business and
accounts of ICH's insurance subsidiaries and require them to file detailed
annual financial statements and reports prepared in accordance with statutory
accounting practices. In addition, as an insurance holding company, ICH is also
subject to regulatory oversight in the states in which its insurance
subsidiaries are domiciled.
Primarily as a result of the failures of several large insurance holding
companies during the past few years, increased scrutiny has been placed upon the
insurance regulatory framework, and a number of state legislatures have enacted
legislation that has altered, and in many cases increased, state authority to
regulate insurance companies and their holding company systems. Further, some
Congressional leaders have proposed legislation which could result in the
federal government's assuming some role in the regulation of the insurance
industry. In light of these developments, the National Association of Insurance
Commissioners (the "NAIC") and state insurance regulators have also become
involved in the process of re-examining existing laws and regulations and their
application to insurance companies. In particular, this re-examination has
focused on insurance company investment and solvency issues and, in some
instances, has resulted in new interpretations of existing law, the development
of new laws and the implementation of non-statutory guidelines. The NAIC has
formed committees and appointed advisory groups to study and formulate
regulatory proposals on such diverse issues as the use of surplus debentures,
the accounting for reinsurance transactions, uniform investment laws and the
adoption of risk-based capital requirements. In addition, in connection with its
accreditation of states to conduct periodic examinations, the NAIC has
encouraged and persuaded states to adopt model NAIC laws on specific topics,
such as holding company regulations, the structure of reinsurance transactions,
and the definition of extraordinary dividends. During 1992 and continuing in
1993, in part as a result of these activities, ICH's insurance subsidiaries
became subject to substantially more oversight by insurance regulators, and such
increased oversight will likely continue in 1994 and future periods.
During 1992, a special working group (the "Group") of the NAIC, which
included the representatives of seven states, conducted an extensive review of
the operations and financial condition of ICH and CNC and their respective
insurance subsidiaries. Retaining the services of an independent accounting
firm, other than ICH's public accountants, the Group placed particular emphasis
on reviewing transactions between related parties and major transactions with
certain other unaffiliated companies, differences between GAAP and statutory
reporting practices, cash flow projections, off-balance sheet risks and
non-traditional investments, and the insurance subsidiaries' risk-based capital
requirements. In December 1992, based on their review of the findings, the Group
advised ICH they had material concerns about asset quality and the cash flow
position of ICH. The asset quality concerns were discussed in detail in ICH's
1992 Annual Report on Form 10-K and, as indicated in such discussion,
substantially all of the Group's concerns had already been addressed by ICH.
Management believes that the Group's concerns regarding ICH's cash flow position
were effectively overcome in 1993 by the sale of ICH's investment in BLHC and
the successful completion of ICH's debt exchange offer. As a result of these
events and the resolution of remaining asset quality concerns, the Group's
utilization of other independent accountants to review the affairs of ICH and
its subsidiaries has been effectively eliminated and management believes that
regulators from the states in which ICH's
27
<PAGE>
insurance subsidiaries are domiciled were significantly more cooperative in
granting the required approvals for ICH to accomplish the restructuring of its
insurance holding company system. The Group has nevertheless indicated that it
will likely continue to monitor, to the extent it deems appropriate, the
activities and the operations of ICH and CNC and their respective insurance
subsidiaries. However, based on the progress made to date in resolving concerns
expressed by the Group, management does not anticipate that ICH will encounter
any regulatory difficulty in proceeding with its corporate objective to grow its
insurance operations through strategic acquisitions or other means.
Life insurance companies are generally required under statutory accounting
rules to maintain an asset valuation reserve ("AVR") which consists of two
components: a "default component" to provide for future credit-related losses on
fixed income investments and an "equity component" to provide for losses on all
types of equity investments, including real estate. Life insurance companies are
also required to maintain an interest maintenance reserve ("IMR"), which is
credited with the portion of realized capital gains and losses from the sale of
fixed maturity investments attributable to changes in interest rates. The IMR is
required to be amortized against statutory earnings on a basis reflecting the
remaining period to maturity of the fixed income securities sold and there are
no limitations as to the amounts which can be accumulated in the IMR. At
December 31, 1993, the AVR of ICH's insurance subsidiaries totaled $45.0
million. The IMR of such subsidiaries was insignificant. Increases in the AVR
and the IMR do not reduce either statutory or GAAP operating income, but result
in a reduction in the statutory surplus of ICH's insurance subsidiaries.
Historically, insurance companies have been required to satisfy the minimum
capital requirements of the states in which such companies were domiciled. Such
minimum capital requirements tended to be relatively small, fixed dollar amounts
that bore little, if any, reflection of the size of the company or the nature
and diversification of the risks taken by the company. Over the past several
years, the NAIC and various states have undertaken projects to develop
risk-based capital ("RBC") requirements for insurance companies and model laws
that would provide the framework for triggering a range of regulatory options in
the event an insurance company failed to maintain adequate RBC levels. Effective
with statutory annual statements filed for the year ending December 31, 1993 and
thereafter, each life insurance company is required to calculate, utilizing NAIC
formulas, their level of targeted adjusted capital. Such NAIC formulas focus on
1) asset impairment risks, 2) insurance risks, 3) interest rate risks, and 4)
general business risks. A risk-based capital ratio ("RBC ratio") is then
determined based on the company's level of adjusted capital and surplus,
including AVR and other adjustments, to its targeted adjusted capital.
In states which have adopted the NAIC regulations, the new RBC requirements
provide for four different levels of regulatory attention depending on an
insurance company's RBC ratio. The "Company Action Level" is triggered if a
company's RBC ratio is less than 200% but greater than or equal to 150%, or if a
negative trend has occurred (as defined by the regulations) and the company's
RBC ratio is less than 250%. At the Company Action Level, the company must
submit a comprehensive plan to the regulatory authority which discusses proposed
corrective actions to improve its capital position. The "Regulatory Action
Level" is triggered if a company's RBC ratio is less than 150% but greater than
or equal to 100%. At the Regulatory Action Level, the regulatory authority will
perform a special examination of the company and issue an order specifying
corrective actions that must be followed. The "Authorized Control Level" is
triggered if a company's RBC ratio is less than 100% but greater than or equal
to 70%, and the regulatory authority may take any action it deems necessary,
including placing the company under regulatory control. The "Mandatory Control
Level" is triggered if a company's RBC ratio is less than 70%, and the
regulatory authority is mandated to place the company under its control.
Management believes that the levels of capital in ICH's insurance
subsidiaries is sufficient to meet RBC requirements. Based on the NAIC's
formulas, the RBC ratios for all but one of ICH's life insurance subsidiaries,
based on financial statements as filed with regulatory authorities, exceeded
28
<PAGE>
325% at December 31, 1993. One subsidiary's RBC ratio approximated 250% and
management is in the process of evaluating alternatives to achieve at least a
300% RBC ratio for such subsidiary by year-end 1994.
From time to time, assessments are levied on ICH's insurance subsidiaries by
life and health guaranty associations in states in which they are licensed to do
business. Such assessments are made primarily to cover the losses of
policyholders of insolvent or rehabilitated insurers. In some states, these
assessments can be partially recovered through a reduction in future premium
taxes. ICH's insurance subsidiaries, other than Bankers and Certified, paid
assessments of $3.2 million, $2.2 million and $1.2 million in the years 1993,
1992 and 1991, respectively. Bankers and Certified paid assessments of $.6
million and $1.7 million for the ten months ended October 31, 1992 and the year
1991, respectively. Although the economy and other factors have recently caused
the number and size of insurance company failures to increase, based on
information currently available, ICH believes that any future assessments are
not reasonably likely to have a material adverse effect on its insurance
subsidiaries.
INVESTMENT PORTFOLIO
ICH pursues an investment strategy principally designed to balance the
duration of investment assets against the liabilities of its insurance
subsidiaries for future policy and contract benefits and, under certain
circumstances, to manage its exposure to changes in market interest rates. Over
the past several years, ICH has taken steps to restructure its investment
portfolio in order to improve the overall quality of the portfolio. While these
actions have resulted in substantially reduced exposure to credit risks, average
yields have decreased from 9.1% in 1991 to 8.3% in 1992 and 6.9% in 1993. As a
result of the investment portfolio restructuring, substantial investments were
made in mortgage-backed securities and collateralized mortgage obligations in
1991 which were highly sensitive to subsequent changes in market interest rates
and which contributed to the decline in investment yields. Further, the overall
decline in market interest rates over the past several years has had a
significant impact on ICH's ability to maintain the level of earnings on its
invested assets.
In accordance with applicable insurance laws, ICH's insurance subsidiaries
maintain substantial portfolios of investment assets that are held, in large
part, to fund their future contractual obligations to policyholders. In
structuring these portfolios, ICH has emphasized, and expects to continue to
emphasize, investments in fixed maturities. In addition, ICH has maintained
significant levels of short-term investments to meet its liquidity needs. Since
1991, fixed maturities and short-term investments have represented more than 75%
of ICH's consolidated investments, while no other category of investment
represented more than 10%. Additional information regarding the categories and
amounts of ICH's investment assets is reflected in Note 5 of the Notes to
Financial Statements.
During 1993, the NAIC initiated the process of drafting a model investment
act. In general, the currently drafted investment act is substantially more
restrictive than the present investment laws of the states in which ICH's
insurance subsidiaries are domiciled. Management cannot predict with any
certainty whether or when such a model investment act will be adopted and
whether such act will "grandfather" certain existing investments. However, if
adopted, it is likely that such model investment act will significantly limit
the types of investments that can be made by ICH's insurance subsidiaries in
future periods, as well as the amounts that can be invested in various
investment categories, and could result in an overall reduction in investment
yields.
Prior to 1992, ICH had carried all of its fixed maturities at amortized cost
(less permanent declines), because management had stated its intent and believed
ICH had the ability to hold all such investments to their ultimate maturities.
If a determination was made to dispose of particular fixed maturity investments,
the carrying values of such investments were adjusted to the lower of cost or
market value. In 1992, management evaluated ICH's investment strategy,
specifically in light of the sale of Bankers and ICH's need for liquidity. Based
in part on ICH's decision to retain three independent investment advisors during
1992 to manage in excess of $1 billion of its investments, management determined
that ICH's fixed maturities would be classified into three categories effective
December 31, 1992. Fixed maturity investments which were determined to be
readily marketable
29
<PAGE>
were classified as "actively managed" and adjusted to their fair value through
an adjustment to unrealized investment gains and losses in stockholders' equity.
Those investments which ICH intended to sell, primarily certain mortgage-backed
securities, were classified as "held for sale" and were adjusted to their fair
value (if lower than cost) through a charge to earnings. Certain private
placement securities which were not readily marketable and which ICH had both
the ability and the positive intent to hold to maturity were classified as "held
to maturity" and carried at amortized cost.
In April 1993, the Financial Accounting Standards Board adopted Statement of
Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." SFAS No. 115 expands the use of fair
value accounting for certain investments in debt and equity securities and
requires that financial institutions classify their fixed maturity investments
into three categories. Fixed maturity investments that an entity has the
positive intent and ability to hold to maturity are to be classified as "held to
maturity" and will continue to be reported at amortized cost. Fixed maturity and
equity investments available for sale, which may or may not be traded before
maturity, are to be marked to their current value, with any unrealized gains and
losses reported as a separate component of stockholders' equity. Finally, fixed
maturity and equity investments held only for trading must be marked to their
current value, with any unrealized gains or losses reflected in earnings. SFAS
No. 115 is required to be adopted for 1994 financial statements, but earlier
adoption is encouraged. In 1993, ICH adopted the provisions of SFAS No. 115 and
has categorized its fixed maturity and equity investments into two categories,
available for sale and held to maturity. At year-end 1993, ICH and its
subsidiaries did not hold any securities which would meet the criteria of being
classified in a trading category. In its 1992 balance sheet, ICH has
reclassified its "actively managed" and "held for sale" fixed maturities as
available for sale.
ICH's fixed maturity portfolio generally includes government and corporate
debt securities and mortgage-backed securities. Historically, this portfolio has
been structured in part to balance desirable yields with credit concerns. ICH
has concentrated its fixed maturity investments within categories that are rated
investment-grade, while in certain instances holding selected
noninvestment-grade securities that provide higher yields. ICH classifies its
high-yield securities as noninvestment-grade if they are unrated or are rated
less than BBB-by S&P or Baa by Moody's. Based on such classifications, ICH's
noninvestment-grade fixed maturities represented 4.0% of ICH's consolidated
investment portfolio at year-end 1993 as compared to 3.8% at year-end 1992 and
4.7% at year end 1991. Following is a summary of fixed maturity investments
segregated by investment quality based on S&P ratings and the two categories of
such investments as reflected in ICH's consolidated balance sheet at December
31, 1993 (in millions):
<TABLE>
<CAPTION>
AVAILABLE HELD TO PERCENT OF
FOR SALE MATURITY AT TOTAL PERCENT OF TOTAL
AT FAIR AMORTIZED FIXED TOTAL FIXED INVESTED
INVESTMENT QUALITY(1) VALUE COST MATURITIES MATURITIES ASSETS
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
AAA.................................................... $ 654.3 $ 2.0 $ 656.3 38.2% 24.9%
AA..................................................... 244.1 244.1 14.2 9.2
A...................................................... 463.7 463.7 27.0 17.6
BBB+................................................... 77.5 77.5 4.5 2.9
BBB.................................................... 76.0 76.0 4.5 2.9
BBB-................................................... 93.1 93.1 5.4 3.5
---------- ----------- ---------- ----- ---
Total investment-grade............................... 1,608.7 2.0 1,610.7 93.8 61.0
---------- ----------- ---------- ----- ---
BB+.................................................... 23.5 23.5 1.4 .9
BB and BB-............................................. 42.2 42.2 2.4 1.6
B and Below............................................ 17.3 24.1 41.4 2.4 1.5
---------- ----------- ---------- ----- ---
Total noninvestment-grade............................ 83.0 24.1 107.1 6.2 4.0
---------- ----------- ---------- ----- ---
Total fixed maturities............................. $ 1,691.7 $ 26.1 $ 1,717.8 100.0% 65.0%
- ----------------------------------------------------------------------------------------------------------------------
<FN>
(1) Bonds not rated by S&P are classified according to the rating assigned to
them by the NAIC as follows: for the purposes of the table, NAIC Class 1 is
included in the "A" rating; Class 2, "BBB-"; Class 3, "BB-"; and Classes
4-6, "B and Below."
</TABLE>
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<PAGE>
Investments in noninvestment-grade debt securities generally have greater
risks than investment-grade securities. Risk of loss upon default by the
borrower is greater with noninvestment-grade securities because these securities
are generally unsecured and often are subordinated to other creditors of the
issuers, and because the issuers have high levels of indebtedness and are more
sensitive to adverse economic conditions, such as recessions or increasing
interest rates, than are investment-grade issuers.
ICH's subsidiaries hold substantial investments in mortgage-backed
securities and collateralized mortgage obligations (collectively, "CMOs"). These
investments generally offer relatively high yields and, because of the quality
of the underlying collateral, are usually given the highest ratings by S&P and
Moody's. Beginning in late 1990 and continuing through 1991 management utilized
a strategy of investing in CMOs to enhance the credit quality of ICH's
investment portfolio without incurring a reduction in investment yields. At
year-end 1993, CMO's totaling $798.1 million represented 46.5% of ICH's fixed
maturity investments and 30.2% of total invested assets. Of this amount, $709.2
million represented conventional CMO obligations with principal guarantees that
are reflected as available for sale and carried at their fair value and $88.9
million primarily represented so-called derivative CMOs, such as residual
interests in a pool or pools of mortgage loans, of which $72.7 million are
reflected as available for sale at their fair value and $16.2 million are
reflected as held to maturity and carried at amortized cost.
As reflected in its year-end 1992 financial statements, ICH held
mortgage-backed residual interests and interest-only certificates ("IOs") with a
carrying value and fair value of $422.7 million. Such year-end values were
reflected net of reserves for anticipated losses in 1993 totaling $34.9 million,
which had been provided based on the prepayment experience incurred and expected
on the mortgage loans underlying such residual interests and IOs through the
first three months of 1993. At June 30, 1993, the carrying value and fair value
of such investments had declined to $358.3 million as a result of principal
repayments. Based on an analysis of subsequent prepayment experience, management
believed that the reserves provided at year-end 1992 had been adequate and, as a
consequence, ICH did not incur any significant additional losses on its residual
interests and IOs during the first six months of 1993.
Effective July 30, 1993, ICH and its subsidiaries, along with CFLIC, entered
into a transaction designed to substantially reduce their exposure to the
prepayment risks associated with their investments in residual interest and IO
mortgage-backed securities, including liquidating a substantial portion of such
investments. ICH's subsidiaries and CFLIC sold directly-owned residual interests
and IOs with a carrying value of approximately $137.7 million and $26.5 million,
respectively, to an unaffiliated third party, Fund America Investors Corporation
II ("Fund America"). In addition, ICH and CFLIC sold to Fund America 75% of
their rights with respect to residual interests in certain mortgage-backed
securities which were acquired in conjunction with the sale of Bankers and are
held in a special-purpose trust (the "Trust") to collateralize certain mortgage
note obligations (see Note 3 of the Notes to Financial Statements included
elsewhere in this Report). CFLIC had acquired its interest in the Trust as
previously discussed under "Transactions With Consolidated Fidelity Life
Insurance Company." Because ICH was deemed to be the Trust's sponsor and, with
CFLIC, retained a majority ownership in the residual interest, the accounts of
the Trust were included in ICH's consolidated balance sheet at year-end 1992 and
at June 30, 1993. Following is a summary of the various accounts of the Trust as
reflected in ICH's balance sheet at June 30, 1993, and ICH's net residual
interest in the Trust (in millions):
<TABLE>
<S> <C>
Fixed maturities, held for sale.................................... $ 195.8
Collateralized mortgage note obligations........................... (133.7)
Other liabilities:
Deferred income and other........................................ (6.6)
Minority interest held by CFLIC.................................. (45.0)
---------
ICH net residual interest in the Trust............................. $ 10.5
---------
---------
</TABLE>
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<PAGE>
The net carrying value of the 75% interests in the Trust sold by ICH and
CFLIC to Fund America approximated $7.0 million and $33.7 million, respectively,
at the date of sale.
Fund America sponsored the formation of a new trust (the "New Trust") into
which it deposited the purchased securities. Interests in the New Trust
aggregating $217 million, or 68.4% of its total outstanding securities, were
sold to other unaffiliated parties. A portion of the sales proceeds were
utilized to acquire additional securities which were deposited into the New
Trust, including certain securities maturing in 2030 designed to assure the
ultimate return of principal on the interests in the New Trust retained by ICH,
its subsidiaries and CFLIC. The remaining proceeds, after underwriting expenses,
were utilized to pay a portion of the purchase price for the securities
purchased from ICH and its subsidiaries and CFLIC. The remainder of the purchase
price was paid by issuing participation certificates representing residual
interests in the pool of $101.0 million principal amount of securities placed in
the New Trust. The participation certificates received in the transaction were
valued for financial reporting purposes at their fair value, assuming an 11%
annual return to maturity.
Before the recognition of gains totaling approximately $14.3 million
resulting from the disposal of certain securities utilized to hedge prepayment
risks on the mortgage-backed securities, the transactions resulted in losses for
ICH and CFLIC totaling approximately $23.1 million. ICH reflected its portion of
the losses resulting from these transactions as realized investment losses in
its 1993 results. Following is a summary of the effects of the above-described
transactions:
<TABLE>
<CAPTION>
(IN MILLIONS) ICH CFLIC TOTAL
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
Investments transferred to Fund America:
75% interest in the Trust........................................................ $ 7.0 $ 33.7 $ 40.7
Directly-held securities......................................................... 137.7 26.5 164.2
- --------------------------------------------------------------------------------------------------------------------
Total.......................................................................... 144.7 60.2 204.9
- --------------------------------------------------------------------------------------------------------------------
Consideration received:
Cash............................................................................. 61.5 28.9 90.4
Participation certificates, at fair value........................................ 68.1 23.3 91.4
- --------------------------------------------------------------------------------------------------------------------
Total.......................................................................... 129.6 52.2 181.8
- --------------------------------------------------------------------------------------------------------------------
Loss before sale of hedge securities............................................... (15.1) (8.0) (23.1)
Gains on sale of hedge securities.................................................. 11.8 2.5 14.3
- --------------------------------------------------------------------------------------------------------------------
Net loss on transactions........................................................... $ (3.3) $ (5.5) $ (8.8)
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
Because ICH and CFLIC no longer hold a direct or indirect majority interest
in the Trust and have not guaranteed any portion of the collateralized mortgage
note obligations, the accounts of the Trust have not been consolidated with
those of the Company for periods subsequent to the sale to Fund America on July
30, 1993.
Management had originally intended to reflect ICH's investments in the Fund
America certificates, its remaining interest in the Trust, and its investments
in certain other residual interests at their amortized cost in the held to
maturity category of fixed maturities to eliminate the accounting volatility
associated with these types of investments. In late 1993, the Emerging Issues
Task Force ("EITF") of the Financial Accounting Standards Board addressed
"Impairment Recognition for a Purchased Investment in a Collateralized Mortgage
Obligation Investment or in a Mortgage-Backed Interest-Only Certificate", in
their EITF Issue No. 98-13. The focus of the EITF issue involved the criteria to
be used to determine when writedowns should be taken on these types of
investments as a result of the issuance of SFAS No. 115. ICH had previously
determined when writedowns would be taken, based on an earlier EITF consensus,
utilizing the undiscounted expected future cash flows on these types of
investments. The writedown required under this approach was the amount necessary
to reduce the carrying value of an individual security to a zero expected future
yield and was reflected as a realized investment loss. The EITF reached a
tentative consensus that the criteria for determining when future writedowns
were required should be based on the discounted expected future cash flows,
utilizing a "risk-free" rate of return. If the discounted cash flows are less
than the carrying value of the investment, a permanent impairment in the value
of the investment is to be recognized. Under the
32
<PAGE>
provisions of SFAS No. 115, if impairment is indicated, an individual security
should be written down to its fair value as a new cost basis and the writedown
should be accounted for as a realized loss. ICH has implemented the provisions
of EITF Issue No. 93-18 and, in conjunction with its adoption of SFAS No. 115
effective as of December 31, 1993, has reflected writedowns relative to certain
residual interest mortgage-backed securities totaling $4.9 million, net of tax
effects. Such writedowns have been reflected as the cumulative effect of a
change in accounting method in the 1993 statement of earnings. The EITF is also
expected to address at a meeting scheduled for March 24, 1994, whether, due to
their nature, these types of investments can ever be classified as held to
maturity under the provisions of SFAS No. 115. Authoritative sources have
indicated that the EITF will likely require that these types of investments be
classified as available for sale and be reflected at their fair value.
Accordingly, at December 31, 1993, ICH has classified its investments in the
Fund America certificates and its remaining investment in the Trust as available
for sale and has reduced the carrying value of such investments from $95.5
million to their estimated fair value of $67.1 million. Such reduction, totaling
$28.4 million, has been reflected as an unrealized investment loss through a
charge to stockholder's equity. The fair value of these investments was
estimated by an investment banking firm assuming an 11% annual return to
maturity.
At December 31, 1993, mortgage loans principally involving commercial real
estate totaled $138.5 million, representing approximately 5.2% of ICH's
investment portfolio. ICH has a stated policy of not directly initiating or
making new mortgage loans, except under limited circumstances, including
primarily loans to finance sales of company-owned real estate. New mortgage
loans have totaled approximately $3.1 million, $17.0 million and $12.2 million
during 1993, 1992 and 1991, respectively. Substantially all other mortgage loans
owned by ICH and its subsidiaries were as a result of acquisitions of life
insurance companies in 1986 and prior years. Delinquencies on mortgage loans in
excess of 60 days represented approximately .2% of total mortgage loans
outstanding, as compared to 4% at year-end 1992. Management believes that its
mortgage loan portfolio is well seasoned and that the collateral underlying
these mortgage loans is sufficient to recover the carrying value of such
investments and, as a result, no significant losses should be incurred.
Real estate investments totaling $67.5 million and home office real estate
totaling $13.3 million represented 2.5% and .5% of ICH's investment portfolio,
respectively, at December 31, 1993. ICH has a stated policy of not directly
making real estate investments, except for foreclosures on its existing mortgage
loans. Mortgage loan foreclosures totaled $3.2 million, $5.7 million and $20.9
million for the three years 1993, 1992 and 1991, respectively. During 1993, ICH
completed its obligation to purchase certain real estate from former
subsidiaries for approximately $19 million. In addition, in conjunction with the
sale of Bankers in 1992, ICH purchased all of the real estate held by Bankers,
primarily its home office real estate, for $9 million. Bankers has entered into
a long-term lease for a portion of the property sold to ICH and ICH is
attempting to sell the remaining properties. The Bankers real estate has been
independently appraised at a value in excess of ICH's carrying value.
At December 31, 1993, ICH and its subsidiaries held limited partnership
interests in various partnerships with a carrying value totaling $43.6 million,
as compared to $39.8 million at year-end 1992 and $36.9 million at year-end
1991. These investments were made primarily to participate in the potential
appreciation resulting from certain leveraged buyouts and corporate
reorganizations. In addition, included in such investments at year-end 1993 was
a $25.0 million investment, representing a 49% limited partnership interest, in
a partnership formed to acquire through auction certain mortgage loans and real
estate formerly held by failed savings and loan associations for resale. ICH
believes that on a selective basis these investments offer attractive
risk-adjusted returns; however, such investments are not readily marketable and,
in the event of a need for liquidity, ICH may be unable to quickly convert such
investments into cash. See Note 6 of the Notes to Financial Statements for
additional information regarding ICH's investments in limited partnerships.
Included in the limited partnership investments at year-end 1991 was ICH's
21.4% interest in Conseco Capital Partners, L.P. ("Predecessor CCP") with a
carrying value of $17.0 million. In 1992, Predecessor CCP formed a new insurance
holding company, CCP Insurance, and completed an initial
33
<PAGE>
public offering of shares of CCP Insurance common stock. ICH's subsidiaries
received 1,764,439 shares of CCP Insurance in exchange for their investment in
Predecessor CCP and ICH's subsidiaries acquired an additional 525,000 shares of
CCP Insurance through its offering. In September 1993, CCP Insurance completed
an underwritten primary and secondary offering of shares of its common stock.
ICH's subsidiaries sold all of their 1,764,439 shares of CCP insurance common
stock in the offering and realized investment gains totaling $27.8 million. In
addition, during 1993, ICH's subsidiaries sold 455,375 of the 525,000 shares of
CCP Insurance acquired in its initial public offering and realized additional
investment gains totaling $5.3 million.
Included in the limited partnership investments at year-end 1992 and 1991
was ICH's investment in the HMC/Life Partners, L.P. with a carrying value of
approximately $5.0 million. During March 1993, Life Partners Group, Inc.
("LPG"), the holding company formed to acquire certain subsidiaries from ICH in
1990, completed an initial public offering of 15.2 million shares of its common
stock, or a 58.5% interest in LPG, at $17 per share. ICH had acquired a 31%
interest in the HMC/Life Partners, L.P. at the time of the sale of such
subsidiaries and the partnership, in turn, directly owned 5.1 million shares of
the LPG common stock. Based on an assumed liquidation of the partnership and
distribution of shares under provisions of the partnership agreement, the holder
of ICH's partnership interest would be entitled to receive shares of LPG common
stock with a fair value at December 31, 1993, of approximately $21.3 million, or
$16.3 million more than the adjusted cost of ICH's investment in the
partnership. As discussed earlier under "Transactions With Consolidated Fidelity
Life Insurance Company," the investment in the HMC/Life Partners, L.P. was
transferred to CFLIC in exchange for preferred stock as the first step in a
series of transactions to terminate certain reinsurance arrangements involving
CFLIC and Southwestern.
During 1993, two other companies controlled by partnerships in which ICH's
subsidiaries had ownership interests completed initial public offerings of
shares of their common stock. Assuming a liquidation of the partnerships and a
distribution of the shares of common stock held by the partnerships, ICH's
subsidiaries would be entitled to receive shares of common stock with a fair
value totaling $5.3 million in excess of their adjusted cost basis in such
partnerships. At December 31, 1993, the carrying values of such partnership
interests were adjusted to reflect the increase in value, with a corresponding
increase in unrealized investment gains reflected in stockholders' equity. In
addition, during 1993, ICH reflected a $5.0 million writeoff of a partnership
interest through realized investment losses following the commencement of
bankruptcy proceedings by the company controlled by such partnership.
At December 31, 1993, ICH had pre-tax unrealized investment gains totaling
$33.9 million, consisting of $21.4 million of unrealized gains related to
available for sale fixed maturities, $7.2 million of unrealized gains
attributable to equity securities, and $5.3 million of unrealized gains
attributable to investments in limited partnerships. Such unrealized investment
gains are reflected in stockholders' equity, net of a $10.4 million adjustment
in deferred policy acquisition costs and other policy liabilities, a $5.2
million adjustment for the minority interest in certain unrealized investment
losses and $8.2 million in deferred income tax effects. At December 31, 1992,
pre-tax unrealized investment gains totaled $28.5 million, of which $24.1
million was attributable to ICH's equity investment in CCP Insurance, and were
reflected in stockholders' equity, net of $9.7 million in deferred income tax
effects. The unrealized gains related to available for sale fixed maturities are
primarily as a result of declines in market interest rates between the two
dates. Except as may be required to meet its liquidity requirements, ICH has no
current plans over the near-term to liquidate a significant portion of such
available for sale fixed maturities to realize such gains.
34
<PAGE>
The following table reflects investment writedowns which were included in
realized investment gains or losses during each of the three years in the period
ending December 31, 1993:
<TABLE>
<CAPTION>
(IN MILLIONS) 1993 1992 1991
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
Fixed maturities...................................................................... $ 4.4 $ 11.5
Collateralized mortgage obligations................................................... $ 138.5
Equity securities..................................................................... 2.1 6.2 12.6
Investment in limited partnership..................................................... 5.0
Investment real estate................................................................ 4.5 3.8 13.0
Mortgage loans........................................................................ .4 1.2
Assets held in trust for reinsurance treaty........................................... 18.4
- -----------------------------------------------------------------------------------------------------------------------
Total writedowns.................................................................... $ 16.0 $ 148.9 $ 56.7
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
The writedowns in fixed maturity investment in 1993 and 1991 were related to
noninvestment-grade securities. As a result of reductions in market interest
rates and a corresponding increase in mortgage loan refinancings, ICH incurred
substantial writedowns related to its residual interests and interest-only CMOs
in 1992. As previously discussed, ICH substantially reduced its exposure to such
investments and, except for $7.6 million of writedowns taken in conjunction with
the adoption of SFAS No. 115 reflected as a cumulative effect of a change in
accounting method, there were no similar writeoffs during 1993. Investment real
estate writedowns have increased over the three year period as a result of the
general deterioration in real estate markets. Because of the factors discussed
above, ICH's losses on its mortgage loan portfolio have been nominal during the
three year period. The $18.4 million writedown in 1991 related to a reinsurance
treaty with Executive Life Insurance Company. Such treaty was terminated in 1992
without further writedowns required.
LIQUIDITY AND CAPITAL RESOURCES
ICH reduced its reported indebtedness by $75.5 million in 1991, $162.8
million in 1992 and $125.3 million in 1993. Such reductions totaling $363.6
million were effected primarily through ICH's prepayment of $168.4 million of
senior secured debt and subordinated debt with proceeds from the sale of Bankers
in 1992 and BLHC in 1993, through a $45 million prepayment of senior secured
indebtedness in 1992, and through the payment of $146 million of scheduled
subordinated debt sinking fund and principal installments.
35
<PAGE>
The following table sets forth, for the periods indicated, certain ratio
data regarding the operations of ICH and its consolidated subsidiaries. Pro
forma ratio data is presented as if the sale of Bankers and ICH's investment in
BLHC had occurred as of the beginning of each period presented and is based on
the same assumptions utilized in preparing the pro forma results of operations
reflected in Note 2 of the Notes to Financial Statements, including elimination
of the after-tax gains on the sales of Bankers in 1992 and the Company's
investment in BLHC in 1993.
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL YEAR ENDED
YEAR ENDED DECEMBER
DECEMBER 31, 31,
---------------- ----------
1993 1992 1991 1993 1992
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
Ratio of operating earnings to fixed charges................................. 5.0 * 1.3 * *
Ratio of operating earnings to fixed charges and preferred dividends......... 3.0 * * * *
- -----------------------------------------------------------------------------------------------------------
<FN>
*Operating earnings on a historical basis for the years ended December 31, 1992
and 1991 and on a pro forma basis for the years ended December 31, 1993 and
1992 were insufficient to cover fixed charges and preferred dividends by the
following amounts (in millions):
</TABLE>
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
YEAR ENDED DECEMBER YEAR ENDED DECEMBER
31, 31,
-------------------- --------------------
1992 1991 1993 1992
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
Ratio of operating earnings to fixed charges................................. $ 15.1 $ 7.4 $ 141.8
Ratio of operating earnings to fixed charges and preferred dividends......... 61.8 $ 20.1 29.0 163.0
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
Realized investment losses (resulting primarily from writedowns) reduced
operating earnings by $119.1 million and $26.4 million for 1992 and 1991,
respectively. See "Insurance Operations" following for additional information
regarding items of an infrequent and non-recurring nature which have affected
ICH's operating results.
INSURANCE OPERATIONS
The primary sources of liquidity for ICH's insurance subsidiaries include
operating cash flows and short-term investments. The net cash provided by
operating activities and by policyholder contract deposits of ICH and its
subsidiaries, after the payment of policyholder contract withdrawals and
benefits, operating expenses, and interest requirements approximated $87.7
million in 1992 and $220.7 million in 1991. In 1993, such operating cash flows
resulted in net cash requirements totaling approximately $205.5 million.
Exclusive of withdrawals by holders of GICs as discussed below, cash provided by
operating activities during 1993 totaled approximately $124.5 million. ICH
believes that its short-term investments are readily marketable and can be sold
quickly for cash. Cash and short-term investments totaled $366.9 million, or 14%
of consolidated investments, at year-end 1993, compared to $421.8 million or 14%
at year-end 1992 and $386.5 million or 9% at year-end 1991.
The principal requirement for liquidity of ICH's insurance subsidiaries is
their contractual obligations to policyholders, including policy loans and
payments of benefits and claims. As a result of continued cash flows of its
insurance subsidiaries, ICH believes that reserves maintained by such
subsidiaries have been adequate to pay policy benefits and claims. Further,
policy loans by ICH's subsidiaries have represented 7% or less of ICH's
consolidated investment assets during the past three years.
As previously discussed, the claims-paying ratings assigned to certain of
ICH's subsidiaries by various nationally recognized statistical ratings
organizations were lowered during 1992 and 1993. Except for withdrawals made by
certain GIC holders, management believes ICH's subsidiaries have not experienced
more than normal policy surrenders and withdrawals as a result of these ratings
downgrades. For the year ended December 31, 1993, policyholder contract
withdrawals, principally GICs, exceeded policyholder contract deposits by
approximately $207.4 million. Withdrawals by GIC
36
<PAGE>
holders totaled $329.0 million. Approximately $184.3 million of such withdrawals
represented scheduled maturities of GICs which were not reinvested with an ICH
subsidiary. In addition, as a result of the previously discussed restructuring
of ICH's holding company system, the surplus of such subsidiary was
significantly reduced and, as a consequence, some policyholders became entitled
to an early withdrawal of their GICs. The subsidiary also voluntarily offered
certain other GIC holders the right of early withdrawal. Unscheduled and early
GIC withdrawals totaled $144.7 million. 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. The
substantial withdrawal of GICs during 1993 is expected to have a positive effect
on ICH's future results of operations because the rates of interest being
credited to such GICs exceeded the rates ICH's subsidiary was earning on the
related invested assets.
Certain of ICH's insurance subsidiaries have ceded blocks of insurance to
unaffiliated reinsurers to provide funds for financing acquisitions and other
purposes. These reinsurance transactions, or so-called "surplus relief
reinsurance," represent financing arrangements and, in accordance with generally
accepted accounting practices, are not reflected in the accompanying financial
statements except for the risk fees paid to or received from reinsurers. Net
statutory surplus provided by such treaties before tax effects totaled $51.5
million at December 31, 1993, or approximately 41% less than the $87.5 million
of surplus relief at December 31, 1992. These arrangements are expected to
terminate over the next several years through the recapture of the ceded blocks
of business and such recaptures will result in a charge to the statutory
earnings of the recapturing companies. During 1993, a treaty that had provided
approximately $22.2 million of surplus relief for an ICH subsidiary as of
year-end 1992 was recaptured in conjunction with ICH's restructuring of its
insurance holding company system.
PARENT COMPANY
The primary sources of liquidity for ICH have historically included
dividends and loans from its insurance subsidiaries and payments of principal
and interest on surplus debentures issued by certain insurance subsidiaries. As
previously discussed, in 1993, the sale of ICH's investment in BLHC provided a
substantial amount of liquidity for the parent company.
The unpaid principal balance of surplus debentures issued to ICH by its
insurance subsidiaries totaled $247.6 million at December 31, 1992 and $607.2
million at December 31, 1991. Of the 1992 amount, surplus debentures in the
aggregate unpaid principal amount of $141.8 million was payable by Southwestern
and $105.8 million was payable by Modern American. In 1993, Southwestern repaid
the remaining balance on its surplus debenture utilizing proceeds from its 1992
sale of Bankers. In the restructuring of ICH's insurance holding company system
in 1993, the surplus debenture from Modern American was retired and added to
ICH's investment in its subsidiaries. At December 31, 1993, there were no
remaining surplus debentures due ICH by its subsidiaries.
State insurance laws generally restrict the ability of insurance companies
to make loans to affiliates or to pay cash dividends in excess of the greater of
such companies' net gains from operations during the preceding year or 10% of
their policyholder surplus determined in accordance with accounting practices
prescribed by such states. These regulatory restrictions historically have not
affected the ability of ICH to meet its liquidity requirements. However, certain
states in which ICH's subsidiaries are domiciled, including New York and
Kentucky, have adopted laws that have restricted the payment of cash dividends
to the lesser of such companies' net gains from operations or 10% of their
policyholder surplus. Other states may consider similar legislation in future
periods or may consider legislation that would base the level of cash dividends
which may be paid to the maintenance of specified risk-based capital levels. The
adoption of such laws could significantly reduce the level of cash dividends
that could be paid without regulatory approval.
ICH received cash dividends from Modern American totaling $149 million in
1991, but received no cash dividends from its insurance subsidiaries in either
1993 or 1992. In 1992, Modern American agreed with the Missouri Department of
Insurance that it would not pay any dividends without obtaining the prior
approval from the Missouri Department and, in 1993, Southwestern agreed with the
Texas Department that it would not pay any dividend without giving it thirty
days prior notice.
37
<PAGE>
The restructuring of ICH's insurance holding company system in 1993
substantially reduced the size of Modern American and it no longer holds title
to the common stock of any of ICH's insurance subsidiaries. Therefore, the
restrictions on Modern American's ability to pay dividends are not expected to
have a significant affect on future dividends to ICH from ICH's subsidiaries. In
addition, as a result of the restructuring, all of ICH's insurance subsidiaries,
other than Constitution Life Insurance Company and Bankers Life and Casualty
Company of New York, are aligned horizontally beneath ICH and, as a consequence,
are expected to be able to make direct payments of dividends to ICH in future
periods.
Prior to 1992, ICH had issued demand and collateralized notes to certain of
its subsidiaries in order to meet short-term liquidity requirements. At December
31, 1991, ICH's obligations to its subsidiaries under such notes, including
accrued interest thereon, totaled $47.6 million. Although management believed
such loans met the investment criteria of the various states, during 1993 and
1992 ICH repaid all of such obligations to its subsidiaries. ICH does not intend
to utilize such borrowings in future periods.
ICH's principal needs for liquidity are debt service and, to a lesser
extent, preferred dividend requirements. ICH's consolidated indebtedness totaled
approximately $418.0 million at December 31, 1993, compared to $543.3 million at
December 31, 1992, and $706.1 million at December 31, 1991. Substantially all
indebtedness of ICH was incurred in the connection with acquisitions of
subsidiaries in periods prior to 1987, including collateralized senior debt and
unsecured subordinated debt, a portion of which was exchanged for new debt in
1993. See Note 3 of the Notes to Financial Statements for additional information
regarding ICH's consolidated indebtedness, including annual maturities.
Primarily as a result of the sale for cash of ICH's interest in BLHC in
1993, ICH believes that it has adequate resources to meet its existing
commitments, including preferred stock dividends, for all of 1994. The following
table reflects ICH's cash sources and requirements on a projected basis for 1994
and on an actual basis for 1993.
<TABLE>
<CAPTION>
PROJECTED ACTUAL
(DOLLARS IN MILLIONS) 1994 1993
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
Cash sources:
Sale of investment in BLHC............................................................ $ 287.6
Surplus debenture principal payments.................................................. 141.8
Dividends from insurance subsidiaries................................................. $ 32.6
Dividends from non-insurance subsidiaries............................................. 6.6 14.0
Partial liquidation of CMO residual interest.......................................... 29.1
Other................................................................................. 11.4 14.8
- ------------------------------------------------------------------------------------------------------------------
Total sources..................................................................... 50.6 487.3
- ------------------------------------------------------------------------------------------------------------------
Cash requirements:
Subordinated debt sinking fund and unaffiliated principal payments.................... 8.5 41.6
Early retirement of subordinated debt................................................. 84.1
Redemption of preferred stock......................................................... 100.0
Interest.............................................................................. 46.3 64.1
Principal payments, affiliated debt................................................... 7.3
Purchase of long-term investments..................................................... 17.9
Preferred dividends................................................................... 14.8 29.0
Purchase BLHC investments from subsidiaries........................................... 34.5
Purchase ICH subordinated debt from subsidiaries...................................... 34.1 5.4
Other................................................................................. 8.2 23.1
- ------------------------------------------------------------------------------------------------------------------
Total requirements................................................................ 111.9 407.0
- ------------------------------------------------------------------------------------------------------------------
Net cash provided (required) during year.................................................. (61.3) 80.3
Cash available, beginning of year......................................................... 132.1 51.8
- ------------------------------------------------------------------------------------------------------------------
Cash and marketable securities available, end of year..................................... $ 70.8 $ 132.1
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
38
<PAGE>
Cash available at the end of 1993 includes approximately $60.3 million of
readily marketable fixed maturity investments which were acquired for the
purpose of obtaining higher yields than could be achieved through holdings in
short-term investments. The 1994 projected cash requirements assume no sinking
fund payments relative to ICH's Old Notes. See "Changes in Capital Structure"
for a discussion of ICH's options relative to sinking fund requirements in 1994.
In addition, the 1994 projections assume that the CFLIC transactions with ICH
will be effected during the 1994 second quarter, including the redemption of
CFLIC's preferred stock by the return to ICH of its $30 million senior secured
loan and ICH's Series 1986-A and Series 1987-B preferred stocks. See
"Transactions With Consolidated Fidelity Life Insurance Company."
As a result of the acquisition and retirement of ICH's Class B Common Stock
in early 1994, management now believes that ICH has improved its ability to
refinance its presently outstanding debt at substantially reduced interest
rates. Such a refinancing is, of course, dependent on numerous factors, such as
an improvement in the ratings assigned by nationally recognized statistical
rating organizations, market interest rates, a successful underwriting, and
other factors. ICH intends to monitor these factors closely over the next
several months to determine whether such a refinancing is possible. There can be
no assurance that ICH will, in fact, attempt to restructure its presently
outstanding debt; however, in the event that it does, the 1994 projected cash
sources and requirements as reflected above could materially change.
ICH's actual cash sources in 1993 were approximately $295.6 million more
than were previously projected for 1993, substantially all of which were
attributable to ICH's sale of its investment in BLHC for $287.6 million. Actual
cash requirements in 1993 exceeded projected requirements by approximately
$174.3 million. Significant items that were not included in the 1993 projections
and that accounted for a substantial portion of the increase in cash
requirements include ICH's redemption of $100 million of its outstanding
preferred stock, an additional $45.9 million redemption of its Debentures, and
intercompany income tax allocation payments to ICH's insurance subsidiaries
totaling $15.0 million. The increase in tax allocation payments was a result of
the BLHC transaction which resulted in a taxable gain and reimbursement to ICH's
subsidiaries for utilization by ICH of their tax loss carryforwards. Primarily
as a result of the increase in cash sources, which was not completely offset by
an increase in cash requirements, available cash and marketable securities at
the end of 1993 was approximately $121.3 million more than originally projected.
RESULTS OF OPERATIONS
ICH's results in 1993 and 1992 have been affected by numerous items of an
infrequent and non-recurring nature. In 1993, ICH realized significant gains on
the sale of its investment in BLHC, other invested assets, and the termination
of a reinsurance arrangement with Bankers, and realized a benefit from the
change in corporate income tax rates. In addition, significant writedowns of
certain capitalized costs and operating facilities were taken in connection with
the continuation of an operational consolidation and provisions were made for
the costs associated with agreements entered into with ICH's former controlling
shareholders and certain other contingencies. In 1992, ICH realized a gain on
the sale of Bankers, which was offset by charges for significant losses on the
portfolio of CMO residual interests and IOs, a litigation settlement, costs
incurred to modify a data processing services
39
<PAGE>
arrangement, and costs incurred or accrued relative to an operational
consolidation. The following table reflects the results of ICH's basic
operations from 1991 through 1993 and the effects that the above described
charges and credits had on ICH's operating results for each of the three years.
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS) 1993 1992 1991
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
Pre-tax earnings (loss) before credits (charges)................................... $ (6.6) $ 47.7 $ 59.6
Federal income tax expense (credit)................................................ .7 8.1 7.8
- --------------------------------------------------------------------------------------------------------------------
Earnings (loss) before credits (charges)........................................... (7.3) 39.6 51.8
- --------------------------------------------------------------------------------------------------------------------
Gain on sale of subsidiaries....................................................... 110.7
Gain on sale of BLHC............................................................... 297.0
Realized losses on CMO portfolio................................................... (4.4) (138.5)
Other realized gains (losses)...................................................... 39.2 19.4 (26.4)
Gain on reinsurance termination.................................................... 22.6
Litigation settlement.............................................................. (18.0)
Data processing services settlement................................................ (12.6)
Consolidation expenses............................................................. (23.9) (10.9)
Provision for services agreements.................................................. (9.0)
Provision for litigation costs and other contingencies............................. (9.3)
Benefit from change in income tax rates............................................ 3.5
Other tax effects related to charges (credits)..................................... (96.5) 61.2
- --------------------------------------------------------------------------------------------------------------------
Total credits (charges)............................................................ 219.2 11.3 (26.4)
- --------------------------------------------------------------------------------------------------------------------
Operating earnings before cumulative effect of changes in accounting methods and
extraordinary losses.............................................................. $ 211.9 $ 50.9 $ 25.4
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
The decline in pre-tax operating earnings from $59.6 million in 1991 to
$47.7 million in 1992 was attributable, in part, to including Bankers' results
for only the first ten months of 1992 compared to the full year in 1991. ICH was
unable to effectively redeploy the proceeds from the sale of Bankers during the
last two months of 1992 to replace the reduction in operating earnings resulting
from such sale. In addition, a reduction in yields on invested assets between
1991 and 1992 contributed to a narrowing of the spreads between earnings on
invested assets and interest credited to policyholders' accounts or required to
meet policyholder obligations and further contributed to the reduction in
operating earnings. The decline in the pre-tax operating earnings of $47.7
million to a pre-tax operating loss of $6.6 million in 1993 reflects, in part,
the exclusion of Bankers' results for all of 1993. ICH did reflect its equity in
the operating results of BLHC for the first nine months of 1993 totaling $29.1
million. However, ICH was still unable in 1993 to redeploy proceeds from the
sale to fully replace the earnings of Bankers. Following the sale of its
interest in BLHC in September 1993, ICH has methodically proceeded to utilize
its available liquidity to further reduce the costs of its capital structure,
but during the interim period has had to maintain larger than desirable amounts
invested in lower-yielding short-term investments. In addition, interest spreads
relative to ICH's insurance operations further narrowed in 1993 resulting in
reduced operating earnings, and ICH incurred sizeable losses in its group health
operations.
ANALYSIS OF OPERATING RESULTS BY INDUSTRY SEGMENT
ICH's major industry segments consist of individual life insurance,
individual health insurance, group and other insurance, accumulation products,
and corporate (including surplus investment). The following table sets forth the
consolidated revenues, expenses, pre-tax operating earnings and product sales
attributed or allocated to each industry segment. "Pre-tax operating earnings
(loss)" reflected in the table represent ICH's consolidated operating earnings
or loss before realized investment gains or losses, corporate interest expense,
amortization of excess cost, provision for income
40
<PAGE>
taxes, the cumulative effect of accounting changes, and extraordinary gains and
losses. See Note 17 of the Notes to Financial Statements and Schedule V of the
Financial Statement Schedules for additional information regarding ICH's segment
results.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
(DOLLARS IN MILLIONS) 1993 1992 1991
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
INDIVIDUAL LIFE INSURANCE
- -------------------------------------------------------------------------------------------------------------------
Total sales...................................................................... $ 13.1 $ 25.1 $ 34.3
- -------------------------------------------------------------------------------------------------------------------
Premiums (including premium equivalents)......................................... $ 164.0 $ 267.9 $ 294.9
Less premium equivalents......................................................... (46.0) (76.3) (92.7)
--------- --------- ----------
Premium income and other considerations.......................................... 118.0 191.6 202.2
Net investment and other income.................................................. 147.6 157.1 197.3
--------- --------- ----------
Total revenues................................................................... 265.6 348.7 399.5
Total benefits and expenses...................................................... 220.5 306.2 319.5
--------- --------- ----------
Pre-tax operating earnings....................................................... $ 45.1 $ 42.5 $ 80.0
- -------------------------------------------------------------------------------------------------------------------
INDIVIDUAL HEALTH INSURANCE
- -------------------------------------------------------------------------------------------------------------------
Comprehensive and other sales.................................................... $ 29.0 $ 49.7 $ 68.9
Medicare supplement sales........................................................ 33.6 99.4 94.9
Long-term care sales............................................................. 1.0 16.3 15.9
--------- --------- ----------
Total sales...................................................................... $ 63.6 $ 165.4 $ 179.7
- -------------------------------------------------------------------------------------------------------------------
Premium income and other considerations.......................................... $ 220.3 $ 859.1 $ 949.9
Net investment and other income.................................................. 11.2 54.8 61.9
--------- --------- ----------
Total revenues................................................................... 231.5 913.9 1,011.8
Total benefits and expenses...................................................... 210.5 847.4 946.3
--------- --------- ----------
Pre-tax operating earnings....................................................... $ 21.0 $ 66.5 $ 65.5
- -------------------------------------------------------------------------------------------------------------------
GROUP AND OTHER INSURANCE
- -------------------------------------------------------------------------------------------------------------------
Total sales...................................................................... $ 41.2 $ 61.9 $ 47.3
- -------------------------------------------------------------------------------------------------------------------
Premium income and other considerations.......................................... $ 136.5 $ 337.4 $ 343.3
Net investment and other income.................................................. 15.6 20.5 18.7
--------- --------- ----------
Total revenues................................................................... 152.1 357.9 362.0
Total benefits and expenses...................................................... 165.0 352.8 356.4
--------- --------- ----------
Pre-tax operating earnings (loss)................................................ $ (12.9) $ 5.1 $ 5.6
- -------------------------------------------------------------------------------------------------------------------
ACCUMULATION PRODUCTS
- -------------------------------------------------------------------------------------------------------------------
Total sales...................................................................... $ 89.9 $ 460.3 $ 275.6
- -------------------------------------------------------------------------------------------------------------------
Premium income and other considerations.......................................... $ .2 $ .7 $ .3
Net investment and other income.................................................. 52.4 120.6 132.3
--------- --------- ----------
Total revenues................................................................... 52.6 121.3 132.6
Total benefits and expenses...................................................... 59.3 120.9 122.1
--------- --------- ----------
Pre-tax operating earnings (loss)................................................ $ (6.7) $ .4 $ 10.5
- -------------------------------------------------------------------------------------------------------------------
CORPORATE
- -------------------------------------------------------------------------------------------------------------------
Total revenues................................................................... $ 345.6 $ 117.6 $ 8.0
Total expenses................................................................... 45.6 41.5
--------- --------- ----------
Pre-tax operating earnings....................................................... $ 300.0 $ 76.1 $ 8.0
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
41
<PAGE>
INDIVIDUAL LIFE. Revenues of the individual life insurance segment
accounted for approximately 37.8% of consolidated revenues excluding corporate
revenues and realized investment gains and losses in 1993, as compared to 20% in
1992 and 21% in 1991. Such increase in 1993 is directly attributable to the sale
of Bankers in 1992. Bankers revenues had been derived predominantly from sales
of individual health insurance products and, as a result of the sale, the
relative proportion of ICH's revenues attributable to the individual life
insurance segment increased significantly. Most individual life insurance sales
over the last three years were of universal and interest-sensitive life
insurance products, although several new traditional whole life products were
introduced into the marketplace during 1993. Exclusive of sales by Bankers,
individual life sales have declined from $21.0 million in 1991 to $14.0 million
in 1992 to $13.1 million in 1993. Management believes these declines are
attributable to the downgrade in the claims-paying rating of ICH's most
significant life insurance subsidiary, Southwestern, and to slow market
acceptance of several new products introduced during 1991. However, as a result
of changes in marketing strategies to target sales in the senior citizen
marketplace and the new products introduced in 1993, sales of individual life
insurance products increased significantly in the latter half of 1993, exceeding
sales during the comparable period in 1992.
Pre-tax operating earnings of the individual life insurance segment
decreased from $80.0 million in 1991 to $42.5 million in 1992, but increased to
$45.1 million in 1993. Included in pre-tax operating earnings in 1993 was a
non-recurring gain on the termination of a reinsurance arrangement between an
ICH subsidiary and Bankers totaling $22.6 million. Excluding such gain, pre-tax
operating earnings in 1993 totaled $22.5 million. Bankers derived substantial
profits from its individual life insurance business and the sale of Bankers
accounts for a significant portion of the decline in pre-tax operating earnings
of this segment. Declining market interest rates and the reduced yields earned
by ICH on its investment portfolio have also contributed to the decline in the
operating profits of this segment. Over one-half of ICH's life insurance
reserves represent reserves on traditional life insurance products having fixed
contractual interest rates. Consequently, declining investment yields have
resulted in significantly reduced profit margins on the traditional block of
business. Remaining life insurance reserves consist primarily of reserves on
interest-sensitive products and credited rates on such policies have been and
are continuing to be reduced to correspond with the decline in yields on
investments.
Management expects to continue to emphasize growth in its individual life
insurance segment and, barring a further decline in investment yields, believes
the changes made in its marketing strategies and the introduction of new
products in 1993 will result in increased sales of individual life insurance
products and an improvement in the operating results of this segment in 1994.
INDIVIDUAL HEALTH. Sales and revenues in the individual health segment
declined significantly in 1993 as a result of the sale of Bankers. Individual
health premiums earned by Bankers represented approximately 74.8% of total
individual health premiums in 1992 and 75.7% in 1991. The individual health
premiums earned in 1993 and the remaining premiums earned in each of 1992 and
1991 were primarily attributable to Union Bankers Insurance Company ("Union
Bankers") and Bankers Multiple Line Insurance Company ("Bankers Multiple"),
former Bankers subsidiaries which were retained by ICH when Bankers was sold.
Union Bankers has emphasized the sale of Medicare supplement products through
brokerage agencies. Bankers Multiple specializes in the sale of comprehensive
health products through a large general agency. Another ICH subsidiary,
Integrity National Life Insurance Company, sells individual health insurance
products, primarily Medicare supplement business, in the home service market.
Exclusive of Bankers in 1992, new sales of individual health products
increased from $60.3 million in 1992 to $63.6 million in 1993 and premiums
earned increased from $216.2 million in 1992 to $220.3 million in 1993. The
ratio of policy benefits to premiums earned (exclusive of Bankers) declined from
68.4% in 1992 to 62.3% in 1993, resulting in an approximately $15.0 million
improvement in the gross operating margins of ICH's insurance subsidiaries.
42
<PAGE>
Management expects to continue to emphasize growth in the individual health
segment, primarily in the senior citizens market through the sales of Medicare
supplement and long-term care, or nursing home, products.
GROUP AND OTHER INSURANCE. New sales of group life and health insurance
increased from $47.3 million in 1991 to $61.9 million in 1992, but declined to
$41.2 million in 1993. All sales of new group business in 1993 were made by
Philadelphia American Life Insurance Company ("Philadelphia American"), as were
substantially all new sales in 1992. Several large group health cases were added
at the end of 1992, increasing the volume of new 1992 sales; however, primarily
as a result of competitive factors, Philadelphia American purposely did not
attempt to achieve the same level of new sales during 1993. In addition to
revenues from sales of group insurance products, Philadelphia American derives
substantial revenues from administrative services only ("ASO") contracts whereby
it process claims for non-affiliated groups without assuming underwriting risks.
Bankers Multiple also underwrites a profitable real estate agents errors and
omissions product, the results of which are included in the group and other
insurance segment.
While sales of new group business declined during 1993 as compared to 1992,
earned premiums of this segment (excluding Bankers) increased from $103.8
million in 1992 to $136.5 million in 1993 as a result of sales in 1992. The
related ratio of policy benefits to earned premiums of the group segment
increased dramatically from 62.9% in 1992 to 74.8% in 1993 and contributed to a
pre-tax operating loss of $12.9 million in 1993, as compared to pre-tax
operating earnings of $5.1 million in 1992. During the last half of 1993,
Philadelphia American encountered an unexpected increase in claim costs driven
by an upswing in the utilization and cost of physician services and several
large individual claims covered under group plans. Additionally, in the course
of evaluating Philadelphia American's results for the fourth quarter of 1993,
management determined that errors had been made in the second and third quarters
of 1993 in accounting for certain reinsurance activities and had resulted in an
approximate $7.4 million overstatement of Philadelphia American's pre-tax
operating earnings for such periods. These errors contributed to an inadequate
assessment of the need for premium rate increases on certain of Philadelphia
American's group health cases, which, in turn, contributed to the adverse claims
experience on these cases which continued into the 1993 fourth quarter.
Management has taken several actions which are expected to rapidly reduce losses
and return this segment to profitability in 1994. These actions include 1)
terminating several large, but unprofitable group cases at or near the end of
1993, 2) identifying several additional group cases which will not be renewed
during the first six months of 1994, and 3) implementing substantial rate
increases to restore profitability to its remaining group business. In addition,
internal controls at Philadelphia American have been strengthened and personnel
changes have been made to prevent a future reoccurrence of accounting errors in
reported results.
Because of uncertainties regarding the potential impact of currently
proposed national health care reforms, management does not believe that it would
be prudent to presently invest additional capital resources to grow the group
segment of its business. However, Philadelphia American intends to actively
pursue new ASO business to more fully utilize its present claims processing
capabilities without incurring additional underwriting risks.
ACCUMULATION PRODUCTS. Sales of accumulation products, primarily GICs,
declined significantly in 1993 as compared to prior periods. In 1993, new GIC
sales totaled $5.3 million, as compared to $292.1 million in 1992. Such decline
in GIC sales was offset, in part, by an increase in new annuity sales. ICH's
subsidiaries produced $84.6 of annuity sales, principally single premium
deferred annuities, in the accumulation segment in 1993, as compared to $27.2
million in 1992 (excluding Bankers). The substantial decline in GIC sales was
directly attributable to a downgrade in the claims-paying ratings assigned to an
ICH subsidiary as previously discussed. As a result of these ratings downgrades,
ICH's subsidiaries redirected their marketing efforts in 1993 to sales of
annuities in the less ratings-sensitive individual marketplace.
43
<PAGE>
The accumulation products segment reflected a pre-tax operating loss of $6.7
million in 1993, as compared to a slight profit in 1992. The loss was primarily
attributable to the decline in yields earned on invested assets during 1993.
Substantially all of the $329.0 million in GIC liabilities which were withdrawn
in 1993 bore interest at guaranteed fixed rates which, in many cases, exceeded
rates being earned on the related invested assets. At year-end 1993,
approximately 75% of the remaining $377.7 million in GIC liabilities bear
interest at floating rates and a substantial portion of the remaining fixed
rated liabilities are expected to be withdrawn in 1994. As a consequence, and
barring a further decline in investment yields, management anticipates that the
accumulation segment will realize a return to profitability in 1994.
Because of its present claims-paying ratings, ICH's insurance subsidiaries
have effectively withdrawn from the GIC marketplace. Management expects to
continue to emphasize sales of new annuities.
CORPORATE. Revenues allocated to the corporate segment include investment
income on the capital and surplus of ICH's insurance subsidiaries. In addition,
such revenues also include gains on the sale of ICH's investment in BLHC in 1993
and its investment in Bankers in 1992. Historically, ICH has allocated all
corporate overhead expenses to the various operating segments. In 1993, $45.6
million in expenses were allocated to the corporate segment, including $23.9
million in writeoffs of capitalized data processing costs and certain home
office real estate, a $9.0 million provision for services agreements entered
into with ICH's former controlling shareholders, an $9.3 million provision for
anticipated costs of litigation and other contingencies, and $4.4 million of
expenses associated with the restructuring of ICH's collateralized mortgage note
obligation. In 1992, $41.5 million of expenses were allocated to this segment,
including an $18.0 million litigation settlement, $12.6 million of costs
associated with modifying its data processing servicing arrangements with Perot
Systems, and $10.9 million in costs related to a planned operational
consolidation of three of ICH's Texas-based insurance subsidiaries.
INTEREST EXPENSE AND PREFERRED DIVIDEND REQUIREMENTS
ICH's consolidated interest expense totaled $66.2 million in 1993, $79.0
million in 1992 and $98.6 million in 1991. The reductions in interest expense
were primarily as a result of the principal reductions in ICH's long-term
indebtedness made during the periods as previously discussed under "Liquidity
and Capital Resources." The reductions in interest expense in 1993 and 1992 were
offset, in part, by the interest expense incurred relative to collateralized
mortgage note obligations totaling $6.0 million in 1993 and $2.3 million in
1992. The collateralized mortgage note obligations were initially incurred in
conjunction with the sale of Bankers in 1992. As a result of the transactions
entered into in July 1993 to reduce ICH's exposure to prepayment risks on
certain mortgage-backed securities (see "Investment Portfolio"), the accounts of
a special-purpose trust, which included the collateralized mortgage note
obligations and the related interest expense, are no longer included in ICH's
consolidated balance sheet or statement of earnings after July 30, 1993.
Preferred dividend requirements totaled $28.8 million in 1993 and $30.8
million in each of 1992 and 1991. As the result of the redemption of $100
million stated value of ICH's preferred stocks in 1993, preferred dividend
requirements are expected to be reduced to approximately $17.3 million in 1994.
Assuming the completion of the transactions with CFLIC by March 31, 1994, as
previously discussed under "Transactions With Consolidated Fidelity Life
Insurance Company," ICH's preferred dividend requirements in 1994 would be
reduced by an additional $2.5 million.
INCOME TAX PROVISIONS AND DEFERRED INCOME TAX ASSETS
In 1993, income tax expense represented approximately 31% of consolidated
operating earnings before income taxes, or 4% less than the expected corporate
income tax rate. During 1993, the corporate income tax rate was increased from
34% to 35%, retroactive to January 1, 1993. The effect of such rate increase on
ICH's deferred income tax asset as of the beginning of 1993, a benefit totaling
$3.5 million, has been included in the 1993 income tax provision. Other
significant items affecting the
44
<PAGE>
1993 effective income tax rate included a reduction in the valuation allowance
for ICH's deferred income tax asset based on the utilization of available loss
carryforwards to offset income taxes otherwise payable as a result of the BLHC
sale and other investment gains and the utilization of capital loss
carryforwards which had previously not been reflected for financial reporting
purposes. In 1992, ICH reported an income tax credit totaling $69.2 million on a
consolidated operating loss before income taxes of $18.4 million. This unusual
relationship was primarily attributable to the significant tax basis gain on the
sale of Bankers and a reduction in the Company's valuation allowance for its
deferred tax asset as a result of utilizing available capital loss carryforwards
to reduce taxes otherwise payable as a result of such gain. In 1991, income tax
expense represented 24% of consolidated operating earnings before income taxes.
The effective rate was approximately 10% lower than the expected rate,
substantially all of which was attributable to a reduction in the deferred tax
asset valuation allowance based on tax planning strategies for the utilization
of a portion of ICH's capital loss carryforwards. See Note 13 of the Notes to
Financial Statements for an analysis of the various components affecting ICH's
income tax provisions.
At December 31, 1993 and 1992, ICH reported deferred income tax assets
totaling $53.0 million and $121.0 million, respectively. The substantial
reduction in the deferred income tax asset between the periods is primarily as a
result of the tax effects associated with the gains realized in 1993 from the
sales of ICH's interest in BLHC and other capital gains. The tax assets were
comprised of the tax benefit (cost) associated with the following types of
temporary differences based on the respective 35% and 34% tax rates in effect at
the end of 1993 and 1992:
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS) 1993 1992
<S> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
Items subject to ordinary tax treatment:
Book/tax temporary differences............................................................. $ 35.9 $ 61.3
Operating loss carryforwards............................................................... 13.6 36.2
- -------------------------------------------------------------------------------------------------------------------
Deferred income tax asset................................................................ 49.5 97.5
- -------------------------------------------------------------------------------------------------------------------
Items subject to capital gains treatment:
Book/tax temporary differences............................................................. .7 13.2
Capital loss carryforwards................................................................. 5.2 22.8
- -------------------------------------------------------------------------------------------------------------------
Deferred income tax asset................................................................ 5.9 36.0
- -------------------------------------------------------------------------------------------------------------------
Alternative minimum tax credit carryforward.................................................. 13.9 11.7
- -------------------------------------------------------------------------------------------------------------------
Less: Valuation allowance.................................................................... (16.3) (24.2)
- -------------------------------------------------------------------------------------------------------------------
Total deferred income tax asset.............................................................. $ 53.0 $ 121.0
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Operating and capital loss carryforwards have significantly different
characteristics as to expiration dates and their usability. For federal income
tax purposes, operating losses may be carried forward for a maximum of fifteen
years from the year they are incurred; capital losses may be carried forward for
a maximum of five years. In addition, ordinary loss carryforwards may be
utilized to offset ordinary income or capital gains, whereas capital loss
carryforwards can only be utilized to offset capital gains. As a consequence,
taxpayers have substantially more flexibility in being able to utilize operating
loss carryforwards than capital loss carryforwards. For federal income tax
purposes, at December 31, 1993, ICH's subsidiaries had $39.0 million of ordinary
loss carryforwards expiring in 2005 and $14.9 million of capital loss
carryforwards expiring in 1998.
Management has periodically assessed the ability of ICH's insurance
subsidiaries to produce taxable income in future periods sufficient to fully
utilize their operating book/tax temporary differences and tax loss
carryforwards. These assessments have included actuarial projections under
alternative scenarios of future profits on the existing insurance in force of
ICH's insurance subsidiaries, including provisions for adverse deviation,
adjusted to reflect ICH's anticipated debt service costs. While management
believes that there will be sufficient future taxable income to realize
substantially
45
<PAGE>
all of the benefit of ICH's remaining temporary differences, valuation
allowances totaling $16.3 million and $24.2 million were provided against ICH's
deferred tax assets at December 31, 1993 and 1992, respectively, to reflect the
uncertainties of realizing all of the benefits of available tax loss
carryforwards.
Alternative minimum tax ("AMT") credit carryforwards result from the
acceleration of income taxes under certain circumstances and can be carried
forward for an indefinite period. The $13.9 million and $11.7 million component
of ICH's deferred income tax assets at December 31, 1993 and 1992, respectively,
represents taxes incurred under AMT provisions which are expected to be
recovered through reduced income tax payments over the next several years.
CUMULATIVE EFFECT OF ACCOUNTING CHANGES
Effective January 1, 1993, ICH adopted SFAS No. 106, "Employers' Accounting
for Postretirement Benefits Other than Pensions," and incurred a charge for the
cumulative effect of the adoption of the accounting change as of that date
totaling $1.8 million, after tax effects. In addition, effective December 31,
1993, ICH adopted SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" and incurred a charge for the cumulative effect of the
adoption of the accounting change as of that date totaling $4.9 million, after
tax effects. Effective January 1, 1991, ICH adopted SFAS No. 109, "Accounting
for Income Taxes," and the benefit of the cumulative effect of the adoption of
the accounting change as of that date totaled $8.8 million.
EXTRAORDINARY LOSSES
For the years 1993 and 1992, ICH incurred extraordinary losses, net of tax
effects, totaling $1.9 million and $4.3 million, respectively. The extraordinary
losses in both periods were related to early extinguishment of debt. See Note 15
of the Notes to Financial Statements for an analysis of the components of such
losses.
IMPACT OF INFLATION
Medical cost inflation has had a significant impact on the individual health
and group health lines of business. Benefit costs have continued to increase in
recent years in excess of the Consumer Price Index and will likely continue.
This impact, however, has been substantially offset by increases in premium
rates. Management does not believe that inflation has otherwise had a
significant impact on its results of operations over the past three years.
KNOWN TRENDS AND UNCERTAINTIES WHICH MAY AFFECT FUTURE RESULTS
PROPOSED HEALTH CARE REFORM
President Clinton has targeted health care reform as a top domestic priority
of his administration, and has proposed to Congress legislation, the American
Health Security Act, that would significantly change the manner in which the
entire health care industry operates. The reform legislation proposed by the
Clinton administration would ultimately guarantee universal access to health
care coverage and create purchasing alliances for government established health
care plans. Alternative legislative proposals that have been developed to reform
the health care system have goals ranging from universal access to health care
coverage through managed competition to health care cost containment through,
among other things, health insurance reform. ICH currently cannot predict what
impact health care reform proposals will have on the health insurance industry,
whether any health insurance measures will be adopted in the foreseeable future
or, if adopted, whether such reform proposals or measures will have a material
effect on its operations.
FEDERAL INCOME TAX AUDIT ISSUES
See Note 12 of the Notes to Financial Statement for a discussion of
potential income tax audit issues.
46
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
OF I.C.H. CORPORATION AND SUBSIDIARIES
(ITEMS 8, 14(A), AND 14(C))
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
Report of Independent Accountants................................................................ 48
Consolidated Balance Sheets at December 31, 1993 and 1992........................................ 49
Consolidated Statements of Earnings (Loss) for the years ended December 31, 1993, 1992 and
1991........................................................................................... 50
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1993, 1992 and
1991........................................................................................... 51
Consolidated Statements of Cash Flows for the years ended December 31, 1993, 1992 and 1991....... 52
Notes to Financial Statements.................................................................... 53
</TABLE>
FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C> <C>
Schedule II -- Amounts receivable from related parties and underwriters, promoters and
employees other than related parties..................................... 88
Schedule III -- Condensed financial information of registrant............................ 89
Schedule V -- Supplementary insurance information...................................... 93
Schedule VI -- Reinsurance.............................................................. 94
Schedule VIII -- Valuation and qualifying accounts and reserves........................... 95
</TABLE>
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and therefore have been omitted or the
information is presented in the consolidated financial statements or related
notes.
47
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
I.C.H. Corporation
We have audited the consolidated financial statements and financial
statement schedules of I.C.H. Corporation and Subsidiaries as listed in the
index on page 47 of this Form 10-K. These financial statements and financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of I.C.H.
Corporation and Subsidiaries as of December 31, 1993 and 1992, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1993, in conformity with generally
accepted accounting principles. In addition, in our opinion, the financial
statement schedules referred to above, when considered in relation to the basic
financial statements taken as a whole, present fairly, in all material respects,
the information required to be included therein.
As more fully described in Notes 14 and 5 to these consolidated financial
statements, effective January 1, 1993 and December 31, 1993, the Company adopted
Statements of Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" and No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," respectively.
COOPERS & LYBRAND
Dallas, Texas
March 14, 1994
48
<PAGE>
I.C.H. CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1993 AND 1992
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
1993 1992
------------ ------------
<S> <C> <C>
Investments:
Fixed maturities:
Available for sale at fair value.................................................. $ 1,691,693 $ 1,764,149
Held to maturity at amortized cost................................................ 26,149 149,740
Equity securities, at fair value.................................................... 75,831 129,304
Mortgage loans on real estate, at amortized cost.................................... 138,504 184,023
Real estate, at lower of cost or fair value......................................... 67,491 66,386
Policy loans........................................................................ 177,736 192,973
Collateral loans.................................................................... 34,099 37,773
Investments in equity investees..................................................... 41,321
Investments in limited partnerships................................................. 43,640 39,808
Cash and short-term investments..................................................... 366,922 421,765
Other invested assets............................................................... 16,058 25,055
------------ ------------
Total investments................................................................. 2,638,123 3,052,297
Due from reinsurers................................................................... 388,083
Notes and accounts receivable and uncollected premiums................................ 6,951 11,743
Accrued investment income............................................................. 31,633 35,108
Deferred policy acquisition costs..................................................... 168,525 178,807
Present value of future profits of acquired business.................................. 50,705 63,863
Deferred income tax asset............................................................. 53,033 121,007
Excess cost of investments in subsidiaries over net assets acquired, net of
accumulated amortization............................................................ 307,604 317,197
Other assets.......................................................................... 47,999 82,733
Assets held in separate accounts...................................................... 5,207 5,305
------------ ------------
$ 3,697,863 $ 3,868,060
------------ ------------
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Insurance liabilities:
Future policy benefits and other policy liabilities................................. $ 927,303 $ 1,008,586
Universal life and investment contract liabilities.................................. 1,684,396 1,598,548
Notes payable:
Due within one year................................................................. 34,546 79,422
Due after one year.................................................................. 383,435 463,908
Collateralized mortgage note obligation............................................... 157,231
Federal income taxes currently payable................................................ 29,015 1,491
Other liabilities..................................................................... 138,791 134,320
Liabilities related to separate accounts.............................................. 5,207 5,305
------------ ------------
3,202,693 3,448,811
------------ ------------
Commitments and contingencies
Stockholders' equity:
Preferred stock..................................................................... 229,239 329,242
Common stock........................................................................ 71,594 71,401
Common stock, Class B............................................................... 100 100
Additional paid-in capital.......................................................... 155,499 155,391
Net unrealized investment gains, net of deferred income taxes....................... 20,458 18,823
Retained earnings (deficit)......................................................... 71,833 (102,654)
------------ ------------
548,723 472,303
Notes receivable collateralized by common stock..................................... (1,729) (2,163)
Treasury stock, at cost............................................................. (51,824) (50,891)
------------ ------------
495,170 419,249
------------ ------------
$ 3,697,863 $ 3,868,060
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
49
<PAGE>
I.C.H. CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1993 1992 1991
-------------- -------------- --------------
<S> <C> <C> <C>
Income:
Premium income and other considerations...................... $ 475,026 $ 1,388,779 $ 1,495,676
Net investment income........................................ 195,632 333,138 370,755
Realized investment gains (losses)........................... 34,825 (119,088) (26,354)
Equity in earnings of equity investees and limited
partnerships................................................ 35,210 6,203 6,750
Other income................................................. 44,660 20,521 40,788
Gain on sale of subsidiaries................................. 110,734
Gain on sale of investment in Bankers Life Holding
Corporation................................................. 297,041
-------------- -------------- --------------
1,082,394 1,740,287 1,887,615
-------------- -------------- --------------
Benefits, expenses and costs:
Policyholder benefits........................................ 428,332 1,205,445 1,279,542
Amortization of deferred policy acquisition costs and present
value of future profits.................................... 48,900 133,457 168,075
Other operating expenses..................................... 223,788 329,844 296,795
Amortization of excess cost.................................. 9,591 10,981 11,365
Interest expense............................................. 66,153 78,961 98,570
-------------- -------------- --------------
776,764 1,758,688 1,854,347
-------------- -------------- --------------
Operating earnings (loss) before income taxes.................... 305,630 (18,401) 33,268
Income tax expense (credit)...................................... 93,706 (69,256) 7,839
-------------- -------------- --------------
Operating earnings............................................... 211,924 50,855 25,429
Cumulative effect of changes in accounting methods............... (6,734) 8,783
Extraordinary losses, net of tax effects......................... (1,919) (4,342)
-------------- -------------- --------------
Net earnings..................................................... 203,271 46,513 34,212
Less dividends on preferred stock................................ (28,784) (30,800) (30,800)
-------------- -------------- --------------
Net earnings applicable to common stock.......................... $ 174,487 $ 15,713 $ 3,412
-------------- -------------- --------------
-------------- -------------- --------------
Weighted average common shares outstanding....................... 47,915,551 48,139,870 48,181,751
-------------- -------------- --------------
-------------- -------------- --------------
Primary earnings per common share:
Operating earnings (loss).................................... $ 3.82 $ .42 $ (.11)
Cumulative effect of changes in accounting methods........... (.14) .18
Extraordinary losses......................................... (.04) (.09)
----- ----- -----
Net earnings................................................. $ 3.64 $ .33 $ .07
----- ----- -----
----- ----- -----
Fully diluted earnings per common share:
Operating earnings (loss).................................... $ 3.53 $ .42 $ (.11)
Cumulative effect of changes in accounting methods........... (.12) .18
Extraordinary losses......................................... (.03) (.09)
----- ----- -----
Net earnings................................................. $ 3.38 $ .33 $ .07
----- ----- -----
----- ----- -----
</TABLE>
The accompanying notes are an integral part of the financial statements.
50
<PAGE>
I.C.H. CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992, AND 1991
(IN THOUSANDS)
<TABLE>
<CAPTION>
1993 1992 1991
------------ ------------ ------------
<S> <C> <C> <C>
Preferred stock:
Balance at beginning of year.......................................... $ 329,242 $ 329,242 $ 329,242
Exchanged for common stock............................................ (3)
Cash redemption....................................................... (100,000)
------------ ------------ ------------
Balance at end of year................................................ 229,239 329,242 329,242
------------ ------------ ------------
Common stock:
Balance at beginning of year.......................................... 71,401 71,399 75,656
Exercise of stock options............................................. 192 2
Exchange of preferred stock........................................... 1
Retirement of treasury shares......................................... (4,257)
------------ ------------ ------------
Balance at end of year................................................ 71,594 71,401 71,399
------------ ------------ ------------
Common stock, Class B:
Balance at beginning and end of year.................................. 100 100 100
------------ ------------ ------------
Additional paid-in capital:
Balance at beginning of year.......................................... 155,391 155,389 164,655
Exercise of stock options............................................. 106 2
Exchange of preferred stock........................................... 2
Retirement of treasury shares......................................... (9,266)
------------ ------------ ------------
Balance at end of year................................................ 155,499 155,391 155,389
------------ ------------ ------------
Net unrealized investment gains (losses):
Balance at beginning of year.......................................... 18,823 (3,384) (8,145)
Change during year.................................................... 1,635 22,207 4,761
------------ ------------ ------------
Balance at end of year................................................ 20,458 18,823 (3,384)
------------ ------------ ------------
Retained earnings (deficit):
Balance at beginning of year.......................................... (102,654) (118,367) (109,100)
Net earnings.......................................................... 203,271 46,513 34,212
Cash dividends on preferred stock..................................... (28,784) (30,800) (30,800)
Retirement of treasury shares......................................... (12,679)
------------ ------------ ------------
Balance at end of year................................................ 71,833 (102,654) (118,367)
------------ ------------ ------------
Notes receivable collateralized by common stock:
Balance at beginning of year.......................................... (2,163)
Additions during year................................................. (154) (2,163)
Collections during year............................................... 588
------------ ------------
Balance at end of year................................................ (1,729) (2,163)
------------ ------------
Treasury stock, common:
Balance at beginning of year.......................................... (50,891) (49,460) (75,662)
Purchase of shares.................................................... (933) (1,431)
Retirement of treasury shares......................................... 26,202
------------ ------------ ------------
Balance at end of year................................................ (51,824) (50,891) (49,460)
------------ ------------ ------------
Total stockholders' equity.......................................... $ 495,170 $ 419,249 $ 384,919
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
51
<PAGE>
I.C.H. CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(IN THOUSANDS)
<TABLE>
<CAPTION>
1993 1992 1991
------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Operating earnings........................................................... $ 211,924 $ 50,855 $ 25,429
Items not requiring (providing) cash:
Adjustments relating to universal life and investment products:
Interest credited to account balances................................ 100,120 159,392 161,173
Charges for mortality and administration............................. (71,375) (85,730) (91,008)
Depreciation and amortization............................................ 26,639 23,454 24,401
Increase in future policy benefits....................................... 621 33,970 93,753
Decrease (increase) in deferred policy acquisition costs................. 24 (10,219) (13,450)
Increase (decrease) in currently payable taxes........................... 16,384 (45,986) 21,118
Increase (decrease) in policy liabilities, other policyholder funds,
accounts payable and accrued expenses.................................. 27,745 7,649 (10,711)
Decrease in notes and accounts receivable and accrued investment
income................................................................. 7,838 15,903 1,226
Amortization of bond, mortgage and collateral loan discount, net......... 7,484 (13,606) (16,609)
Decrease (increase) in deferred income tax asset......................... 73,028 (60,152) (21,645)
Increase (decrease) in asset valuation allowances........................ (28,751) 115,374 21,848
Equity in undistributed earnings of equity investees and limited
partnerships........................................................... (34,276) (6,203) (6,750)
Gain on sale of investment in Bankers Life Holding Corporation........... (297,041)
Gain on sale of subsidiaries............................................. (110,734)
Gain on termination of reinsurance....................................... (22,642)
Other, net............................................................... (10,786) 2,407 8,944
------------- ------------- -------------
Net cash provided by operating activities............................ 6,936 76,374 197,719
------------- ------------- -------------
Cash flows from investing activities:
Sales of fixed maturities.................................................... 640,168 1,410,441 2,967,470
Maturities and other redemptions of fixed maturities......................... 604,735 885,248 987,603
Sales of other long-term invested assets..................................... 252,883 175,995 63,576
Sale of investment in Bankers Life Holding Corporation....................... 287,639
Proceeds from sale of subsidiaries, net of cash disposed..................... 89,672
Purchases of fixed maturities................................................ (1,186,502) (2,246,298) (4,023,114)
Purchases of other long-term invested assets................................. (120,696) (162,526) (101,770)
Cash transferred on reinsurance transactions................................. (43,152)
Other........................................................................ (8,001)
------------- ------------- -------------
Net cash provided (used) by investing activities..................... 435,075 144,531 (106,235)
------------- ------------- -------------
Cash flows from financing activities:
Proceeds of notes payable.................................................... 6,200
Proceeds of collateralized mortgage note obligations......................... 171,000
Principal payments on collateralized mortgage note obligations............... (205,356)
Policyholder contract deposits............................................... 200,439 615,171 447,372
Policyholder contract withdrawals............................................ (407,871) (603,833) (426,478)
Principal payments on notes payable.......................................... (41,280) (169,229) (75,489)
Repurchase of subordinated debt.............................................. (84,069) (1,694)
Redemption of preferred stock................................................ (100,000)
Purchase of common stock for treasury........................................ (933) (1,431)
Dividends on preferred shares................................................ (28,784) (30,800) (30,800)
------------- ------------- -------------
Net cash used by financing activities................................ (496,854) (185,616) (85,395)
------------- ------------- -------------
Net increase (decrease) in cash and short-term investments....................... (54,843) 35,289 6,089
Cash and short-term investments at beginning of year............................. 421,765 386,476 380,387
------------- ------------- -------------
Cash and short-term investments at end of year................................... $ 366,922 $ 421,765 $ 386,476
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
52
<PAGE>
I.C.H. CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) BASIS OF PRESENTATION
The consolidated financial statements include the accounts of I.C.H.
Corporation (Company) and its wholly-owned and majority-owned subsidiaries from
date of acquisition or through date of divestiture. All significant intercompany
accounts and transactions have been eliminated in consolidation. Previously
reported amounts for 1992 and 1991 have in some instances been reclassified to
conform to the 1993 presentation. See Note 2 for 1993 and 1992 organization
changes.
The Company's insurance subsidiaries maintain their accounts in conformity
with accounting practices prescribed or permitted by state insurance regulatory
authorities. In the accompanying financial statements such accounts have been
adjusted to conform with generally accepted accounting principles (GAAP).
(B) INVESTMENTS
Fixed maturity investments include bonds and preferred stocks with mandatory
redemption features. The Company classifies all fixed maturity investments into
two categories as follows:
- Available for sale securities, representing securities that are
readily marketable and that may be sold prior to maturity due
to changes that might occur in market interest rate risks,
changes in the security's prepayment risk, the Company's
management of its income tax position, its general liquidity
needs, increases in loan demand, the need to increase
regulatory capital, changes in foreign currency risk, or
similar factors. Available for sale securities are carried at
fair value.
- Held to maturity securities, representing securities such as
private placements which are not readily marketable and which
the Company has the ability and positive intent to hold to
maturity. Held to maturity securities are carried at amortized
cost. The Company may dispose of such securities under certain
unforeseen circumstances, such as issuer credit deterioration
or regulatory requirements.
Fixed maturity investments and related futures contracts which are
denominated in or linked to foreign currencies are revalued to reflect changes
in the exchange rate as of the balance sheet date. Anticipated prepayments on
mortgage-backed securities are taken into consideration in determining estimated
future yields on such securities.
Equity securities include investments in common stocks and non-redeemable
preferred stocks and are carried at fair value. Policy loans and collateral
loans are stated at their current unpaid principal balance, net of unamortized
discount and related liabilities for which the Company has the right to offset.
Short-term investments include commercial paper, invested cash and other
investments purchased with maturities generally less than three months and are
carried at amortized cost. The Company considers all short-term investments to
be cash equivalents.
Mortgage loans are stated at the aggregate unpaid principal balances, less
unamortized discount. Fees received and costs incurred with origination of
mortgage loans are deferred and amortized as yield adjustments over the
remaining lives of the mortgages. Real estate, substantially all of which was
acquired through foreclosure, is recorded at the lower of fair value minus
estimated costs to sell or cost. If the fair value of the foreclosed real estate
minus estimated costs to sell is less than cost, a valuation allowance is
provided for the deficiency. Increases or decreases in the valuation allowance
are charged or credited to income.
Investments in limited partnerships and 20% to 50% interests in the common
stocks of other entities, whose affairs are not controlled by the Company
(equity investees), are reflected on the
53
<PAGE>
I.C.H. CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
equity method, or at cost, adjusted for the Company's share, after allowance for
possible dilution, of the undistributed earnings and losses (both realized and
unrealized) since acquisition. At December 31, 1992 the carrying value of the
Company's residual ownership interest in a divested subsidiary had been adjusted
for (i) the excess of the sales proceeds received over (ii) the Company's basis
in the 39.9% interest in the divested subsidiary retained by the Company. A
portion of such excess of sales proceeds over the Company's basis was being
amortized into earnings on a straight-line basis over ten years.
The Company regularly evaluates investments based on current economic
conditions, past credit loss experience and other circumstances. A decline in
net realizable value that is other than temporary is recognized as a realized
investment loss and a reduction in the cost basis of the investment. The Company
discounts expected cash flow in the computation of net realizable value of its
investments, other than certain mortgage-backed securities. In those
circumstances where the expected cash flows of residual interest and
interest-only mortgage-backed securities, discounted at a risk-free rate of
return, result in an amount less than the carrying value, a realized loss is
reflected in an amount sufficient to adjust the carrying value of a given
security to its fair value.
Net realized investment gains and losses, including gains and losses on
foreign currency transactions and held for sale securities, are included in the
determination of net earnings. Unrealized investment gains and losses on
available for sale securities and marketable equity securities are charged or
credited directly to stockholders' equity. The specific identification method is
used to account for the disposition of investments.
(C) DUE FROM REINSURERS
At December 31, 1993, amounts recoverable from reinsurers, including amounts
equal to the assets supporting insurance liabilities ceded to reinsurers and
amounts due for the reimbursement of related benefit payments, are reflected as
receivables due from reinsurers. Amounts due from reinsurers are evaluated as to
their collectibility and, if appropriate, reserves for doubtful collectibility
are established through a charge to earnings.
(D) EXCESS COST OF INVESTMENT IN SUBSIDIARIES OVER NET ASSETS ACQUIRED
The excess cost of investments in subsidiaries over net assets acquired is
being amortized on the straight-line basis over a 40-year period. The Company
periodically assesses the recoverability of its excess cost through an actuarial
projection of undiscounted future earnings of the Company's insurance
subsidiaries (excluding excess cost amortization) over the remaining life of
such excess cost. Such projections are prepared under various interest rate
scenarios, with anticipated levels of new business production for only a
five-year period.
(E) DEFERRED POLICY ACQUISITION COSTS AND PRESENT VALUE OF FUTURE PROFITS OF
ACQUIRED BUSINESS
Costs which vary with and are related to the acquisition of new business
have been deferred to the extent that such costs are deemed recoverable through
future revenues. These costs include commissions, certain costs of policy
issuance and underwriting and certain variable agency expenses. For traditional
life and health products deferred costs are amortized with interest over the
premium paying period in proportion to the ratio of anticipated annual premium
revenue to the anticipated total premium revenue. Deferred policy acquisition
costs related to universal life, interest-sensitive and investment products are
amortized in relation to the present value, using the assumed crediting rate, of
expected gross profits on the products, and retrospective adjustments of these
amounts are made whenever the Company revises its estimates of current or future
gross profits to be realized from a group of policies.
54
<PAGE>
I.C.H. CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The present value of future profits on business in force of acquired
subsidiaries represents the portion of the cost to acquire such subsidiaries
that is allocated to the value of the right to receive future cash flows from
insurance contracts existing at the dates of acquisitions. Such value is the
actuarially determined present value of the future cash flows from the acquired
policies, based on projections of future premium collection, mortality,
morbidity, surrenders, operating expenses, investment yields, and other factors.
The account is amortized with interest over the estimated remaining life of the
acquired policies.
Recoverability of deferred policy acquisition costs and the present value of
future profits of acquired business is evaluated annually by comparing the
current estimate of discounted expected future cash flows to the unamortized
asset balance by line of insurance business. If such current estimate indicates
that the existing insurance liabilities, together with the present value of
future cash flows from the business, will not be sufficient to recover the
unamortized asset balance, the difference is charged to expense. Amortization is
adjusted in future years to reflect the revised estimate of future profits.
Anticipated returns, including realized and unrealized gains and losses,
from the investment of policyholder balances are considered in determining the
amortization of deferred policy acquisition costs. When fixed maturities are
stated at their fair value, an adjustment is made to deferred policy acquisition
costs and unearned revenue reserves equal to the changes in amortization that
would have been recorded if those fixed maturities had been sold at their fair
value and the proceeds reinvested at current yields. Furthermore, if future
yields expected to be earned on fixed maturities decline, it may be necessary to
increase certain insurance liabilities. Adjustments to such liabilities are
required when their balances, in addition to future net cash flows including
investment income, are insufficient to cover future benefits and expenses.
(F) SEPARATE ACCOUNTS
Separate accounts represent segregated assets whose values directly
determine the amounts of the liabilities for variable products and separate
account pension deposits. The insurance company does not have an investment risk
with these assets and liabilities. The risk lies solely with the holder of the
contract.
(G) FUTURE POLICY BENEFITS
The liability for future policy benefits of long duration contracts has been
computed by the net level premium method based on estimated future investment
yield, mortality, morbidity and withdrawal experience. Reserve interest
assumptions are graded and range from 6% to 10%. Mortality, morbidity and
withdrawal assumptions reflect the experience of the life insurance subsidiaries
modified as necessary to reflect anticipated trends and to include provisions
for possible unfavorable deviations. The assumptions vary by plan, year of issue
and duration. The future policy benefit reserves include a provision for
policyholder dividends based upon dividend scales assumed at the date of
purchase of acquired companies or as presently contemplated.
(H) POLICY AND CONTRACT CLAIMS
Policy and contract claims include provisions for reported claims in process
of settlement, valued in accordance with the terms of the related policies and
contracts, as well as provisions for claims incurred and unreported based on
prior experience of the Company.
55
<PAGE>
I.C.H. CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(I) UNIVERSAL LIFE AND INVESTMENT CONTRACT LIABILITIES
Benefit reserves for universal life, interest-sensitive and investment
products are determined following the retrospective deposit method and consist
principally of policy account values before any surrender charges, plus certain
deferred policy fees which are amortized using the same assumptions and factors
used to amortize deferred policy acquisition costs.
(J) INCOME TAXES
Deferred income taxes are recorded to reflect the tax consequences on future
years of differences between the tax bases of assets and liabilities and their
financial reporting amounts at each year-end. Excess cost of investment in
subsidiaries over net assets acquired is reduced for the tax benefits obtained
from the utilization of an acquired company's tax deductions.
(K) RECOGNITION OF PREMIUM REVENUE AND RELATED EXPENSES
Premium revenue for traditional life insurance products is reported as
earned when due. Accident and health premiums are earned over the period for
which premiums are paid. Benefits and expenses are associated with earned
premiums so as to result in recognition of profits over the premium paying
period. This association is accomplished by means of a provision for future
policy benefit reserves and the amortization of deferred policy acquisition
costs.
(L) PARTICIPATING POLICIES
Participating life insurance policies represent approximately 1% and 4% of
the total individual life insurance in force at December 31, 1993 and 1992,
respectively. The amount of dividends to be paid is determined annually by the
boards of directors of the life insurance subsidiaries. A portion of the
earnings of the Company is allocated to the participating policyholders and
included in other policyholder funds.
(M) FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:
CASH AND SHORT-TERM INVESTMENTS: The carrying amounts reported in the
balance sheet for these instruments approximate their fair values.
INVESTMENT SECURITIES: Fair values for fixed maturity securities
(including mandatorily redeemable preferred stocks) are based on quoted
market prices, where available. For fixed maturity securities not actively
traded, fair values are estimated using values obtained from independent
pricing services or are estimated based on expected future cash flows using
a current market rate applicable to the yield, credit quality, and maturity
of the investments. The fair values for equity securities are based on
quoted market prices and are recognized in the balance sheet.
MORTGAGE AND COLLATERAL LOANS: The fair values for mortgage and
collateral loans are estimated using discounted cash flow analyses, based on
interest rates currently being offered for similar loans to borrowers with
similar credit ratings. Loans with similar characteristics are aggregated
for purposes of the calculations.
POLICY LOANS: The Company does not believe an estimate of the fair
value of policy loans can be made without incurring excessive cost. Policy
loans have no stated maturities and are usually repaid by reductions to
benefits and surrenders. Because of the numerous assumptions which would
have to be made to estimate fair value, the Company further believes that
such information would not be meaningful.
56
<PAGE>
I.C.H. CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INVESTMENTS IN LIMITED PARTNERSHIPS: Fair values for the Company's
investments in limited partnerships are based on the estimated fair values
of the partnership assets and liabilities, assuming a liquidation of the
partnership and distribution of proceeds to the partners.
OFF-BALANCE-SHEET INSTRUMENTS: Fair values for the Company's
off-balance-sheet interest rate swaps are based on formulas using current
assumptions.
INVESTMENT CONTRACTS: Fair values for the Company's liabilities under
investment-type insurance contracts are estimated using discounted cash flow
calculations, based on interest rates currently being offered for similar
contracts with maturities consistent with those remaining for the contracts
being valued.
NOTES PAYABLE: The fair value of the Company's long-term debt is
estimated using discounted cash flow analyses, based on the Company's
current incremental borrowing rates for similar types of borrowing
arrangements.
(N) EARNINGS PER SHARE CALCULATIONS
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, 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.
2. ACQUISITIONS AND DISPOSITIONS
On November 9, 1992, the Company completed the sale of its wholly-owned
subsidiary, Bankers Life and Casualty Company (Bankers), and Bankers'
subsidiary, Certified Life Insurance Company (Certified), to an affiliate of
Conseco, Inc. (Conseco) for $600 million cash, subject to final adjustment.
Prior to the closing, Bankers transferred its ownership in all of its other
subsidiaries to the Company, and the Company and its subsidiaries purchased
certain other assets from Bankers, including primarily a residual interest in
certain mortgage-backed securities, Bankers' home office real estate, and
certain equity investments. The Company provided financing for the acquisition
totaling $101.4 million and, in return, retained an approximate 29.7% interest
in Bankers. The financing consisted of a $16.7 million common equity investment
in Bankers Life Holding Corporation (BLHC), the Conseco entity formed for the
purpose of making the acquisition, and the purchase of $34.7 million of BLHC 11%
Junior Subordinated Debentures due 2003 and $50.0 million of a BLHC preferred
stock yielding an 11% annual return. In addition, Conseco Capital Partners, L.P.
(CCP) acquired a 52.6% interest in BLHC, and the Company, through one of its
subsidiaries, made an additional $9.6 million investment to acquire a 19.3%
ownership interest in CCP. As a result of the 29.7% interest in BLHC and the
indirect investment through CCP, the Company retained a residual interest in
Bankers totaling approximately 39.9%. The results of operations of Bankers and
Certified were included in the Company's consolidated results of operations
through October 31, 1992, the effective date of the sale for financial reporting
purposes. Subsequent to that date, the Company reflected its proportionate share
of the operating results of CCP and BLHC based on the equity method. Because of
the significant ownership interest in Bankers retained by the Company, the sale
of Bankers was accounted for as a step transaction in accordance with GAAP.
Accordingly, the Company reflected its residual interest in Bankers on its
historical accounting basis and reflected a gain on the approximate 60.1%
interest in Bankers deemed to have been sold totaling $110,734,000 in the
Company's consolidated statement of earnings for the year ended December 31,
1992. In conjunction with the sale of Bankers, the Company
57
<PAGE>
I.C.H. CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. ACQUISITIONS AND DISPOSITIONS (CONTINUED)
indemnified the purchasers against certain contingencies relating to taxes and
other matters associated with Bankers and Certified in periods prior to the
closing date. The Company believes its liability, if any, will not be material.
Effective March 31, 1993, BLHC completed an initial public offering
(Offering) of 19.55 million shares of its common stock, or an approximate 35.8%
interest in BLHC at $22 per share. Proceeds of the Offering, after underwriting
expenses, approximated $405 million. Effective the same day, CCP announced a
plan of dissolution and BLHC shares held by CCP were subsequently distributed to
the respective partners in accordance with that plan. The Company received
2,917,318 shares of BLHC common stock as a result of such distribution,
increasing its direct ownership in BLHC common stock to 13,316,168 shares, or
approximately 24.4% of BLHC's outstanding common shares following the Offering.
The Company reflected a gain on the BLHC Offering totaling $99,376,000,
primarily representing the Company's 24.4% equity in the net proceeds of such
Offering. BLHC utilized a portion of the Offering proceeds to redeem certain of
its outstanding securities, including the $50 million stated value of BLHC
preferred stock and the $34.7 million principal amount of BLHC Junior
Subordinated Notes held by the Company. Because a portion of the purchase price
paid for such investments had been allocated to the Company's common equity
investments in BLHC, such redemptions resulted in additional gains totaling
$8,252,000, which have been included as a component of realized investment
gains.
On September 30, 1993, the Company sold its remaining investment in BLHC to
Conseco and one of Conseco's subsidiaries for $287,639,000 cash. The Company
utilized $50 million of the proceeds to redeem $50 million stated value of the
Series 1987-A Preferred Stock of the Company from a Conseco subsidiary. The sale
of the BLHC shares resulted in a gain totaling $197,665,000. The gains resulting
from BLHC's Offering and the sale of the Company's remaining interest in BLHC
totaling $297,041,000 have been reflected as a single line item in the
consolidated statement of earnings for the year ended December 31, 1993. The
Company continued to reflect its equity in the earnings of BLHC through the date
of sale.
In addition to the sales of Bankers and the Company's interest in BLHC and
the subsequent application of the proceeds from such sales, other transactions
occurred during 1993 or are expected to occur in 1994 that have had or are
expected to have a significant effect on the Company's results of operations,
including 1) the sale in 1993 of a 75% interest in a special purpose trust
holding certain mortgage-backed securities and the deconsolidation of the
accounts of such trust (see Note 3), 2) the sale in 1993 of the Company's
investment in the common stock of CCP Insurance, Inc. (CCP Insurance) (see Note
6) and the reinvestment of the proceeds from such sale, and 3) the assumed
completion in 1994 of the recapture of certain annuity business ceded to an
affiliate under a reinsurance agreement and the related retirement of certain of
the Company's debt and preferred stock upon completion of the recapture (see
Note 4). Following is unaudited pro forma results of the Company with reported
results adjusted to reflect the effects on operations of the above described
transactions. The approximate after-tax gains realized on the sale of Bankers
totaling $73.1 million in 1992 and the Company's interest in BLHC totaling
$193.1 million in 1993 are included in the Company's historical results, but
have been eliminated from the pro forma results. The $600 million of proceeds
from the sale of Bankers in 1992 was utilized 1) to retire $75 million of the
Company's 16 1/2% Senior Subordinated Debentures due 1994 (Debentures), 2) to
retire $85 million of the Company's senior secured debt, 3) to purchase $84.7
million of BLHC debt and preferred stock, 4) to purchase $26.3 million of BLHC
and CCP equity investments, and 5) to purchase assets from Bankers for $280.5
million. The remaining $48.5 million of proceeds from the sale of Bankers, along
with the remaining proceeds from the sales of the Company's investments in BLHC
and CCP Insurance, is assumed to have been invested at a new money rate of
6 1/4%. The Company utilized $100 million of the proceeds from the sale
58
<PAGE>
I.C.H. CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
2. ACQUISITIONS AND DISPOSITIONS (CONTINUED)
of BLHC to redeem the Company's Series 1986-A and 1986-C preferred stocks and
approximately $45.9 million of its Debentures, and the remaining proceeds
totaled approximately $141.7 million. The pro forma results further assume that
all of the transactions occurred as of the first day of each period persented.
Such pro forma results may not represent what the Company's results would have
been had the assumed transactions occurred at the beginning of such periods and
do not purport to project the Company's results for any future period.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
--------------------
1993 1992
--------- ---------
(IN MILLIONS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
Revenues.............................................................. $ 748.8 $ 632.1
--------- ---------
--------- ---------
Operating earnings (loss)............................................. $ 12.2 $ (35.2)
--------- ---------
--------- ---------
Primary and fully diluted operating loss per common share............. $ (.04) $ (1.02)
--------- ---------
--------- ---------
</TABLE>
3. NOTES PAYABLE AND COLLATERALIZED MORTGAGE NOTE OBLIGATION
The carrying amount of notes payable at December 31, 1993 and 1992, and the
fair value of notes payable at December 31, 1993, are summarized as follows:
<TABLE>
<CAPTION>
CARRYING AMOUNT
------------------------ FAIR VALUE
1993 1992 1993
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Borrowings under senior secured loan(a).................................... $ 30,000 $ 30,000 $ 30,000
16 1/2% Senior Subordinated Debentures due 1994(b)......................... 124,910
11 1/4% Senior Subordinated Notes due 1996(c).............................. 266,101 353,207 263,440
11 1/4% Senior Subordinated Notes due 2003(d).............................. 91,161 90,249
9 1/2% unsecured note payable due 1996(e).................................. 25,550 29,200 25,071
Note payable, interest at prime, due in monthly installments through 1999,
collateralized by aircraft equipment..................................... 4,872 5,654 4,872
Other...................................................................... 297 359 297
----------- ----------- -----------
$ 417,981 $ 543,330 $ 413,929
----------- ----------- -----------
----------- ----------- -----------
The prime rate at December 31, 1993 was 6%.
<FN>
- ---------
(a) The senior secured loan was initially issued to various banks in
September 1990 in the original principal amount of $250 million, and had been
paid down to $160 million by year-end 1991. On January 6, 1992, the Company
prepaid $45 million of the outstanding loan and the remaining $115 million of
the loan was purchased by Consolidated Fidelity Life Insurance Company (CFLIC),
a subsidiary of Consolidated National Corporation (CNC), the Company's
then-controlling shareholder. On November 17, 1992, the Company prepaid an
additional $85 million of the loan utilizing proceeds from the sale of Bankers,
and CFLIC agreed that a final installment of $30 million would become due
December 31, 1994. The loan bears interest at the prime lending rate plus 1% and
is collateralized by first liens on the common stocks of Modern American Life
Insurance Company (Modern American), SWL Holding Corporation and Facilities
Management Installation, Inc. (FMI). Covenants of the loan require the Company
to maintain a specified minimum net worth, comply with certain financial ratios
and prohibits the declaration and payment of a cash dividend on the Company's
Common Stock.
(b) For financial reporting purposes, the 16 1/2% Debentures are reflected
as having been redeemed in their entirety during 1993 through 1) a $37,476,000
scheduled sinking fund installment in
</TABLE>
59
<PAGE>
I.C.H. CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. NOTES PAYABLE AND COLLATERALIZED MORTGAGE NOTE OBLIGATION (CONTINUED)
<TABLE>
<S> <C>
January 1993, 2) the early redemption of $37,500,000 of the Debentures effective
March 31, 1993, at a
price totaling 101.84% of the amount redeemed, 3) the exchange of $4,055,000 of
the Debentures for an equal amount of the Company's 11 1/4% Senior Subordinated
Notes due 2003 effected November 11, 1993, and 4) the redemption of the
remaining $45,879,000 of the Debentures at their par value on January 3, 1994.
Funds to effect the January 1994 redemption were irrevocably placed in trust on
December 30, 1993, and such redemption has been reflected for financial
reporting purposes as of that date.
(c) The 11 1/4% Senior Subordinated Notes due 1996 (Old Notes) require
sinking fund payments of $100 million on December 1 of each of the years 1994
and 1995. The Old Notes are redeemable at the option of the Company by paying a
premium of 3% through November 30, 1994, and a premium of 2% for the succeeding
twelve months. Thereafter, the Old Notes may be redeemed at their face amount.
In addition, the Company may not declare or pay dividends on its Common Stock
without the consent of the holders of the Old Notes if certain financial
conditions set forth in the Indenture for such Notes will be exceeded as a
result of the dividends.
(d) On November 11, 1993, the Company completed an exchange offering whereby
$4,055,000 of the Company's Debentures and $87,106,000 of the Company's Old
Notes were exchanged for $91,161,000 of the Company's 11 1/4% Senior
Subordinated Notes due 2003 (New Notes). The terms and covenants of the New
Notes are substantially similar to those of the Old Notes, except that the New
Notes mature December 1, 2003 and are non-callable until December 1, 1996, after
which they will be callable at a premium of 3% during the succeeding twelve
month period and 2% during the twelve month period commencing December 1, 1997.
(e) The 9 1/2% note payable requires principal installments of $3.65 million
in each of the years 1991 through 1995 and a final installment of $18.25 million
in 1996.
</TABLE>
The following summary sets forth the maturities and sinking fund
requirements of notes payable during each of the five years following December
31, 1993 (in thousands):
<TABLE>
<S> <C>
1994....................................... $ 34,546
1995....................................... 70,686
1996....................................... 219,244
1997....................................... 1,058
1998 and thereafter........................ 92,447
---------
$ 417,981
---------
---------
</TABLE>
At December 31, 1993, the Company held $46,793,000 principal amount of the
Old Notes which, at the Company's option, can be used to partially satisfy its
first $100 million sinking fund obligation relative to such notes due December
1, 1994. In addition, at its option, the Company can defer the remainder of its
sinking fund obligation in 1994 and a portion of its sinking fund obligation in
1995 based on the $87,106,000 of Old Notes which were exchanged for an equal
amount of New Notes. Accordingly, in the above schedule of maturities and
sinking fund requirements, it has been assumed that there is no sinking fund
requirement relative to the Old Notes in 1994 and the sinking fund requirement
in 1995 will total $66,101,000. At its option, the Company may alternatively
determine to use sinking fund provisions in 1994 and 1995 to retire up to $100
million principal amount of the Old Notes at their par value in each year.
At December 31, 1993 and 1992, the Company had notes receivable totaling
$26,500,000 and $26,000,000, respectively, which were collateralized by the
Company's note payable in the amount of
60
<PAGE>
I.C.H. CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
3. NOTES PAYABLE AND COLLATERALIZED MORTGAGE NOTE OBLIGATION (CONTINUED)
$20,340,000 and $19,780,000, respectively. The Company has the right to set off
its obligation against the notes receivable. In the accompanying balance sheets,
the Company's notes receivables have been reflected net of amounts due under the
notes payable.
Immediately prior to its sale, Bankers held certain mortgage-backed
securities and other related securities used as hedges with a carrying value of
$252,049,000. In conjunction with the sale of Bankers, these securities were
placed in a special purpose trust (the Trust), organized by a new special
purpose subsidiary, I.C.H. Funding Corporation (ICH Funding). Bankers was issued
a $159,162,000 bond collateralized by the securities placed in the Trust. The
Company retained a residual interest in the Trust totaling $91,797,000. All of
the receipts on the securities placed in the Trust were to be applied first to
repay the principal and interest on the bond retained by Bankers of 8.5%. The
bond to Bankers with a carrying value of $157,231,000 at December 31, 1992, was
reflected in the accompanying balance sheet as a collateralized mortgage note
obligation. The Company was granted an option to purchase Bankers' interest in
the bond at its remaining carrying value within ninety days following the sale
of Bankers. On February 5, 1993, the Trust completed the sale to unaffiliated
parties of interests in the trust totaling $171,000,000 and utilized
$142,092,000 of the proceeds to retire the remaining obligation due Bankers. On
July 30, 1993, the Company and its affiliate, CFLIC, sold 75% of their rights
with respect to the Trust to an unaffiliated party and the accounts of the
Trust, including the collateralized mortgage note obligations, were eliminated
from the consolidated financial statements of the Company for periods subsequent
to that date.
4. RELATED PARTY TRANSACTIONS
Effective June 15, 1993, the Company entered into an agreement (the
Agreement) with CNC and CFLIC, pursuant to which the Company acquired $63
million of a newly-issued preferred stock from CFLIC in exchange for the
Company's ownership interest in certain investments with a carrying value and an
estimated fair value as of that date of $63 million, including the Company's
ownership in a limited partnership (the HMC/Life Partners, L.P.) and 83% of the
Company's ownership in ICH Funding. The transactions with CFLIC were entered
into as the first step in a series of transactions which are intended to
terminate certain reinsurance arrangements involving CFLIC. The reinsurance
arrangements involve certain annuity business with reserves totaling $330.0
million as of December 31, 1993, which was transferred by the Company's
subsidiary, Southwestern Life Insurance Company (Southwestern), to an
unaffiliated insurer in 1990. The unaffiliated insurer, in turn, transferred the
business to another CNC subsidiary, Marquette National Life Insurance Company
(Marquette), and, in 1991, Marquette transferred the annuity business to CFLIC.
Under terms of the Agreement, upon termination of the reinsurance agreements
involving CFLIC and Southwestern, along with the termination of other
reinsurance arrangements involving CFLIC and Bankers, the CFLIC preferred stock
is to be redeemed by the return of certain assets presently held by CFLIC to the
Company, including the Company's senior secured debt totaling $30 million, the
Company's 1984-A Preferred Stock with a stated value of $22,242,000, the
Company's 1986-B Preferred Stock with a stated value of $7 million, and certain
other assets to be determined. The CFLIC preferred stock is non-redeemable and
non-voting, with 6% annual dividends that are payable "in-kind" until the
reinsurance arrangements are terminated. The Company and CFLIC anticipate that
the assets received by CFLIC from the Company as consideration for the preferred
stock, along with other assets held by CFLIC, including its ownership in
Marquette, will be transferred to Southwestern upon recapture of the annuity
business. The termination of the reinsurance arrangements are subject to
negotiations with the unaffiliated reinsurer and approval by regulatory
authorities. After March 31, 1994, if the recaptures are not complete, CNC will
have the right, subject to regulatory approval, to transfer to the Company all
of the common stock of CFLIC in exchange for the assets of CFLIC that were to be
retained by CNC upon completion of the recaptures. For financial reporting
purposes, no gain or loss was recognized on the transfer of the assets to CFLIC.
At December 31, 1993, the
61
<PAGE>
I.C.H. CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
4. RELATED PARTY TRANSACTIONS (CONTINUED)
Company has reflected its investment in the CFLIC preferred stock at its
approximate fair value of $54 million, or less than the $63 million fair value
initially assigned to such stock based primarily on the change in the fair value
of the assets transferred to CFLIC subsequent to June 15, 1993. In addition, the
Company has continued to include the accounts of ICH Funding in its consolidated
financial statements, with CFLIC's ownership interest reflected as a minority
interest in such investment.
Experience refunds received from CFLIC under the Southwestern reinsurance
arrangement totaled $4,851,000, $2,068,000 and $10,788,000 for the years ended
December 31, 1993, 1992 and 1991, respectively. The Bankers business reinsured
by CFLIC was not profitable in 1992 and 1991 due primarily to a loss incurred
relative to certain reinsurance recoverables and, as a consequence, Bankers was
not entitled to an experience refund in either 1992 or 1991.
Bankers was a party to a service agreement with Marquette and CFLIC whereby
it provided investment management, administrative, data processing, and general
supervisory and management services related to business reinsured with CFLIC, in
exchange for annual fees equal to .45% of reserves on the reinsured policies.
Fees earned from providing such services totaled $1,593,000 for the ten months
ended October 31, 1992 and $2,043,000 for the year ended December 31, 1991. Such
fees were taken into consideration in the determination of profitability of the
reinsured business. In addition, a subsidiary entered into a service agreement
effective January 1992, whereby the subsidiary provided administrative services
for Marquette. Fees earned from providing such services totaled $449,000 and
$2,016,000 for the years ended December 31, 1993 and 1992, respectively.
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 (see Note 10). 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 will continue to serve as an executive officer of the Company
and, if re-elected, will continue to serve on the Company's Board of Directors.
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, exercisable within a six month period, to acquire
certain aircraft equipment currently owned by the Company at its depreciated
book value. At December 31, 1993, the Company has provided a liability for the
present value of amounts payable under the Services Agreements totaling
$9,050,000.
62
<PAGE>
I.C.H. CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
4. RELATED PARTY TRANSACTIONS (CONTINUED)
At December 31, 1993 and 1992, the Company held a $2 million promissory note
from CNC bearing interest at 10% and payable in December 1995. The note and
accrued interest were repaid on February 11, 1994.
Through June 1993, FMI had leased office space under a ten-year lease in a
building owned by Messrs. Shaw and Rice. Effective March 30, 1990, FMI had
sublet substantially all of the office space to a former subsidiary which was
sold as of that date.
5. INVESTMENTS
Investment income by type of investment was as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1993 1992 1991
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Gross investment income:
Fixed maturities............................... $ 132,077 $ 253,740 $ 284,481
Equity securities.............................. 3,852 5,699 2,234
Financial options and futures.................. 15,515 17,935
Mortgage loans................................. 15,814 21,144 27,543
Policy loans................................... 10,938 13,216 13,013
Short-term investments......................... 13,069 13,162 21,744
Collateral loans............................... 5,000 6,195 8,253
Real estate.................................... 6,982 6,380 6,756
Investments held in trust under reinsurance
treaty....................................... 5,795 12,073
Other.......................................... 5,337 3,480 6,079
----------- ----------- -----------
208,584 346,746 382,176
Less: Investment expenses.......................... 12,952 13,608 11,421
----------- ----------- -----------
Net investment income...................... $ 195,632 $ 333,138 $ 370,755
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
Following is an analysis of realized gains (losses) on investments:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1993 1992 1991
---------- ------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Fixed maturities................................... $ 12,360 $ 31,610 $ 27,083
Collateralized mortgage obligations................ (4,356) (138,519)
Equity securities.................................. 37,620 (1,056) (12,980)
Investment in limited partnership.................. (5,013)
Real estate........................................ (4,220) (2,557) (12,691)
Assets held by affiliated reinsurer................ (3,552)
Assets held by unaffiliated reinsurer.............. (1,437) (18,392)
Other.............................................. (6,298) (7,129) (5,822)
---------- ------------ ----------
30,093 (119,088) (26,354)
Add minority interest in realized losses........... 4,732
---------- ------------ ----------
$ 34,825 $ (119,088) $ (26,354)
---------- ------------ ----------
---------- ------------ ----------
</TABLE>
Prior to 1992, all of the Company's fixed maturities were carried at
amortized cost because management had stated its intent and believed ICH had the
ability to hold all such investments to
63
<PAGE>
I.C.H. CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. INVESTMENTS (CONTINUED)
their ultimate maturities. During 1992, the Company retained the services of
three independent investment advisors to manage in excess of $1 billion of the
Company's fixed maturities and, as a result, at December 31, 1992, the Company
had classified its fixed maturities into three categories, including actively
managed, held for sale and held to maturity. In 1993, the Company adopted the
provisions of SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," and has classified its fixed maturities into two categories,
including available for sale and held to maturity. SFAS No. 115 also establishes
criteria for the recognition of a permanent impairment in the carrying value of
debt and equity securities. The Company reflected a charge for the cumulative
effect of writedowns of certain mortgage-backed securities required under the
provisions of SFAS No. 115 totaling $7,573,000. The cumulative charge has been
reflected net of $2,651,000 in related income tax effects. The actively managed
and held for sale securities in 1992 have been reclassified in the following
tables as available for sale.
The amortized cost of investments in fixed maturities, the cost of equity
securities and the estimated values of such investments at December 31, 1993 and
1992 by categories of securities are as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------------- ----------- ---------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
December 31, 1993:
Available for sale:
United States Government, government agencies and
authorities...................................... $ 38,904 $ 1,649 $ (41) $ 40,512
States, municipalities and political
subdivisions..................................... 635 67 702
Public utilities.................................. 139,235 3,906 (1,584) 141,557
Mortgage-backed securities........................ 801,646 18,194 (37,901) 781,939
All other corporate............................... 689,849 39,719 (2,585) 726,983
------------- ----------- ---------- -------------
Subtotal, available for sale fixed
maturities................................... 1,670,269 63,535 (42,111) 1,691,693
Held to maturity:
Mortgage-backed securities........................ 16,149 (1,954) 14,195
All other corporate............................... 10,000 10,000
------------- ----------- ---------- -------------
Subtotal, held to maturity.................... 26,149 (1,954) 24,195
------------- ----------- ---------- -------------
Subtotal, all fixed maturities................ 1,696,418 63,535 (44,065) 1,715,888
------------- ----------- ---------- -------------
Non-redeemable preferred stocks..................... 62,134 4,594 (94) 66,634
Common stocks....................................... 6,426 3,037 (266) 9,197
------------- ----------- ---------- -------------
Subtotal, equity securities................... 68,560 7,631 (360) 75,831
------------- ----------- ---------- -------------
Total fixed maturities and equity
securities................................... $ 1,764,978 $ 71,166 $ (44,425) $ 1,791,719
------------- ----------- ---------- -------------
------------- ----------- ---------- -------------
</TABLE>
64
<PAGE>
I.C.H. CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------------- ----------- ---------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
December 31, 1992:
Available for sale:
United States Government, government agencies and
authorities...................................... $ 131,639 $ 1,543 $ (94) $ 133,088
States, municipalities and political
subdivisions..................................... 1,693 176 1,869
Public utilities.................................. 73,393 781 (377) 73,797
All other corporate............................... 674,348 7,929 (15,873) 666,404
------------- ----------- ---------- -------------
881,073 10,429 (16,344) 875,158
------------- ----------- ---------- -------------
Mortgage-backed securities:
Conventional...................................... 456,127 12,232 (2,049) 466,310
Interest-only and residual........................ 194,389 194,389
Held in trust..................................... 228,292 228,292
------------- ----------- ---------- -------------
878,808 12,232 (2,049) 888,991
------------- ----------- ---------- -------------
Subtotal, available for sale fixed
maturities................................... 1,759,881 22,661 (18,393) 1,764,149
------------- ----------- ---------- -------------
Held to maturity:
Mortgage-backed securities........................ 84,981 1,913 (9,231) 77,663
Public utilities.................................. 1,082 39 1,121
All other corporate............................... 63,677 309 (4,253) 59,733
------------- ----------- ---------- -------------
Subtotal, held to maturity.................... 149,740 2,261 (13,484) 138,517
------------- ----------- ---------- -------------
Subtotal, all fixed maturities................ 1,909,621 24,922 (31,877) 1,902,666
------------- ----------- ---------- -------------
Non-redeemable preferred stocks..................... 61,707 1,678 (558) 62,827
Common stocks....................................... 43,189 25,675 (2,387) 66,477
------------- ----------- ---------- -------------
Subtotal, equity securities................... 104,896 27,353 (2,945) 129,304
------------- ----------- ---------- -------------
Total fixed maturities and equity
securities................................... $ 2,014,517 $ 52,275 $ (34,822) $ 2,031,970
------------- ----------- ---------- -------------
------------- ----------- ---------- -------------
</TABLE>
The mortgage-backed securities held in trust at December 31, 1992,
collateralized the Company's mortgage note obligation to Bankers (see Note 3).
The Company held a residual interest in the securities held in trust with a
carrying value at December 31, 1992, totaling $79,715,000.
65
<PAGE>
I.C.H. CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. INVESTMENTS (CONTINUED)
The amortized cost and estimated fair value of fixed maturities at December
31, 1993, by contractual maturity, are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZED FAIR
COST VALUE
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Available for sale:
Due in one year or less................................... $ 36,303 $ 36,366
Due after one year through five years..................... 170,805 176,996
Due after five years through ten years.................... 290,599 307,630
Due after ten years....................................... 370,916 388,762
------------- -------------
868,623 909,754
Mortgage-backed securities................................ 801,646 781,939
------------- -------------
Subtotal, available for sale.......................... 1,670,269 1,691,693
------------- -------------
Held to maturity:
Due after five years through ten years.................... 10,000 10,000
Mortgage-backed securities................................ 16,149 14,195
------------- -------------
Subtotal, held to maturity............................ 26,149 24,195
------------- -------------
$ 1,696,418 $ 1,715,888
------------- -------------
------------- -------------
</TABLE>
Excluding scheduled maturities and sales related to reinsurance
transactions, proceeds from sales of investments in debt securities during 1993,
1992 and 1991 and the related gross gains and gross losses realized on such
sales were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1993 1992 1991
------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Proceeds from sales.......................... $ 640,168 $ 1,410,441 $ 2,967,470
------------- ------------- -------------
------------- ------------- -------------
Gross gains.................................. $ 25,629 $ 38,935 $ 57,316
------------- ------------- -------------
------------- ------------- -------------
Gross losses................................. $ (19,671) $ (4,569) $ (8,808)
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
66
<PAGE>
I.C.H. CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. INVESTMENTS (CONTINUED)
Following are changes in unrealized appreciation (depreciation) on
investments (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1993 1992 1991
---------- --------- -----------
<S> <C> <C> <C>
Investments carried at amortized cost:
Fixed maturities held to maturity.................. $ 9,269 $ 38,269 $ 105,389
---------- --------- -----------
---------- --------- -----------
Investments carried at fair value:
Available for sale fixed maturities................ $ 17,156 $ 4,268
Equity securities.................................. (17,137) 26,585 $ 4,589
Equity in unrealized gains of equity investees and
limited partnerships.............................. 4,472 758 119
Other.............................................. 875 292 53
---------- --------- -----------
5,366 31,903 4,761
Less effect on other balance sheet accounts:
Deferred policy acquisition costs (16,647)
Unearned revenue reserves........................ 6,266
Deferred income taxes............................ 1,470 (9,696)
Minority interest in unrealized losses........... 5,180
---------- --------- -----------
Change in unrealized investment gains and losses... $ 1,635 $ 22,207 $ 4,761
---------- --------- -----------
---------- --------- -----------
</TABLE>
The carrying value of nonaffiliated invested assets for which no investment
income was recorded during the twelve months ended December 31, 1993, was as
follows (in thousands):
<TABLE>
<S> <C>
Fixed maturities.................................................... $ 5,565
Equity securities................................................... 1,690
Investment real estate.............................................. 36,451
Investments in limited partnerships................................. 16,079
Other invested assets............................................... 558
---------
$ 60,343
---------
---------
</TABLE>
In addition, the Company owns preferred stock in CFLIC with a carrying value
of $54 million at December 31, 1993 (see Note 4). There were no dividends
declared on the CFLIC preferred stock during 1993.
Other than the Company's investment in securities of Fund America Investors
Corporation II with a carrying value and fair value of $58,577,000, the Company
had no investments exceeding 10% of stockholders' equity.
At December 31, 1993, the Company held unrated or noninvestment-grade
corporate debt securities with a carrying value of $107,012,000 and an aggregate
fair value of $106,197,000. These holdings amounted to 6.2% of the Company's
fixed maturity investments and 4.0% of total cash and invested assets. The
holdings of noninvestment-grade securities are widely diversified and include
securities of 42 issuers.
At December 31, 1993, the Company held residual interest mortgage-backed
securities with a carrying value of $78,246,000 and a fair value of $75,590,000.
The effective annual yield on such investments based on their carrying value
approximated 12.6% at December 31, 1993.
67
<PAGE>
I.C.H. CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
5. INVESTMENTS (CONTINUED)
At December 31, 1993, the Company held mortgage loans principally involving
commercial real estate with a carrying value and estimated fair value of
$138,504,000 and $142,998,000, respectively. Approximately 62% of such mortgages
involved property located in Texas, consisting of first mortgage liens on
completed income-producing properties. Mortgages on individual properties do not
exceed $8 million.
The Company's life insurance subsidiaries are required to maintain certain
amounts of assets on deposit with state regulatory authorities. Such assets had
an aggregate carrying value of $301,971,000 at December 31, 1993, including
securities of the Company with an estimated fair value of $19,491,000, which
have been eliminated in consolidation in the accompanying balance sheet.
6. INVESTMENTS IN EQUITY INVESTEES AND LIMITED PARTNERSHIPS
At December 31, 1992, the Company owned a 39.9% indirect equity interest in
Bankers, consisting of a 29.7% equity interest in BLHC and 10.2% equity interest
through its limited partnership investment in CCP. In addition, the Company
owned $34.7 million principal amount of BLHC 11% Junior Subordinated Debentures
due 2003 and $50.0 million of a BLHC 11% preferred stock. The 1992 sale of
Bankers was accounted for as a "step transaction" in accordance with GAAP.
Accordingly, gain recognition was limited to the 60.1% interest deemed to have
been sold. The excess of the sales price over the Company's basis in Bankers on
the 39.9% portion of the investment deemed to have been retained by the Company
(excess of sales price over basis in retained interest) was reflected as a
reduction in the carrying value of the Company's investments in BLHC and CCP.
Effective March 31, 1993, the Company's ownership interest in BLHC was reduced
to 24.4% as a result of BLHC's offering and on September 30, 1993, the Company
sold its investment in BLHC (see Note 2).
68
<PAGE>
I.C.H. CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
6. INVESTMENTS IN EQUITY INVESTEES AND LIMITED PARTNERSHIPS (CONTINUED)
At December 31, 1992, CCP had no assets or liabilities, other than its
investment in BLHC. Financial information of BLHC and the Company's carrying
value and equity in earnings of BLHC as of and for the two months ended December
31, 1992, and the Company's equity in the earnings of BLHC for the nine months
ended September 30, 1993, is as follows (in thousands):
<TABLE>
<CAPTION>
1992
1993 --------------
--------------
(UNAUDITED)
<S> <C> <C>
Financial position:
Invested assets........................................ $ 1,847,000
Other assets........................................... 1,523,500
Insurance liabilities.................................. 2,490,200
Notes payable and other liabilities.................... 709,300
Preferred stockholders' equity......................... 160,800
Common stockholders' equity............................ 10,200
Results of operations:
Revenues............................................... $ 1,081,600 222,500
Earnings from operations before effect of accounting
change................................................ 95,300 22,700
Cumulative effect of change in method of accounting for
post-retirement benefits.............................. (13,300)
Extraordinary loss from early debt retirement.......... (5,600)
Net earnings attributable to common stock.............. 85,200 6,500
Amounts recorded by the Company:
Investment in 11% Junior Subordinated Debt............. 30,551
Investment in 11% preferred stock...................... 46,509
Equity investment in BLHC and CCP...................... (35,739)
--------------
Net investments in BLHC and CCP........................ $ 41,321
--------------
--------------
</TABLE>
Following is an analysis of the Company's equity investments in BLHC and CCP
(in thousands):
<TABLE>
<CAPTION>
1993 1992
---------- ----------
<S> <C> <C>
Equity investment, beginning of year............................. $ (35,739)
Cost of investment in BLHC....................................... $ 16,700
Cost of investment in CCP........................................ 9,640
Allocated cost of common stock equity kickers received for
purchase of subordinated debt and preferred
stock........................................................... 8,117
Excess of sales price over basis in retained interest............ (74,338)
Equity in earnings of BLHC and CCP, including amortization of
portion of excess of sales price over basis..................... 29,117 3,265
Equity in extraordinary losses of BLHC........................... (1,370)
Equity in (elimination of equity in) unrealized investment
gains........................................................... (877) 877
Cash dividends received from BLHC................................ (533)
Equity in proceeds of BLHC initial public offering............... 99,376
Reduction in investment upon sale................................ (89,974)
---------- ----------
Equity investment, end of year................................... $ -- $ (35,739)
---------- ----------
---------- ----------
</TABLE>
69
<PAGE>
I.C.H. CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
6. INVESTMENTS IN EQUITY INVESTEES AND LIMITED PARTNERSHIPS (CONTINUED)
Following is an analysis of the Company's investment in limited partnerships
(excluding the Company's investment in CCP at December 31, 1992, which was
reflected as an investment in equity investees):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1993 1992 1991
--------- ---------- ---------
<S> <C> <C> <C>
(IN THOUSANDS)
Balance, beginning of year........................................ $ 39,808 $ 36,917 $ 13,538
Contributions and capitalized costs............................... 5,696 23,747 20,531
Equity in operating earnings...................................... 6,093 2,938 6,750
Equity in extraordinary losses.................................... (1,082)
Equity in unrealized gains (losses)............................... 5,349 7 119
Sale of partnership investment.................................... (4,998)
Writedown of partnership investment............................... (5,013)
Distributions of earnings......................................... (401) (9,496)
Other distributions............................................... (2,894) (13,223) (4,021)
--------- ---------- ---------
Balance, end of year.............................................. $ 43,640 $ 39,808 $ 36,917
--------- ---------- ---------
--------- ---------- ---------
</TABLE>
The fair value of the Company's investments in limited partnerships
approximated their carrying value of $43,640,000 at December 31, 1993.
Included in the limited partnership investments at December 31, 1991, was
the Company's 21.4% interest in CCP (Predecessor CCP). On July 21, 1992,
Predecessor CCP formed a new insurance holding company, CCP Insurance, Inc. and
completed an initial public offering (IPO) of common stock in CCP Insurance.
Predecessor CCP was liquidated and the Company received 1,764,439 shares of CCP
Insurance common stock in exchange for its 21.4% interest in Predecessor CCP. At
the date of exchange, the Company's carrying value in Predecessor CCP totaled
$19,509,000, which became the Company's basis in the shares of CCP Insurance
common stock. The Company subsequently reflected its investment in CCP
Insurance, along with 525,000 shares of CCP Insurance purchased in the IPO, as
marketable equity securities. Effective September 29, 1993, CCP Insurance
completed an underwritten primary and secondary offering of shares of its common
stock. The Company sold all of the 1,764,439 shares of the common stock of CCP
Insurance in conjunction with the offering for $47,272,000 and realized
investment gains totaling $27,758,000. In addition, during 1993, the Company
sold 455,375 shares of CCP Insurance common stock in open market transactions
and realized gains totaling $5,310,000. At December 31, 1993, the Company
continues to hold 69,625 shares of CCP Insurance common stock with a fair value
of approximately $1.9 million.
Financial information of Predecessor CCP and the Company's equity in the
earnings of Predecessor CCP is as follows (in thousands):
<TABLE>
<CAPTION>
1992 1991
----------- -----------
<S> <C> <C>
Results of operations (through July 1992):
Revenues...................................................... $ 281,800 $ 539,100
Net operating earnings........................................ 17,663 34,900
Extraordinary loss............................................ (6,248)
Amounts recorded by the Company:
Equity in operating earnings.................................. $ 3,550 $ 6,048
Equity in extraordinary loss.................................. (1,082)
Distributed earnings received................................. 8,902
</TABLE>
70
<PAGE>
I.C.H. CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
6. INVESTMENTS IN EQUITY INVESTEES AND LIMITED PARTNERSHIPS (CONTINUED)
Following is a summary of the equity in earnings of equity investees and
limited partnerships:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1993 1992 1991
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Operating earnings:
BLHC................................................... $ 29,117 $ 3,265
Limited partnerships................................... 6,093 2,938 $ 6,750
--------- --------- ---------
Equity in operating earnings (loss)...................... 35,210 6,203 6,750
Equity in extraordinary losses........................... (1,370) (1,082)
--------- --------- ---------
$ 33,840 $ 5,121 $ 6,750
--------- --------- ---------
--------- --------- ---------
Distributed earnings received............................ $ 934 $ 9,496
--------- ---------
--------- ---------
</TABLE>
7. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
Certain of the Company's subsidiaries have entered into interest rate swap
arrangements to convert the interest rate characteristics of certain investments
to match those of related insurance liabilities. The agreements expire from 1994
to 1997 and exchange fixed-rate payments ranging from 5.45% to 8.44% for three
month LIBOR-based interest payments on notional amounts of $43.9 million. The
interest rate differential to be received or paid is recognized over the lives
of the agreements as an adjustment to interest expense. The subsidiaries are
exposed to credit risk in the event of default by counterparties to the extent
of any amounts that have been recorded in the balance sheet and market risk as a
result of potential future increases in LIBOR. The fair value of interest rate
swap arrangements at December 31, 1993, approximated $2.5 million.
71
<PAGE>
I.C.H. CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
8. INSURANCE LIABILITIES
Insurance liabilities consist of the following:
<TABLE>
<CAPTION>
MORTALITY OR INTEREST
WITHDRAWAL MORBIDITY RATE DECEMBER 31, DECEMBER 31,
ASSUMPTIONS ASSUMPTIONS ASSUMPTIONS 1993 1992
------------- ------------- ------------ ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Future policy benefits:
Traditional life insurance
contracts............................ Company Company 6%-10% $ 528,634 $ 686,380
experience experience
Traditional annuity products.......... N/A N/A N/A 138,244 33,719
Individual accident and health........ Company Company 6%-10% 68,775 66,519
experience experience
Group life and health................. N/A N/A N/A 24,403 26,875
Unearned premiums..................... N/A N/A N/A 35,412 33,449
Claims and benefits payable........... N/A N/A N/A 84,921 65,300
Dividend and coupon accumulations and
other................................ N/A N/A N/A 46,914 96,344
------------- -------------
927,303 1,008,586
------------- -------------
Universal life and investment contract
liabilities:
Universal life and annuities.......... N/A N/A N/A 1,306,665 941,815
Guaranteed investment contracts....... N/A N/A N/A 377,731 656,733
------------- -------------
1,684,396 1,598,548
------------- -------------
$ 2,611,699 $ 2,607,134
------------- -------------
------------- -------------
</TABLE>
The estimated fair value of guaranteed investment contracts approximated
their carrying value at December 31, 1993 because it is expected that
substantially all of such contracts will be terminated during 1994. The
estimated fair value of the liabilities for other investment contracts is
approximately equal to their carrying value at December 31, 1993, because
interest rates credited to account balances approximate current rates paid on
similar investments and are generally not guaranteed beyond one year. Fair
values for the Company's insurance liabilities other than those for
investment-type insurance contracts are not required to be disclosed. However,
the fair values of liabilities under all insurance contracts are taken into
consideration in the Company's overall management of interest rate risk, which
minimizes exposure to changing interest rates through the matching of investment
maturities with amounts due under insurance contracts.
9. STOCKHOLDERS' EQUITY AND RESTRICTIONS
At December 31, 1993, substantially all of consolidated stockholders' equity
represented net assets of the Company's insurance subsidiaries that cannot be
transferred to the Company in the form of dividends, loans or advances.
Generally, the net assets of the Company's insurance subsidiaries available for
transfer to the Company are limited to the greater of the subsidiaries' net gain
from operations during the preceding year or 10% of the subsidiaries' net
surplus as of the end of the preceding year as determined in accordance with
accounting practices prescribed or permitted by insurance regulatory
authorities. Payment of dividends in excess of such amounts would generally
require approval by the regulatory authorities. At December 31, 1993,
approximately $34.0 million was available under existing laws for the payment of
dividends by insurance subsidiaries to the
72
<PAGE>
I.C.H. CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
9. STOCKHOLDERS' EQUITY AND RESTRICTIONS (CONTINUED)
Company during 1994 without prior approval; however, Modern American has agreed
with its domiciliary state that it will not pay any stockholder dividends
without obtaining prior regulatory approval. In addition, Southwestern has
agreed with its domiciliary state that it will give 30 days prior notice before
the payment of any stockholder dividends.
On the basis of reporting as prescribed or permitted by insurance regulatory
authorities, the consolidated insurance subsidiaries have audited combined
stockholders' equity, after elimination of amounts attributable to investments
in consolidated insurance subsidiaries, of approximately $259,856,000 and
$227,003,000 as of December 31, 1993 and 1992, respectively, and audited
combined net income (loss) as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1993 1992 1991
--------- ----------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Operating income............................................... $ 628 $ 22,191 $ 156,816
Realized investment gains (losses)............................. 52,055 (68,482) 36,897
--------- ----------- ------------
Net income (loss).............................................. $ 52,683 $ (46,291) $ 193,713
--------- ----------- ------------
--------- ----------- ------------
</TABLE>
Gains and losses relative to individual investments are generally reflected
for statutory reporting purposes as unrealized investment gains or losses until
such time as the specific investments are sold or otherwise disposed of. In
addition, statutory investment gains and losses are reported net of related
income tax effects. Statutory realized investment losses in 1992 include losses
on the disposition of First Executive Corporation common stock totaling $118
million which were reflected prior to 1992 for financial reporting purposes.
During 1992, certain employees who had previously purchased shares of the
Company's Common Stock under a Restricted Stock Purchase Agreement pledged the
shares of Common Stock to collateralize notes receivable which had been issued
to a former affiliate in 1982, but which were subsequently acquired by the
Company in 1985. The notes and accrued interest totaling $1,471,000 and
$1,906,000 at December 31, 1993 and 1992, respectively, bear interest at 9%,
mature in 1996 and were collateralized by 375,564 shares and 530,976 shares of
the Company's Common Stock at each of the respective dates. In addition, the
Company has other notes receivable with a carrying value of $258,000 at December
31, 1993 and 1992, which are collateralized by 51,534 shares of the Company's
Common Stock. In the accompanying balance sheets, such notes and accrued
interest have been reflected as reductions in stockholders' equity.
10. CAPITAL STOCK
At December 31, 1993, the Company had three classes of capital stock,
including Series Preferred Stock (no par value), Common Stock ($1.00 par value)
and Class B Common Stock ($1.00 par value).
At December 31, 1993, there were three series of Preferred Stock
outstanding, the Series 1984-A Preferred Stock, the $1.75 Convertible
Exchangeable Preferred Stock, Series 1986-A (Series 1986-A Preferred Stock), and
the Series 1987-B Preferred Stock. The holder of each outstanding share of the
Series 1984-A Preferred Stock is entitled to cumulative annual dividends of
$4.93 and liquidating distributions of up to the $41.07 stated value. Such
dividends and liquidating distributions are payable in preference to the Common
Stock and Class B Common Stock. The Series 1984-A Preferred Stock may be
converted, at the option of the holder, at any time into shares of Common Stock
at the rate of one share of Common Stock for each .3160 shares of Series 1984-A
Preferred Stock. The Series 1984-A Preferred Stock has the right to vote as a
class with the Common Stock on all matters submitted to a vote of the holders of
the Common Stock. The Company, at its option, may redeem all of the shares of
the Series 1984-A Preferred Stock at their stated value.
73
<PAGE>
I.C.H. CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
10. CAPITAL STOCK (CONTINUED)
The holder of each outstanding share of Series 1986-A Preferred Stock is
entitled to cumulative annual dividends of $1.75 and liquidating distributions
of up to $25 per share. Such dividends and liquidating distributions are payable
in preference to the Common Stock, Class B Common Stock and all other series of
the Company's Preferred Stock currently outstanding. The Series 1986-A Preferred
Stock may be converted, at the option of the holder, at any time into shares of
Common Stock at the rate of .7692 shares of Common Stock for each share of
Series 1986-A Preferred Stock. The Company may redeem, at its option, any or all
shares of the Series 1986-A Preferred Stock at redemption prices declining
annually to $25 per share after December 1, 1996 plus accrued and unpaid
dividends. The Series 1986-A Preferred Stock is exchangeable, in whole but not
in part, at the Company's option on any dividend payment date commencing
December 1, 1988 for the Company's 7% Convertible Subordinated Debentures due
2011 at the rate of $25 principal amount of Debentures for each share of Series
1986-A Preferred Stock. The Series 1986-A Preferred Stock is nonvoting, except
as required by law and except that, if six quarterly dividends are unpaid and
past due, the holders of the Series 1986-A Preferred Stock may elect two
directors to the Company's Board of Directors.
The Series 1987-B Preferred Stock has a stated value of $50 per share,
provides for cash liquidating distributions of up to such stated value and
provides for cumulative annual dividends of $4.50 per share. Dividends and
liquidating distributions on the 1987-B Preferred Stock are payable in
preference to those payable on the Common Stock and Class B Common Stock, but
are subordinated in right of payment to dividends and liquidating distributions
payable on the Series 1986-A Preferred Stock. The 1987-B Preferred Stock ranks
on parity with the Series 1984-A Preferred Stock. The 1987-B Preferred Stock is
neither convertible nor entitled to any voting rights, except as required by
law. The Company may redeem shares of the 1987-B Preferred Stock at any time at
the $50 stated value.
Through February 10, 1994, the Common Stock and Class B Common Stock were
entitled to vote as separate classes on stockholder actions that directly or
indirectly could effect a change in the aggregate number or par value of shares
of Class B Common Stock or in the powers, preferences or rights of the holders
of Class B Common Stock. The Company's Board of Directors was classified by its
Certificate of Incorporation to require, so long as the Class B Common Stock was
outstanding, that at least 50% of the Company's directors were to be
independent, and that 75% of the directors were to be elected by the Class B
Common Stock and the remaining 25% were to be elected by the Common Stock and
voting Preferred Stock. The Class B Common Stock had the same rights to
dividends and liquidating distributions as the Common Stock. On February 11,
1994, the Company purchased all of the outstanding shares of Class B Common
Stock and immediately cancelled and retired such shares (see Note 4).
On August 7, 1991, the Company's shareholders approved an amendment to the
1990 Stock Option Incentive Plan which increased the shares available for grant
from 2.4 million shares to 2.9 million shares.
In connection with the sale of the Company's remaining investment in BLHC on
September 30, 1993 (see Note 2), the Company redeemed all of the outstanding
shares of its Series 1987-A Preferred Stock at their $50 per share stated value.
On December 2, 1993, the Company redeemed for cash all of the outstanding shares
of its Series 1987-C Preferred Stock at their $50 per share stated value. Annual
dividend requirements on the redeemed shares totaled $5.50 per share and $8.00
per share, respectively.
74
<PAGE>
I.C.H. CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
10. CAPITAL STOCK (CONTINUED)
Capital stock activity for the three years ended December 31, 1993, was as
follows:
<TABLE>
<CAPTION>
SHARES
AUTHORIZED
PER SERIES 1993 1992 1991
----------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Preferred stock (authorized 50,000,000 shares):
Series 1984-A Preferred Stock........................ 541,563
-----------
-----------
Balance, beginning and end of year................. 541,563 541,563 541,563
------------- ------------- -------------
------------- ------------- -------------
Series 1986-A Preferred Stock........................ 8,000,000
-----------
-----------
Balance, beginning of year......................... 7,999,980 7,999,980 8,000,000
Shares retired upon exchange....................... (100) (20)
------------- ------------- -------------
Balance, end of year............................... 7,999,880 7,999,980 7,999,980
------------- ------------- -------------
------------- ------------- -------------
Series 1987-A Preferred Stock........................ 2,000,000
-----------
-----------
Balance, beginning of year......................... 1,000,000 1,000,000 1,000,000
Shares redeemed.................................... (1,000,000)
------------- ------------- -------------
Balance, end of year............................... 1,000,000 1,000,000
------------- ------------- -------------
------------- ------------- -------------
Series 1987-B Preferred Stock........................ 140,000
-----------
-----------
Balance, beginning and end of year................. 140,000 140,000 140,000
------------- ------------- -------------
------------- ------------- -------------
Series 1987-C Preferred Stock........................ 1,000,000
-----------
-----------
Balance, beginning of year......................... 1,000,000 1,000,000 1,000,000
Shares redeemed.................................... (1,000,000)
------------- ------------- -------------
Balance, end of year............................... 1,000,000 1,000,000
------------- ------------- -------------
------------- ------------- -------------
Common stock (authorized 200,000,000 shares):
Issued:
Balance, beginning of year......................... 71,401,004 71,398,954 75,656,401
Issued upon exchange of preferred stock............ 76 15
Issued upon exercise of stock options.............. 192,530 2,050
Retirement of treasury shares...................... (4,257,462)
------------- ------------- -------------
Balance, end of year............................... 71,593,610 71,401,004 71,398,954
------------- ------------- -------------
Held by subsidiaries and in treasury:
Balance, beginning of year......................... 23,610,789 23,317,203 27,574,665
Purchase of shares................................. 155,682 293,586
Retirement of treasury shares...................... (4,257,462)
------------- ------------- -------------
Balance, end of year............................... 23,766,471 23,610,789 23,317,203
------------- ------------- -------------
Outstanding, end of year............................. 47,827,139 47,790,215 48,081,751
------------- ------------- -------------
------------- ------------- -------------
Common stock, Class B (authorized 100,000 shares):
Balance, beginning and end of year................. 100,000 100,000 100,000
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
75
<PAGE>
I.C.H. CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
10. CAPITAL STOCK (CONTINUED)
Shares reserved for issuance at December 31, 1993:
<TABLE>
<CAPTION>
COMMON
-------------
<S> <C>
Conversion of:
Class B Common Stock.................................. 100,000
Series 1984-A Preferred Stock......................... 1,713,696
Series 1986-A Preferred Stock......................... 6,153,755
Exercise of incentive plan stock options................ 2,005,000
Stock options to be granted............................. 815,000
-------------
Total............................................... 10,787,451
-------------
-------------
</TABLE>
11. REINSURANCE
The life insurance subsidiaries have set their retention limit for
acceptance of risk on life insurance policies at various levels currently up to
$500,000. There are reinsurance agreements with various companies whereby
insurance in excess of the respective subsidiaries' retention limits is
reinsured. To the extent that reinsuring companies become unable to meet their
obligations under these agreements, the subsidiaries remain contingently liable.
Insurance in force ceded in 1993 and 1992 under risk sharing arrangements
totaled approximately $5.7 billion and $5.4 billion, respectively. Through 1992,
the liability for future policy benefits was stated after deductions for amounts
applicable to such risk sharing reinsurance ceded. As of December 31, 1992, such
amount totaled $251,911,000.
In 1993, the Company adopted the provisions of SFAS No. 113, "Accounting and
Reporting for Reinsurance of Short-Duration and Long-Duration Contracts," which
changes the accounting and reporting for reinsurance contracts. SFAS No. 113
requires that when a reinsurance contract does not relieve the reinsurer from
the legal liability to its policyholders, ceding insurers must report amounts
recoverable from reinsurers as assets rather than as a reduction of the related
policyholder liabilities. In addition, financial reporting disclosures were
amended to require information relative to the volume of premiums ceded to and
the benefits paid by reinsurers under related reinsurance arrangements. At
December 31, 1993, the Company has reflected in its balance sheet an asset for
amounts due from reinsurers totaling $388,083,000 and has correspondingly
increased its insurance liabilities by the same amount. Following is information
relative to premiums ceded to unaffiliated reinsurers and the related benefits
incurred by such reinsurers for the year ended December 31, 1993 (in thousands):
<TABLE>
<CAPTION>
TRADITIONAL DEPOSIT
REINSURANCE PRODUCTS TOTAL
----------- ----------- -----------
<S> <C> <C> <C>
Premiums and deposits ceded................................... $ 49,964 $ 19,849 $ 69,813
----------- ----------- -----------
----------- ----------- -----------
Benefits and withdrawals ceded................................ $ 35,486 $ 30,807 $ 66,293
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
Amounts due from reinsurers at December 31, 1993, includes $334,633,000 due
from Employers Reassurance Company (ERC) relative to certain annuity business
which ERC has retroceded to CFLIC. The Company has begun the process of
terminating the reinsurance arrangements with ERC and CFLIC (see Note 4).
Certain of the Company's insurance subsidiaries have ceded blocks of
insurance under reinsurance treaties to provide funds for financing acquisitions
and other purposes. In addition, certain subsidiaries have assumed reinsurance
from unaffiliated reinsurers under similar arrangements. These reinsurance
transactions, generally known as "surplus relief reinsurance," represent
financing arrangements and, in accordance with GAAP, are not reflected in the
accompanying financial statements except for the risk fees paid to or received
from reinsurers. Net statutory surplus provided by
76
<PAGE>
I.C.H. CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
11. REINSURANCE (CONTINUED)
such treaties totaled $51.5 million and $87.5 million at December 31, 1993 and
1992, respectively. Risk fees paid to or received from reinsurers generally
range from 2% to 4% of the net amount of surplus provided.
12. COMMITMENTS, LITIGATION AND CONTINGENT LIABILITIES
At December 31, 1993, the Company and its subsidiaries had long-term leases
covering certain of their facilities and equipment. The net minimum rental
commitments under noncancellable operating leases with lease terms in excess of
one year are $6.3 million, $5.9 million, $.7 million, $.3 million and $.3
million for the years 1994, 1995, 1996, 1997, and 1998, respectively, and $.1
million for subsequent years. In addition, as a result of a judgement involving
a mortgage loan foreclosure, a subsidiary is obligated under a real property
lease for payments totaling $120,000 annually through November 2082.
At December 31, 1993, the Company had an outstanding commitment to make
limited partnership investments of up to $25 million in Conseco Capital Partners
II, L.P. The partnership was formed to make corporate acquisitions of
specialized annuity, life and health insurance companies and related businesses.
The Company and its subsidiaries have been under examination by the Internal
Revenue Service (IRS) for the tax years 1983 through 1992. The IRS has completed
its examination for the years 1983 through 1985 and had previously issued
Preliminary Notices of Deficiencies totaling approximately $17.5 million, before
interest. The Company protested such assessed deficiencies and subsequently has
tentatively reached an agreement with the IRS under which the Company and
certain of its subsidiaries will incur approximately $4.6 million of additional
taxes and interest. The IRS has not completed its examination for the years 1986
through 1992 and therefore has not issued Notices of Deficiencies for those
years. Management believes that the ultimate liability for additional taxes and
interest for these later years will not exceed amounts recorded in the Company's
financial statements.
In the course of their examination of the income tax returns of the Company
and its subsidiaries for the years 1986 through 1989, the examining agent
involved has submitted a Request for Technical Advice to the IRS Chief Counsel's
Office regarding the deductibility of interest expense on the surplus debentures
issued by the Company's insurance subsidiaries. The issue involves approximately
$444 million of interest deductions claimed by the Company's subsidiaries during
the periods under examination and, if disallowed as deductions, would result in
additional income tax expense, before interest, of approximately $163 million.
For years subsequent to the periods under examination, the Company's
subsidiaries have claimed additional interest deductions totaling $190 million
which, if likewise disallowed, would result in additional income tax expense,
before interest, totaling approximately $65 million. 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 appropriate domiciliary states of the Company's
insurance subsidiaries recognized such surplus debentures as valid debt
instruments. Further, all existing case law has held in the 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 this Request for Technical Advice.
From time to time, assessments are levied on the Company's insurance
subsidiaries by life and health guaranty associations in states in which they
are licensed to do business. Such assessments are made primarily to cover the
losses of policyholders of insolvent or rehabilitated insurers. In some states,
these assessments can be partially recovered through a reduction in future
premium taxes. The Company's insurance subsidiaries paid assessments of $3.2
million, $2.8 million and $2.9 million in
77
<PAGE>
I.C.H. CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
12. COMMITMENTS, LITIGATION AND CONTINGENT LIABILITIES (CONTINUED)
the years 1993, 1992 and 1991, respectively. Based on information currently
available, management believes that any future assessments are not reasonably
likely to have a material adverse effect on the Company's insurance
subsidiaries.
Modern American 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 American and its predecessors. The petition
alleges breach of contract, and seeks declaratory judgment, costs, expenses and
such other relief as the Court deems appropriate. As an alternative, the
petition seeks rescission. 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 American 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), is an appeal from
the regulatory proceedings before the Missouri Department of Insurance, by which
Modern American 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 are seeking reversal or remand of the Director's order of
approval, declaratory judgment and such other relief to which they claim they
are entitled. The Cole Circuit Court has determined that it will review the
Missouri Department's decision on the record pursuant to Missouri's
administrative procedure act. Modern American believes it has meritorious
defenses to both the CASTLE and MEYER cases and intends to defend both cases
vigorously.
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.
See Note 2 for a discussion regarding indemnifications made by the Company
with respect to the sale of Bankers.
13. FEDERAL INCOME TAXES
Effective January 1, 1991, the Company adopted SFAS No. 109, "Accounting for
Income Taxes." The cumulative effect to January 1, 1991 of this statement on the
Company's consolidated balance sheet was the recognition of a deferred tax asset
totaling $43,880,000 and a reduction in excess cost resulting from the
recognition of utilization of tax deductions of acquired companies totaling
$35,097,000. The adjustment of these accounts resulted in a net cumulative
effect totaling $8,783,000 which has been reflected as a separate line item in
the consolidated statement of earnings.
Through 1991, the Company filed a consolidated federal income tax return
with its wholly-owned non-life insurance subsidiaries. The Company's life
insurance subsidiaries also filed federal income tax returns as a consolidated
group. Beginning in 1992, the Company and its non-life insurance subsidiaries
joined with the Company's life insurance subsidiaries in filing a single
consolidated tax return. ICH Funding will file a separate income tax return for
periods subsequent to ICH's transfer of an 83% ownership interest to CFLIC in
June 1993 (see Note 4).
78
<PAGE>
I.C.H. CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
13. FEDERAL INCOME TAXES (CONTINUED)
The Company's deferred federal income tax asset at December 31, 1993 and
1992, is comprised of the tax benefit (cost) associated with the following items
based on 35% and 34% tax rates in effect at the end of each of the respective
periods:
<TABLE>
<CAPTION>
1993 1992
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Items subject to ordinary tax treatment:
Deferred policy acquisition costs and present value of future profits of
acquired business...................................................... $ (56,581) $ (62,083)
Future policy benefits.................................................. 62,815 71,338
Other assets and liabilities............................................ 29,657 52,065
Net operating loss carryforwards........................................ 13,644 36,148
------------ ------------
Deferred income tax asset............................................. 49,535 97,468
------------ ------------
Items subject to capital gains treatment:
Invested assets......................................................... 692 13,226
Capital loss carryforwards.............................................. 5,209 22,796
------------ ------------
Deferred income tax asset............................................. 5,901 36,022
------------ ------------
Alternative minimum tax credit carryforwards.............................. 13,948 11,711
------------ ------------
Less: Valuation allowance................................................. (16,351) (24,194)
------------ ------------
Total deferred income tax asset....................................... $ 53,033 $ 121,007
------------ ------------
------------ ------------
</TABLE>
As a result of the sale of Bankers, BLHC and other investment transactions
in 1993 and 1992, the Company realized significant benefits from the utilization
of capital temporary differences and, accordingly, reduced its deferred tax
valuation allowances.
The provision for income taxes is included in the statements of earnings as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1993 1992 1991
--------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Operating earnings (loss).......................................... $ 93,706 $ (69,256) $ 7,839
Cumulative effect of changes in accounting methods................. (3,585)
Extraordinary losses............................................... (1,033) (2,237)
--------- ---------- ---------
$ 89,088 $ (71,493) $ 7,839
--------- ---------- ---------
--------- ---------- ---------
</TABLE>
The components of the provision for income taxes on operating earnings
(loss) are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1993 1992 1991
--------- ---------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Current tax expense............................................... $ 20,678 $ 836 $ 17,776
Deferred tax expense (credit)..................................... 73,028 (70,092) (9,937)
--------- ---------- ---------
Income tax expense (credit)............................... $ 93,706 $ (69,256) $ 7,839
--------- ---------- ---------
--------- ---------- ---------
</TABLE>
79
<PAGE>
I.C.H. CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
13. FEDERAL INCOME TAXES (CONTINUED)
A reconciliation of the income tax provisions based on the prevailing
corporate tax rate of 35% in 1993 and 34% in 1992 and 1991 to the provision
reflected in the consolidated financial statements is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1993 1992 1991
----------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Computed expected income tax expense (credit) at statutory regular
tax rate........................................................ $ 106,970 $ (6,256) $ 11,311
Amortization of excess cost....................................... 3,357 3,734 3,864
Effect of change in income tax rate............................... (3,509)
Benefit from utilization of capital loss carryforwards............ (910) (5,158)
Additional tax basis gains on sales of subsidiaries............... 16,206
Reduction in deferred tax asset valuation allowance............... (8,554) (79,929) (14,070)
Provision for IRS audit adjustments............................... 6,000
Other............................................................. (3,648) 2,147 734
----------- ---------- ----------
Income tax expense (credit)....................................... $ 93,706 $ (69,256) $ 7,839
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
The benefit from the reduction in the deferred tax asset in 1993 as
reflected in the above reconciliation exceeds the actual change in the valuation
allowance as a result of the change in corporate tax rates during 1993.
At December 31, 1993, the Company and its subsidiaries had the following
income tax carryforwards available (in millions):
<TABLE>
<CAPTION>
FINANCIAL
TAX EXPIRATION REPORTING EXPIRATION
PURPOSES DATES PURPOSES DATES
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
U.S. federal regular tax operating loss carryforwards........... $ 39.0 2005 $ --
U.S. federal regular tax capital loss carryforwards............. 14.9 1998 14.9 1998
U.S. federal AMT credit carryforwards against regular tax....... 13.9 Indefinite 13.9 Indefinite
</TABLE>
The IRS is examining federal income tax returns of the Company and certain
insurance subsidiaries through 1989. See Note 12 for a discussion of certain
proposed deficiencies.
14. BENEFIT AND OPTION PLANS
The Company has not established retirement benefit plans for its employees.
However, Bankers had a noncontributory unfunded deferred compensation plan for
qualifying members of its career agency force. Net pension costs included in
other operating expenses included the following components (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
1992 1991
--------- ---------
<S> <C> <C>
Service cost-benefits earned during the period................................... $ 1,223 $ 1,608
Interest cost on projected benefit obligation.................................... 1,730 1,738
Net amortization................................................................. 150 145
--------- ---------
Net periodic pension cost........................................................ $ 3,103 $ 3,491
--------- ---------
--------- ---------
</TABLE>
The weighted-average discount rate and rate of increase in future
compensation levels used in determining the actuarial present value of the
projected benefit obligation were 8% and 5%, respectively.
80
<PAGE>
I.C.H. CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
14. BENEFIT AND OPTION PLANS
During 1993, the Company entered into agreements with certain employees
providing for severance benefits supplemental to those available to all
employees under the Company's welfare benefit plans. The agreements generally
provide for a benefit of two times the annual salary of each covered employee
upon the voluntary or involuntary termination of their employment for any reason
other than gross misconduct, plus an additional benefit of up to one year's
salary if, in the aggregate, shares of the Company's Common Stock acquired by
such employees under the Company's incentive stock option plans or the stock
purchase plan of a predecessor company are disposed of at less than a minimum
specified price. For the year ended December 31, 1993, the Company reflected a
charge for the total anticipated cost of providing benefits under the agreements
totaling $2,820,000.
Effective January 1, 1993, the Company adopted SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions." SFAS No. 106
requires that an enterprise accrue, during the years that an employee renders
the necessary service, the expected cost of providing postretirement life and
health care benefits to an employee and the employee's beneficiaries and covered
dependents. The Company's transition obligation as of January 1, 1993,
approximated $22,873,000. The Company had previously provided a liability
totaling $20,127,000 at December 31, 1992, for postretirement benefits for
retired employees of certain acquired companies through its purchase accounting
relative to such companies. The Company reflected a charge for the cumulative
effect to January 1, 1993, of providing postretirement benefits for its
remaining employees totaling $2,746,000. The cumulative charge has been
reflected net of $934,000 in related income tax effects. The Company's
obligation for accrued postretirement benefits is unfunded. Following is an
analysis of the change in the liability for accrued postretirement benefits for
the year ended December 31, 1993 (in thousands):
<TABLE>
<S> <C>
Accrued postretirement benefits, beginning of year........................ $ 22,873
---------
Recognition of components of net periodic postretirement benefit cost:
Service cost............................................................ 565
Interest cost........................................................... 1,881
---------
Net periodic postretirement benefit cost................................ 2,446
Benefit payments.......................................................... (1,505)
---------
Net change................................................................ 941
---------
Accrued postretirement benefits, end of year.............................. $ 23,814
---------
---------
</TABLE>
The liability for accrued postretirement benefits includes the following at
December 31, 1993 (in thousands):
<TABLE>
<S> <C>
Accumulated postretirement benefit obligation............................. $ 24,562
Unrecognized actuarial loss............................................... (2,284)
Unrecognized prior service cost........................................... 1,536
---------
Accrued postretirement benefits........................................... $ 23,814
---------
---------
</TABLE>
For measurement purposes, a 10% annual rate of increase in the health care
cost trend rate was assumed for 1993; the rate was assumed to decrease gradually
to 5 1/2% for 2015 and remain at that level thereafter. The health care cost
trend rate assumption has a significant effect on the amounts reported. To
illustrate, increasing the assumed health care cost trend rates by 1 percentage
point in each year would increase the accumulated postretirement benefit
obligation as of January 1, 1993 by $2,099,000 and the aggregate of the service
and interest components of net periodic postretirement benefit cost for 1993 by
$382,000. The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7 1/2%.
81
<PAGE>
I.C.H. CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
14. BENEFIT AND OPTION PLANS (CONTINUED)
Southwestern and certain former subsidiaries provided certain health care
and life insurance benefits for retired employees. Employees meeting certain age
and length of service requirements become eligible for these benefits. The cost
of providing these benefits and similar benefits for active employees is
recognized as expenses as claims are incurred. These costs approximated
$2,430,000 and $2,960,000 for 1992 and 1991, respectively.
Under provisions of the 1990 Stock Option Incentive Plan the Company is
authorized to grant options to certain key employees for the purchase of up to
2.9 million shares of the Company's Common Stock at a price not less than fair
market value at date of grant. The options are exercisable for up to ten years
from date of grant and become exercisable at various times ranging from six
months to three years. The Company had previously granted options for the
purchase of up to 156,780 shares of the Company's Common Stock exercisable
through June 1993. Stock options granted are summarized as follows:
<TABLE>
<CAPTION>
EXERCISABLE
OPTION PRICES END OF PERIOD
------------------------- ---------------------------
NUMBER OF AGGREGATE AGGREGATE
SHARES PER SHARE (000'S) PER SHARE (000'S)
------------ -------------- --------- -------------- -----------
<S> <C> <C> <C> <C> <C>
Outstanding January 1, 1991................. 2,366,780 $1.70-$6.00 $ 10,776
Granted during 1991......................... 50,000 $2.94 147
Terminated during 1991...................... (1,050,000) $3.75-$6.00 (6,188)
------------ ---------
Outstanding December 31, 1991............... 1,366,780 $1.70-$6.00 4,735 $1.70-$3.13 $ 1,157
-----------
-----------
Granted during 1992......................... 2,000,000 $3.97 7,938
Exercised during 1992....................... (2,050) $1.70 (3)
Terminated during 1992...................... (585,000) $3.13-$6.00 (2,510)
------------ ---------
Outstanding December 31, 1992............... 2,779,730 $1.70-$3.97 10,160 $1.70-$3.13 $ 1,154
-----------
-----------
Exercised during 1993....................... (194,530) $1.70-$3.13 (445)
Terminated during 1993...................... (580,200) $1.70-$3.97 (2,042)
------------ ---------
Outstanding December 31, 1993............... 2,005,000 $3.13-$3.97 $ 7,673 $3.13-$3.97 $ 2,672
------------ --------- -----------
------------ --------- -----------
</TABLE>
15. EXTRAORDINARY LOSSES
For the years 1993 and 1992, the Company incurred extraordinary losses, all
related to early extinguishment of debt, as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
1993 1992
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Gains on early extinguishment of subordinated debt.......................................... $ 6
Writeoff of deferred loan costs resulting from early extinguishment of debt................. $ (892) (2,561)
Costs incurred to effect early extinguishment of debt....................................... (690) (2,942)
Equity in extraordinary losses of equity investees and partnerships resulting from early
extinguishment of debt.................................................................... (1,370) (1,082)
--------- ---------
Extraordinary losses before tax effects..................................................... (2,952) (6,579)
Tax effects................................................................................. 1,033 2,237
--------- ---------
Extraordinary losses, net................................................................... $ (1,919) $ (4,342)
--------- ---------
--------- ---------
</TABLE>
82
<PAGE>
I.C.H. CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
15. EXTRAORDINARY LOSSES (CONTINUED)
Exclusive of scheduled sinking fund obligations, in 1993, the Company
redeemed $83,379,000 of its 16 1/2% Debentures utilizing proceeds from the sales
of Bankers and BLHC. In 1992, the Company prepaid $130 million of its senior
secured loan utilizing proceeds from the sale of Bankers totaling $85 million
and internally-generated funds totaling $45 million.
16. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
PRIMARY FULLY DILUTED PER SHARE
PER SHARE AMOUNTS AMOUNTS
------------------------ ------------------------
OPERATING NET OPERATING NET OPERATING NET
EARNINGS EARNINGS EARNINGS EARNINGS EARNINGS EARNINGS
REVENUES (LOSS) (LOSS) (LOSS) (LOSS) (LOSS) (LOSS)
----------- ----------- ----------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
1993:
First Quarter............ $ 337,834 $ 105,623 $ 102,580 $ 2.05 $ 1.98 $ 1.79 $ 1.74
Second Quarter........... 175,564 (8,476) (8,605) (.34) (.34) (.34) (.34)
Third Quarter............ 399,215 125,734 125,734 2.46 2.46 2.14 2.14
Fourth Quarter........... 169,781 (10,957) (16,438) (.35) (.46) (.35) (.46)
1992:
First Quarter............ $ 442,708 $ (23,302) $ (25,818) $ (.65) $ (.70) $ (.65) $ (.70)
Second Quarter........... 479,399 10,929 10,929 .07 .07 .07 .07
Third Quarter............ 465,888 13,044 12,330 .11 .10 .11 .10
Fourth Quarter........... 352,292 50,184 49,072 .89 .86 .83 .81
</TABLE>
For the quarter ended March 31, 1993, the Company reported a non-operating
gain totaling $79,459,000, net of tax effects, representing the Company's equity
in the proceeds of BLHC's initial public offering. As a result of the Company's
subsequent sale of its remaining interest in BLHC, such non-operating gain was
reclassified as a component of revenues and operating earnings. Revenues and
results of operations for the 1993 first quarter have accordingly been adjusted
to reflect such reclassification.
The results of operations for the quarters ended June 30, 1993 and September
30, 1993, have been restated to correct for accounting errors determined in the
course of preparation of the Company's year-end financial statements. The errors
involved the incorrect accounting for certain group
83
<PAGE>
I.C.H. CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
16. QUARTERLY FINANCIAL DATA (UNAUDITED) (CONTINUED)
health reinsurance activities and the correction of income tax provisions for a
special purpose subsidiary which can no longer be included in the Company's
consolidated income tax return. Following is a summary of the effect of these
corrections on the reported results (in thousands, except per share amounts):
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE THREE MONTHS ENDED
30, 1993 SEPTEMBER 30, 1993
------------------------ ------------------------
AS REPORTED AS RESTATED AS REPORTED AS RESTATED
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues.......................................... $ 177,058 $ 175,564 $ 397,232 $ 399,215
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Operating earnings (loss)......................... $ (1,812) $ (8,476) $ 132,963 $ 125,734
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net earnings (loss)............................... $ (1,941) $ (8,605) $ 132,963 $ 125,734
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Primary earnings (loss) per common share:
Operating earnings (loss)....................... $ (.20) $ (.34 ) $ 2.61 $ 2.46
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net earnings (loss)............................. $ (.20 ) $ (.34 ) $ 2.61 $ 2.46
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Fully diluted earnings (loss):
Operating earnings (loss)....................... $ (.20 ) $ (.34 ) $ 2.29 $ 2.14
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net earnings (loss)............................. $ (.20 ) $ (.34 ) $ 2.29 $ 2.14
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
Fully diluted earnings per share are independently calculated for each
interim period. In those periods where the results of such calculations would be
antidilutive, primary earnings per share are reflected in lieu of fully diluted
earnings per share. Therefore, the sum of the quarterly earnings per share on a
fully diluted basis will not necessarily equal fully diluted earnings per share
for the entire year.
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 retrospectively assess the precision of its previous quarterly
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 of an interim period may not be indicative of the results for the
entire year.
17. INDUSTRY SEGMENT DATA
The Company and its subsidiaries are principally engaged in the sale and
underwriting of individual life and health insurance, group insurance and
accumulation products. Total revenues by segment reflect sales to unaffiliated
customers. Operating earnings (loss) equal total revenues less operating
expenses.
Premium income and other considerations includes premium income, mortality
and administration charges, surrender charges and amortization of deferred
policy initiation fees. Net investment income and other income are allocated to
the segments based on rates ranging from 6% to 10% related to reserves generated
by each of the four insurance segments. Corporate revenues and operating
earnings include gains (losses) on the sales of subsidiaries, equity in earnings
(losses) of unconsolidated affiliates and limited partnerships, and the
remaining net investment income considered to be income applicable to the
investment of capital and surplus funds. Operating expenses are allocated to
each segment based on a ratio of operating expenses to premiums and premium
equivalents.
84
<PAGE>
I.C.H. CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
17. INDUSTRY SEGMENT DATA (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1993 1992 1991
------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
Individual life (including premium
equivalents)......................................... $ 311,570 $ 425,007 $ 492,247
Less premium equivalents............................... (45,942) (76,346) (92,665)
------------- ------------- -------------
265,628 348,661 399,582
Individual health...................................... 231,541 913,883 1,011,782
Group and other........................................ 152,137 357,937 362,072
Accumulation products.................................. 52,645 121,310 132,544
Corporate.............................................. 345,618 117,584 7,989
Realized investment gains (losses)..................... 34,825 (119,088) (26,354)
------------- ------------- -------------
Total revenues..................................... $ 1,082,394 $ 1,740,287 $ 1,887,615
------------- ------------- -------------
------------- ------------- -------------
Operating earnings (loss):
Individual life........................................ $ 45,145 $ 42,464 $ 80,007
Individual health...................................... 21,036 66,528 65,478
Group and other........................................ (12,892) 5,121 5,631
Accumulation products.................................. (6,705) 418 10,452
Corporate.............................................. 299,965 76,098 7,989
Realized investment gains (losses)..................... 34,825 (119,088) (26,354)
Amortization of excess cost............................ (9,591) (10,981) (11,365)
Corporate interest expense............................. (66,153) (78,961) (98,570)
------------- ------------- -------------
Operating earnings (loss) before income
taxes and equity earnings (loss)................. $ 305,630 $ (18,401) $ 33,268
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
18. SUPPLEMENTAL DATA TO CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash payments (receipts) for interest expense and income taxes were as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1993 1992 1991
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest.................................................... $ 71,167 $ 77,211 $ 94,143
Income taxes................................................ (8,248) 6,537 8,435
</TABLE>
The following reflects assets and liabilities disposed relative to the sales
of subsidiaries and net cash flow relative to such sales during the year ended
December 31, 1992 (in thousands):
<TABLE>
<S> <C>
Assets of subsidiaries sold............................................ $ 2,191,519
Liabilities of subsidiaries sold....................................... (1,837,230)
Excess cost of investments in subsidiaries over
net assets sold...................................................... 59,198
-----------
Net investments in subsidiaries sold............................... $ 413,487
-----------
-----------
Net cash flow from sales:
Cash received from sales........................................... $ 600,000
Cash of subsidiaries sold.......................................... (398,811)
Investment in securities of purchaser.............................. (111,517)
-----------
Net cash provided by sales of subsidiaries..................... $ 89,672
-----------
-----------
</TABLE>
85
<PAGE>
I.C.H. CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
19. OTHER OPERATING INFORMATION
Other operating costs and expenses for the three years ended December 31,
1993, are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1993 1992 1991
----------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Non-deferrable commission expense................................ $ 44,122 $ 44,662 $ 33,563
Taxes, licenses and fees......................................... 21,777 38,257 47,328
General and administrative expenses.............................. 111,236 205,439 215,904
Settlement fee for modification of data processing arrangement... 12,600
Consolidation expenses........................................... 23,870 10,885
Provision for costs of litigation and other
contingencies................................................... 9,320
Placement fee for collateralized mortgage note obligations....... 4,413
Services agreements with CNC principals (see Note 4)............. 9,050
Litigation settlement............................................ 18,001
----------- ----------- -----------
Other operating expenses....................................... $ 223,788 $ 329,844 $ 296,795
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
In October 1992, the Company entered into a settlement agreement and agreed
to pay a $12.6 million settlement fee to Perot Systems, Inc. to modify an
existing data processing services arrangement. Under the settlement agreement,
Perot Systems agreed to eliminate minimum fee requirements totaling $15.6
million annually through July 1992, to lower its unit transaction charges, and
to procure the release of the Company relative to its guarantee of certain
equipment lease obligations. Bankers paid $6.3 million of the settlement fee and
Conseco agreed to a reduction in Bankers' required capital and surplus as of the
date of sale by a corresponding amount.
For the years ended December 31, 1993 and 1992, the Company reflected
consolidation and reorganization expenses totaling $23,870,000 and $10,885,000,
respectively. The expenses were associated with the operational consolidation of
three of the Company's Texas-based insurance subsidiaries. The 1993 expenses
include a $10,757,000 writedown of certain home office real estate, a $9,760,000
writeoff of certain capitalized data processing costs and $3,353,000 in
writeoffs of other property and equipment. The 1992 expense included an accrual
for the expenses anticipated to be incurred relative to such consolidation and
an $8,000,000 writedown of certain home office real estate. In addition, during
1993, the Company assessed its exposure to the costs associated with pending
litigation and certain other contingencies and provided reserves totaling
$9,320,000 for the costs anticipated to be incurred relative to such matters.
The litigation settlement expense in 1992 related to a class action suit which
had been filed by certain policyholders and which was settled in that year.
86
<PAGE>
I.C.H. CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
19. OTHER OPERATING INFORMATION (CONTINUED)
Changes in the present value of future profits of acquired business for the
three years ended December 31, 1993, are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1993 1992 1991
--------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance, beginning of year........................................ $ 63,863 $ 116,430 $ 135,215
Amortization:
Cash flow realized.............................................. (11,438) (24,980) (31,267)
Interest capitalized............................................ 5,049 9,996 12,482
Sale of subsidiaries and reinsurance.............................. (6,769) (37,583)
--------- ----------- -----------
Balance, end of year.............................................. $ 50,705 $ 63,863 $ 116,430
--------- ----------- -----------
--------- ----------- -----------
</TABLE>
Based on current conditions and assumptions as to future events on all
policies in force, approximately 10% and 9% of the present value of future
profits of acquired business as of December 31, 1993, are expected to be
amortized in each of the next two years, respectively, and 8% in each of the
succeeding three years. The interest accrual rate for the present value of
future profits of acquired business ranged from 8% to 10% during each of the
three years in the period ended December 31, 1993.
87
<PAGE>
SCHEDULE II
I.C.H. CORPORATION AND SUBSIDIARIES
AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS AND EMPLOYEES OTHER THAN RELATED PARTIES
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(IN THOUSANDS)
<TABLE>
<CAPTION>
DEDUCTIONS BALANCE AT
BALANCE AT -------------------------- END OF PERIOD
BEGINNING AMOUNTS AMOUNTS ------------------------
NAME OF DEBTOR OF PERIOD ADDITIONS COLLECTED WRITTEN OFF CURRENT NOT CURRENT
- --------------------------------------------- ----------- ----------- ----------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1993:
Phillip E. Allen........................... $ 578 $ 10(A) $ 588
Lee A. Eldredge............................ 144 7(A) $ 151
John T. Hull............................... 144 7(A) 151
W. Sherman Lay............................. 347 15(A) 362
Patricia W. Gliessner...................... 308 14(A) 322
Charles L. Greiner......................... 193 8(A) 201
Billy Joe Aldrich.......................... 880 59(B) 939
----------- ----- ----- ---------
$ 2,594 $ 120 $ 588 $ 2,126
----------- ----- ----- ---------
----------- ----- ----- ---------
Year ended December 31, 1992:
Phillip E. Allen........................... $ 551 $ 27(A) $ 578
Lee A. Eldredge............................ 138 6(A) 144
John T. Hull............................... 138 6(A) 144
W. Sherman Lay............................. 331 16(A) 347
Patricia W. Gliessner...................... 294 14(A) 308
Charles L. Greiner......................... 184 9(A) 193
Billy Joe Aldrich.......................... 822 58(B) 880
----------- ----- ---------
$ 2,458 $ 136 $ 2,594
----------- ----- ---------
----------- ----- ---------
Year ended December 31, 1991:
Phillip E. Allen........................... $ 525 $ 26(A) $ 551
Lee A. Eldredge............................ 131 7(A) 138
John T. Hull............................... 131 7(A) 138
W. Sherman Lay............................. 315 16(A) 331
Patricia W. Gliessner...................... 280 14(A) 294
Charles L. Greiner......................... 175 9(A) 184
Billy Joe Aldrich.......................... 541 281(B) 822
----------- ----- ---------
$ 2,098 $ 360 $ 2,458
----------- ----- ---------
----------- ----- ---------
<FN>
- ---------
(A) Promissory notes receivable bearing simple interest at 9% issued in
conjunction with sale of common shares under Restricted Stock Purchase
Agreements. These notes were modified in 1992 to collateralize with shares of
Company's Common Stock purchased under the Restricted Stock Purchase Agreement
and to extend the maturity date from 1992 to 1996. Employees were granted
options to repay obligations with collateral shares. Additions in 1993, 1992 and
1991 reflect additional interest accrued during those years.
(B) Promissory notes, including an additional $239,000 loaned to Mr. Aldrich
during 1991. The notes bear interest at 11% and mature in 1995. At debtor's
option, the notes may be repaid in cash or by the deliverance to the Company of
51,534 shares of the Company's Common Stock. Amounts reflected include accrued
interest.
</TABLE>
88
<PAGE>
SCHEDULE III
I.C.H. CORPORATION
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS
DECEMBER 31, 1993 AND 1992
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
1993 1992
----------- -------------
<S> <C> <C>
Fixed maturities, at fair value....................................................... $ 59,504
Equity securities, affiliated, at fair value.......................................... 54,000
Investments in limited partnerships................................................... 158 $ 4,901
Real estate, at lower of cost or fair value........................................... 7,817 3,997
Collateral loans...................................................................... 6,160 6,220
Cash and short-term investments....................................................... 71,845 51,750
Investments in and advances to subsidiaries:
Investments in subsidiaries......................................................... 754,482 620,006
Advances to subsidiaries............................................................ 8,629 273,512
Notes and accounts receivable......................................................... 8,072 4,361
Federal income tax recoverable........................................................ 11,141
Deferred income tax asset............................................................. 12,615 61,322
Other assets.......................................................................... 4,076 6,702
----------- -------------
$ 987,358 $ 1,043,912
----------- -------------
----------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable:
Due within one year................................................................. $ 34,687 $ 79,386
Due after one year.................................................................. 417,334 503,335
Advances from subsidiaries............................................................ 14,402 34,202
Federal income taxes currently payable................................................ 3,664
Accrued expenses and other liabilities................................................ 22,101 7,740
----------- -------------
492,188 624,663
----------- -------------
Stockholders' equity:
Preferred stock..................................................................... 229,239 329,242
Common stock........................................................................ 71,594 71,401
Common stock, Class B............................................................... 100 100
Additional paid-in capital.......................................................... 155,499 155,391
Net unrealized investment gains..................................................... 20,458 18,823
Retained earnings (deficit)......................................................... 71,833 (102,654)
----------- -------------
548,723 472,303
Notes receivable collateralized by common stock..................................... (1,729) (2,163)
Treasury stock, at cost............................................................. (51,824) (50,891)
----------- -------------
495,170 419,249
----------- -------------
$ 987,358 $ 1,043,912
----------- -------------
----------- -------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
89
<PAGE>
SCHEDULE III (CONTINUED)
I.C.H. CORPORATION
CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)
STATEMENTS OF EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(IN THOUSANDS)
<TABLE>
<CAPTION>
1993 1992 1991
----------- ----------- ------------
<S> <C> <C> <C>
Income:
Interest income......................................................... $ 4,096 $ 1,400 $ 3,480
Income from subsidiaries and equity investees:
Dividends............................................................. 43,681 22,842 166,197
Interest income....................................................... 7,347 37,221 58,940
Administrative services............................................... 106,589 170,165 183,316
Realized investment losses.............................................. (6,024) (46) (995)
Gain on sale of investment in Bankers Life Holding Corporation.......... 297,041
Other income............................................................ 2,722 1,628 4,985
----------- ----------- ------------
455,452 233,210 415,923
----------- ----------- ------------
Expenses:
Administrative and general expenses:
Subsidiaries and related parties...................................... 106,589 170,165 183,316
Other................................................................. 26,403 10,166 7,672
Interest:
Subsidiaries.......................................................... 269 2,423 4,205
Other................................................................. 64,420 81,116 102,997
----------- ----------- ------------
197,681 263,870 298,190
----------- ----------- ------------
Operating earnings (loss) before provision for federal income taxes
and equity in undistributed earnings (loss) of subsidiaries and
equity investees................................................... 257,771 (30,660) 117,733
Income tax expense (credit)............................................... 68,632 (47,234) (10,357)
----------- ----------- ------------
Operating earnings before equity in undistributed earnings (loss) of
subsidiaries and equity investees.................................. 189,139 16,574 128,090
----------- ----------- ------------
Equity in undistributed earnings (loss) of subsidiaries and equity
investees................................................................ 22,785 34,281 (102,661)
----------- ----------- ------------
Operating earnings.................................................. 211,924 50,855 25,429
Cumulative effect of changes in accounting methods........................ (6,734) 8,783
Extraordinary losses, net of tax effect................................... (1,919) (4,342)
----------- ----------- ------------
Net earnings........................................................ 203,271 46,513 34,212
Less dividends on preferred stock......................................... (28,784) (30,800) (30,800)
----------- ----------- ------------
Net earnings applicable to common stock............................. $ 174,487 $ 15,713 $ 3,412
----------- ----------- ------------
----------- ----------- ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
90
<PAGE>
SCHEDULE III (CONTINUED)
I.C.H. CORPORATION
CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(IN THOUSANDS)
<TABLE>
<CAPTION>
1993 1992 1991
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Operating earnings.................................................... $ 211,924 $ 50,855 $ 25,429
Items not requiring (providing) cash:
Equity in undistributed (earnings) loss of subsidiaries and related
party.............................................................. (22,785) (34,281) 102,661
Increase (decrease) in accrued expenses and other
liabilities....................................................... 18,025 (4,625)
Change in deferred tax asset........................................ 48,513 (49,121) (10,121)
Gain on sale of investment in Bankers Life Holding Corporation...... (297,041)
Other, net.......................................................... 7,727 (11,754) 9,377
------------ ------------ ------------
Net cash provided (used) by operating activities.................. (33,637) (48,926) 127,346
------------ ------------ ------------
Cash flows from investing activities:
Payments received on notes receivable, subsidiaries................... 147,267 359,500 75,000
Sale of investment in Bankers Life Holding Corporation................ 287,639
Purchase of long-term investments..................................... (78,160) (375)
Purchase of investments from subsidiaries............................. (34,457) (91,796)
Other, net............................................................ (500) (11,626) (668)
------------ ------------ ------------
Net cash provided by investing activities......................... 321,789 256,078 73,957
------------ ------------ ------------
Cash flows from financing activities:
Proceeds of notes payable, unaffiliated............................... 6,200
Proceeds of notes payable, subsidiaries............................... 21,700
Principal repayment on notes payable, unaffiliated.................... (41,567) (165,132) (75,212)
Principal repayment on notes payable, subsidiaries.................... (7,334) (32,549) (35,882)
Repayment of obligations due former affiliates........................ (12,926)
Repurchases of subordinated debt...................................... (89,439) (1,694)
Redemption of preferred stock......................................... (100,000)
Purchase of treasury shares........................................... (933)
Dividends on preferred shares......................................... (28,784) (30,800) (30,800)
------------ ------------ ------------
Net cash used by financing activities............................. (268,057) (223,975) (133,120)
------------ ------------ ------------
Net increase (decrease) in cash and short-term investments.............. 20,095 (16,823) 68,183
Cash and short-term investments at beginning of year.................... 51,750 68,573 390
------------ ------------ ------------
Cash and short-term investments at end of year.......................... $ 71,845 $ 51,750 $ 68,573
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
91
<PAGE>
SCHEDULE III (CONTINUED)
I.C.H. CORPORATION
CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)
NOTES TO CONDENSED FINANCIAL STATEMENTS
The accompanying condensed financial statements should be read in
conjunction with the consolidated financial statements and notes thereto of
I.C.H. Corporation and Subsidiaries.
Notes payable at December 31, 1993 and 1992, are summarized as follows:
<TABLE>
<CAPTION>
1993 1992
----------- -----------
<S> <C> <C>
(IN THOUSANDS)
Borrowings under senior secured loan....................................... $ 30,000 $ 30,000
16 1/2% Senior Subordinated Debentures due 1994............................ 124,910
11 1/4% Senior Subordinated Notes due 1996(a).............................. 300,159 392,635
11 1/4% Senior Subordinated Notes due 2003................................. 91,161
9 1/2% unsecured note payable due 1996..................................... 25,550 29,200
Note payable, interest at prime, due in monthly installments through 1999,
collateralized by aircraft equipment..................................... 4,872 5,654
Other...................................................................... 279 322
----------- -----------
$ 452,021 $ 582,721
----------- -----------
----------- -----------
<FN>
- ---------
(a) The principal amount of these notes held by subsidiaries at December
31, 1993 and 1992 was $34,058,000 and $39,428,000, respectively.
</TABLE>
The following summary sets forth the scheduled maturities and sinking fund
requirements of notes payable during each of the five years following December
31, 1993 (in thousands):
<TABLE>
<S> <C>
1994..................................................................... $ 34,687
1995..................................................................... 104,585
1996..................................................................... 219,244
1997..................................................................... 1,058
1998 and thereafter...................................................... 92,447
---------
$ 452,021
---------
---------
</TABLE>
Dividends from subsidiaries and equity investees consist of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1993 1992 1991
--------- --------- -----------
<S> <C> <C> <C>
(IN THOUSANDS)
Cash dividends...................................................... $ 43,681 $ 12,000 $ 166,197
Deemed dividend..................................................... 10,842
--------- --------- -----------
$ 43,681 $ 22,842 $ 166,197
--------- --------- -----------
--------- --------- -----------
</TABLE>
Prior to the sale of Bankers, the parent company acquired certain assets
from Bankers at their fair value. The tax attributes related to such assets were
likewise transferred to ICH and the income tax consequences which had been
reflected for financial purposes have been reflected as a deemed dividend to the
parent company.
92
<PAGE>
SCHEDULE V
I.C.H. CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY INSURANCE INFORMATION
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(IN THOUSANDS)
<TABLE>
<CAPTION>
FUTURE
DEFERRED POLICY
POLICY BENEFITS
ACQUISITION AND PREMIUM
COSTS AND UNIVERSAL INCOME
PRESENT LIFE AND AND NET
VALUE INVESTMENT CLAIMS AND OTHER INVESTMENT BENEFITS,
OF ACQUIRED PRODUCT UNEARNED BENEFITS CONSIDER- AND OTHER CLAIMS AND
SEGMENT BUSINESS LIABILITIES PREMIUMS PAYABLE ATIONS INCOME LOSSES
- ------------------------------- ----------- ---------- ----------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1993:
Individual life.............. $ 140,459 $1,563,363 $ 8,110 $ 118,049 $ 147,579 $ 141,345
Individual health............ 68,854 68,775 $ 35,236 42,432 220,266 11,275 137,113
Group and other.............. 24,403 176 34,165 136,486 15,651 99,509
Accumulation products........ 9,917 787,911 214 225 52,420 50,365
Corporate.................... 345,618
----------- ---------- ----------- ----------- ---------- ----------- -----------
Total.................... $ 219,230 $2,444,452 $ 35,412 $ 84,921 $ 475,026 $ 572,543 $ 428,332
----------- ---------- ----------- ----------- ---------- ----------- -----------
----------- ---------- ----------- ----------- ---------- ----------- -----------
Year ended December 31, 1992:
Individual life.............. $ 170,041 $1,574,369 $ 6,760 $ 191,555 $ 157,106 $ 238,100
Individual health............ 69,657 66,519 $ 33,346 39,141 859,094 54,789 583,487
Group and other.............. 26,875 103 19,369 337,406 20,531 287,872
Accumulation products........ 2,972 744,288 30 724 120,586 95,986
Corporate.................... 117,584
----------- ---------- ----------- ----------- ---------- ----------- -----------
$ 242,670 $2,412,051 $ 33,449 $ 65,300 $1,388,779 $ 470,596 $1,205,445
----------- ---------- ----------- ----------- ---------- ----------- -----------
----------- ---------- ----------- ----------- ---------- ----------- -----------
Year ended December 31, 1991:
Individual life.............. $ 252,292 $2,055,916 $ 14,278 $ 202,249 $ 197,333 $ 238,990
Individual health............ 400,084 428,126 $ 194,560 158,199 949,876 61,906 640,797
Group and other.............. 40,131 515 67,830 343,292 18,780 305,816
Accumulation products........ 21,144 1,100,325 13 259 132,285 93,939
Corporate.................... 7,989
----------- ---------- ----------- ----------- ---------- ----------- -----------
$ 673,520 $3,624,498 $ 195,075 $ 240,320 $1,495,676 $ 418,293 $1,279,542
----------- ---------- ----------- ----------- ---------- ----------- -----------
----------- ---------- ----------- ----------- ---------- ----------- -----------
<CAPTION>
AMORTIZATION
OF DEFERRED
POLICY
ACQUISITION
COSTS AND
PRESENT
VALUE OTHER
OF ACQUIRED OPERATING
SEGMENT BUSINESS COSTS
- ------------------------------- ------------ -----------
<S> <C> <C>
Year ended December 31, 1993:
Individual life.............. $ 16,728 $ 62,410
Individual health............ 32,172 41,220
Group and other.............. 65,520
Accumulation products........ 8,985
Corporate.................... 45,653
------------ -----------
Total.................... $ 48,900 $ 223,788
------------ -----------
------------ -----------
Year ended December 31, 1992:
Individual life.............. $ 30,646 $ 37,451
Individual health............ 101,267 162,601
Group and other.............. 64,944
Accumulation products........ 1,544 23,362
Corporate.................... 41,486
------------ -----------
$ 133,457 $ 329,844
------------ -----------
------------ -----------
Year ended December 31, 1991:
Individual life.............. $ 34,595 $ 45,990
Individual health............ 132,585 172,921
Group and other.............. 50,625
Accumulation products........ 895 27,259
Corporate....................
------------ -----------
$ 168,075 $ 296,795
------------ -----------
------------ -----------
</TABLE>
93
<PAGE>
SCHEDULE VI
I.C.H. CORPORATION AND SUBSIDIARIES
REINSURANCE
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PERCENTAGE
GROSS CEDED TO OTHER ASSUMED FROM NET OF AMOUNT
AMOUNT COMPANIES OTHER COMPANIES AMOUNT ASSUMED TO NET
----------- ---------------- ----------------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1993:
Life insurance in force(A)............ $20,425,230 $ 5,658,090 $ 972,626 $15,739,766 6.2%
----------- ---------------- ----------------- ----------- ---
----------- ---------------- ----------------- ----------- ---
Premium income and other
considerations:
Individual life (including premium
equivalents)....................... $ 171,147 $ 12,498 $ 5,342 $ 163,991 3.2%
Less premium equivalents............ (47,057) (3,351) (2,236) (45,942)
----------- ---------------- ----------------- -----------
Individual life..................... 124,090 9,147 3,106 118,049
Individual health................... 231,856 11,870 280 220,266 .1%
Group and other..................... 165,405 28,948 29 136,486 0.0%
Accumulation products............... 192 16 49 225 21.8%
----------- ---------------- ----------------- -----------
$ 521,543 $ 49,981 $ 3,464 $ 475,026
----------- ---------------- ----------------- -----------
----------- ---------------- ----------------- -----------
Year ended December 31, 1992:
Life insurance in force(A)............ $20,528,559 $ 5,417,485 $ 907,756 $16,018,830 5.7%
----------- ---------------- ----------------- ----------- ---
----------- ---------------- ----------------- ----------- ---
Premium income and other
considerations:
Individual life (including premium
equivalents)....................... $ 273,048 $ 10,512 $ 5,365 $ 267,901 2.0%
Less premium equivalents............ (77,226) (3,987) (3,106) (76,345)
----------- ---------------- ----------------- -----------
Individual life..................... 195,822 6,525 2,259 191,556
Individual health................... 855,428 1,591 5,257 859,094 0.6%
Group and other..................... 376,600 39,686 492 337,406 0.1%
Accumulation products............... 7,063 6,418 78 723 11.0%
----------- ---------------- ----------------- -----------
Total............................. $ 1,434,913 $ 54,220 $ 8,086 $ 1,388,779
----------- ---------------- ----------------- -----------
----------- ---------------- ----------------- -----------
Year ended December 31, 1991:
Life insurance in force(A)............ $36,913,549 $ 8,646,176 $ 1,657,368 $29,924,741 5.5%
----------- ---------------- ----------------- ----------- ---
----------- ---------------- ----------------- ----------- ---
Premium income and other
considerations:
Individual life (including premium
equivalents)....................... $ 300,957 $ 13,151 $ 7,108 $ 294,914 2.4%
Less premium equivalents............ (94,944) (7,305) (5,027) (92,666)
----------- ---------------- ----------------- -----------
Individual life..................... 206,013 5,846 2,081 202,248
Individual health................... 949,717 126 284 949,875 0.0%
Group and other..................... 379,338 36,861 816 343,293 0.2%
Accumulation products............... 8,680 8,538 118 260 45.4%
----------- ---------------- ----------------- -----------
Total............................. $ 1,543,748 $ 51,371 $ 3,299 $ 1,495,676
----------- ---------------- ----------------- -----------
----------- ---------------- ----------------- -----------
<FN>
- ---------
(A) Excludes face amount of life insurance in force ceded to other
unaffiliated companies under financial reinsurance agreements with unaffiliated
insurers generally in return for fees, as follows (in thousands):
</TABLE>
<TABLE>
<CAPTION>
1993 1992 1991
---------- ---------- ----------
<S> <C> <C> <C>
Ceded to other companies..................... $1,677,183 $2,076,293 $2,807,700
</TABLE>
These agreements will terminate during the next few years.
94
<PAGE>
SCHEDULE VIII
I.C.H. CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT -------------------------------------
BEGINNING CHARGED TO COSTS CHARGED TO OTHER BALANCE AT
DESCRIPTION OF PERIOD AND EXPENSES ACCOUNTS DEDUCTIONS END OF PERIOD
- ---------------------------------------- ---------- ---------------- ------------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1993:
Allowance for mortgage loan losses.... $ 1,450 $ $ 407(B) $ 1,043
Allowance for losses on real estate... 14,557 $ 4,500 1,442(B) 17,615
Allowance for doubtful accounts....... 3,163 104 404(C) 2,863
Accumulated depreciation on property
and equipment........................ 23,439 7,390 4,639(A) 374(B) 35,094
Allowance for losses on property and
equipment............................ 8,000 8,000
Amortization of excess cost of
investments in subsidiaries over net
assets acquired...................... 68,340 9,591 189(A) 78,120
Accumulated depreciation on real
estate............................... 9,922 1,430 (1,367)(A) 622(B) 9,363
---------- -------- ------- ------------- -------------
$ 128,871 $ 23,015 $ 3,461 $ 3,249 $ 152,098
---------- -------- ------- ------------- -------------
---------- -------- ------- ------------- -------------
Year ended December 31, 1992:
Allowance for mortgage loan losses.... $ 2,318 $ 407 $ 1,275(A) $ 1,450
Allowance for losses on real estate... 13,778 2,312 $ 45(A) 1,578(B) 14,557
Allowance for doubtful accounts....... 3,158 422 244(C) 3,163
173(D)
Allowance for other invested assets... 18,392 18,392(C) --
Accumulated depreciation on property
and equipment........................ 43,594 8,356 5,371(B) 23,439
23,140(D)
Allowance for losses on property and
equipment............................ 8,000 8,000
Amortization of excess cost of
investments in subsidiaries over net
assets acquired...................... 71,798 10,981 14,439(D) 68,340
Accumulated depreciation on real
estate............................... 9,215 1,370 492(B) 9,922
171(D)
---------- -------- ------- ------------- -------------
$ 162,253 $ 31,848 $ 45 $ 65,275 $ 128,871
---------- -------- ------- ------------- -------------
---------- -------- ------- ------------- -------------
Year ended December 31, 1991:
Allowance for mortgage loan losses.... $ 2,883 $ 1,115 $ 1,680(A) $ 2,318
Allowance for losses on real estate... 2,715 10,578 $ 1,680(A) 1,195(B) 13,778
Allowance for doubtful accounts....... 3,227 62 131(C) 3,158
Allowance for other invested assets... 18,392 18,392
Accumulated depreciation on property
and equipment........................ 45,222 6,601 3,669(A) 8,040(B) 43,594
3,858(A)
Amortization of excess cost of
investment in subsidiaries over net
assets acquired...................... 60,521 11,365 88(A) 71,798
Accumulated depreciation on real
estate............................... 6,102 1,368 3,858(A) 2,113(B) 9,215
---------- -------- ------- ------------- -------------
$ 120,670 $ 49,481 $ 9,207 $ 17,105 $ 162,253
---------- -------- ------- ------------- -------------
---------- -------- ------- ------------- -------------
<FN>
- ---------
(A) Miscellaneous reclassification.
(B) Retirement upon sales of assets.
(C) Elimination of allowance upon disposition of account.
(D) Deduction upon sales of previously consolidated subsidiaries.
</TABLE>
95
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT.
The information appearing under ITEM 1A in Part I of this Form 10-K and the
information appearing under the heading "Election of Directors" in the
Registrant's definitive Proxy Statement to be filed pursuant to Regulation 14A
under the Securities Exchange Act of 1934 in connection with the Registrant's
1994 Annual Meeting of Stockholders are incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information appearing under the heading "Executive Compensation" in the
Registrant's definitive Proxy Statement to be filed pursuant to Regulation 14A
under the Securities Exchange Act of 1934 in connection with the Registrant's
1994 Annual Meeting of Stockholders is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information appearing under the heading "Security Ownership" in the
Registrant's definitive Proxy Statement to be filed pursuant to Regulation 14A
under the Securities Exchange Act of 1934 in connection with the Registrant's
1994 Annual Meeting of Stockholders is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information appearing under the subheading "Certain Transactions" under
"Executive Compensation" in the Registrant's definitive Proxy Statement to be
filed pursuant to Regulation 14A under the Securities Exchange Act of 1934 in
connection with the Registrant's 1994 Annual Meeting of Stockholders is
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
1. EXHIBITS. The exhibits listed on the Index to Exhibits appearing on
pages 99-105 of this Form 10-K and the footnotes thereto are incorporated herein
by reference. The exhibit descriptions incorporated by reference identify by
asterisk (*) each management contract or compensatory plan or arrangement
required to be filed as an exhibit to this Form 10-K pursuant to ITEM 14(C).
2. FINANCIAL STATEMENTS. The list of audited consolidated financial
statements of ICH and the related auditor's report appearing under the heading
"Financial Statements" in the Index to Financial Statements and Financial
Statement Schedules of I.C.H. Corporation and Subsidiaries in ITEM 8 on page
of this Form 10-K is incorporated herein by reference.
3. FINANCIAL STATEMENT SCHEDULES. The list of schedules appearing under
the heading "Financial Statement Schedules" in the Index to Financial Statements
and Financial Statement Schedules of I.C.H. Corporation and Subsidiaries in ITEM
8 on page 47 of this Form 10-K is incorporated herein by reference.
4. FORM 8-K. On October 1, 1993, the Registrant filed a Report on Form
8-K, dated September 30, 1993, to report, under ITEM 5 of that form, the closing
of the Registrant's sale of 13,316,168 shares of common stock of Bankers Life
Holding Corporation; the sale of shares of common stock of CCP Insurance, Inc.
by subsidiaries of the Registrant in conjunction with an underwritten public
offering; and the completion of the restructuring of the Registrant's insurance
holding company organization, from a vertical to a substantially horizontal
configuration and matters relating to the receipt of regulatory approvals in
connection therewith. The Registrant filed a Report on Form 8-K, dated January
15, 1994, to report, under ITEM 5 of that form, the execution of Stock Purchase
96
<PAGE>
Agreements pursuant to which the Registrant agreed to repurchase its Class B
Common Stock from Consolidated National Corporation ("CNC") and CNC agreed to
sell shares of the Registrant's Common Stock to Torchmark Corporation and
Stephens Inc.; and a Report on Form 8-K, dated February 11, 1994, to report,
under ITEM 1 of that form, the closing of said Stock Purchase Agreements and the
sales of Common Stock and Class B Common Stock and other transactions
contemplated thereby.
97
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
I.C.H. CORPORATION
BY: /s/ ROBERT L. BEISENHERZ
--------------------------------------
Robert L. Beisenherz
CHAIRMAN OF THE BOARD,
CHIEF EXECUTIVE OFFICER AND PRESIDENT
Date: March 21, 1994
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
/s/ CHARLES L. DUNCAN
- ------------------------------------------- Director March 21, 1994
Charles L. Duncan
/s/ ROBERT P. EWING
- ------------------------------------------- Director March 21, 1994
Robert P. Ewing
- ------------------------------------------- Director
Jon E.M. Jacoby
/s/ C. FRED RICE
- ------------------------------------------- Director March 21, 1994
C. Fred Rice
/s/ S. LEROY STEGNER
- ------------------------------------------- Director March 21, 1994
S. Leroy Stegner
- ------------------------------------------- Director
Keith A. Tucker
/s/ VERNON K. ZIMMERMAN
- ------------------------------------------- Director March 21, 1994
Vernon K. Zimmerman
/s/ ROBERT L. BEISENHERZ
- ------------------------------------------- Principal Executive Officer March 21, 1994
Robert L. Beisenherz and Director
/s/ EDWARD R. MEKEEL, JR.
- ------------------------------------------- Principal Financial Officer March 21, 1994
Edward R. Mekeel, Jr.
/s/ JOHN T. HULL
- ------------------------------------------- Principal Accounting Officer March 21, 1994
John T. Hull
</TABLE>
98
<PAGE>
INDEX TO EXHIBITS
The following documents are incorporated by reference or filed as Exhibits
to the Annual Report on Form 10-K of I.C.H. Corporation for the year ended
December 31, 1993:
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NO. DESCRIPTION PAGE NO.
- ---------- -------------------------------------------------------------------------------------------- -------------
<C> <S> <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 incorporated 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
Marquette 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
amendments 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 incorporated herein by reference) and
amendments thereto (filed as Exhibit 2.13 to the Registrant's Annual Report on Form 10-K for
year ended December 31, 1991, and Exhibit 2.13 to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1992, 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 thereto (filed as Exhibit 2.14 to the Registrant'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 incorporated herein by reference)............
2.6 Stock Purchase Agreement dated October 3, 1989, between the Registrant and HMS Acquisition
Corporation (filed as Exhibit 1 to the Registrant's Current Report on Form 8-K dated October
3, 1989, and incorporated herein by reference), and the amendment thereto dated March 29,
1990, (filed as Exhibit 19.4 to Registrant's Annual Report on Form 10-K for the year ended
December 31, 1989, and incorporated herein by reference)....................................
</TABLE>
99
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NO. DESCRIPTION PAGE NO.
- ---------- -------------------------------------------------------------------------------------------- -------------
<C> <S> <C>
2.7 Compromise and Settlement Agreement, dated September 1, 1990, relating to the Stock Purchase
Agreement referenced as Exhibit 2.6 above (filed as Exhibit 2.8 to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1990, and incorporated herein by
reference)..................................................................................
2.8 Stock Purchase Agreement dated December 11, 1989, as amended, between the Registrant, Modern
American Life Insurance Company and Financial Holding Corporation (filed as Exhibit 2.1 to
the Registrant's Current Report on Form 8-K dated December 29, 1989, and incorporated herein
by reference)...............................................................................
2.9 Stock Acquisition Agreement dated February 20, 1992, between the Registrant and Conseco,
Inc. (filed as Exhibit 2.10 to the Registrant's Current Report on Form 8-K dated February
20, 1992 and incorporated herein by reference) and amendments thereto (filed as Exhibit 2.15
to the Registrant's Annual Report on Form 10-K for year ended December 31, 1991, and as
Exhibit 2.16 of Registrant's Report on Form 10-Q for the quarter ended September 30, 1992,
and incorporated herein by reference).......................................................
2.10 Stockholders' Agreement, dated November 9, 1992, among Bankers Life Holding Corporation and
its initial common stockholders, and the Registrant's assumption thereof (filed as Exhibit
2.10 to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31,
1992 and incorporated herein by reference)..................................................
2.11 Letter agreement of the Registrant, dated March 8, 1993, relating to the Coinsurance Annuity
Reinsurance Agreement referenced as Exhibit 2.2 above (filed as Exhibit 2.15 of the Annual
Report on Form 10-K for the year ended December 31, 1992, and incorporated herein by
reference)..................................................................................
2.16 Agreement of the Registrant, dated March 10, 1993, relating to the Coinsurance Annuity and
Supplemental Contract Reinsurance Agreement II referenced as Exhibit 2.4 above (filed as
Exhibit 2.16 to the Registrant's Annual Report on Form 10-K for the year ended December 31,
1992, 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 Company (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 Amendment to Coinsurance Annuity and Supplemental Contract Reinsurance Agreement II
referenced as Exhibit 2.4 above.............................................................
2.19 Amendment to Coinsurance Annuity and Supplementary Contract Retrocession Agreement II
referenced as Exhibit 2.5 above.............................................................
3.1 Restated Certificate of Incorporation of the Registrant.....................................
3.2 Bylaws of the Registrant, as amended........................................................
</TABLE>
100
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NO. DESCRIPTION PAGE NO.
- ---------- -------------------------------------------------------------------------------------------- -------------
<C> <S> <C>
4.1 Agreement of the Registrant to file long-term debt instruments (filed as Exhibit 4.1 to the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1992, and
incorporated herein by reference)...........................................................
4.2 Credit Agreement dated as of September 28, 1990, between Registrant and certain banks party
thereto and The Chase Manhattan Bank (National Association), as Agent for such banks (filed
as Exhibit 4-1 of Registrant's Current Report on Form 8-K dated November 9, 1990, and
incorporated herein by reference) and amendments thereto (filed as Exhibit 4.3 to the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1990; Exhibit 4.3 to
the Registrant's Annual Report on Form 10-K for year ended December 31, 1991; Exhibit 4.8 to
Registrant's Report on Form 10-Q for quarter ended June 30, 1992; and Exhibit 4.9 to
Registrant's Report on Form 10-Q for quarter ended September 30, 1992, all of which are
incorporated herein by reference)...........................................................
4.4 Indenture dated as of November 15, 1986 between the Registrant and Mid-America Bank of
Louisville and Trust Company, as Trustee (filed as Exhibit 4.3 to the Registrant's
Registration Statement of Form S-3, No. 33-9455, and incorporated herein by reference)......
4.5 Indenture dated as of November 12, 1993, between the Registrant and Mid-America Bank of
Louisville and Trust Company, as Trustee....................................................
4.6 Subordination Agreement dated November 4, 1986, between the Registrant and Consolidated
National Successor Corporation (filed as Exhibit 10.33 to the Registrant's Registration
Statement on Form S-3, No. 33-9455, and incorporated herein by reference)...................
10.1 * Management and Consulting Agreement effective January 22, 1985 among the Registrant,
Consolidated National Corporation and Consolidated National Successor Corporation (filed as
Exhibit 10.21 to the Registrant's Registration Statement on Form S-14, No. 2-96685, and
incorporated herein by reference)...........................................................
10.2 * Termination Agreement, dated February 11, 1994, between I.C.H. Corporation and Consolidated
National Corporation relating to the Management and Consulting Agreement referenced as
Exhibit 10.1 above..........................................................................
10.3 Agreement dated October 8, 1984 between the Registrant and Robert T. Shaw (filed as Exhibit
I to Amendment No. 26-1 to the Schedule 13D filed by Consolidated National Successor
Corporation and certain affiliates relating to shares of the Common Stock of the Registrant
and incorporated herein by reference).......................................................
10.4 Stock Purchase Agreement dated July 31, 1986 between the Registrant and Tenneco Inc. (filed
as Exhibit 2.1 to the Registrant's Current Report on Form 8-K dated July 31, 1986 and
incorporated herein by reference), and the Amendment Agreement dated December 31, 1986
between the Registrant and Tenneco, Inc. (filed as Exhibit 2.2 to the Registrant's Current
Report on Form 8-K dated December 31, 1986, and incorporated herein by reference)...........
</TABLE>
101
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NO. DESCRIPTION PAGE NO.
- ---------- -------------------------------------------------------------------------------------------- -------------
<C> <S> <C>
10.5 * Restricted Stock Purchase Agreement, as amended, between System Services Group and Phillip
E. Allen (filed as Exhibit 10.17 to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1986, and incorporated herein by reference), and the amendments thereto
(filed as Exhibit 19.4 to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1988, and as Exhibit 10.1 of the Registrant's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1993, and incorporated herein by reference)......................
10.6 * Restricted Stock Purchase Agreement, as amended, between System Services Group and John T.
Hull (filed as Exhibit 10.18 to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1986, and incorporated herein by reference)..............................
10.7 Stock Purchase Agreement dated December 19, 1988, among the Registrant, Selig Zises, Jay
Zises, and Seymour Zises (filed as Exhibit 1 to the Registrant's Current Report on Form 8-K
dated December 19, 1988, and incorporated herein by reference)..............................
10.8 * I.C.H. Corporation Deferred Compensation Plan (filed as Exhibit 10.32 to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1988, and incorporated herein by
reference)..................................................................................
10.9 Stock Purchase Agreement dated March 27, 1989 between the Registrant and Integrated
Resources, Inc. (filed as Exhibit 10.33 to the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1988, and incorporated herein by reference).....................
10.10* I.C.H. Companies Salaried Employees Severance Pay Plan (filed as Exhibit 10.14 of the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1990, and
incorporated herein by reference), as amended by Amendment No. 1 thereto (filed as Exhibit
10.26 to the Form 10-K of I.C.H. Corporation for the year ended December 31, 1992 and
incorporated by reference)..................................................................
10.11* Form of Indemnification Agreement relating to certain officers and directors of the
Registrant (filed as Exhibit 10.22 of Registrant's Annual Report on Form 10-K for the year
ended December 31, 1989, and incorporated herein by reference)..............................
10.12* 1990 Stock Option Incentive Plan of Registrant, as amended (filed as Exhibit 19.2 of
Registrant's Report on Form 10-Q for the quarter ended June 30, 1991, as amended, and
incorporated herein by reference) and the form of the stock option certificate (filed as
Exhibit 19.1 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March
31, 1991 and incorporated herein by reference)..............................................
10.13 Office Lease between Crow-Kessler-Woodhouse #6 and Facilities Management Installation, Inc.
(filed as Exhibit 10.20 of the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1990 and incorporated herein by reference).....................................
10.14 Lease between Lincoln Property Company No. 375, LTD. and Southwestern Life Insurance
Company, dated June 28, 1984 (filed as Exhibit 10.21 to the Registrant's Report on Form 10-K
for the year ended December 31, 1990 and incorporated herein by reference)..................
</TABLE>
102
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NO. DESCRIPTION PAGE NO.
- ---------- -------------------------------------------------------------------------------------------- -------------
<C> <S> <C>
10.15 Data Processing Agreement between the Registrant and Perot Systems Corporation dated
September 29, 1993 (certain portions of which have been omitted and filed separately with
the Securities and Exchange Commission).....................................................
10.16* Letter Agreement between John A. Franco and Registrant (filed as Exhibit 10.23 to the
Registrant's Current Report on Form 8-K dated November 18, 1991, and incorporated herein by
reference)..................................................................................
10.17* Letter Agreement between Steven B. Bing, Consolidated National Corporation and Registrant
(filed as Exhibit 10.24 to the Registrant's Annual Report on Form 10-K for year ended
December 31, 1991 and incorporated herein by reference).....................................
10.19 Agreement of Lease between the Tilles Investment Company and Bankers Life and Casualty
Company of New York (filed as Exhibit 10.26 to the Registrant's Annual Report on Form 10-K
for year ended December 31, 1991, and incorporated herein by reference).....................
10.20 Note of CFSB Corporation payable to Southwestern Life Insurance Company, dated January 25,
1993 (incorporated by reference to Exhibit 10.21 to the Form 10-K of I.C.H. Corporation for
the year ended December 31, 1992)...........................................................
10.21 Loan Agreement between CFSB Corporation and Southwestern Life Insurance Company, dated
January 25, 1993 (incorporated by reference to Exhibit 10.22 to the Form 10-K of I.C.H.
Corporation for the year ended
December 31, 1992)..........................................................................
10.22 Note of James M. Fail payable to Southwestern Life Insurance Company, dated January 25, 1993
(incorporated by reference to Exhibit 10.23 to the Form 10-K of I.C.H. Corporation for the
year ended December 31, 1992)...............................................................
10.23 Loan Agreement between James M. Fail and Southwestern Life Insurance Company, dated January
25, 1993 (incorporated by reference to Exhibit 10.24 to the Form 10-K of I.C.H. Corporation
for the year ended
December 31, 1992)..........................................................................
10.24 Intercreditor Agreement between Southwestern Life Insurance Company and Consolidated
Fidelity Life Insurance Company, dated January 25, 1993 (incorporated by reference to
Exhibit 10.25 to the Form 10-K of I.C.H. Corporation for the year ended December 31,
1992).......................................................................................
10.25 The Assignment and Grant of Option executed by Consolidated Fidelity Life Insurance Company
and Registrant effective as of May 21, 1992 (filed as Exhibit 38-1 to Amendment No. 38 to
Schedule 13D filed by Consolidated National Corporation relating to the Common Stock of
Registrant and incorporated herein by reference)............................................
10.26* Form of agreement entered into by the Registrant, Facilities Management Installation, Inc.
and each of Phillip E. Allen, John T. Hull and W. Sherman Lay (incorporated by reference to
Exhibit 10.30 to the Form 10-K of I.C.H. Corporation for the year ended December 31,
1992).......................................................................................
10.27 Letter agreements between the Registrant and Consolidated National Corporation, dated March
29, 1993 and November 9, 1992 (incorporated by reference to Exhibit 10.31 to the Form 10-K
of I.C.H. Corporation for the year ended December 31, 1992).................................
</TABLE>
103
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NO. DESCRIPTION PAGE NO.
- ---------- -------------------------------------------------------------------------------------------- -------------
<C> <S> <C>
10.28* Retirement/Retainer Agreement, dated May 26, 1993, among I.C.H. Corporation, Facilities
Management Installation, Inc. and Phillip E. Allen (incorporated by reference to Exhibit
10.2 of the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30,
1993).......................................................................................
10.29 Agreement, dated September 11, 1993, between I.C.H. Corporation and Conseco, Inc.
(incorporated by reference to Exhibit 4 to Amendment No. 1 to the Schedule 13D relating to
the common stock of Bankers Life Holding Corporation, filed by I.C.H. Corporation,
Consolidated National Corporation, Robert T. Shaw and C. Fred Rice, dated September 15,
1993).......................................................................................
10.30 Agreement, dated September 11, 1993, between I.C.H. Corporation and Bankers National Life
Insurance Company (incorporated by reference to Exhibit 5 to Amendment No. 1 to the Schedule
13D relating to the common stock of Bankers Life Holding Corporation, filed by I.C.H.
Corporation, Consolidated National Corporation, Robert T. Shaw and C. Fred Rice, dated
September 15, 1993).........................................................................
10.31 Letter agreement, dated September 11, 1993, among I.C.H. Corporation, Conseco, Inc. and
Bankers Life Holding Corporation (incorporated by reference to Exhibit 6 to Amendment No. 1
to the Schedule 13D relating to the common stock of Bankers Life Holding Corporation, filed
by I.C.H. Corporation, Consolidated National Corporation, Robert T. Shaw and C. Fred Rice,
dated September 15, 1993)...................................................................
10.32 Stock Purchase Agreement, dated January 15, 1994, among Consolidated National Corporation,
Consolidated Fidelity Life Insurance Company, Robert T. Shaw, C. Fred Rice, I.C.H.
Corporation and Torchmark Corporation (incorporated by reference to Exhibit No. 1 of the
Form 8-K of I.C.H. Corporation dated January 15, 1994), as amended (incorporated by
reference to Exhibit 10 of the Form 8-K of I.C.H. Corporation dated February 11, 1994)......
10.33 Stock Purchase Agreement, dated January 15, 1994, among Consolidated National Corporation,
Consolidated Fidelity Life Insurance Company, Robert T. Shaw, C. Fred Rice, I.C.H.
Corporation and Stephens Inc. (incorporated by reference to Exhibit No. 2 of the Form 8-K of
I.C.H. Corporation dated January 15, 1994)..................................................
10.34 Letter from I.C.H. Corporation to Robert T. Shaw effective January 15, 1994.................
10.35 Letter, dated January 15, 1994, from I.C.H. Corporation to Robert T. Shaw (incorporated by
reference to Exhibit No. 5 of the Registrant's Current Report on Form 8-K dated January 15,
1994).......................................................................................
10.36 Letter, dated January 15, 1994, from I.C.H. Corporation to Consolidated National Corporation
(incorporated by reference to Exhibit No. 6 of the Registrant's Current Report on Form 8-K
dated January 15, 1994).....................................................................
10.37* Independent Contractor and Services Agreement, dated February 11, 1994, between I.C.H.
Corporation and Robert T. Shaw (incorporated by reference to Exhibit No. 7 of the
Registrant's Current Report on Form 8-K dated February 11, 1994)............................
10.38* Independent Contractor and Services Agreement, dated February 11, 1994, between I.C.H.
Corporation and C. Fred Rice (incorporated by reference to Exhibit No. 8 of the Registrant's
Current Report on Form 8-K dated February 11, 1994).........................................
</TABLE>
104
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NO. DESCRIPTION PAGE NO.
- ---------- -------------------------------------------------------------------------------------------- -------------
<C> <S> <C>
10.39 Mutual Release, dated February 11, 1994, among I.C.H. Corporation and Consolidated National
Corporation, Robert T. Shaw, C. Fred Rice and Edward J. Carlisle (incorporated by reference
to Exhibit No. 9 of the Form 8-K of I.C.H. Corporation dated February 11, 1994).............
10.40* Form of Agreement entered into by I.C.H. Corporation and certain of its employees, including
John T. Hull and W. Sherman Lay.............................................................
10.41 Stock Purchase Agreement, dated January 15, 1994, between Consolidated National Corporation
and I.C.H. Corporation (incorporated by reference to Exhibit No. 3 of the Form 8-K of I.C.H.
Corporation dated January 15, 1994).........................................................
10.42 Amendments to Office Lease referenced as Exhibit 10.13 above................................
11.1 Computation of Earnings (Loss) Per Share of Common Stock on Average Shares Outstanding and
Fully Diluted Bases.........................................................................
12.1 Computation of Ratios of Consolidated Earnings to Fixed Charges and Preferred Dividends
(Unaudited).................................................................................
22.1 List of Subsidiaries of Registrant..........................................................
23.1 Consent of Coopers & Lybrand................................................................
<FN>
- ---------
*MANAGEMENT CONTRACT OR COMPENSATORY PLAN OR ARRANGEMENT REQUIRED TO BE
FILED PURSUANT TO ITEM 14(C) OF THIS REPORT.
</TABLE>
105
<PAGE>
EXHIBIT 2.18
EMPLOYERS REASSURANCE CORPORATION
- -------------------------------------------------------------------------------
5200 Metcalf - P.O. Box 2981 - Overland Park, Kansas 66201-1381
(913)676-5950 - Facsimile (913)676-5221
AMENDMENT NO. 3
The Coinsurance Annuity and Supplemental Contract Reinsurance Agreement II of
June 30, 1990, between EMPLOYERS REASSURANCE CORPORATION of Overland Park,
Kansas and SOUTHWESTERN LIFE INSURANCE COMPANY of Dallas, Texas, is hereby
amended as follows:
Effective December 31, 1991, the following subparagraph (c) is added to the last
paragraph of Article IX:
(c) The Portfolio shall be deemed to include an obligation equal to
$25,000,000 minus the cumulative summation through the prior calendar
quarter of the amounts specified in the following Schedule:
Schedule
<TABLE>
<CAPTION>
Accounting Period Quarterly Amount
----------------- ----------------
<S> <C>
First $0
Second $1,064,500
Third (1991) $1,234,750
Fourth (1992) $1,153,750
Fifth (1993) $1,159,000
Sixth (1994) $1,137,500
Seventh (1995) $1,032,750
Eighth and Thereafter $0
</TABLE>
Such obligation shall bear interest at 9.65% per annum.
In all other respects not inconsistent herewith, said agreement shall remain
unchanged.
IN WITNESS WHEREOF, the parties hereto have caused this amendment to be executed
in duplicate.
SOUTHWESTERN LIFE INSURANCE EMPLOYERS REASSURANCE
COMPANY CORPORATION
By: /s/ John T. Hull By: /s/ James D. Maughn
-------------------------------- --------------------------
Title: Exec Vice Pres & Treas Title: SVP & Actuary
Date: 2/21/94 Date: 2/16/94
By: /s/ Joseph K. Haggerty By: /s/ T.R. Mickelson
-------------------------------- --------------------------
Title: Sr Vice President Title: V.P.
Date: 2/21/94 Date: 2/17/94
<PAGE>
EXHIBIT 2.19
EMPLOYERS REASSURANCE CORPORATION
- -------------------------------------------------------------------------------
5200 Metcalf - P.O. Box 2981 - Overland Park, Kansas 66201-1381
(913)676-5950 - Facsimile (913)676-5221
AMENDMENT NO. 5
The Coinsurance Annuity and Supplementary Contract Retrocession Agreement II
(Southwestern Life Business) of June 30, 1990, between CONSOLIDATED FIDELITY
LIFE INSURANCE COMPANY of Louisville, Kentucky and EMPLOYERS REASSURANCE
CORPORATION of Overland Park, Kansas, is hereby amended as follows:
I. Effective December 31, 1991:
A. The RETROCESSIONAIRE hereby approves and the CORPORATION and the
RETROCESSIONAIRE agree to be bound by the effect upon this agreement
of the changes indicated in Amendment No. 2 to the UNDERLYING
AGREEMENT, a copy of which amendment is attached to this amendment and
made a part of this agreement.
B. Articles VI, VIII and IX are deleted and the following Articles VI,
VIII and IX are substituted therefor:
ARTICLE VI
ASSET PORTFOLIO. The assets pertaining to this agreement are being
held by the bank named in Article VIII of the UNDERLYING AGREEMENT
(such assets are herein collectively referred to as the Portfolio).
Excluding the Scheduled Assets and the exception contained in Part B
of Amendment No. 4 of this agreement, additions to or replacements for
assets held in the Portfolio, which are made by the RETROCESSIONAIRE
on or after November 2, 1992, shall be limited to the following types
of assets that are qualified as admitted assets for insurance
regulatory purposes in Texas, Kansas and Kentucky:
(a) Cash.
(b) Those which are approved by the CORPORATION and the Reinsured.
(c) Those which are approved by a consolidated subsidiary of I.C.H.
Corporation acting in its capacity as investment manager of the
Portfolio.
(d) Obligations, not in default, issued, assumed, guaranteed or
insured by:
(i) the United States of America or by any agency or
instrumentality thereof,
(ii) any state of the United States of America,
<PAGE>
(iii) The District of Columbia,
(iv) any territory or possession of the United States of America
or any over governmental unit in the United States, or
(v) any agency or instrumentality of any governmental unit
referred to in items (ii), (iii) and (iv) above, provided
that, in the case of obligations issued, assumed, guaranteed
or insured by any governmental unit referred to in item (iv)
above, such obligations are by law (statutory or otherwise)
payable, as to both principal and interest, from taxed
levied or by law required to be levied or from adequate
special revenues pledged or otherwise appropriated or by law
required to be provided for the purpose of such payment, but
in no event shall obligations be included if payable solely
out of special assessments on properties benefited by local
improvements.
(e) Obligations, not in default, whether or not accrued and with or
without recourse, issued, assumed, guaranteed, insured or
accepted by institutions and corporations organized under the
laws of any state of the United States (or trustees or receivers
therefor), and preferred shares of any such institution or
corporation.
The RETROCESSIONAIRE shall retain the equitable ownership of all of
the assets held in the Portfolio for the purpose of satisfying its
retrocession obligations hereunder and of determining the amount of
the Experience Refund pursuant to Article viii. The RETROCESSIONAIRE
shall also retain the right to vote or provide, or withhold, consent
on any matters related to the assets held in the Portfolio. Except as
otherwise herein permitted, the RETROCESSIONAIRE shall not transfer
assets held in the Portfolio to any of its other asset portfolios, nor
shall it remove, sell, exchange or otherwise dispose of assets held in
the Portfolio other than through a transaction for then-current fair
market value, and all consideration received from any such transaction
shall be placed in the Portfolio.
No asset that is held in the Portfolio, and that is classified as a
"High Yield: or "Private Placement" asset, shall be sold, exchanged or
otherwise removed from the Portfolio without both the CORPORATION'S
and the Reinsured's written consent, except that, given compliance
with subparagraph (a) of the last paragraph contained in Article IX of
the UNDERLYING AGREEMENT, the RETROCESSIONAIRE may cause any such
asset to be replaced with a similar asset.
- 2 -
<PAGE>
Nothing herein shall permit the RETROCESSIONAIRE to intentionally or
otherwise reduce the investment income in the Portfolio as the result
of any exchange, sale, removal or replacement of any assets held
therein.
The value of the Portfolio shall at all times be:
(1) at least the amount of the reinsurance liabilities defined in the
next to last paragraph of Article IX of the UNDERLYING AGREEMENT
minus the amount of the Funds Withheld obligations as calculated
from time to time pursuant to the provisions of Article VII
hereof, and
(2) determined in accordance with Kentucky requirements for
admissible assets. The RETROCESSIONAIRE shall promptly add
assets to the Portfolio as required from time to time to maintain
such value. Amounts in excess of the net policy reserves may be
withdrawn for the purpose of paying the settlement(s) due under
this agreement. Amounts in excess of the reinsurance liabilities
may be withdrawn for any purpose; provided, however, that any
such withdrawal may be made by the RETROCESSIONAIRE only once in
any calendar year on the basis of the preceding year end Annual
Statement.
In the event the RETROCESSIONAIRE shall at any time fail to maintain
the Portfolio in the manner provided in this Article VI or in
Amendment No. 4 of this agreement, or in the case of a failure to
maintain the admitted value of assets held in the portfolio as
provided in the first sentence of the preceding paragraph, the
CORPORATION may exercise its option to recapture based on any such
failure upon the expiration of ten (10) days following notice thereof
to the RETROCESSIONAIRE and at any time thereafter, but only during
the continuance of the failure.
ARTICLE VIII
EXPERIENCE REFUND. The RETROCESSIONAIRE shall be obligated to the
CORPORATION for an experience refund calculated as indicated in
Article IX of the UNDERLYING AGREEMENT except that:
(a) The numbers appearing in the table contained in paragraph
2(ii)(g) for the following periods of time will not apply and the
numbers shown below will apply in lieu thereof:
<TABLE>
<CAPTION>
For each calendar
quarter in The amount is
---------------------- -------------
<S> <C>
First Accounting Period -0-
Second Accounting Period $128,474
1991 $149,263
1992 $139,526
1993 $140,000
1994 $137,632
1995 $124,895
</TABLE>
- 3 -
<PAGE>
(b) The CORPORATION'S risk charge shall be excluded (and thus
retained by the CORPORATION);
(c) The interest rate specified in paragraph 7 shall be 5.5%;
(d) Paragraph 9 shall not apply.
The asset substitution described in the first sentence of subparagraph
(b) of the last paragraph contained in Article IX of the UNDERLYING
AGREEMENT shall not take place unless the RETROCESSIONAIRE'S statutory
capital and surplus combined with its Interest Maintenance Reserve and
Asset Valuation Reserve exceeds by at least $5,000,000 the minimum
amount indicated in Article XIV(a) of this agreement.
ARTICLE IX
REPORTING AND ACCOUNTING. SECTION A. QUARTERLY. Within 40 days
after the close of each of the first three calendar quarters of each
calendar year or within 20 days after the date when the CORPORATION
has received from the Reinsured and the RETROCESSIONAIRE all necessary
information, whichever is later, the CORPORATION shall furnish to the
RETROCESSIONAIRE a report (in a form satisfactory to the
RETROCESSIONAIRE) showing both the amount due the CORPORATION or the
Reinsured for the quarter under the UNDERLYING AGREEMENT and the
amount due the RETROCESSIONAIRE or the CORPORATION for the quarter
under this agreement.
If the amount for the quarter under this agreement is due the
RETROCESSIONAIRE, the CORPORATION'S payment thereof shall accompany
the report. If the amount for the quarter under this agreement is due
the CORPORATION, the RETROCESSIONAIRE shall remit such amount to the
CORPORATION within 30 days after the RETROCESSIONAIRE receives the
report.
SECTION B. ANNUALLY. Within 60 days after the end of each accounting
period or within 20 days after the CORPORATION has received from the
Reinsured and the RETROCESSIONAIRE all necessary information,
whichever is later, the CORPORATION shall furnish to the
RETROCESSIONAIRE a report (in a form satisfactory to the
RETROCESSIONAIRE) showing both the amount due the CORPORATION or the
Reinsured for the period under the UNDERLYING AGREEMENT and the amount
due the RETROCESSIONAIRE or the CORPORATION for the period under this
agreement.
If the amount for the period under this agreement is owed the
RETROCESSIONAIRE, the CORPORATION'S payment thereof shall accompany
the report. If the amount for the period under this agreement is owed
the CORPORATION, the RETROCESSIONAIRE shall remit such amount to the
CORPORATION, within 30 days after the RETROCESSIONAIRE receives the
report.
- 4 -
<PAGE>
The report for each accounting period shall also include all
information necessary for preparing the RETROCESSIONAIRE'S annual
statement.
SECTION C. INTEREST ADJUSTMENT. The RETROCESSIONAIRE shall be
obligated to the CORPORATION for the interest adjustments the
CORPORATION owes the Reinsured under the UNDERLYING AGREEMENT. The
CORPORATION shall be obligated to the RETROCESSIONAIRE for the
interest adjustments the Reinsured owes the CORPORATION under the
UNDERLYING AGREEMENT.
C. The second paragraph is deleted from Article XVI and the following
paragraph is substituted therefor:
As of the recapture date, the RETROCESSIONAIRE shall be obligated to
the CORPORATION for:
(a) the assets and cash indicated in the third paragraph of Article
XVIII of the UNDERLYING AGREEMENT,
(b) less the applicable number specified in subpart (1) of the fourth
paragraph contained in Article XVIII of the UNDERLYING
AGREEMENT,
(c) and less the retrocession carryover amount (if any) determined in
accordance with Article VIII hereof pursuant to paragraph 7 of
Schedule 1-A of the UNDERLYING AGREEMENT,
(d) and less any amount(s) then due the RETROCESSIONAIRE pursuant to
Article IX hereof, calculated as if the recapture date were the
end of the accounting period.
II. As respects Portfolio assets replaced on or after November 1, 1992:
A. Assets falling within the 5% exception indicated in Amendment No. 4 of
this agreement shall, for purposes of calculating the experience
refund and investment income, be deemed to be obligations of the
RETROCESSIONAIRE bearing interest payable in cash semi-annually at the
then market rate for A-rated ten-year corporate bonds based upon a
principal amount equal to the then market value of the assets
replaced, but this part II does not apply if the CORPORATION and the
Reinsured consent in writing to the replacement or if the replacement
is made pursuant to the recommendation or action of a consolidated
subsidiary of I.C.H Corporation acting in its capacity of investment
manager of the Portfolio. The asset substitution described in this
Part II shall not take place unless the RETROCESSIONAIRE'S statutory
capital and surplus combined with its Interest Maintenance Reserve and
Asset Valuation Reserve exceeds by at least $5,000,000 the minimum
amount indicated in Article XIV(a) of this agreement.
- 5 -
<PAGE>
B. The investment restrictions indicated in Amendment No. 4 do not apply
to the Scheduled Assets.
III. As respects Portfolio assets replaced prior to November 1, 1992, the
corporation consents to each asset substituted if at the time of the
transaction:
A. the RETROCESSIONAIRE'S statutory capital and surplus combined with its
Mandatory Securities Valuation Reserve exceeded by at least $5 million
the minimum amount specified in Article XIV(A) of this agreement, and
B. for purposes of calculating experience refund, the RETROCESSIONAIRE
assumed the obligation to pay, bearing interest payable in cash
semi-annually at the then market rate for A-rated ten-year corporate
bonds, an amount equal to the then market value of the asset being
replaced, but this Part III (B) does not apply when the asset being
substituted was acquired:
l. with both the CORPORATION'S and the Reinsured's written consent,
or
2. pursuant to the recommendation or action of a consolidated
subsidiary of I.C.H. corporation acting in its capacity as
investment manager of the portfolio.
In all other respects not inconsistent herewith, said agreement shall remain
unchanged.
IN WITNESS WHEREOF, the parties hereto have caused this amendment to be executed
in duplicate.
EMPLOYERS REASSURANCE CONSOLIDATED FIDELITY LIFE
CORPORATION INSURANCE COMPANY
By: /s/ James D. Maughn By: /s/ David Commonn
-------------------------------- -------------------------------
Title: SVP & Actuary Title: Chief Financial Officer
Date: 1/28/94 Date: 2/21/94
By: /s/ Chuck Schnieders By: /s/ Jerry W. Rice
-------------------------------- -------------------------------
Title: VP Title: V.P.
Date: 1/28/94 Date: 2/21/94
------------------------------ -----------------------------
<PAGE>
EXHIBIT 3.1
1994
RESTATED
CERTIFICATE OF INCORPORATION
OF
I.C.H. CORPORATION
(PURSUANT TO SECTION 245 OF THE GENERAL
CORPORATION LAW OF THE STATE OF DELAWARE)
I.C.H. Corporation, a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), does hereby certify that:
FIRST: The name of the Corporation is I.C.H. Corporation. I.C.H.
Corporation was originally incorporated under the name I.C.H., Inc., and the
original Certificate of Incorporation of the Corporation was filed with the
Secretary of State of the State of Delaware on April 22, 1977.
SECOND: The Restated Certificate of Incorporation of the Corporation
only restates and integrates, and does not further amend, the provisions of
the Corporation's Certificate of Incorporation as heretofore amended or
supplemented, and there is no discrepancy between those provisions and the
provisions of the Restated Certificate of Incorporation.
THIRD: The Restated Certificate of Incorporation of the Corporation was
duly adopted by the directors of the Corporation in accordance with the
provisions of Section 245 of the General Corporation Law of the State of
Delaware.
FOURTH: The test of the Certificate of Incorporation is hereby restated
to read in its entirety as follows:
ARTICLE ONE. The name of the Corporation is:
I.C.H. Corporation.
ARTICLE TWO. The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington,
County of New Castle. The name of the registered agent at such address is The
Corporation Trust Company.
<PAGE>
ARTICLE THREE. The nature of the business or purpose for which the
Corporation is to be conducted or promoted is:
To engage in any lawful act or activity for which a corporation may be
organized under the General Corporation Law of Delaware.
ARTICLE FOUR. The total number of shares of stock that the Corporation is
authorized to issue is Two Hundred Fifty Million (250,000,000) shares, of
which Two Hundred Million (200,000,000) shares, with a par value of One Dollar
($1.00) per share, shall be designated "Common Stock"; and Fifty Million
(50,000,000) shares, without par value, shall be designated "Series Preferred
Stock."
The designations, preferences, limitations and relative rights of the
shares of each class of stock of the Corporation are as follows:
A. COMMON STOCK. Except as otherwise provided by law or in this
Article Four, all shares of Common Stock shall be identical in all respects
and have equal rights and privileges. Subject to the rights, if any, of any
series of Series Preferred Stock, these rights and privileges include, without
limitation, the right to share ratably on a per share basis (i) in such cash,
stock or other dividends and distributions as from time to time may be
declared by the Board of Directors of the Corporation (the "Board of
Directors") or by the Corporation with respect to the Common Stock and (ii)
upon the voluntary or involuntary liquidation, dissolution or winding up of
the affairs of the Corporation, in all distributions in assets or funds of the
Corporation.
1. VOTING. With respect to any matter on which the holders
of Common Stock shall be entitled to vote, such holders shall be entitled to
one vote for each outstanding share of Common Stock respectively owned of
record by them.
B. SERIES PREFERRED STOCK. Series Preferred Stock may be issued in
one or more series. The designations, powers, preferences and relative,
participating, optional and other special rights, and the qualifications,
limitations and restrictions thereof, of each series of Series Preferred Stock
shall be such as are stated and expressed herein, and to the extent not stated
and expressed herein, shall be such as may be fixed by the Board of Directors
(authority so to do being hereby expressly granted) and stated in a resolution
or resolutions providing for the issuance, or affecting the terms, of Series
Preferred Stock of such series adopted by the Board of Directors and filed in
the Office of the Secretary of State of Delaware and recorded in the Office of
the Recorder of New Castle County, Delaware, in accordance with the provisions
of the Delaware General Corporation Law. Such resolution or resolutions, with
respect
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<PAGE>
to each series, shall (1) specify the series designation, (2) specify the
stated value or capital value, if any, to be assigned to such series, which
amount shall not be less than the amount to which each share of such series
shall be entitled to receive upon the voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, (3) fix the dividend rate, if
any, thereof, and stipulate whether or not dividends on such series shall be
cumulative and if so the date from which they shall be cumulative, (4) fix the
amount which the holders of such series shall be entitled to be paid in the
event of a voluntary or involuntary liquidation, dissolution or winding up of
the Corporation, (5) state whether or not such series shall be redeemable and
at what times and under what conditions and the amount or amounts payable
thereon in the event of redemption; and may, in a manner not inconsistent with
the provisions of the Corporation's Certificate of Incorporation, as amended
from time to time (the "Certificate"), (i) designate the number of shares of
such series which may be issued, (ii) provide for a sinking or purchase fund
applicable to such series, (iii) grant voting rights to holders of shares of
such series in addition to those required by the Delaware General Corporation
Law and not inconsistent with such law or this Article Four, (iv) impose
conditions or restrictions upon the creation of indebtedness of the
Corporation or upon the issuance of additional Series Preferred Stock or other
capital stock ranking equally therewith or with priority thereto as to
dividends or liquidation rights, (v) impose conditions or restrictions upon
the payment of dividends or the making of other distributions upon, or the
redemption, purchase or acquisition of, shares of any Common Stock, Class B
Common Stock or other capital stock ranking junior to such series of Series
Preferred Stock as to dividends or liquidation rights, (vi) grant to the
holders of such series as a class the right to convert shares of such series
on the terms and at the conversion ratio fixed for such series, into shares of
Common Stock or other capital stock of the Corporation ranking junior to such
series as to dividends or distribution of assets on liquidation, (vii)
prescribe the rights of the Corporation to reissue each series purchased or
otherwise reacquired or redeemed or retired through the operation of a
purchase or sinking fund or otherwise, or surrendered to the Corporation on
conversion, (viii) grant such other special rights to the holders of shares of
such series as shall not be inconsistent with the provisions of the Delaware
General Corporation Law or this Article Four and (ix) impose such other
qualifications, rights, preferences and restrictions as are not inconsistent
with the Certificate or the provisions of the Delaware General Corporation
Law. The phrase "fixed for such series" and any similar terms, when referring
to a series of Series Preferred Stock, shall mean "stated and expressed in a
resolution or resolutions providing for the issuance, or affecting the terms,
of any series of Series Preferred Stock adopted by the Board of Directors and
filed in the Office of the Secretary of State of the State of Delaware and the
Office of the Recorder of New Castle County, Delaware."
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<PAGE>
1. DIVIDENDS. Subject to the conditions set forth herein,
unless otherwise fixed for such series, the holders of the Series Preferred
Stock of each series shall be entitled to receive, when and as declared by the
Board of Directors, out of any funds legally available for that purpose,
preferential dividends in cash at the rate per annum, or in other property,
fixed for such series, and such additional, participating or other dividends
as may be fixed for such series. Unless otherwise fixed for such series, such
dividends shall be payable on such date or dates as may be fixed by the Board
of Directors (hereinafter severally referred to as a "dividend payment date")
to holders of record on a date, not exceeding fifty days preceding each such
dividend payment date, fixed for such series in advance of payment of each
particular dividend. Preferential dividends (but not additional,
participating or other dividends) on shares of the Series Preferred Stock
shall accrue from the dividend payment date immediately preceding the date of
issuance (unless the date of issuance shall be a dividend payment date, in
which case they shall accrue from that date) or from such other date or dates
as may be fixed for such series.
(a) Unless otherwise fixed for such series, each series of
Series Preferred Stock shall rank on a parity with each other series of Series
Preferred Stock, irrespective of series, with respect to preferential
dividends at the respective rates fixed for such series, and no dividend shall
be declared and paid or set apart for payment on Series Preferred Stock of any
series unless at the same time a preferential dividend in like proportion to
the preferential dividends accrued upon the Series Preferred Stock of each
other series shall be declared and paid or set apart for payment, as the case
may be, on Series Preferred Stock of each other series then outstanding.
Unless otherwise fixed for such series, until preferential dividends at the
rate fixed for each series shall be declared and paid or set apart for payment
in full on all outstanding shares of Series Preferred Stock for all previous
dividend periods and for the current dividend period, no dividends, additional
dividends or participating dividends shall be declared or paid upon, and no
assets shall be distributed to or set apart for, shares of any series of
Series Preferred Stock, any Common Stock, Class B Common Stock or other
capital stock of the Corporation. Unless otherwise fixed for such series, no
shares of a series of Series Preferred Stock shall be purchased or redeemed by
the Corporation, except for a sinking fund or funds, unless all preferential
dividends on each then outstanding series of the Series Preferred Stock for
all past and current dividend periods shall have been paid, or declared and a
sum sufficient for the payment thereof set apart for payment. Unless
otherwise fixed for such series, accrued and unpaid preferential dividends on
the Series Preferred Stock shall not bear interest.
(b) Subject to the dividend rights of the holders of
Series Preferred Stock, the holders of the outstanding shares of Common Stock
and Class B Common Stock shall be entitled to receive such dividends as may be
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<PAGE>
declared thereon from time to time by the Board of Directors, in its
discretion, out of any assets of the Corporation at the time legally available
for the payments of dividends; provided, however, that no dividends may be
declared or paid on the Common Stock or Class B Common Stock unless at the
same time the Board of Directors shall also declare and pay to the holders of
the other such class of stock a per share dividend equal, in kind and amount,
to the per share dividend paid or declared and set apart for payment to the
holders of Common Stock or the Class B Common Stock, as the case may be.
(c) Subject to the preferential dividend rights of the
holders of the Series Preferred Stock as a class, the holders of any series of
Series Preferred Stock shall be entitled to receive, when and as declared by
the Board of Directors, out of any funds legally available for such purpose,
such additional or participating dividends, if any, as may be fixed for such
series.
(d) Unless otherwise fixed for such series, the term
"accrued and unpaid dividends" as used in this Article Four with respect to
the Series Preferred Stock shall mean "preferential dividends on all
outstanding shares of a series of Series Preferred Stock at the rates
respectively fixed for such series, from the respective dates from which such
preferential dividends shall accrue to the date as of which accrued and unpaid
dividends are being determined, less the aggregate of preferential dividends
theretofore paid or declared and set apart for payment upon such outstanding
Series Preferred Stock during such period."
2. VOTING. Except as otherwise provided by law or by the
provisions of this Article Four, the resolution of the Board of Directors
providing for the issuance, or affecting the terms, of any series of Series
Preferred Stock may, but need not, provide that the holders of such series of
Series Preferred Stock have such voting rights as the Board of Directors shall
determine; provided, however, that no series of Series Preferred Stock shall
be authorized to vote as a class with the Class B Common Stock on any matter
on which the Common Stock and Class B Common Stock vote as separate classes as
required by law or the Certificate. In addition to any other voting rights,
the Board of Directors may grant holders of any series of Series Preferred
Stock the right to vote in the election of Common Stock Directors as provided
in Section A.l. of this Article Four. The Board of Directors also may grant
holders of any series of Series Preferred Stock the right to vote to elect one
or more directors of the Corporation (the "Preferred Directors") if, but only
to the extent, dividends on such series are in arrears for a period, in an
amount, or upon such other terms and conditions as are fixed for such series.
The election of any Preferred Director shall have the effect of enlarging the
Board of Directors by the number of Preferred Directors elected. Unless
otherwise fixed for such series, a Preferred Director may be removed, with or
without cause, by vote of the
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<PAGE>
holders of each series of Series Preferred Stock having the right to vote in
the election of such Preferred Director, and any director appointed to fill a
vacancy of a Preferred Director shall be appointed by the sole remaining
Preferred Director or by a majority of the remaining Preferred Directors
whether or not a quorum. Unless otherwise fixed for such series, all series
of Series Preferred Stock that have the right to vote in the election of a
Preferred Director shall vote together as a single class in the election or
removal of any Preferred Director.
3. CONVERSION. The Series Preferred Stock of any series may
be convertible into shares of any class or series of capital stock of the
Corporation ranking junior to such series as to dividends or distribution of
assets on liquidation, except that Series Preferred Stock shall not be
convertible into Class B Common Stock. Conversion of Series Preferred Stock
of any series shall be permitted only if and in the manner and at the
conversion ratio fixed for such series; provided, however, that as to any
shares of any series of Series Preferred Stock that shall be subject to
redemption and that shall have been called for redemption, any right of
conversion shall terminate at the close of business on the third full business
day before the date fixed for redemption, unless otherwise fixed for such
series. At the time of the conversion, unless otherwise fixed for such
series, no payment or adjustment need be made for accrued and unpaid dividends
on any shares of any series of Series Preferred Stock that shall be converted
or for dividends on any shares of the Corporation's capital stock that shall
be issuable upon such conversion. Unless otherwise fixed for such series, all
accrued and unpaid dividends on such shares of Series Preferred Stock up to
the dividend payment date immediately preceding the date of conversion shall
constitute a debt of the Corporation payable to the converting stockholder,
and no dividend shall be paid upon any shares of Common Stock or Class B
Common Stock until such debt shall be paid or sufficient funds set apart for
the payment thereof. Unless otherwise fixed for such series, the Series
Preferred Stock of any series that is convertible may be converted (subject to
the above time limitation in the case of a call for redemption) only into full
shares of the Corporation's capital stock, at the conversion ratio in effect
for such series at the time of the conversion. Unless otherwise fixed for
such series, no fraction of a share of such capital stock shall be issued upon
any conversion, but, in lieu of such issuance, there shall be paid to any
holder of shares of any series of Series Preferred Stock surrendered for
conversion, as soon as practicable after the date such shares are surrendered
for conversion, an amount in cash equal to the same fraction of the market
value of a full share of such capital stock issuable upon conversion of such
series. For such purpose, unless otherwise fixed for such series, the market
value of a share of such capital stock shall be the closing price on the
principal national securities exchange on which such capital stock is listed
for trading, or if not so listed, on the National Association of Securities
Dealers National Market System; or if no such closing price is available, at
the average of the closing bid and asked prices reported on the National
Association of
-6-
<PAGE>
Securities Dealers Automated Quotation System on the trading day immediately
preceding the date upon which such conversion occurs; or in the absence of any
of the foregoing, the fair market value as determined and set forth in a
resolution adopted by the Board of Directors (whose determination shall be
final and conclusive).
(a) The conversion ratio of any series of Series Preferred
Stock shall be subject to adjustment in accordance with any anti-dilution
provisions fixed for such series.
(b) Unless otherwise fixed for such series, any adjustment
of the conversion ratio as provided in the resolution establishing such series
shall remain in effect until further adjustment of the conversion ratio as
required thereunder. Upon each such adjustment, unless otherwise fixed for
such series, a written instrument, signed by an officer of the Corporation,
setting forth such adjustment and a computation and a summary of the facts
upon which it is based and the resolutions, if any, of the Board of Directors
passed in connection therewith, shall forthwith be filed with the transfer
agent or agents for the Series Preferred Stock and made available for
inspection by the stockholders, and any adjustment so evidenced, made in good
faith, shall be binding upon all stockholders and upon the Corporation.
(c) Unless otherwise fixed for such series, in order to
convert shares of any series of Series Preferred Stock into shares of the
Corporation's capital stock, the holder thereof shall surrender the
certificate or certificates for shares of such series, duly endorsed to the
Corporation or in blank, at the office of any transfer agent for the Series
Preferred Stock (or such other place as may be designated by the Corporation),
and shall give written notice to the Corporation at said office that he elects
to convert the same and shall state in writing therein the name or names in
which he wishes the certificate or certificates for shares of such capital
stock to be issued. Unless otherwise fixed for such series, the Corporation
will, as soon as practicable thereafter, deliver at said office to such holder
of the converted shares of Series Preferred Stock, or to his nominee or
nominees, a certificate or certificates for the number of full shares of the
Corporation's capital stock to which he shall be entitled as aforesaid and
make payment for any fractional shares. Unless otherwise fixed for such
series, shares of Series Preferred Stock shall be deemed to have been
converted as of the date of the surrender of such shares for conversion as
provided above, and the person or persons entitled to receive shares of the
Corporation's capital stock issuable upon such conversion shall be treated for
all purposes as the record holder or holders of such shares of the
Corporation's capital stock on such date. Unless otherwise fixed for such
series, all shares of any series of Series Preferred Stock that shall have
been surrendered for conversion shall no longer be deemed to be outstanding
and all
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<PAGE>
rights with respect to such shares shall forthwith cease and terminate except
only the right of the holder thereof to receive in exchange therefor full
shares of the Corporation's capital stock and payment for any fractional
shares. Unless otherwise fixed for such series, any shares of any series of
Series Preferred Stock so converted shall be returned to the status of
authorized but unissued shares of Series Preferred Stock without designation
as to series and may be reissued as Series Preferred Stock of any future
series to be designated by the Board of Directors.
(d) A number of authorized shares of capital stock of the
Corporation sufficient to provide for the conversion of all series of Series
Preferred Stock outstanding and having conversion rights shall at all times be
reserved for conversion in accordance with the terms of the respective
resolutions authorizing such series.
4. LIQUIDATION. In the event of the liquidation,
dissolution, or winding up of the affairs of the Corporation, whether
voluntary or involuntary, the assets of the Corporation shall be distributed
among the holders of its capital stock in accordance with the following
schedule of priorities and preferences:
(a) Unless otherwise fixed for such series, there shall be
paid to the holders of Series Preferred Stock from any available assets such
preferential amounts, in cash or other property, as may be fixed respectively
for each such series, plus in each case a further amount per share equal to
all accrued and unpaid dividends thereon, all of which shall be paid or set
apart for payment before the payment or setting apart for payment of any
amount for, or the distribution of any assets of the Corporation to, holders
of Common Stock or Class B Common Stock; provided, however, that unless
otherwise fixed for such series, no such payment shall be made to holders of
shares of any series of the Series Preferred Stock unless at the same time the
respective preferential amounts to which the shares of each other series of
the Series Preferred Stock are entitled shall likewise be paid or set apart
for payment to holders of shares of each such other series. In the event the
assets of the Corporation available for distribution to the holders of Series
Preferred Stock shall be insufficient to permit payment to the holders of all
series of Series Preferred Stock of the full preferential amount or amounts,
then unless otherwise fixed for such series, the entire remaining assets shall
be distributed to the holders of all series of the Series Preferred Stock in
amounts in like proportion to the respective preferential amounts to which
they are entitled.
(b) After the amounts provided for by Section B.4.(a) have
been paid or distributed, the remaining assets and funds of the Corporation
shall be distributed among the holders of the Common Stock, the Class B Common
Stock, and any series of Series Preferred Stock or other capital stock of the
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<PAGE>
Corporation that ranks on parity with the Common Stock and Class B Common
Stock as to distribution of assets on liquidation, pro rata on a per share
basis.
(c) Unless otherwise fixed for a series of Series
Preferred Stock, neither the consolidation nor merger of the Corporation into
or with another corporation or corporations, nor the merger or consolidation
of another corporation or corporations with or into the Corporation, nor a
reorganization of the Corporation, nor the purchase or redemption of all or
part of the outstanding shares of any class or classes of the capital stock of
the Corporation, nor a sale or transfer of the property and business of the
Corporation as, or substantially as, an entity, shall be deemed a liquidation,
dissolution, or winding up of the affairs of the Corporation, within the
meaning of any of the provisions of this Article Four.
5. REDEMPTION. Subject to the limitations of this Article
Four, the Series Preferred Stock of any series, to the extent, if any, fixed
for such series, may be redeemed at the option of the Corporation at any time
or from time to time at such redemption price or prices per share as may be
fixed for such series plus, in each case and unless otherwise fixed for such
series, an amount equal to accrued and unpaid dividends thereon to the date
designated for redemption or to such other date, and upon such other terms not
inconsistent herewith, as may be fixed for such series. In the event that at
any time less than all the Series Preferred Stock of any series is to be
redeemed, the shares to be redeemed may be selected pro rata, or by lot, or by
such other equitable method as may be determined by the Board of Directors.
Unless otherwise fixed for such series, notice of redemption shall be mailed
or caused to be mailed by the Corporation, addressed to each holder of record
of shares to be redeemed, at his last address as the same appears on the books
of the Corporation at least 30 days before the date designated for redemption.
Unless otherwise fixed for such series, if such notice of redemption shall
have been duly mailed, for such shares, and if on or before the redemption
date designated in such notice, all funds necessary for such redemption shall
have been irrevocably set aside by the Corporation in trust for the account of
the holders of the shares of one or more series of Series Preferred Stock to
be redeemed, so as to be available therefor, then, from and after the setting
aside of such funds and the mailing of such notice, notwithstanding that any
certificate for shares of any series of Series Preferred Stock so called for
redemption shall not have been surrendered for cancellation, the shares
represented thereby shall no longer be deemed outstanding, and the holder of
such certificate or certificates shall have with respect to such shares no
rights in or with respect to the Corporation except the right to receive the
redemption price thereof, without interest, upon the surrender of such
certificate or certificates and the right, if and to the extent fixed for such
series by the resolution of the Board of Directors providing for the issuance
of shares of the series, to convert such shares, on or before the close
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of business on the third full business day before the date designated for
redemption, into other capital stock of the Corporation, and after the date
designated for redemption such shares shall not be transferable on the books
of the Corporation except to the Corporation. Unless otherwise fixed for such
series, any moneys so set aside in trust by the Corporation and unclaimed at
the end of six years from the date fixed for such redemption shall be repaid
to the Corporation, after which repayment, holders of the shares so called for
redemption shall look only to the Corporation for repayment thereof. Unless
otherwise fixed for such series, any shares of any Series Preferred Stock so
redeemed shall be returned to the status of authorized but unissued shares of
Series Preferred Stock so redeemed shall be returned to the status of
authorized but unissued shares of Series Preferred Stock without designation
as to series and may be reissued as Series Preferred Stock of any future
series designated by the Board of Directors.
6. AUTHORIZED SHARES. The number of authorized shares of the
Series Preferred Stock or of any particular series may be increased or
decreased by the affirmative vote of the holders of a majority of the shares
of Common Stock and Class B Common Stock.
C. SERIES 1984-A PREFERRED STOCK. At a meeting duly held on October
8, 1984, the Board of Directors of the Corporation duly adopted the following
resolutions (with recitals therein accurate at and as of such date)
designating a new series of Series Preferred Stock of the Corporation:
WHEREAS, the Corporation's Certificate of Incorporation, as amended (the
"Certificate"), now authorizes the issuance of 9,000,000 shares of common
stock, with a par value of $1.00 per share ("Common Stock"), and 5,000,000
shares of series preferred stock, without par value ("Series Preferred
Stock"); and
WHEREAS, Article Four of the Certificate now expressly vests in the
Board of Directors the authority to fix by resolution or resolutions providing
for the issuance of the Series Preferred Stock the stated or capital value,
voting powers, designations, preferences and relative, participating, optional
or other special rights and the qualifications, limitations or restrictions
thereon of the shares of Series Preferred Stock that are not fixed by the
Certificate; and
WHEREAS, the Corporation desires to create a new series of Series
Preferred Stock.
NOW, THEREFORE, be it
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RESOLVED, that, pursuant to the authority expressly granted to and
vested in the Board of Directors by the provisions of the Certificate,
unissued shares of the Series Preferred Stock hereby are classified and
authorized for issuance, and the designation and number and the voting powers,
designations, preferences and relative, participating, optional and other
special rights of such shares, and the qualifications, limitations and
restrictions of such shares, hereby are fixed as follows:
1. NUMBER AND DESIGNATION. A series of 541,563 shares of
the Series Preferred Stock hereby is established and designated Series 1984-A
Preferred Stock (the "Series 1984-A Preferred Stock"). The Board of Directors
may, from time to time, by duly adopted resolution, increase or decrease the
number of shares of Series 1984-A Preferred Stock so designated.
2. STATED VALUE. The stated value of each share of Series
1984-A Preferred Stock shall be $41.07.
3. VOTING PROVISIONS. The holders of shares of Series
1984-A Preferred Stock shall have the right to one vote per share, as a single
class with the Common Stock, whether nor or hereafter issued, on all matters
submitted to a vote of the holders of the Common Stock. Nothing contained in
this SECTION 3 shall prevent the creation of one or more additional series
of Series Preferred Stock which have the right to vote with the Series 1984-A
Preferred Stock and the Common Stock as a single class on all or particular
matters submitted to a vote of the holders of the Common Stock.
4. DIVIDEND PROVISIONS. The holders of Series 1984-A
Preferred Stock, in preference and priority to the holders of Common Stock and
Class B Common Stock and any other shares of the Company's capital stock
ranking junior to the Series 1984-A Preferred Stock as to dividends or
liquidation rights, whether now or hereafter issued ("Junior Stock"), shall be
entitled to receive, when and as declared by the Board of Directors, 12% cash
dividends at the rate of $4.93 per share per calendar year, and no more. Such
dividends shall be payable quarterly, commencing January 1, 1985, on the first
days of January, April, July and October of each year ("Dividend Payment
Dates"), to holders of record of shares of Series 1984-A Preferred Stock at
the close of business on such date preceding the respective Dividend Payment
Date as may be fixed by the Board of Directors in a manner consistent with the
Certificate and the laws of the State of Delaware.
(a) Dividends on Series 1984-A Preferred Stock shall
accumulate and be cumulative from the date of original issuance, whether or
not in any quarterly dividend period there are funds of the Corporation
legally available for payment.
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(b) For so long as any Series 1984-A Preferred Stock is
outstanding, the Corporation shall not declare or pay any dividend or
distribution upon any class of Junior Stock unless all current and accumulated
cash dividends have been paid or declared and set apart for payment upon all
outstanding shares of the Series 1984-A Preferred Stock.
(c) For so long as any Series 1984-A Preferred Stock shall
be outstanding, the Corporation shall not purchase, redeem, or otherwise
acquire any shares of any Junior Stock, nor shall any funds be set apart or
made available for any sinking fund for the purpose or redemption of any
Junior Stock, unless all current and accumulated cash dividends have been paid
or declared and set apart for payment upon all outstanding shares of the
Series 1984-A Preferred Stock.
(d) Cash dividends payable on the Series 1984-A Preferred
Stock shall be computed for each full quarterly dividend period by dividing
the annual rate by four and, for any period less than a full quarterly
dividend period, by multiplying such quarterly dividend by a fraction, the
numerator of which is the actual number of days elapsed in the quarter and the
denominator of which is the actual number of days in the quarter, in each case
including the Dividend Payment Date.
5. REDEMPTION PROVISIONS. The Series 1984-A Preferred Stock
may be redeemed by the Corporation, as hereinafter provided, in whole or in
part, at a cash redemption price equal to its stated value of $41.07 per
share, plus current and accumulated unpaid cash dividends to the date fixed
for redemption, whether or not earned, declared or in arrears.
(a) No redemption of the Series 1984-A Preferred Stock may
be made before the fourth anniversary of the date of issuance of the shares
called for redemption. Commencing on the January 1 first occurring four years
after issuance of any Series 1984-A Preferred Stock, the Corporation may call
for mandatory redemption, during that calendar year and each calendar year
thereafter, a number of shares of Series 1984-A Preferred Stock equal to 20%
of the aggregate number of shares of Series 1984-A Preferred Stock which on
such January 1 had been outstanding more than four years. The right of
mandatory redemption granted in this SECTION 5(A) shall be cumulative from
year to year.
(b) If less than all of the Series 1984-A Preferred Stock
is to be so redeemed, the redemption shall be made in such amount and by such
method, either by lot or PRO RATA, and subject to such provisions of
convenience, as shall from time to time be determined by the Board of
Directors.
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<PAGE>
(c) Notice of any such redemption shall be mailed or
caused to be mailed by the Corporation, postage prepaid, not less than 30 days
before the date fixed for redemption, to each holder of record of the shares
of Series 1984-A Preferred Stock to be redeemed at his address, as the same
shall appear upon the books of the Corporation, stating such election on the
part of the Corporation, and that on the redemption date there will become due
and payable upon each of the shares of Series 1984-A Preferred Stock to be
redeemed, at the place specified in such notice, the redemption price of
$41.07 per share, plus current and accumulated unpaid dividends as provided in
this SECTION 5. Any failure by the Corporation to cause proper notice to be
given shall not affect the validity of the proceedings for such redemption
except as to the stockholder who was not notified properly.
(d) If on or before the date fixed for redemption the
Corporation shall deposit with any of the Corporation's transfer agents and
registrars, as a trust fund for the benefit of the respective holders of the
shares of Series 1984-A Preferred Stock to be redeemed, sums sufficient to
redeem such shares of Series 1984-A Preferred Stock called for redemption with
irrevocable instructions and authority to such transfer agent and registrar to
give or complete notice of redemption in the name of the Corporation required
by this SECTION 5 and to pay on or after the date fixed for such redemption,
to the respective holders of such shares of Series 1984-A Preferred Stock, the
redemption price thereof upon the surrender of the certificates representing
the shares of Series 1984-A Preferred Stock so called for redemption, then
from and after the time of such deposit, although before the date fixed for
redemption, such shares of Series 1984-A Preferred Stock so called for
redemption shall be deemed to be redeemed and such deposit shall be deemed to
constitute full payment of such shares of Series 1984-A Preferred Stock to the
respective holders thereof, and such shares of Series 1984-A Preferred Stock
shall no longer be deemed to be outstanding, and the holders thereof shall
cease to be stockholders with respect to such shares of Series 1984-A
Preferred Stock and shall have no rights with respect thereto, except only the
right to receive from such transfer agent and registrar payment of the
redemption price of such shares of Series 1984-A Preferred Stock, without
interest, upon surrender of the certificates representing the shares of Series
1984-A Preferred Stock so called for redemption and the right to convert such
shares into shares of Common Stock, as provided in SECTION 7 below, on or
before the close of business on the third full business day before the date
fixed for redemption. Money so deposited and unclaimed at the end of six
years shall be repaid to the Corporation and thereafter holders of such shares
of Series 1984-A Preferred Stock called for redemption shall look only to the
Corporation for payment.
(e) All shares of Series 1984-A Preferred Stock redeemed
by the Corporation or which may otherwise be acquired by the Corporation shall
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be returned to the status of authorized and unissued shares of Series
Preferred Stock without any series designation or any powers, preferences or
other rights or limitations except as may be subsequently fixed by resolution
or resolutions adopted by the Board of Directors.
6. LIQUIDATION PROVISIONS. In the event of the liquidation,
dissolution or winding up of the Corporation, whether voluntary or
involuntary, resulting in any distribution of the Corporation's assets to its
stockholders, before any distribution or payment shall be made to the holders
of Junior Stock, the holders of the shares of Series 1984-A Preferred Stock
shall be entitled to be paid in cash the sum of $41.07 for each share of
Series 1984-A Preferred Stock, plus all current and accumulated unpaid cash
dividends that such holder would otherwise have been entitled to receive to
the date of distribution. If the assets of the Corporation distributable to
the holders of shares of Series 1984-A Preferred Stock or to the holders of
shares of capital stock of the Corporation ranking in parity with the Series
1984-A Preferred Stock with respect to preferences upon liquidation are
insufficient for the payment to them of the full preferential amount described
above, the entire remaining assets shall be distributed to the holders of all
shares of the Series Preferred Stock in amounts in like proportion to the
respective preferential amounts to which they are entitled.
7. CONVERSION. The holders of shares of Series 1984-A
Preferred Stock shall have the right, at their option, to convert all or any
part of such shares into shares of Common Stock at any time on, and subject
to, the following terms and conditions:
(a) The number of shares or percentage of a single share of
Common Stock (calculated to the nearest 1/100th of a share) issuable upon
conversion of each share of Series 1984-A Preferred Stock shall be equal to
the $41.07 stated value of a share of Series 1984-A Preferred Stock divided by
the conversion price in effect at the time of conversion as hereinafter
provided. The price at which shares of Common Stock shall be delivered upon
conversion (the "Conversion Price") initially shall be $77.875 per share of
Common Stock, subject to adjustment from time to time in certain instances as
hereinafter provided.
(b) Upon conversion the Corporation shall make no payment
or adjustment on account of current or accumulated cash dividends on the
shares of Common Stock issuable upon, or the Series 1984-A Preferred Stock
surrendered for, conversion whether or not earned, declared or in arrears, but
all accrued and unpaid dividends on such shares of Series 1984-A Preferred
Stock, up to the Dividend Payment Date immediately preceding the date of
conversion,
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<PAGE>
shall constitute a debt of the Corporation payable to the converting
stockholder in accordance with the Certificate.
(c) In the event of a call for redemption of any shares of
Series 1984-A Preferred Stock, such right of conversion, as to the shares
designated for redemption, shall continue up to the close of business on the
third full business day before the date fixed for redemption and such right of
conversion shall thereupon terminate; provided, however, that if the
Corporation shall default in the payment of the redemption price on the date
fixed for redemption, such right of conversion shall continue past the date
fixed for redemption.
(d) Before any holder of shares of Series 1984-A Preferred
Stock shall be entitled to convert any such shares into shares of Common
Stock, such holder shall surrender the certificate or certificates for such
shares at the office of any transfer agent of the Corporation for the Series
1984-A Preferred Stock, or at the office of the Corporation if there shall
then be no transfer agent for the Series 1984-A Preferred Stock, duly endorsed
to the Corporation in blank or accompanied by proper instruments of transfer
to the Corporation, and shall give written notice to the Corporation at such
office that such holder elects to convert such shares of Series 1984-A
Preferred Stock, and shall state in writing therein the name or names in which
such holder wishes the certificate or certificates for shares of the Common
Stock to be issued.
(e) The Corporation shall, as soon as practicable after
such surrender of certificate(s) for shares of Series 1984-A Preferred Stock
as above provided, deliver to the holder or the holder's designee, upon the
written order of the holder of the certificate(s) so surrendered, certificates
for the number of full shares of Common Stock to which such holder shall be
entitled as herein provided, together with cash in respect of any fraction of
a share as hereinafter provided, and, if only a part of such shares of Series
1984-A Preferred Stock is converted, a certificate or certificates for the
unconverted shares of Series 1984-A Preferred Stock. Such conversions shall
be deemed to have been made as of the date of such surrender of shares of
Series 1984-A Preferred Stock to be converted, and the person or persons
entitled to receive the Common Stock issuable on conversion of such shares
shall be treated for all purposes as having become the record holder or
holders of such Common Stock on said date.
(f) The Conversion Price in effect at any time shall be
subject to adjustment as follows:
(i) In case the Corporation shall (A) declare a
dividend on the Common Stock in shares of its capital stock, (B) subdivide
outstanding shares of Common Stock, (C) combine outstanding shares of Common
Stock
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<PAGE>
into a smaller number of shares, or (D) issue by reclassification of any of
the Common Stock (including any such reclassification in connection with a
consolidation or merger in which the Corporation is the surviving or
continuing corporation) any shares of its capital stock, the Conversion Price
in effect at the time of the record date for such dividend or of the effective
date of such subdivision, combination or reclassification shall be
proportionately adjusted so that the holder of any share of the Series 1984-A
Preferred Stock surrendered for conversion after such time shall be entitled
to receive the kind and amount of shares that he would have owned or would
have been entitled to receive had such share of the Series 1984-A Preferred
Stock been converted immediately before such time. Such adjustment shall be
made successively whenever any event listed above shall occur.
(ii) In case the Corporation shall issue rights or
warrants to all holders of the Common Stock entitling them to subscribe for or
purchase shares of Common Stock at a price per share less than the Current
Market Price (as defined in paragraph (iv) below) on the date fixed for the
determination of stockholders entitled to receive such rights or warrants, the
Conversion Price shall be adjusted by multiplying the Conversion Price in
effect immediately before such date by a fraction, of which the numerator
shall be the number of shares of Common Stock outstanding at the close of
business on the date fixed for such determination plus the number of shares of
Common Stock which the aggregate offering price of the total number of shares
so offered for subscription or purchase would purchase at such Current Market
Price and the denominator shall be the number of shares of Common Stock
outstanding at the close of business on the date fixed for such determination
plus the number of shares of Common Stock so offered for subscription or
purchase. Such adjustment shall be made successively whenever any such rights
or warrants are issued and shall become effective immediately after the
opening of business on the business day following the date fixed for such
determination. In determining whether any rights or warrants entitle the
holders to subscribe for or purchase shares of Common Stock at less than such
Current Market Price, and in determining the aggregate offering price of such
shares, there shall be taken into account any consideration received by the
Corporation for such rights or warrants, the value of such consideration, if
other than cash, to be as determined and set forth in a resolution adopted by
the Board of Directors, whose determination shall be final and conclusive.
(iii) In case the Corporation shall distribute to all
holders of Common Stock (including any such distribution made in connection
with a consolidation or merger in which the Corporation is the surviving or
continuing corporation) evidences of its indebtedness or assets (excluding
dividends or other distributions paid out of earned surplus) or subscription
rights or warrants (excluding those referred to in paragraph (ii) above), the
Conversion
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Price in effect immediately before the date fixed for the determination of
stockholders entitled to receive such distribution shall be adjusted so that
the same shall equal the price determined by multiplying the Conversion Price
in effect immediately before the close of business on such date by a fraction,
of which the numerator shall be the Current Market Price per share on the date
fixed for such determination less the then fair market value (as determined
and set forth in a resolution adopted by the Board of Directors, whose
determination shall be final and conclusive) of the portion of the assets or
evidences of indebtedness or such rights or warrants so distributed,
attributable to one share of Common Stock, and the denominator shall be such
Current Market Price per share. Such adjustment shall be made successively
whenever any such distribution is made and shall become effective immediately
before the opening of business on the day following the date fixed for the
determination of stockholders entitled to receive such distribution.
(iv) For the purpose of any computation under
paragraphs (ii) and (iii) above, the "Current Market Price" on any date shall
be deemed to be the closing price per share of Common Stock of the Corporation
on the principal national securities exchange on which the Common Stock is
listed or, if not so listed, on the National Association of Securities Dealers
National Market System; or if no such closing price is available, at the
average of the closing bid and asked prices reported on the National
Association of Securities Dealers Automated Quotation System; or in the
absence of any of the foregoing, the market value as determined and set forth
in a resolution adopted by the Board of Directors (whose determination shall
be final and conclusive).
(v) Notwithstanding the provisions of subparagraphs
(i) through (iii) above, no adjustment in the Conversion Price shall be
required unless such adjustment would require a change of at least 1% in such
price; provided, however, that any adjustments which by reason of this
paragraph are not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under this SECTION
7(F) shall be made to the nearest cent or to the nearest 1/100th of a share,
as the case may be.
(vi) Whenever the Conversion Price is adjusted as
provided in this SECTION 7 the Corporation shall file promptly with the
transfer agent or transfer agents for the Common Stock and the Series 1984-A
Preferred Stock a certificate of an officer of the Corporation setting forth
the adjusted Conversion Price and showing in reasonable detail a computation
and a summary of the facts upon which such adjustment is based, including a
statement of the consideration received or to be received by the Corporation
for any shares of Common Stock issued or deemed to have been issued, and a
copy of the resolutions, if any, adopted by the Board of Directors in
connection with such adjustment. Such certificate shall be made available for
inspection by the
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stockholders of the Corporation and any adjustment so evidenced, made in good
faith, shall be binding upon the Corporation and the holders of the
outstanding shares of Series 1984-A Preferred Stock.
(g) In case of recapitalization or reorganization of the
Corporation, or in case of the consolidation or merger of the Corporation with
or into any other corporation (other than a consolidation or merger in which
the Corporation is the surviving or continuing corporation), or in case of any
sale or transfer of all or substantially all assets of the Corporation, the
holder of each share of the Series 1984-A Preferred Stock upon such
recapitalization, reorganization, consolidation, merger, sale or transfer
shall have the right to convert such share of the Series 1984-A Preferred
Stock into the kind and amount of securities, cash and other property which
such holder would have been entitled to receive upon such consolidation,
merger, sale or transfer if he had held the Common Stock issuable upon the
conversion of such share of the Series 1984-A Preferred Stock immediately
before such recapitalization, reorganization, consolidation, merger, sale or
transfer.
(h) In the event that at any time, as a result of any
adjustment made pursuant to SECTION 7(F)(I) or 7(G), the holder of any
share of the Series 1984-A Preferred Stock thereafter surrendered for
conversion shall become entitled to receive any securities other than shares
of Common Stock, the amount of such other securities so receivable upon
conversion of any share of the Series 1984-A Preferred Stock shall be subject
to the provisions with respect to the Common Stock respectively contained in
SECTION 7(F) and 7(G), and the provisions of this SECTION 7(H) with
respect to the Common Stock shall apply on like terms to any such other
securities.
(i) In case at any time the Corporation shall propose to
effect any of the transactions referred to in SECTION 7(F) or 7(G) above,
or to effect the voluntary or involuntary dissolution, liquidation or winding
up of the Corporation, then, in each such case, the Corporation shall cause to
be filed with the transfer agent or transfer agents for the Series 1984-A
Preferred Stock and shall cause to be mailed, first class postage prepaid, to
the holders of record of the outstanding shares of Series 1984-A Preferred
Stock, at least 10 days before the applicable record date hereinafter
specified, a notice stating (x) the date on which a record is to be taken for
the purpose of determining the stockholders entitled to any distribution or
rights, or, if a record is not to be taken, the date as of which the holders
of record of Common Stock to be entitled to such distribution or rights are to
be determined, provided, however, that no such notification need be made in
respect of a record date for any such distribution or rights unless the
corresponding adjustment required in the Conversion Price would be an increase
or decrease of at least 1%, or (y) the date on which any such other
transaction or dissolution, liquidation or winding up is expected to
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become effective, and the date as of which it is expected that holders of
record of Common Stock of the Corporation shall be entitled to exchange their
Common Stock for securities or other property deliverable upon such
transaction, dissolution, liquidation or winding up. Failure to give such
notice, or any defect therein, shall not affect the legality or validity of
such transaction or dissolution, liquidation or winding up.
(j) The Corporation shall at all times reserve for issuance
the actual number of full shares of Common Stock then issuable upon the
conversion of all outstanding shares of the Series 1984-A Preferred Stock.
(k) The Corporation shall not be required to pay any taxes
that may be payable in respect of the issue or delivery of shares of Common
Stock on conversion of shares of the Series 1984-A Preferred Stock pursuant
hereto, and no such issue or delivery shall be made unless and until the
person requesting such issue has paid to the Corporation the amount of any
such tax or has established to the satisfaction of the Corporation that such
tax has been paid.
D. $1.75 CONVERTIBLE EXCHANGEABLE PREFERRED STOCK, SERIES 1986-A. At
meetings duly held on October 7, 1986, November 4, 1986, and March 17, 1987,
the Board of Directors of I.C.H. Corporation (the "Company"), and a duly
authorized committee thereof, duly adopted the following resolutions (with
recitals therein accurate at and as of March 17, 1987) designating a new
series of Series Preferred Stock of the Company:
WHEREAS, the Company's Certificate of Incorporation, as amended (the
"Certificate"), now authorizes the issuance of 99,900,000 shares of Common
Stock, with a par value of $1.00 per share, 100,000 shares of Class B Common
Stock (herein so called), with a par value of $1.00 per share, and 50,000,000
shares of Series Preferred Stock (herein so called), without par value and
issuable from time to time in one or more series as determined by the Board of
Directors; and
WHEREAS, Article Four of the Certificate expressly vests in the Board of
Directors the authority to fix by resolution or resolutions providing for the
issuance of the Series Preferred Stock the stated or capital value, dividend
rate, voting powers, designations, preferences, and relative, participating,
optional or other special rights and the qualifications, limitations or
restrictions of the shares of Series Preferred Stock that are not fixed by the
Certificate; and
WHEREAS, the Board of Directors has designated and issued, by resolution
originally adopted on October 8, 1984, 541,563 shares of Series
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1984-A Preferred Stock (herein so called), with a stated value of $41.07 per
share; and
WHEREAS, the Company desires to designate and establish a new series of
Series Preferred Stock.
NOW, THEREFORE, BE IT RESOLVED, that, pursuant to the authority
expressly granted to and vested in the Board of Directors by the provisions of
the Certificate, the Company's issuance of 8,000,000 shares of a new series of
the Series Preferred Stock is hereby authorized, and that the powers,
designations, preferences, and relative, participating, optional and other
special rights, as well as the qualifications, limitations and restrictions,
of such shares (in addition to the powers, designations, preferences and
rights set forth in, and the qualifications, limitations and restrictions
imposed by, the Certificate with respect to the Series Preferred Stock) hereby
are fixed and determined by the Board of Directors, as follows:
1. DESIGNATION, NUMBER AND STATED VALUE. The series of
Series Preferred Stock authorized and established hereby is designated as the
$1.75 Convertible Exchangeable Preferred Stock, Series 1986-A (hereinafter
called "this Series"). The number of shares of this Series shall be
8,000,000. The stated value of each share of this Series shall be $25.00, and
each share of this Series shall be validly issued and fully paid upon receipt
by the Company of legal consideration in an amount at least equal to such
stated value and shall not thereafter be assessable.
2. DIVIDENDS. The holders of outstanding shares of this
Series shall be entitled to receive, when and as declared by the Board of
Directors out of assets of the Company legally available for payment, annual
cash dividends at the rate of $1.75 per share, and no more, payable in equal
quarterly installments on the 1st calendar day of March, June, September, and
December in each year (unless such day is a non-business day, in which event
on the next business day thereafter), commencing March 1, 1987 [each such
payment date being hereinafter called a "Dividend Date" and each regular
quarterly or shorter (in the case of the first such period) period ending with
a Dividend Date being hereinafter called a "Dividend Period"; the term
"Dividend Period," when used with respect to any Parity Dividend Stock, as
hereinafter defined, also shall mean each dividend accrual period ending on a
regular date for the payment of cumulative dividends on such Parity Dividend
Stock]. Such dividends shall be cumulative and shall accrue from the first
date of issuance of any shares of this Series (the "Issue Date"), whether or
not in any Dividend Period the Company has assets legally available for
payment thereof. Dividends payable on shares of this Series (i) as of March
1, 1987, (ii) on any Redemption Date (as defined in Section 5 below) not
occurring on a regular Dividend Date or (iii) on any final
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distribution date relating to a dissolution, liquidation or winding up of the
Company and not occurring on a regular Dividend Date shall be calculated on
the basis of the actual number of days elapsed, (including the Redemption Date
or final distribution date) over a 365-day period. Declared dividends on
outstanding shares of this Series shall be payable to record holders thereof
as they appear on the stock register of the Company at the close of business
on the 15th day of the month preceding the respective Dividend Date or on such
other record date as may be fixed by the Board of Directors in advance of a
Dividend Date, provided that no such record date shall be less than 10 or more
than 60 calendar days preceding such Dividend Date.
If at any time full cumulative dividends payable for all past Dividend
Periods have not been or are not contemporaneously declared and paid or set
apart for payment on outstanding shares of this Series and any other stock
ranking on a parity as to dividend rights with this Series (the "Parity
Dividend Stock"), all dividends declared and paid or set apart for payment on
outstanding shares of this Series and the Parity Dividend Stock shall be
declared and paid or set apart for payment pro rata so that the amount of such
dividends per share of this Series and the Parity Dividend Stock shall in all
cases bear to each other the same proportions that the respective accrued and
unpaid dividends per share on this Series and the Parity Dividend Stock bear
to each other. Unless full cumulative dividends payable on outstanding shares
of this Series and Parity Dividend Stock for all past Dividend Periods have
been or contemporaneously are declared and paid or set apart for payment, (a)
no dividends shall be declared and paid or set apart for payment on the Common
Stock (as defined in Section 8 below), Class B Common Stock, Series 1984-A
Preferred Stock or any other class or series of stock of the Company ranking
junior to this Series as to dividend rights (collectively, the "Junior
Dividend Stock") except for dividends payable in shares of Junior Dividend
Stock, and (b) no shares of Junior Dividend Stock shall be redeemed, purchased
or otherwise acquired by the Company for value except as a result of
conversion into or exchange for, or with the proceeds from the sale of, other
shares of Junior Dividend Stock; provided, however, that, subject to the
provisions of Subsection 3(c) below, the Company shall have the right to
redeem, purchase or otherwise acquire under any circumstances shares of any
class or series of its stock (including the Series Preferred Stock) other than
the Junior Dividend Stock.
3. VOTING. The shares of this Series shall not have any
voting powers or rights whatsoever, except for such voting powers as are
required by law or as are granted by this Section 3, as follows:
(a) At any time or times that dividends payable on
outstanding shares of this Series or any Parity Dividend Stock shall have been
in arrears and remain unpaid in an aggregate amount equal to or exceeding the
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amount of dividends payable thereon for six Dividend Periods (a "Dividend
Default"), then the holders of record of outstanding shares of this Series and
the Parity Dividend Stock shall have, in addition to the other voting rights
set forth herein, the exclusive right, voting together as a single class
without regard to series, to elect two Preferred Directors (as defined in the
Certificate) who shall be in addition to the directors constituting the Board
of Directors immediately before such election. The vote (at an annual meeting
of the Company's stockholders) of the record holders of a majority of the
outstanding shares of this Series and the Parity Dividend Stock, voting
together as a single class without regard to series, then present and voting
(in person or by proxy), or the execution of a written consent by the record
holders of a majority of the outstanding shares of this Series and the Parity
Dividend Stock then entitled to vote, shall be sufficient to nominate or elect
any such Preferred Directors. The holders of a majority of the issued and
outstanding shares of the voting class, present in person or represented by
proxy, shall constitute a quorum at any meeting for the election of Preferred
Directors. The voting rights provided by this Subsection 3(a) shall continue
until such time as all accrued and unpaid dividends for all past Dividend
Periods on outstanding shares of this Series and the Parity Dividend Stock
shall have been declared and paid or set aside for payment in full, at which
time such voting rights shall terminate subject to revesting in the event any
subsequent Dividend Default shall occur and be continuing. Such Preferred
Directors shall be Independent Directors (as defined in the Certificate) and
shall serve as such until the earlier occurrence of the election of their
respective successors or the termination of the voting rights of holders of
shares of this Series and the Parity Dividend Stock as provided in the
preceding sentence. So long as a Dividend Default shall continue, any vacancy
in the office of such a Preferred Director may be filled by the remaining
Preferred Director; provided, however, that any Preferred Director may be
removed (with or without cause), and any vacancy resulting from such removal
shall be filled, by vote (at an annual meeting of the Company's stockholders)
of the record holders of a majority of the outstanding shares of this Series
and the Parity Dividend Stock, voting together as a single class without
regard to series, then present and voting (in person or by proxy), or the
execution of a written consent by the record holders of a majority of the
outstanding shares of this Series and the Parity Dividend Stock then entitled
to vote.
(b) So long as any shares of this Series are outstanding,
the Company shall not, directly or through merger or consolidation with any
other corporation:
(i) without the consent of the holders of at least
66-2/3% of all shares at the time outstanding of this Series and any other
series of Series Preferred Stock ranking on a parity with this Series as to
dividend and liquidation rights (the "Parity Preferred Stock"), voting
together as a single class
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<PAGE>
without regard to series, given in person or by proxy, either in writing or by
a vote at an annual meeting of the Company's stockholders or at a special
meeting called for the purpose, authorize, create or designate any shares of
any class or series of preferred stock of the Company ranking senior to the
shares of this Series as to dividend or liquidation rights;
(ii) without the consent of the holders of at least
66-2/3% of all shares at the time outstanding of this Series, given in person
or by proxy, either in writing or by a vote at an annual meeting of the
Company's stockholders or a special meeting called for the purpose, amend,
alter or repeal any of the preferences, rights, powers or privileges given to
shares of this Series by the provisions of the Certificate, by this
Certificate of Designation, or otherwise, so as to affect adversely such
preferences, rights, powers or privileges; or
(iii) without the consent of the holders of at least
a majority of all shares at the time outstanding of this Series and the Parity
Preferred Stock, voting together as a single class without regard to series,
given in person or by proxy, either in writing or by a vote at an annual
meeting of the Company's stockholders or at a special meeting called for the
purpose, authorize, create or designate any shares of any class or series of
preferred stock of the Company ranking on a parity with this Series as to
dividend or liquidation rights.
(c) Unless all accrued and unpaid dividends for all past
Dividend Periods on outstanding shares of this Series have been declared and
paid or set aside for payment in full, the Company shall not redeem or
purchase less than all outstanding shares of this Series (except through an
offer made on the same terms to all holders of outstanding shares of this
Series) without the consent of the holders of at least a majority of all
shares at the time outstanding of this Series, given in person or by proxy,
either in writing or by a vote at a meeting called for the purpose.
(d) In each case in which the vote or consent of holders of
shares of this Series is required by law or is granted by this Section 3, such
holders shall be entitled to one vote for each outstanding share of this
Series respectively owned of record by them. With respect to any matter
(other than a matter provided for above in this Section 3) on which the Series
Preferred Stock is entitled to vote by law, the Series Preferred Stock will
vote as a single class with the Common Stock unless otherwise required by law.
4. LIQUIDATION. Upon the dissolution, liquidation or winding
up of the Company, whether voluntary or involuntary, the holders of
outstanding shares of this Series shall be entitled to receive out of the
assets of the Company available for distribution to stockholders, before any
payment or
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distribution of assets shall be made to holders of the Common Stock, Class B
Common Stock, Series 1984-A Preferred Stock or any other class or series of
stock of the Company ranking junior to this Series as to liquidation rights
(collectively, the "Junior Liquidation Stock"), cash liquidating distributions
in the amount of the stated value of $25.00 per share, plus a sum equal to all
dividends (whether or not earned or declared) on such shares of this Series
accrued and unpaid thereon to the date of final distribution. Neither the
consolidation nor merger of the Company into or with another corporation or
corporations, nor the merger or consolidation of another corporation or
corporations with or into the Company, nor a reorganization of the Company,
nor the purchase or redemption of all or part of the outstanding shares of any
class or series of capital stock of the Company, nor a sale or transfer of the
property and business of the Company as, or substantially as, an entity, shall
be deemed a liquidation, dissolution or winding up of the affairs of the
Company, whether voluntary or involuntary, within the meaning of this Section
4. After the payment to the holders of the shares of this Series of the full
preferential amounts provided for in this Section 4, the holders of shares of
this Series as such shall have no right or claim to, and shall not be entitled
to participate further in any distribution of, the remaining assets of the
Company. In the event the assets of the Company available for distribution to
stockholders upon any dissolution, liquidation or winding up of the Company,
whether voluntary or involuntary, shall be insufficient to pay in full all
preferential amounts to which holders of shares of this Series and each series
of Series Preferred Stock ranking, as to liquidation rights, on a parity with
this Series are entitled, the holders of all such shares shall participate
ratably in any distribution of assets of the Company in proportion to the
respective full preferential amounts to which holders of all such shares would
be entitled to receive upon such dissolution, liquidation or winding up if all
such amounts were then available for distribution.
5. OPTIONAL REDEMPTION.
(a) The shares of this Series are redeemable, at any time
as a whole or (subject to the provisions of Subsection 3(c) hereof) from time
to time in part, on or after December 1, 1988, at the option of the Company
exercisable by resolution of the Board of Directors, at the following
redemption prices per share, plus in each case accrued and unpaid dividends to
the date fixed for redemption by the Board of Directors (the "Redemption
Date"), if redeemed during the 12-month period beginning December 1 of the
years indicated below:
<TABLE>
<CAPTION>
YEAR PRICE YEAR PRICE
---- ----- ---- -----
<S> <C> <C> <C>
1988 $26.400 1993 $25.525
1989 26.225 1994 25.350
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C> <C>
1990 26.050 1995 25.175
1991 25.875 1996 (and thereafter) 25.000
1992 25.700
</TABLE>
(b) If the Company shall elect to redeem shares of this
Series, notice of such redemption (the "Redemption Notice") shall be given by
first-class mail, postage prepaid, mailed not less than 10 nor more than 60
calendar days before the Redemption Date, to each holder of the shares to be
redeemed, at such holder's address as the same appears on the stock register
of the Company. Each Redemption Notice shall state the Redemption Date; the
number of shares of this Series to be redeemed and, if fewer than all shares
held by such holder are to be redeemed, the number of such shares to be
redeemed from such holder and (if deemed appropriate by the Company) the
number(s) of the certificate(s) representing such shares; the redemption price
per share; and the place or places where certificates for such shares are to
be surrendered for payment of the redemption price. Neither the failure by
the Company to cause proper Redemption Notice to be given, nor any defect in
the Redemption Notice, shall affect the legality or validity of proceedings
for such redemption.
(c) Upon surrender in accordance with the Redemption Notice
of the certificates for any shares so redeemed (properly endorsed or assigned
for transfer, if the Board of Directors shall so require), such shares shall
be redeemed by the Company at the redemption price specified in the Redemption
Notice; provided, however, that if on or before the Redemption Date all funds
necessary for the redemption shall have been irrevocably set aside by the
Company in trust for the account of the holders of the shares of this Series
called for redemption, then from and after the mailing of the Redemption
Notice and the setting aside of such funds (provided that the provisions of
Subsection 3(c) above do not preclude such redemption), notwithstanding that
any certificate for any such shares has not been surrendered, all shares of
this Series called for redemption shall be deemed to have been redeemed and
shall cease to be outstanding, and all rights of the holders thereof as
stockholders of the Company, except the right to receive the respective
redemption price (including accrued and unpaid dividends to the Redemption
Date but without interest) upon surrender of their stock certificates and the
right to convert such shares of this Series in accordance with and subject to
the provisions of Section 6, shall cease and terminate. If less than all
outstanding shares of this Series are to be redeemed, the shares to be
redeemed shall be selected by lot or pro rata, as the Company's Board of
Directors may determine, from outstanding shares of this Service not
previously called for redemption. If less than all shares owned by a
stockholder shall be redeemed, a new certificate shall be issued representing
the unredeemed shares without cost to the holder thereof.
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<PAGE>
6. CONVERSION.
(a) Subject to and upon compliance with the provisions of
this Section 6, each holder of outstanding shares of this Series shall have
the right, at his option exercisable at any time before the close of business
on the third full business day before any Redemption Date with respect to any
such shares (unless the Company shall thereafter default in the payment of the
redemption price therefor) or before the close of business on the Exchange
Date (as defined in Section 7), to convert any or all of his outstanding
shares of this Series into that number of duly authorized, validly issued,
fully paid and nonassessable whole shares of Common Stock (calculated as to
each conversion to the nearest 1/100th of a share) as shall be obtained by
dividing the stated value of the shares of this Series to be converted by the
Conversion Price then in effect. As used in this Certificate of Designation,
"Conversion Price" shall mean the price at which one whole share of Common
Stock will be issued upon conversion of outstanding shares of this Series
pursuant to this Section 6. The Conversion Price shall initially be $32.50,
but shall be subject to adjustment or reduction as provided in this Section 6.
(b) In order to exercise the conversion privilege, any
holder of outstanding shares of this Series to be converted: (i) shall
surrender the certificate or certificates for such shares during regular
business hours at the office or agency maintained by the Company in the City
of New York, Borough of Manhattan or at such other offices or agencies as the
Company may determine (a "Conversion Agent"), which certificate or
certificates shall be duly endorsed or accompanied by proper instruments for
transfer to the Company or in blank and shall be accompanied by payment of all
amounts owed to the Company as provided in Subsection 6(o) below; (ii) shall
give written notice to the Company at said office or agency that he elects so
to convert such shares of this Series; and (iii) shall state in writing
therein the name or names (with address or addresses) in which he desires the
certificate or certificates for shares of Common Stock to be issued.
As soon as practicable after the surrender of a certificate or
certificates for shares of this Series to be converted and all instruments,
amounts and notices above prescribed, the Company shall issue and deliver to
the respective Conversion Agent a certificate or certificates for the number
of whole shares of Common Stock (or other securities) issuable upon such
conversion, together with a cash payment in lieu of any fraction of a share as
provided in Subsection 6(d) and a new certificate or certificates for any
unconverted shares of this Series formerly represented by one or more of the
converting stockholder's surrendered certificates, to the person or persons
entitled thereto. Shares of this Series surrendered for conversion shall be
deemed to have been converted as of the close of business on the date of such
surrender,
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<PAGE>
accompanied by all instruments, amounts and notices above prescribed, and the
person or persons entitled to receive the shares of Common Stock (or other
securities) issuable upon such conversion shall be treated for all purposes as
the record holder or holders of such shares from and after such time of
surrender; provided, however, that any such surrender on any date when the
stock transfer books of the Company are closed for any purpose shall not be
effective to constitute the person or persons entitled to receive the shares
of Common Stock or other securities upon such conversion as the record holder
or holders of such shares on such date, but such surrender shall be effective
to constitute the person or persons in whose name or names the certificates
for such shares of Common Stock or other securities are to be issued as the
record holder or holders thereof for all purposes immediately before the close
of business on the next succeeding day on which such stock transfer books are
open, and such conversion shall be at the Conversion Price in effect at such
time on such succeeding day.
(c) No payment or adjustment shall be made by or on behalf
of the Company on account of dividends accrued, declared or in arrears on
shares of this Series surrendered for conversion or on shares of Common Stock
or other securities issued upon such conversion, except all dividends on
shares of this Series surrendered for conversion that are accrued and unpaid
up to the Dividend Date immediately preceding the date of such conversion
shall constitute a debt of the Company payable to the converting stockholder
in accordance with the Certificate.
(d) No fractional share of Common Stock or other security
shall be issued upon any conversion of shares of this Series, but in lieu of
such issuance the Company shall purchase the fractional share for cash in an
amount equal to the product obtained by multiplying such fractional share by
the Closing Price (as hereinafter defined) of the Common Stock or such other
security, as the case may be, on the date on which the respective shares of
this Series are duly surrendered for conversion or, if no such Closing Price
is then available, on the most recent Trading Day (as hereinafter defined)
before such date of surrender for which such a Closing Price is available. If
more than one certificate representing shares of this Series shall be
surrendered for conversion at any one time by the same stockholder, the number
of whole shares of Common Stock or other security that shall be issuable upon
conversion thereof shall be computed on the basis of the aggregate number of
shares of this Series represented by all certificates so surrendered.
"Closing Price" as to any security on any day shall mean the closing
sale price on the principal national securities exchange on which the security
is listed for trading, or if not so listed, on the National Association of
Securities Dealers National Market System; or if no such closing price is
available, at the average
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<PAGE>
of the closing bid and asked quotations of the security reported on the
National Association of Securities Dealers Automated Quotation System; or, if
neither such System provides prices or quotations for such security, the fair
market value of such security as determined and set forth in a resolution
adopted by the Board of Directors (whose determination shall be final and
conclusive).
"Trading Day" as to any security shall mean a date on which the
principal national securities exchange on which the security is listed or
admitted to trading is open for the transaction of business; or if the
security is not listed or admitted to trading on any national securities
exchange, a date on which any New York Stock Exchange member firm is open for
the transaction of business.
(e) (i) In case the Company shall at any time (A) make a
distribution or pay a dividend on the Common Stock in shares of the Common
Stock, (B) subdivide the outstanding shares of Common Stock into a greater
number of shares, or (C) combine the outstanding shares of Common Stock into a
smaller number of shares, then the Conversion Price in effect immediately
before such action shall be adjusted so that the holder of outstanding shares
of this Series thereafter converted may receive the number of shares of Common
Stock that he would have owned immediately following such action if he had
converted the shares of this Series immediately before the record date (or, if
no record date, the effective date) for such action. The adjustment in the
Conversion Price pursuant to this paragraph (i) shall become effective
immediately after the record date in the case of a dividend or distribution
and immediately after the effective date in the case of a subdivision,
combination or reclassification.
(ii) In case the Company shall at any time (A) make a
distribution on the Common Stock in shares of its capital stock other than
Common Stock, or (B) issue by reclassification of the Common Stock (other than
pursuant to a change from no par value to par value, or from par value to no
par value, or a change in par value, or as a result of a subdivision or
combination of shares of Common Stock) any shares of its capital stock other
than the Common Stock, the Company shall, upon the subsequent conversion of
any share of this Series, issue to the holder of such share (in addition to
the number of shares of Common Stock issuable upon such conversion) the number
of shares of capital stock (other than Common Stock) that such holder would
have received if he had converted the share of this Series immediately before
the record date (or, if no record date, the effective date) for such action.
The number of shares of such capital stock (other than Common Stock) so
receivable shall be subject to adjustment on terms comparable to those
applicable to Common Stock in paragraph (i) of Subsection 6(e).
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<PAGE>
(iii) In case the Company shall distribute to all
holders of outstanding shares of the Common Stock on the record date mentioned
below rights or warrants entitling them for a period expiring on or before 60
calendar days following said record date to subscribe for or purchase shares
of Common Stock at a price per share less than the Current Market Price per
share of Common Stock at such record date, the Conversion Price shall be
adjusted so that the same shall equal the amount determined by multiplying the
Conversion Price in effect immediately before such distribution by a fraction,
of which the numerator shall be the number of shares of Common Stock
outstanding on such record date plus the number of shares of Common Stock
which the aggregate exercise price of the shares of Common Stock covered by
such rights or warrants would purchase at such Current Market Price (which
latter number of shares shall be the quotient resulting from the division of
(A) an amount equal to the product obtained by multiplying the number of
shares of Common Stock initially purchasable pursuant to such rights or
warrants by the exercise price for such rights or warrants by (B) such Current
Market Price) and of which the denominator shall be the number of shares of
Common Stock outstanding on such record date plus the number of shares of
Common Stock initially purchasable pursuant to such rights or warrants. Such
adjustment shall be made whenever such rights or warrants are distributed and
shall become effective immediately after the record date for the determination
of stockholders entitled to receive such rights or warrants.
(iv) In case the Company shall distribute to all
holders of outstanding shares of the Common Stock on the record date mentioned
below debt securities or assets (excluding cash dividends or cash
distributions paid out of consolidated current and retained earnings of the
Company as shown on its books) or rights or warrants (excluding rights or
warrants subject to the provisions of paragraph (iii) of Subsection 6(e)
above) to subscribe for or purchase shares of Common Stock, then in each such
case the Conversion Price shall be determined by multiplying the Conversion
Price in effect immediately before such distribution by a fraction, of which
the numerator shall be the remainder obtained by subtracting (A) the fair
market value on such record date of the assets, debt securities, rights or
warrants applicable to one share of Common Stock as determined by the Board of
Directors (whose determination of such fair market value shall be final and
conclusive and shall be set forth in a resolution filed with each Conversion
Agent) from (B) the Current Market Price per share of Common Stock on such
record date, and of which the denominator shall be such Current Market Price.
Such adjustment shall be made whenever any such distribution is made and shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such distribution.
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<PAGE>
(f) For the purpose of any computation under Subsection
6(e), the "Current Market Price" per share of Common Stock at any date shall
be deemed to be the average of the daily Closing Prices of a share of Common
Stock for the 30 consecutive Trading Days commencing before such date.
(g) No adjustment of the Conversion Price pursuant to this
Section 6 need be made unless such adjustment would require an increase or
decrease of at least 1% in the Conversion Price, but in such case any
adjustment that would otherwise be required then to be made shall be carried
forward and shall be made at the time of and together with the next subsequent
adjustment. All calculations under this Section 6 shall be made to the
nearest cent or to the nearest 1/100th of a share, as the case may be.
(h) No adjustment in the Conversion Price, or in securities
issuable upon conversion of shares of this Series, shall be made for any sale
of, or distribution of rights or warrants to purchase, Common Stock (or other
securities issuable upon conversion of the shares of this Series) to the
extent that such sale or distribution occurs in connection with a dividend or
interest reinvestment plan providing for sales of Common Stock (or other
securities issuable upon conversion of the shares of this Series) at a price
equal to at least 95% of the fair market value (as defined in such plan) of
such Common Stock (or such other securities). If shares of this Series become
convertible solely into cash, no adjustment shall be made thereafter, and
interest shall not accrue on the cash.
(i) Irrespective of any adjustments in the actual
Conversion Price (or the number of shares of Common Stock or other securities
into which any share of this Series is convertible), any share of this Series
issued before, upon or after such adjustment may continue to express the
Conversion Price and conversion rate stated in certificates representing the
initially issued shares of this Series.
(j) In case any consolidation or merger of the Company into
another corporation, or any merger of another corporation into the Company
(excluding such a merger in which the Company is the surviving or continuing
corporation and which does not result in any reclassification, conversion,
exchange or cancellation of the outstanding shares of Common Stock), or any
sale of all or substantially all of the Company's assets to another
corporation or person shall be effected, then, as a condition of such
consolidation, merger or sale (a "Transaction"), lawful and adequate provision
shall be made whereby the right of each holder of outstanding shares of this
Series to convert such shares shall become the right from and after the
Transaction to receive, upon surrender and conversion of such shares of this
Series and upon the basis, terms and conditions specified herein and in lieu
of the shares of the Common Stock and
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other securities that would have been issuable upon conversion of such shares
of this Series immediately before the Transaction, such shares of stock,
securities or assets as such holder would have owned immediately after the
Transaction if he had converted his shares of this Series immediately before
the effective date of the Transaction. The Company shall not effect any
Transaction unless prior to or simultaneously with the consummation thereof
the successor corporation or person (if other than the Company) resulting from
the Transaction or purchasing assets in the Transaction shall assume by
written instrument the obligation to deliver to each such holder such shares
of stock, securities or assets as in accordance with the foregoing provisions,
such holder may be entitled to receive upon surrender and conversion of his
outstanding shares of this Series.
(k) The Company from time to time may reduce the Conversion
Price by any amount for any period of time if the period is at least 20
calendar days and if the reduction is irrevocable during such period;
provided, however, that the Conversion Price shall not be reduced to an amount
less than the par value, if any, of a share of Common Stock. Whenever the
Conversion Price is reduced, the Company shall give notice of the reduction at
least 10 calendar days before the date the reduced Conversion Price takes
effect, which notice shall be given in the manner set forth in Subsection 6(m)
and shall state the reduced Conversion Price and the period it will be in
effect. A reduction in the Conversion Price pursuant to this Subsection shall
not change or adjust the Conversion Price otherwise in effect for purposes of
this Section 6.
(l) Whenever the Conversion Price, or the securities
issuable upon conversion, shall be adjusted as hereinabove provided, the
Company shall forthwith file, with each Conversion Agent, a statement that
shall be signed by the Chairman of the Board, the President, any Vice
President or the Treasurer of the Company and that shall reflect in detail the
facts requiring such adjustment and the actual Conversion Price, or the
securities issuable upon conversion, to be in effect after such adjustment.
(m) In case the Company at any time shall (i) take any
action that would require an adjustment in the Conversion Price, or the
securities issuable upon conversion, pursuant to paragraph (i), (ii), (iii) or
(iv) of Subsection 6(e), (ii) become a party to any Transaction specified in
Subsection 6(j), or (iii) liquidate, dissolve or wind up its affairs, whether
voluntarily or involuntarily, then the company shall cause to be filed with
each Conversion Agent, and shall cause to be mailed, first-class postage
prepaid, to each record holder of outstanding shares of this Series at his
address appearing in the stock records of the Company, a notice describing
such action to be taken and stating the record date, if any, for the
respective action and the date on which the respective action is expected to
become effective. Such notice shall be given at least 10
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calendar days before (i) the record date of any action subject to the
provisions of clause (A) of paragraph (i) of Subsection 6(e) or clause (A) of
paragraph (ii) of Subsection 6(e) or to the provisions of paragraph (iii) or
(iv) of Subsection 6(e) or (ii) the expected effective date of any other
action requiring notice pursuant to this Subsection 6(m). Neither the failure
of the Company to cause such notice to be given, nor any defect therein, shall
affect the legality or validity of the action for which such notice is
required.
(n) The Company shall at all times reserve and keep
available, free from preemptive rights, out of its treasury stock or
authorized but unissued Common Stock, or both, solely for the purpose of
effecting the conversion of shares of this Series hereunder, such number of
whole shares of Common Stock as shall then be sufficient to effect the
conversion of all outstanding shares of this Series.
(o) The Company shall pay any and all transfer taxes that
may be payable in respect of the issuance or delivery of shares of Common
Stock or other securities on conversion of shares of this Series pursuant
hereto; provided, however, that the Company shall not be required to pay any
tax or taxes which may be payable in respect of any transfer involved in the
issuance or delivery of shares in a name other than that of the holder of the
shares of this Series to be converted, and no such issuance or delivery shall
be made unless and until the person requesting such issuance has paid to the
Company the amount of any such tax or has established, to the satisfaction of
the Company, that such tax has been paid or is not due.
7. EXCHANGE PROVISIONS.
(a) The outstanding shares of this Series are exchangeable
in whole, but not in part, at the option of the Company, exercisable by
resolution adopted by the Board of Directors, on any Dividend Date beginning
December 1, 1988, for 7% Convertible Subordinated Debentures due 2011 of the
Company (the "Debentures"). Holders of outstanding shares of this Series
shall be entitled to receive $25.00 principal amount of the Debentures in
exchange for each outstanding share of this Series held of record by them at
the time of exchange except that any holder of fewer than 20 shares of this
Series shall receive a cash payment of $25.00 per share for each share held;
accrued and unpaid dividends on all shares to be exchanged will be paid as
provided in Section 2 in cash in either case. If the Company elects to
exchange the Debentures for the shares of this Series, it shall mail written
notice of its intention to exchange to each holder of record of the shares of
this Series not less than 30 nor more than 60 calendar days before the date
fixed by the Board of Directors for the exchange (the "Exchange Date").
Before giving such notice of exchange, the Company shall execute and deliver
with a bank or trust company selected by the Company
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an Indenture (the "Indenture") substantially in the form filed as an Exhibit
to the Registration Statement (File No. 33-9455), as amended on the effective
date thereof, relating to the Debentures and filed with the Securities and
Exchange Commission, with such changes in the Indenture or the Debentures as
the Company or the Indenture trustee shall deem necessary or appropriate. The
Company shall cause the Debentures to be authenticated on the Exchange Date;
at the close of business on the Exchange Date, the rights of the holders of
shares of this Series as stockholders of the Company shall immediately cease
and terminate (except the right to receive on the Exchange Date an amount
equal to accrued and unpaid dividends on such shares to, but excluding, the
Exchange Date), and the persons entitled to receive the Debentures issuable
upon exchange shall be treated for all purposes as the registered holders of
such Debentures pursuant to the Indenture. The Debentures shall be delivered,
and payment for accrued and unpaid dividends on shares of this Series shall be
made, to the persons entitled thereto upon surrender to the Company or its
agent appointed for that purpose of certificates for the shares of this Series
being exchanged therefor.
(b) The Company shall not give notice of its intention to
exchange pursuant to this Section 7 unless:
(i) it shall have filed at the office or agency of
the Company maintained in the City of New York, Borough of Manhattan, for the
conversion of shares of this Series an opinion of counsel (who may be an
employee of the Company) that the Indenture has been duly authorized by the
Company, has been duly qualified under the Trust Indenture Act of 1989 and
will, upon execution and delivery thereof, constitute a valid and binding
agreement of the Company which is enforceable against the Company in
accordance with its terms (subject, as to enforcement of remedies, to
bankruptcy, reorganization, insolvency, moratorium or other laws affecting
creditors' rights generally from time to time in effect, to equitable
principles and to such other qualifications as are then customarily contained
in opinions of counsel experienced in such matters); that the Debentures have
been duly authorized and, when executed and authenticated in accordance with
the provisions of the Indenture and delivered in exchange for the shares of
this Series, will constitute valid and binding obligations of the Company
entitled to the benefits of the Indenture (subject as aforesaid); and that the
Debentures have been registered under the Securities Act of 1933 or that the
exchange of the Debentures for the shares of this Series is exempt from
registration under the Securities Act of 1933; and
(ii) all accrued and unpaid dividends on the
outstanding shares of this Series for all past Dividend Periods ending on the
last
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Dividend Date immediately preceding the Exchange Date have been declared and
paid or set aside for payment.
8. COMMON STOCK DEFINED. The term "Common Stock" shall mean
the Common Stock, par value $1.00 per share, of the Company as the same exists
on the date of this Certificate of Designation and any other class of the
Company's capital stock into which such Common Stock may hereafter have been
changed.
9. MISCELLANEOUS. Holders of shares of this Series or of the
Common Stock issued upon conversion thereof shall not have any preemptive
rights. Of the consideration to be received for the issuance of shares of
this Series, the Board of Directors hereby determines that an amount equal to
the stated value of $25.00 per share shall constitute capital of the Company,
and no part of such consideration shall constitute additional paid-in capital
of the Company. MBank Dallas, National Association is hereby appointed
Transfer Agent, Registrar, Conversion Agent and Dividend Disbursing Agent for
this Series. Subject to the provisions of Subsection 3(b), the Board of
Directors reserves the right by subsequent amendment of this Certificate of
Designation from time to time to increase or decrease the number of shares
constituting this Series (but not below the number of shares thereof then
outstanding) and in other respects to amend this Certificate of Designation
within the limitations provided hereby and by law and the Certificate.
E. $4.50 REDEEMABLE PREFERRED STOCK, SERIES 1987-B. The Board of
Directors of I.C.H. Corporation (the "Company") and a duly authorized
committee thereof, at a meeting duly held on September 23, 1987 and by
unanimous consent dated as of January 14, 1988, duly adopted the following
resolutions (with recitals therein accurate at and as of such date)
designating a new series of Series Preferred Stock of the Company:
WHEREAS, the Company's Certificate of Incorporation, as amended (the
"Certificate"), now authorizes the issuance of 99,900,000 shares of Common
Stock (herein so called), with a par value of $1.00 per share, 100,000 shares
of Class B Common Stock (herein so called), with a par value of $1.00 per
share, and 50,000,000 shares of Series Preferred Stock (herein so called),
without par value and issuable from time to time in one or more series as
determined by the Board of Directors; and
WHEREAS, Article Four of the Certificate now expressly vests in the
Board of Directors the authority to fix by resolution or resolutions providing
for the issuance of the Series Preferred Stock the stated or capital value,
dividend rate, voting powers, designations, preferences and relative,
participating, optional or
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other special rights and the qualifications, limitations or restrictions
thereon of the shares of Series Preferred Stock that are not fixed by the
Certificate; and
WHEREAS, the Board of Directors has designated and issued, by resolution
originally adopted on October 8, 1984, 541,563 shares of Series 1984-A
Preferred Stock (herein so called), with a stated value of $41.07 per share;
and
WHEREAS, the Board of Directors has designated, by resolution originally
adopted on October 7, 1986, 9,200,000 shares of $1.75 Convertible Exchangeable
Preferred Stock, Series 1986-A ("Series 1986-A Preferred Stock"), with a
stated value of $25.00 per share, and has issued 8,000,000 shares of Series
1986-A Preferred Stock; and
WHEREAS, the Board of Directors decreased, by resolution originally
adopted on March 17, 1987, the number of authorized shares of Series 1986-A
Preferred Stock from 9,200,000 to 8,000,000; and
WHEREAS, the Board of Directors has designated, by resolution originally
adopted on September 23, 1987, 2,000,000 shares of $5.50 Redeemable Preferred
Stock, Series 1987-A ("Series 1987-A Preferred Stock"), with a stated value of
$50.00 per share, and has issued 1,000,000 shares of Series 1987-A Preferred
Stock; and
WHEREAS, the Board of Directors has designated and issued, by resolution
originally adopted on December 28, 1987, 1,000,000 shares of $8.00 Redeemable
Preferred Stock, Series 1987-C ("Series 1987-C Preferred Stock"), with a
stated value of $50.00 per share; and
WHEREAS, the Company desires to designate and establish a new series of
Series Preferred Stock.
NOW, THEREFORE, BE IT RESOLVED, that, pursuant to the authority
expressly granted to and vested in the Board of Directors by the provisions of
the Certificate, the Company's issuance of 140,000 shares of a new series of
the Series Preferred Stock, which shall rank junior to the Series 1986-A
Preferred Stock, and on a parity with the Series 1984-A Preferred Stock, the
Series 1987-A Preferred Stock and the Series 1987-C Preferred Stock, in each
case as to dividends and the distribution of assets upon liquidation,
dissolution, or winding up of the Company, is hereby authorized, and that the
winding up of the Company, is hereby authorized, and that the powers,
designations, preferences, and relative, participating, optional and other
special rights, as well as the qualifications, limitations and restrictions,
of such shares (in addition to the powers, designations, preferences and
rights set forth in, and the qualifications,
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limitations and restrictions imposed by, the Certificate with respect to the
Series Preferred Stock) hereby are fixed and determined by the Board of
Directors, as follows:
1. DESIGNATION, NUMBER AND STATED VALUE. The series of
Series Preferred Stock authorized and established hereby is designated as the
$4.50 Redeemable Preferred Stock, Series 1987-B (hereinafter called "this
Series"). The number of shares of this Series shall be 140,000. The stated
value of each share of this Series shall be $50.00, and each share of this
Series shall be validly issued and fully paid upon receipt by the Company of
legal consideration in an amount at least equal to such stated value and shall
not thereafter be assessable.
2. DIVIDENDS. The holders of outstanding shares of this
Series shall be entitled to receive, when and as declared by the Board of
Directors out of the assets of the Company legally available for payment,
annual cash dividends at the rate of $4.50 per share, and no more, payable in
equal quarterly installments on the 1st calendar day of January, April, July,
and October in each year (unless such day is a nonbusiness day, in which event
on the next business day thereafter), commencing April 1, 1988 [each such
payment date being hereinafter called a "Dividend Date" and each regular
quarterly or shorter (if, in the case of the first such period, the Issue
Date, as hereinafter defined, is subsequent to January 1, 1988) period ending
with a Dividend Date being hereinafter called a "Dividend Period"; the term
"Dividend Period," when used with respect to any Parity Dividend Stock, as
hereinafter defined, also shall mean each dividend accrual period ending on a
regular date for the payment of cumulative dividends on such Parity Dividend
Stock]. Such dividends shall be cumulative and shall accrue from January 1,
1988 or, if subsequent to January 1, 1988, the first date of issuance of any
shares of this Series (the "Issue Date"), whether or not in any Dividend
Period the Company has assets legally available for payment thereof.
Dividends payable on shares of this Series (i) as of April 1, 1988, (ii) on
any Redemption Date (as defined in Section 5 below) not occurring on a regular
Dividend Date or (iii) on any final distribution date relating to a
dissolution, liquidation or winding up of the Company and not occurring on a
regular Dividend Date shall be calculated on the basis of the actual number of
days elapsed (including the Redemption Date or final distribution date) over a
365-day period. Declared dividends on outstanding shares of this Series shall
be payable to record holders thereof as they appear on the stock register of
the Company at the close of business on the 15th day of the month preceding
the respective Dividend Date or on such other record date as may be fixed by
the Board of Directors in advance of a Dividend Date, provided that no such
record date shall be less than 10 nor more than 60 calendar days preceding
such Dividend Date.
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No dividends shall be declared and paid or set apart for payment, on the
shares of this Series in respect of any Dividend Period unless dividends have
been or are contemporaneously declared and paid or set apart for payment on
all shares of the Series 1986-A Preferred Stock and any other class or series
of stock of the Company ranking prior, as to dividends, to this Series for all
dividend periods coinciding with or ending before such Dividend Period.
If at any time full cumulative dividends payable for all past Dividend
Periods have not been or are not contemporaneously declared and paid or set
apart for payment on outstanding shares of this Series and any other stock
ranking on a parity as to dividend rights with this Series (the "Parity
Dividend Stock"), all dividends declared and paid or set apart for payment on
outstanding shares of this Series and the Parity Dividend Stock shall be
declared and paid or set apart for payment pro rata so that the amount of such
dividends per share of this Series and the Parity Dividend Stock shall in all
cases bear to each other the same proportions that the respective accrued and
unpaid dividends per share on this Series and the cumulative dividends payable
on outstanding shares of this Series and Parity Dividend Stock bear to each
other. Unless full cumulative dividends payable on outstanding shares of this
Series and Parity Dividend Stock for all past Dividend Periods have been or
contemporaneously are declared and paid or set apart for payment, (a) no
dividends shall be declared and paid or set apart for payment on the Common
Stock, Class B Common Stock, or any other class or series of stock of the
Company ranking junior to this Series as to dividend rights (collectively, the
"Junior Dividend Stock") except for dividends payable in shares of Junior
Dividend Stock, and (b) no shares of Parity Dividend Stock or Junior Dividend
Stock shall be redeemed, purchased or otherwise acquired by the Company for
value except as a result of conversion into or exchange for, or with the
proceeds from the sale of, other shares of Parity Dividend Stock or Junior
Dividend Stock; provided, however, the Company shall have the right to redeem,
purchase or otherwise acquire under any circumstances shares of any class or
series of its stock (including the Series Preferred Stock) other than the
Parity Dividend Stock or Junior Dividend Stock.
3. VOTING. The shares of this Series shall not have any
voting powers or rights whatsoever, except for such voting powers as are
required by law or as are granted by this Section 3, as follows:
(a) At any time or times that dividends payable on
outstanding shares of this Series or any Parity Dividend Stock shall have been
in arrears and remain unpaid in an aggregate amount equal to or exceeding the
amount of dividends payable thereon for six Dividend Periods (a "Dividend
Default"), then the holders of record of outstanding shares of this Series and
the Parity Dividend Stock shall have, in addition to the other voting rights
set forth herein, the exclusive right, voting together as a single class
without regard to
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series, to elect two Preferred Directors (as defined in the Certificate) who
shall be in addition to the directors constituting the Board of Directors
immediately before such election. The vote (at an annual meeting of the
Company's stockholders) of the record holders of a majority of the outstanding
shares of this Series and the Parity Dividend Stock, voting together as a
single class without regard to series, then present and voting (in person or
by proxy), or the execution of a written consent by the record holders of a
majority of the outstanding shares of this Series and the Parity Dividend
Stock then entitled to vote, shall be sufficient to nominate or elect any such
Preferred Directors. The holders of a majority of the issued and outstanding
shares of the voting class, present in person or represented by proxy, shall
constitute a quorum at any meeting for the election of Preferred Directors.
The voting rights provided by this Subsection 3(a) shall continue until such
time as all accrued and unpaid dividends for all past Dividend Periods on
outstanding shares of this Series and the Parity Dividend Stock shall have
been declared and paid or set aside for payment in full, at which time such
voting rights shall terminate subject to revesting in the event any subsequent
Dividend Default shall occur and be continuing. Such Preferred Directors
shall be Independent Directors (as defined in the Certificate) and shall serve
as such until the earlier occurrence of the election of their respective
successors or the termination of the voting rights of holders of shares of
this Series and the Parity Dividend Stock as provided in the preceding
sentence. So long as a Dividend Default shall continue, any vacancy in the
office of such a Preferred Director may be filled by the remaining Preferred
Director; provided, however, that any Preferred Director may be removed (with
or without cause), and any vacancy resulting from such removal shall be
filled, by vote (at an annual meeting of the Company's stockholders) of the
record holders of a majority of the outstanding shares of this Series and the
Parity Dividend Stock, voting together as a single class without regard to
series, then present and voting (in person or by proxy), or the execution of a
written consent by the record holders of a majority of the outstanding shares
of this Series and the Parity Dividend Stock then entitled to vote.
(b) So long as any shares of this Series are outstanding,
the Company shall not, directly or through merger or consolidation with any
other corporation:
(i) without the consent of the holders of at least
66-2/3% of all shares at the time outstanding of this Series and any other
series of Series Preferred Stock ranking on a parity with this Series as to
dividend and liquidation rights (the "Parity Preferred Stock"), voting
together as a single class without regard to series, given in person or by
proxy, either in writing or by a vote at an annual meeting of the Company's
stockholders or at a special meeting called for the purpose, authorize, create
or designate any shares of any class or
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series of preferred stock of the Company ranking senior to the shares of this
Series as to dividend or liquidation rights; or
(ii) without the consent of the holders of at least
66-2/3% of all shares at the time outstanding of this Series, given in person
or by proxy, either in writing or by a vote at an annual meeting of the
Company's stockholders or a special meeting called for the purpose, amend,
alter or repeal any of the preferences, rights, powers or privileges given to
shares of this Series by the provisions of the Certificate, by this
Certificate of Designation, or otherwise, so as to affect materially and
adversely such preferences, rights, powers or privileges; provided, however,
that any increase in the authorized Series Preferred Stock or the creation and
issuance of any class or series of stock of the Company ranking on a parity
with or junior to this Series shall not be deemed to materially and adversely
affect such preferences, rights, powers or privileges.
(c) Unless all accrued and unpaid dividends for all past
Dividend Periods on outstanding shares of this Series have been declared and
paid or set aside for payment in full, the Company shall not redeem or
purchase less than all outstanding shares of this Series (except through an
offer made on the same terms to all holders of outstanding shares of this
Series) without the consent of the holders of at least a majority of all
shares at the time outstanding of this Series, given in person or by proxy,
either in writing or by a vote at a meeting called for the purpose.
(d) In each case in which the vote or consent of holders
of shares of this Series is required by law or is granted by this Section 3,
such holders shall be entitled to one vote for each outstanding share of this
Series respectively owned of record by them. With respect to any matter
(other than a matter provided for above in this Section 3) on which the Series
Preferred Stock is entitled to vote by law, the Series Preferred Stock will
vote as a single class with the Common Stock unless otherwise required by law.
4. LIQUIDATION. Upon the dissolution, liquidation, or
winding up of the Company, whether voluntary of involuntary, the holders of
outstanding shares of this Series shall be entitled to receive out of the
assets of the Company available for distribution to stockholders, before any
payment or distribution of assets shall be made to holders of the Common
Stock, Class B Common Stock, or any other class or series of stock of the
Company ranking junior to this Series as to liquidation rights and after any
such payment or distribution to holders of the shares of the Series 1986-A
Preferred Stock and any other class or series of stock of the Company ranking
prior upon liquidation, dissolution, or winding up, cash liquidating
distributions in an amount of the stated value of $50.00 per share, plus a sum
equal to all dividends on such
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shares of this Series accrued and unpaid thereon to the date of final
distribution. Neither the consolidation nor merger of the Company into or
with another corporation or corporations, nor the merger or consolidation of
another corporation or corporations with or into the Company, nor a
reorganization of the Company, nor the purchase or redemption of all or part
of the outstanding shares of any class or series of capital stock of the
Company, nor a sale or transfer of the property and business of the Company
as, or substantially as, an entity, shall be deemed a liquidation,
dissolution, or winding up of the affairs of the Company, whether voluntary or
involuntary, within the meaning of this Section 4. After the payment to the
holders of the shares of this Series of the full preferential amounts provided
for in this Section 4, the holders of shares of this Series as such shall have
no right or claim to, and shall not be entitled to participate further in any
distribution of, the remaining assets of the Company. In the event the assets
of the Company available for distribution to stockholders upon any
dissolution, liquidation, or winding up of the Company, whether voluntary or
involuntary, shall be insufficient to pay in full all preferential amounts to
which holders of shares of this Series and each series of Preferred Stock
ranking, as to liquidation rights, on a parity with this Series are entitled,
the holders of all such shares shall participate ratably in any distribution
of assets of the Company in proportion to the respective full preferential
amounts to which holders of all such shares would be entitled to receive upon
such dissolution, liquidation, or winding up if all such amounts were then
available for distribution.
5. REDEMPTION.
(a) The shares of this Series are redeemable, at any time
as a whole or from time to time in part, at the option of the Company
exercisable by resolution of the Board of Directors, at a Redemption Price
(herein so called), payable in cash, equal to its stated value of $50.00 per
share plus accrued and unpaid dividends to the date fixed for redemption by
the Board of Directors (the "Redemption Date").
(b) If the Company shall elect to redeem shares of this
Series, notice of redemption of shares of this Series (the "Redemption
Notice") shall be given by first-class mail, postage prepaid, mailed not less
than 10 nor more than 60 calendar days before the Redemption Date, to each
holder of the shares to be redeemed, at such holder's address as the same
appears on the stock register of the Company. Each Redemption Notice shall
state the Redemption Date; the number of shares of this Series to be redeemed
and, if fewer than all the shares held by such holder are to be redeemed, the
number of such shares to be redeemed from such holder and (if deemed
appropriate by the Company) the number(s) of the certificate(s) representing
such shares; the Redemption Price per share; and the place or places where
certificates for such shares are to be surrendered for payment of the
Redemption Price. Neither the
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failure by the Company to cause proper Redemption Notice to be given, nor any
defect in the Redemption Notice, shall affect the legality or validity of
proceedings for such redemption.
(c) Upon surrender in accordance with the Redemption
Notice of the certificates for any shares so redeemed (properly endorsed or
assigned for transfer, if the Board of Directors shall so require), such
shares shall be redeemed by the Company at the Redemption Price specified in
the Redemption Notice; provided, however, that if on or before the Redemption
Date all funds necessary for the redemption shall have been irrevocably set
aside by the Company in trust for the account of the holders of the shares of
this Series called for redemption, then from and after the mailing of the
Redemption Notice and the setting aside of such funds, notwithstanding that
any certificate for any such shares has not been surrendered, all shares of
this Series called for redemption shall be deemed to have been redeemed and
shall cease to be outstanding, and all rights of the holders thereof as
stockholders of the Company, except the right to receive the respective
Redemption Price (including accrued and unpaid dividends to the Redemption
Date, but without interest) upon surrender of their stock certificates.
6. CONVERSION. Shares of this Series are not convertible
into any other shares of capital stock of the Company.
7. MISCELLANEOUS. Holders of shares of this Series shall not
have any preemptive rights. Of the consideration to be received for the
issuance of shares of this Series, the Board of Directors hereby determines
that an amount equal to the stated value of $50.00 per share shall constitute
capital of the Company, and no part of such consideration shall constitute
additional paid-in capital of the Company. The Transfer Agent, Registrar, and
Disbursing Agent for this Series shall be appointed from time to time by
resolution of the Board of Directors; provided, however, that in the absence
of any such appointment or a vacancy in any such agency, the Company shall
serve in each such nonappointed or vacant capacity. The Board of Directors
reserves the right by subsequent amendment of this Certificate of Designation
from time to time to increase or decrease the number of shares constituting
this Series (but not below the number of shares thereof then outstanding) and
in other respects to amend this Certificate of Designation within the
limitations provided hereby and by law and the Certificate.
ARTICLE FIVE. The Corporation is to have perpetual existence.
ARTICLE SIX. In furtherance and not in limitation of the powers conferred by
statute, the By-Laws of the Corporation may be made, altered, amended or
repealed by the stockholders or by the Board of Directors.
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ARTICLE SEVEN. Meetings of the stockholders may be held within or without the
State of Delaware, as the By-Laws may provide. The books of the Corporation
may be kept (subject to any provision contained in the statutes) outside the
State of Delaware at such place or places as may be designated from time to
time by the Board of Directors or in the By-Laws of the Corporation.
Elections of directors need not be by written ballot unless the By-Laws of the
Corporation shall so provide.
ARTICLE EIGHT. The Corporation reserves the right to amend, alter, change or
repeal any provisions contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
ARTICLE NINE. To the fullest extent permitted by the Delaware General
Corporation Law as the same exists or hereafter may be amended, no director of
this corporation shall be liable to this corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
executed in its name and on its behalf by its duly authorized officer and its
corporate seal to be affixed hereto and attested as of the 17th day of
March, 1994.
I.C.H. CORPORATION
By: /S/ ROBERT L. BEISENHERZ
----------------------------------------
Robert L. Beisenherz
Chairman of the Board, President
and Chief Executive Officer
ATTEST:
By: /S/ DAVID A. LEONARD
-----------------------------
David A. Leonard
Assistant Secretary
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EXHIBIT 3.2
BYLAWS
OF
I.C.H. CORPORATION
(Amended through March 15, 1994)
ARTICLE I
OFFICES
Section 1. The registered office shall be in the City of Wilmington,
County of New Castle, State of Delaware.
Section 2. The corporation may also have offices at such other places
both within and without the State of Delaware as the business of the corporation
may require and as determined from time to time by the Board of Directors.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Meetings of the stockholders for the election of directors
shall be held at such place as may be fixed from time to time by the Board of
Directors, within and without the State of Delaware, as shall be designated from
time to time by the Board of Directors and stated in the notice of the meeting.
Meetings of stockholders for any other purpose may be held at such place, within
or without the State of Delaware, as shall be stated in the notice of the
meeting or in a duly executed waiver of notice thereof.
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Section 2. Annual meetings of stockholders, commencing with the year
1977, shall be held on the last Wednesday of April if not a legal holiday, and
if a legal holiday, then on the next secular day following at 10:30 A.M., or at
such other date and time as shall be designated from time to time by the Board
of Directors and stated in the notice of the meeting, at which they shall elect
by a plurality vote a Board of Directors, and transact such other business as
may properly be brought before the meeting.
Section 3. Written notice of the annual meeting stating the place, date
and hour of the meeting shall be given to each stockholder entitled to vote at
such meeting not less than ten nor more than sixty days before the date of the
meeting.
Section 4. The officer who has charge of the stock ledger of the
corporation shall prepare and make, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during
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the whole time thereof, and may be inspected by any stockholder who is present.
Section 5. Special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute or by the certificate of
incorporation, may be called by the Chairman of the Board or President and shall
be called by the Chairman of the Board, President, or Secretary at the request
in writing of a majority of the Board of Directors, or at the request in writing
of stockholders owning a majority in amount of the entire capital stock of the
corporation issued and outstanding and entitled to vote. Such request shall
state the purpose or purposes of the proposed meeting.
Section 6. Written notice of a special meeting stating the place, date
and hour of the meeting and the purpose or purposes for which the meeting is
called, shall be given not less than ten nor more than sixty days before the
date of the meeting, to each stockholder entitled to vote at such meeting.
Section 7. Business transacted at any special meeting of the
stockholders shall be limited to the purposes stated in the notice.
Section 8. The holders of one-third of the issued and outstanding
shares of the classes of the corporation's stock entitled to vote together as a
single class and of each class of the corporation's stock entitled to vote as a
separate class at a meeting of the stockholders, present in person or
represented by proxy, shall constitute a quorum at the meeting for the
transaction
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of business, except as otherwise provided by statute or by the Certificate of
Incorporation. If, however, such quorum shall not be present or represented at
any meeting of the stockholders, the stockholders entitled to vote thereat,
present in person or represented by proxy, shall have power to adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented any business may be
transacted which might have been transacted at the meeting as originally
notified. If the adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
Section 9. All issued and outstanding shares of the corporation's stock
entitled to vote on a question brought before a meeting of stockholders shall
vote as a single class except as
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otherwise provided by the express provisions of the statutes or of the
Certificate of Incorporation. When a quorum is present at any meeting of the
stockholders, each question shall be decided, (i) in each case in which classes
of the corporation's stock will vote together as a single class, by vote of a
majority of the total number of shares of such classes present in person or
represented by proxy at the meeting and entitled to vote on the question, or
(ii) in each case in which classes of the corporation's stock will vote as
separate classes, by vote of a majority of the total number of shares of each
such class present in person or represented by proxy at the meeting and entitled
to vote on the question; provided, however, that if the express provisions of
the statutes or of the certificate of incorporation require a different vote to
decide a question brought before the meeting, such express provisions shall
govern and control the decision of such question.
Section 10. Unless otherwise provided in the Certificate of
Incorporation each stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of the capital stock
having voting power held by such stockholder, but no proxy shall be voted or
acted upon after three years from its date, unless the proxy provides for a
longer period.
Section 11. Unless otherwise provided in the Certificate of
Incorporation, any action required to be taken at any annual or special meeting
of stockholders of the corporation, or any action which may be taken at any
annual or special meeting of such stockholders, may be taken without a meeting,
without prior notice
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and without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and vote.
Prompt notice of the taking of the corporate action without a meeting by less
than unanimous written consent shall be given to those stockholders who have not
consented in writing.
ARTICLE III
DIRECTORS
Section 1. The number of Directors constituting the whole board shall
be determined by resolution of the Board of Directors or by the stockholders at
the annual meeting. The Directors shall be elected at the annual meeting of the
stockholders, except as provided in Section 2 of this Article, and each director
shall hold office until his successor is elected and qualified. Directors need
not be stockholders, but no persons shall be qualified to stand for election or
re-election as a director if such person has attained the age of seventy-five
(75) years.
Section 2. Vacancies and newly created directorships resulting from any
increase in the authorized number of directors may be filled as provided in the
Certificate of Incorporation by a majority of the directors, or by the sole
remaining director, who are then in office and entitled under the Certificate
of Incorporation to fill such vacancy or newly created directorship, and the
directors so chosen shall hold office until the next annual
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election and until their successors are duly elected and shall qualify, unless
sooner displaced. If there are not directors in office, then an election of
directors may be held in the manner provided by statute. If, at the time of
filling any vacancy or any newly created directorship, the directors then in
office shall constitute less than a majority of the whole board (as constituted
immediately prior to any such increase), the Court of Chancery may, upon
application of any stockholder or stockholders holding at least ten percent of
the total number of the shares at the time outstanding having the right to vote
for the directors to be elected, summarily order an election to be held to fill
any such vacancies or newly created directorships, or to replace the directors
chosen by the directors then in office.
Section 3. The business of the corporation shall be managed by or under
the direction of its Board of Directors which may exercise all such powers of
the corporation and do all such lawful acts and things as are not by statute or
by the Certificate of Incorporation or by these bylaws directed or required to
be exercised or done by the stockholders. From its membership, the Board of
Directors shall choose a chairman of the board and may choose a vice chairman of
the board. The chairman of the board or his designee shall preside at all
meetings of the stockholders and the Board of Directors and shall have such
other duties and powers as are described in Article V of these bylaws. The vice
chairman of the board shall preside at meetings of the stockholders and the
Board of Directors in the absence of the chairman of the board and
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shall have such other duties and powers as from time to time may be assigned to
him by the Board of Directors.
MEETINGS OF THE BOARD OF DIRECTORS
Section 4. The Board of Directors of the corporation may hold meetings,
both regular and special, either within or without the State of Delaware.
Section 5. The first meeting of each newly elected Board of Directors
shall be held at the same place as the meeting of stockholders at which the
newly elected Board of Directors was elected and shall be held immediately
following such meetings of stockholders. No notice of such meeting shall be
necessary to the newly elected directors in order legally to constitute the
meeting, provided a quorum shall be present. In the event such meeting is not
held at such time and place, the meeting may be held at such time and place as
shall be specified in a notice given as hereinafter provided for special
meetings of the Board of Directors, or as shall be specified in a written waiver
signed by all of the directors.
Section 6. Regular meetings of the Board of Directors may be held
without notice at such time and at such place as shall from time to time be
determined by the Board.
Section 7. Special meetings of the board may be called by the Chairman
of the Board or President on two days' notice to each director, either
personally or by mail or by telegram; special meetings shall be called by the
Chairman of the Board, President or Secretary in like manner and on like notice
on the written request
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of two directors unless the board consists of only one director, in which case
special meetings shall be called by the Chairman of the Board, President or
Secretary in like manner or on like notice on the written request of the sole
director.
Section 8. At all meetings of the board, a majority of directors shall
constitute a quorum for the transaction of business and the act of a majority of
the directors present at any meeting at which there is a quorum shall be the act
of the Board of Directors, except as may be otherwise specifically provided by
statute or by the Certificate of Incorporation. If a quorum shall not be
present at any meeting of the Board of Directors the directors present thereat
may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
Section 9. Unless otherwise restricted by the Certificate of
Incorporation or these bylaws, any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee thereof may be taken
without a meeting, if all members of the board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the board or committee.
Section 10. Unless otherwise restricted by the Certificate of
Incorporation or these Bylaws, members of the Board of Directors, or any
committee designated by the Board of Directors, may participate in a meeting of
the Board of Directors, or any committee, by means of conference telephone or
similar communica-
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tions equipment by means of which all persons participating in the meeting can
hear each other, and such participation in a meeting shall constitute presence
in person at the meeting.
COMMITTEES OF DIRECTORS
Section 11. The Board of Directors may, by resolution passed by a
majority of the whole board, designate one or more committees, each committee to
consist of one or more of the directors of the corporation. The board may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In
the absence or disqualification of a member of a committee, the member or
members thereof present at any meeting and not disqualified from voting, whether
or not he or they constitute a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in the place of any such absent or
disqualified member. Any such committee, to the extent provided in the
resolution of the Board of Directors, shall have any and may exercise all the
powers and authority of the Board of Directors in the management of the business
and affairs of the corporation, and may authorize the seal of the corporation to
be affixed to all papers which may require it; but no such committee shall have
the power or authority in reference to amending the Certificate of
Incorporation, adopting an agreement of merger or consolidation, recommending to
the stockholders the sale, lease or exchange of all or substantially all of the
corporation's property and assets, recommending to the stockholders a
dissolution of the corporation
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or a revocation of a dissolution, or amending the Bylaws of the corporation;
and, unless the resolution or the certificate of incorporation expressly so
provides, no such committee shall have the power or authority to declare a
dividend or to authorize the issuance of stock. Such committee or committees
shall have such name or names as may be determined from time to time by
resolution adopted by the Board of Directors.
Section 12. Each committee shall keep regular minutes of its meeting and
report the same to the Board of Directors when required.
COMPENSATION OF DIRECTORS
Section 13. Unless otherwise restricted by the Certificate of
Incorporation or these Bylaws, the Board of Directors shall have the authority
to fix the compensation of directors. The directors may be paid their expenses,
if any, of attendance at each meeting of the Board of Directors and may be paid
a fixed sum for attendance at each meeting of the Board of Directors or a stated
salary as director. No such payment shall preclude any director from serving
the corporation in any other capacity and receiving compensation therefor.
Members of special or standing committees may be allowed like compensation for
attending committee meetings.
REMOVAL OF DIRECTORS
Section 14. Unless otherwise restricted by the Certificate of
Incorporation or Bylaws, any director or the entire Board of Directors may be
removed, with or without cause, by the holders of
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a majority of shares entitled to vote at an election of the directors to be
removed.
ARTICLE IV
NOTICES
Section 1. Whenever, under the provisions of the statutes or of the
Certificate of Incorporation or of these Bylaws, notice is required to be given
to any director or stockholder, it shall not be construed to mean personal
notice, but such notice may be given in writing, by mail, addressed to such
director or stockholder, at his address as it appears on the records of the
corporation, with postage thereon prepaid, and such notice shall be deemed to be
given at the time when the same shall be deposited in the United States mail.
Notice to directors may also be given by telegram.
Section 2. Whenever any notice is required to be given under the
provisions of the statutes or of the Certificate of Incorporation or of these
Bylaws, a waiver thereof in writing, signed by the person or persons entitled to
said notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE V
OFFICERS
Section 1. The officers of the corporation shall be chosen by the Board
of Directors and shall be the chairman of the board, chief executive officer,
president, a vice president, a secretary and a treasurer. The Board of
Directors may also choose additional
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vice presidents, and one or more assistant secretaries and assistant treasurers.
Any number of offices may be held by the same person, unless the Certificate of
Incorporation or these bylaws otherwise provide. The Chairman of the Board
shall be chosen from among the directors.
Section 2. The Board of Directors at its first meeting after each
annual meeting of stockholders shall choose a chairman of the board, chief
executive officer, president, one or more vice-presidents, a secretary and a
treasurer.
Section 3. The Board of Directors may appoint such other officers and
agents as it shall deem necessary who shall hold their offices for such terms
and shall exercise such powers and perform such duties as shall be determined
from time to time by the Board.
Section 4. The salaries of all officers and agents of the corporation
shall be fixed by the Board of Directors.
Section 5. The officers of the corporation shall hold office until
their successors are chosen and qualify. Any officer elected or appointed by
the Board of Directors may be removed at any time by the affirmative vote of a
majority of the Board of Directors. Any vacancy occurring in any office of the
corporation shall be filled by the Board of Directors.
THE CHAIRMAN OF THE BOARD
Section 6. The Chairman of the Board shall have responsibility for the
direction of the business and affairs of the corporation and shall have such
other duties and powers as may from time to time be assigned to him by the Board
of Directors.
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THE CHIEF EXECUTIVE OFFICER
Section 7. The Chief Executive Officer of the corporation shall have
general charge and control of the business and affairs of the corporation and
shall report to the Chairman of the Board. The Chief Executive Officer shall
have such other duties and powers as from time to time may be assigned to him by
the Board of Directors.
THE PRESIDENT
Section 8. The President shall be the Chief Operating Officer of the
corporation and shall perform such other duties and have such other powers as
the Board of Directors may from time to time prescribe.
THE VICE PRESIDENTS
Section 9. In the absence of the President or in the event of his
inability or refusal to act, the Vice President (or in the event there be more
than one Vice President, the Vice Presidents in the order designated by the
directors, or in the absence of any designation, then in the order of their
election) shall perform the duties of the President, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the Presi-
dent. The Vice President shall perform such other duties and have such other
powers as the Board of Directors may from time to time prescribe.
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THE SECRETARY AND ASSISTANT SECRETARY
Section 10. The Secretary shall attend all meetings of the Board of
Directors and all meetings of the stockholders and record all the proceedings of
the meetings of the corporation and of the Board of Directors in a book to be
kept for that purpose and shall perform like duties for the standing committee
when required. He shall give, or cause to be given, notice of all meetings of
the stockholders and special meetings of the Board of Directors, and shall
perform such other duties as may be prescribed by the Board of Directors,
Chairman of the Board, the Board or the President, under whose supervision he
shall be. He shall have custody of the corporate seal of the corporation and
he, or an assistant Secretary, shall have authority to affix the same to any
instrument requiring it and when so affixed, it may be attested by his signature
or by the signature of such assistant Secretary. The Board of Directors may
give general authority to any other officer to affix the seal of the corporation
and to attest the affixing by his signature.
Section 11. The assistant secretary, or if there be more than one, the
assistant secretaries in the order determined by the Board of Directors (or if
there be no such determination, then in the order of their election), shall, in
the absence of the Secretary or in the event of his inability or refusal to act,
perform the duties and exercise the powers of the Secretary and shall perform
such other duties and have such other powers as the Board of Directors may from
time to time prescribe.
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THE TREASURER AND ASSISTANT TREASURERS
Section 12. The Treasurer shall have the custody of the corporate funds
and securities and shall keep full and accurate accounts of receipts and
disbursement in books belonging to the Corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the Corporation in
such depositories as may be designated by the Board of Directors.
Section 13. He shall disburse the funds of the corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the President and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all his transactions as Treasurer and of the financial condition of the
Corporation.
Section 14. If required by the Board of Directors, he shall give the
Corporation a bond (which shall be renewed every six years) in such sum and with
such surety or sureties as shall be satisfactory to the Board of Directors for
the faithful performance of the duties of his office and for the restoration to
the Corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the Corporation.
Section 15. The assistant treasurer, or if there shall be more one, the
assistant treasurers in the order determined by the Board of Directors (or if
there is no such determination, then in the order of their election), shall, in
the absence of the
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Treasurer or in the event of his inability or refusal to act, perform the duties
and exercise the powers of the Treasurer and shall perform such other duties and
have such other powers as the Board of Directors may from time to time
prescribe.
ARTICLE VI
CERTIFICATE OF STOCK
Section 1. Every holder of stock in the corporation shall be entitled
to have a certificate, signed by, or in the name of the Corporation by, the
Chairman of the Board of Directors, or the President or a Vice President and the
Treasurer or Assistant Treasurer, or the Secretary or an Assistant Secretary of
the Corporation, certifying the number of shares owned by him in the
Corporation. If the Corporation shall be authorized to issue more than one
class of stock or more than one series or any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualification, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the Corporation shall
issue to represent such class or series of stock, provided that, except as
otherwise provided in Section 202 of the General Corporation Law of Delaware, in
lieu of the foregoing requirements, there may be set forth on the face or back
of the certificate which the Corporation shall issue to represent such class or
series of stock, a statement that the Corporation will furnish without charge to
each stockholder who so requests the powers, designations,
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preferences and relative, participating, options or other special right of each
class of stock or series thereof and the qualification, limitations or
restrictions of such preferences and/or rights.
Section 2. Any of or all the signatures on the certificate may be
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the Corporation with the same effect as if he were
such officer, transfer agent or registrar at the date of issue.
LOST CERTIFICATES
Section 3. The Board of Directors may direct a new certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the Corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing such
issue of a new certificate or certificates, the Board of Directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen, or destroyed certificate or certificates, or his
legal representative, to advertise the same in such manner as it shall require
and/or to give the Corporation a bond in such sum as it may direct as indemnity
against any claim that may be made against the Corpora-
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tion with respect to the certificate alleged to have been lost, stolen or
destroyed.
TRANSFERS OF STOCK
Section 4. Upon surrender to the Corporation or the transfer agent of
the Corporation of a certificate of shares duly endorsed or accompanied by
proper evidence of succession, assignation or authority to transfer, it shall be
the duty of the Corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
FIXING RECORD DATE
Section 5. In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
any change, conversion or exchange of stock for the propose of any other lawful
action, the Board of Directors may fix, in advance, a record date, which shall
not be more than sixty nor less than ten days before the date of such meeting,
nor more than sixty days prior to any other action. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
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REGISTERED STOCKHOLDERS
Section 6. The corporation shall be entitled to recognize the exclusive
right of a person registered on its books as the owner of shares to receive
dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
Section 1. Dividends upon the capital stock of the corporation, subject
to the provisions of the Certificate of Incorporation, if any, may be declared
by the Board of Directors at any regular or special meeting, pursuant to law.
Dividends may be paid in cash, in property, or in shares of the capital stock,
subject to the provisions of the Certificate of Incorporation.
Section 2. Before payment of any dividend, there may be set aside out
of any funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purpose as the directors shall think conducive to the interest of
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the corporation, and the directors may modify or abolish any reserve in the
manner in which it was created.
ANNUAL STATEMENT
Section 3. The Board of Directors shall present at each annual meeting,
and at any special meeting of the stockholders when called for by vote of the
stockholders, a full and clear statement of the business and condition of the
corporation.
CHECKS
Section 4. All checks or demands for money and notes of the corporation
shall be signed by such officer or officers or such other person or persons as
the Board of Directors may from time to time designate.
FISCAL YEAR
Section 5. The fiscal year of the corporation shall be fixed by
resolution of the Board of Directors.
SEAL
Section 6. The corporate seal shall have inscribed thereon the name of
the corporation, the year of its organization and the words "Corporate Seal,
Delaware". The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
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ARTICLE VIII
AMENDMENTS
Section 1. These Bylaws may be altered, amended or repealed or new
Bylaws may be adopted by the stockholders or by the Board of Directors by the
Certificate Incorporation, at any regular meeting of the stockholders or of the
Board of Directors or any special meeting of the stockholders or of the Board of
Directors if notice of such alteration, amendment, repeal or adoption of new
bylaws be continued in the notice of such special meeting. If the power to
adopt, amend or repeal bylaws is conferred upon the Board of Directors by the
Certificate of Incorporation it shall not divest or limit the power of the
stockholders to adopt, amend or repeal bylaws.
ARTICLE IX
INDEMNIFICATION OF OFFICERS, DIRECTORS AND EMPLOYEES
Section 1. As used in this Article IX, the following terms have the
indicated meanings:
(a) The term "Awards" means all monetary damages, liabilities, fines
(including without limitation excise taxes assessed with respect to
employee benefit plans), penalties, deficiencies, assessments, settlement
amounts, and other
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awards, and all interest on any thereof, whether actual, compensatory,
liquidated, exemplary, or punitive.
(b) The term "Company" means this corporation and any domestic or foreign
successor of this corporation in a merger, consolidation, or other
transaction in which the liabilities of this corporation are transferred to
such successor by operation of law, and in any other transaction in which
such successor assumes the liabilities of this Corporation but does not
specifically exclude liabilities that are the subject matter of this
Article IX.
(c) The term "Director" means any person who is or was a director or
advisory director of the Company and any person who, while a director or
advisory director of the Company, is or was serving at the request of the
Company as a director, officer, partner, venturer, proprietor, trustee,
employee, agent, or similar functionary of any other foreign or domestic
corporation or of any foreign or domestic partnership, joint venture, sole
proprietorship, trust, employee benefit plan, or other enterprise.
(d) The term "Expense" means such costs of court, fees and
disbursements of attorneys and experts, and other costs and expenses
(except Awards) as are incurred in connection with any Proceeding,
including without limitation any investigation or preparation therefor and
any Proceeding to establish an Indemnitee's right to indemnification under
this Article IX.
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(e) The term "Indemnitee" means (i) any person who is or was a director,
advisory director, or officer of the Company, (ii) any present or former
director, advisory director, or officer of the Company who, while serving
the Company as such, is or was serving at the request of the Company as a
director, officer, partner, venturer, proprietor, trustee, employee, agent,
or similar functionary of any other foreign or domestic corporation or of
any foreign or domestic partnership, joint venture, sole proprietorship,
trustee, employee benefit plan, or other enterprise, and (iii) any estate,
executor, administrator, personal representative, trustee, heir, or
beneficiary of any person specified in clause (i) or (ii) of this subsec-
tion (e); provided, however, that the term "Indemnitee" shall not include
any person specified in clause (ii) of this subsection (e) (or any estate,
executor, administrator, personal representative, trustee, heir, or
beneficiary of such person) if a resolution of the Board of Directors, in
effect at the time of the act or circumstances for which indemnification is
sought hereunder, excludes such person from this definition or from the
benefits of this Article IX.
(f) The term "Officer" means any person who is or was an officer of the
Company and any person who, while an officer of the Company, is or was
serving at the request of the Company as a director, officer, partner,
venturer, proprietor, trustee, employee, agent, or similar functionary of
any other foreign or domestic corporation or of any foreign or domestic
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partnership, joint venture, sole proprietorship, trust, employee benefit
plan, or other enterprise.
(g) The term "Proceeding" means any threatened, pending, or completed
action, suit, or proceeding, whether civil, criminal, administrative,
arbitrative, or investigation; any appeal in such an action, suit, or
proceeding; and any inquiry or investigation that could lead to such an
action, suit, or proceeding.
(h) The term "serving at the request of the Company", or any similar
phrase, means providing services pursuant to these bylaws or a resolution
of the board of directors or any committee thereof or pursuant to the
performance by the Company's director, advisory director, officer,
employee, or agent of this or her regular duties to the Company.
Section 2. The Company shall indemnify and advance Expenses to each
Indemnitee to the fullest extent required or permitted under Delaware law
(including without limitation the Delaware General Corporation Law) as currently
in effect or hereafter amended. Without limiting the generality of the
foregoing:
(a) The Company shall indemnify each Indemnitee who is a party to or is
threatened to be made a party to or otherwise involved in any Proceeding
(other than a Proceeding by or in the right of the Company to procure a
judgement in favor of the Company), by reason of the fact that such
Indemnitee is or was a Director and/or Officer, against all Expenses and
Awards
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actually and reasonably paid or incurred by such Indemnitee in connection
with the defense or settlement of such Proceeding, but only if such
Indemnitee acted in good faith and in a manner that he or she reasonably
believed to be in or not opposed to the best interests of the Company and,
in the case of a criminal Proceeding, also had no reasonable cause to
believe that his or her conduct was unlawful. The termination of any such
Proceeding by judgment, order of court, settlement, or conviction, or upon
a plea of nolo contendere, or its equivalent, shall not, of itself, create
a presumption that such Indemnitee did not act in good faith and in a
manner that he or she reasonably believed to be in the best interests of
the Company, and with respect to any criminal Proceeding, that such
Indemnitee had reasonable cause to believe that his or her conduct was
unlawful.
(b) The Company shall indemnify each Indemnitee who is a party to or is
threatened to be made a party to or otherwise involved in any Proceeding by
or in the right of the Company to procure a judgment in favor of the
Company, by reason of the fact that such Indemnitee is or was a Director
and/or Officer, against all Expenses actually and reasonably paid or
incurred by such Indemnitee in connection with the defense or settlement of
such Proceeding, but only if such Indemnitee acted in good faith and in a
manner that he or she reasonably believed to be in or not opposed to the
best interests of the Company; provided, however, that no indemnification
for
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Expenses shall be made under this subsection (b) in respect of any claim,
issue, or matter as to which such Indemnitee shall have been adjudged to be
liable to the Company unless, but only to the extent that, any court in
which such Proceeding was brought or appealed shall determine upon
application that, despite the adjudication of liability but in view of all
the circumstances of the case, such Indemnitee is fairly and reasonably
entitled to indemnification for such Expenses as such court shall deem
proper.
(c) An Indemnitee who acted in good faith and in a manner that he or she
reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in
a manner not opposed to the best interests of the Company as referred to in
this Article IX.
Section 3. Any indemnification pursuant to this Article IX shall be
made by the Company only as ordered by a court of competent jurisdiction or as
authorized in the specific case upon a determination that such indemnification
is required or permitted to the circumstances because, in addition to the other
requirements of this Article IX, the applicable standard of conduct set forth in
Section 2 of this Article IX has been met by the Director and/or Officer. The
foregoing determination shall be made in each instance, as soon as reasonably
practicable, (a) by the stockholders, or (b) by the Board of Directors by a
majority vote of a quorum consisting of directors who are not parties to the
respec-
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tive Proceeding, or (c) if such quorum is not obtainable, or (although
obtainable) if a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion. If an Indemnitee meets the applicable
standard of conduct and other requirements for some, but not all, claims for
indemnification under this Article IX, the Company shall indemnify such
Indemnitee for such Awards and Expenses as to which it is determined that the
applicable standards of conduct and other requirements have been met.
To the fullest extent required or permitted under Delaware law (including
without limitation the Delaware General Corporation Law) as currently in effect
or hereafter amended:
(i) each Indemnitee's right to indemnification or advances as
provided by this Article IX shall be enforceable by such Indemnitee in any
Proceeding before any court of competent jurisdiction;
(ii) the burden of proving that indemnification or advances under this
Article IX are not required or permitted shall be on the person alleging
any Indemnitee's non-entitlement; and
(iii) neither the failure of the Company (including without limitation
its stockholders, Board of Directors, or independent legal counsel) to have
made a determination, before the commencement of such Proceeding, that
indemnification or advances are required or permitted in the circumstances
because such Indemnitee has met the applicable standard of
Page 28
<PAGE>
conduct, nor an actual determination by the Company (including without
limitation its stockholders, Board of Directors, or independent legal
counsel) that such Indemnitee has not met such applicable standard of
conduct, shall be a defense to the Proceeding or create a presumption that
such Indemnitee has not met the applicable standard of conduct.
Section 4. Notwithstanding any other provision of this Article IX, to
the extent that an Indemnitee has been successful, on the merits or otherwise,
in the defense of any Proceeding or in the defense of any claim, issue, or
matter therein, including without limitation the dismissal of such Proceeding
without prejudice, such Indemnitee shall be indemnified by the Company against
all Expenses incurred by him or her in connection with such defense.
Section 5. All Expenses paid or incurred by an Indemnitee in the
defense of any Proceeding shall be paid or reimbursed promptly by the Company in
advance of the final disposition of such Proceeding upon receipt of a written
undertaking by or on behalf of such Indemnitee to repay the amount of such
Expenses if, but only to the extent that, it is ultimately determined that such
Indemnitee is not entitled to be indemnified by the Company pursuant to this
Article IX. Such written undertaking shall be an unlimited general obligation
of such Indemnitee, but need not be secured and may be accepted without
reference to any financial ability to make repayment.
Page 29
<PAGE>
Section 6. Notwithstanding any other provision of this Article IX, the
Company shall not be liable to any Indemnitee for Awards or Expenses that have
been collected or are collectible by or on behalf of such Indemnitee from person
or entities other than the Company, including without limitation those amounts
collected or collectible under valid and enforceable director and officer
liability insurance policies, indemnification agreements, or other similar
arrangements. In each instance in which the Company makes any indemnification
payment to an Indemnitee, pursuant to this Article IX or otherwise, (a) the
Company shall be subrogated, to the extent of each such indemnification payment,
to all of such Indemnitee's right of recovery against persons or entities other
than the Company relating to the claims upon which the Awards or Expenses were
incurred, including without limitation all of such Indemnitee's rights of
setoff, rights of appeal, and rights under director and officer liability
insurance policies, indemnification agreements, and other similar arrangements;
and (b) such Indemnitee shall execute such documents and perform such acts as
the Company may reasonably request to effect the subrogation contemplated by
this Section 6.
Section 7. Notwithstanding any other provision of this Article IX, the
Company (pursuant to a resolution adopted by its stockholders, the Board of
Directors by a majority vote of a quorum of the disinterested directors, or a
committee of such disinterested directors):
Page 30
<PAGE>
(a) may pay or reimburse Expenses paid or incurred by an Indemnitee in
connection with his or her appearance as a witness or other participation
in any Proceeding at a time when he or she is not a named defendant or
respondent in such Proceeding; and
(b) may indemnify and advance Expenses to (1) any person who is or was an
employee or agent of the Company and (ii) any present or former director,
advisory director, officer, employee, or agent of the Company who,
regardless of whether then serving the Company as such, is or was serving
at the request of the Company as a director, officer, partner, venturer,
proprietor, trustee, employee, agent, or similar functionary of any other
foreign or domestic corporation or of any foreign or domestic partnership,
joint venture, sole proprietorship, trust, employee benefit plan, or other
enterprise to the same extent that the Company may indemnify and advance
Expenses to any Indemnitee under this Article IX; and
(c) may indemnify and advance Expenses to any present or former director,
officer, employee, agent, or other person (including without limitation any
present or former director, officer, employee, or agent of any predecessor
or subsidiary of the Company) to such further extent, consistent with
Delaware law (including without limitation the Delaware General Corporation
Law) as currently in effect or hereafter amended, as may be provided by the
certificate of incorpora-
Page 31
<PAGE>
tion, these bylaws, any general or specific action of the Board of
Directors or any committee thereof, or any contract or as required or
permitted by common law.
Section 8. The indemnification and advancement of Expenses required or
permitted by this Article IX shall not be deemed exclusive of any other rights
to which any Director, Officer, employee, agent, or other person seeking
indemnification or advancement of Expenses may be entitled under any present or
future bylaw, contract, vote of stockholders or disinterested directors, or
otherwise, whether as to action or inaction in the official capacity of any of
the foregoing persons or as to action or inaction in another capacity while
holding such office with, or so employed or engaged by, the Company.
Section 9. The Company may purchase and maintain insurance on behalf of
any person who is or was a director, officer, employee, or agent of the Company
or who is or was serving at the request of the Company as a director, officer,
partner, venturer, proprietor, trustee, employee, agent, or similar functionary
of any other foreign or domestic corporation or of any foreign or domestic
partnership, joint venture, sole proprietorship, trust, employee benefit plan,
or other enterprise, against any liability asserted against him or her and
incurred by him or her in any such capacity or arising out of his or her status
as such a person, whether or not the Company would have the power to indemnify
him or her against that liability under this Article IX.
Page 32
<PAGE>
Section 10. If any provision of this Article IX is held to be illegal,
invalid, or unenforceable under present or future law, such provision shall be
fully serveable, and this Article IX shall be construed and enforced as if such
illegal, invalid, or unenforceable provision had never comprised a part hereof.
The remaining provisions hereof shall remain in full force and effect and shall
not be affected by the illegal, invalid, or unenforceable provision or by its
severance herefrom. Furthermore, in lieu of such illegal, invalid, or
unenforceable provision, there shall be added automatically as a part of this
Article IX a legal, valid, and enforceable provision as similar in terms of such
illegal, invalid, or unenforceable provision as may be possible.
Page 33
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
I.C.H. CORPORATION
TO
MID-AMERICA BANK OF LOUISVILLE
AND TRUST COMPANY,
AS TRUSTEE
-----------------
INDENTURE
DATED AS OF NOVEMBER 12, 1993
-----------------
$403,141,000
11-1/4% SENIOR SUBORDINATED NOTES DUE 2003
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
CROSS-REFERENCE TABLE
TIA SECTION INDENTURE SECTION
- ----------- -----------------
Section 310(a)(1)................................................. 8.10
(a)(2)................................................. 8.10
(a)(3)................................................. N.A.
(a)(4)................................................. N.A.
(a)(5)................................................. 8.10
(b).................................................... 8.08; 8.10
(c).................................................... N.A.
Section 311(a).................................................... 8.11
(b).................................................... 8.11
(c).................................................... N.A.
Section 312(a).................................................... 2.05
(b).................................................... 11.03
(c).................................................... 11.03
Section 313(a).................................................... 8.06
(b)(1)................................................. N.A.
(b)(2)................................................. 8.06
(c).................................................... 8.06
(d).................................................... 8.06
Section 314(a).................................................... 5.10; 11.02
(b).................................................... N.A.
(c)(1)................................................. 11.04
(c)(2)................................................. 11.04
(c)(3)................................................. N.A.
(d).................................................... N.A.
(e).................................................... 11.05
(f).................................................... N.A.
Section 315(a).................................................... 8.01(b)
(b).................................................... 8.05; 11.02
(c).................................................... 8.01(a)
(d).................................................... 8.01(c)
(e).................................................... 7.11
Section 316(a)(last sentence)..................................... 2.09
(a)(1)(A).............................................. 7.05
(a)(1)(B).............................................. 7.04
(a)(2)................................................. N.A.
(b).................................................... 7.07
(c).................................................... 10.04(b)
Section 317(a)(1)................................................. 7.08
(a)(2)................................................. 7.09
(b).................................................... 2.04
Section 318(a).................................................... 11.01
____________
N.A. means Not Applicable
Note: This Cross-Reference Table shall not, for any purpose, be deemed
to be a part of the Indenture.
<PAGE> i
TABLE OF CONTENTS
ARTICLE 1
Definitions and Incorporation by Reference
Section 1.01. Definitions............................................ 1
Section 1.02. Incorporation by Reference of Trust Indenture Act...... 4
Section 1.03. Rules of Construction.................................. 4
ARTICLE 2
The Securities
Section 2.01. Form and Dating........................................ 5
Section 2.02. Execution and Authentication........................... 5
Section 2.03. Registrar and Paying Agent............................. 5
Section 2.04. Paying Agent to Hold Money in Trust.................... 6
Section 2.05. Securityholder Lists................................... 6
Section 2.06. Transfer and Exchange.................................. 6
Section 2.07. Replacement Securities................................. 6
Section 2.08. Outstanding Securities................................. 7
Section 2.09. Treasury Securities.................................... 7
Section 2.10. Temporary Securities................................... 7
Section 2.11. Cancellation........................................... 7
Section 2.12. Defaulted Interest..................................... 8
ARTICLE 3
Redemption
Section 3.01. Right of Redemption.................................... 8
Section 3.02. Selection of Securities to be Redeemed................. 8
Section 3.03. Notice of Redemption................................... 9
Section 3.04. Effect of Notice of Redemption......................... 9
Section 3.05. Deposit of Redemption Price............................ 9
Section 3.06. Securities Redeemed in Part............................ 10
Section 3.07. Sinking Fund........................................... 10
Section 3.08. Application of Sinking Fund Payments................... 11
Section 3.09. Redemption in Event of Default......................... 11
Section 3.10. Manner of Redeeming Securities......................... 11
Section 3.11. Cancellation of Redeemed Securities.................... 12
____________
Note: This Table of Contents shall not, for any purpose, be deemed to be a part
of the Indenture.
<PAGE>
ii
ARTICLE 4
Subordination
Section 4.01. Securities Subordinated to Senior Indebtedness......... 12
Section 4.02. No Payment on Securities in Certain Circumstances...... 12
Section 4.03. Securities Subordinated to Prior Payment of All Senior
Indebtedness on Dissolution, Liquidation or Reorganization
of Company............................................. 13
Section 4.04. Securityholders to be Subrogated to Rights of Holders of
Senior Indebtedness.................................... 14
Section 4.05. Obligations of Company Unconditional................... 15
Section 4.06. Trustee Entitled to Assume Payments Not Prohibited in
Absence of Notice...................................... 15
Section 4.07. Application by Trustee of Moneys Deposited with It..... 15
Section 4.08. Subordination Rights Not Impaired by Acts or Omissions of
Company or Holders of Senior Indebtedness.............. 16
Section 4.09. Securityholders Authorize Trustee to Effectuate
Subordination of Securities............................ 16
Section 4.10. Right of Trustee to Hold Senior Indebtedness........... 16
Section 4.11. Article 4 Not to Prevent Events of Default............. 16
Section 4.12. No Fiduciary Duty Created to Holders of Senior
Indebtedness........................................... 17
ARTICLE 5
Covenants
Section 5.01. Payment of Securities.................................. 17
Section 5.02. Maintenance of Office or Agency........................ 17
Section 5.03. Limitation upon Payment of Dividends and Acquisition of
Stock.................................................. 17
Section 5.04. Limitation on Incurrence of Certain Additional
Indebtedness........................................... 18
Section 5.05. Notes Senior to Convertible Indebtedness and Equal to
Certain Other Indebtedness............................. 19
Section 5.06. Corporate Existence.................................... 19
Section 5.07. Payment of Taxes and Other Claims...................... 19
Section 5.08. Maintenance of Properties.............................. 20
Section 5.09. Compliance Certificate................................. 20
Section 5.10. SEC Reports............................................ 20
Section 5.11. Waiver of Stay, Extension or Usury Laws................ 21
<PAGE>
iii
ARTICLE 6
Successor Corporation
Section 6.01. When Company May Merge, Etc............................ 21
ARTICLE 7
Default and Remedies
Section 7.01. Events of Default...................................... 22
Section 7.02. Acceleration........................................... 23
Section 7.03. Other Remedies......................................... 24
Section 7.04. Waiver of Past Defaults................................ 24
Section 7.05. Control by Majority.................................... 24
Section 7.06. Limitation on Suits.................................... 24
Section 7.07. Rights of Holders to Receive Payment................... 25
Section 7.08. Collection Suit by Trustee............................. 25
Section 7.09. Trustee May File Proofs of Claim....................... 25
Section 7.10. Priorities............................................. 25
Section 7.11. Undertaking for Costs.................................. 25
ARTICLE 8
Trustee
Section 8.01. Duties of Trustee...................................... 26
Section 8.02. Rights of Trustee...................................... 27
Section 8.03. Individual Rights of Trustee........................... 27
Section 8.04. Trustee's Disclaimer................................... 27
Section 8.05. Notice of Defaults..................................... 27
Section 8.06. Reports by Trustee to Holders.......................... 27
Section 8.07. Compensation and Indemnity............................. 28
Section 8.08. Replacement of Trustee................................. 29
Section 8.09. Successor Trustee by Merger, Etc....................... 30
Section 8.10. Eligibility; Disqualification.......................... 30
Section 8.11. Preferential Collection of Claims Against Company...... 30
ARTICLE 9
Discharge of Indenture
Section 9.01. Termination of Company's Obligations................... 30
Section 9.02. Application of Trust Money............................. 31
Section 9.03. Repayment to Company................................... 31
<PAGE>
iv
ARTICLE 10
Amendments, Supplements and Waivers
Section 10.01.Without Consent of Holders............................. 31
Section 10.02.With Consent of Holders................................ 32
Section 10.03.Compliance with Trust Indenture Act.................... 33
Section 10.04.Revocation and Effect of Consents...................... 33
Section 10.05.Notation on or Exchange of Securities.................. 33
Section 10.06.Trustee to Sign Amendments, Etc........................ 33
ARTICLE 11
Miscellaneous
Section 11.01.Trust Indenture Act Controls........................... 34
Section 11.02.Notices................................................ 34
Section 11.03.Communications by Holders with Other Holders........... 35
Section 11.04.Certificate and Opinion as to Conditions Precedent..... 35
Section 11.05.Statements Required in Certificate or Opinion.......... 35
Section 11.06.Rules by Trustee, Paying Agent, Registrar.............. 35
Section 11.07.Legal Holidays......................................... 35
Section 11.08.Governing Law.......................................... 36
Section 11.09.No Adverse Interpretation of Other Agreements.......... 36
Section 11.10.No Recourse Against Others............................. 36
Section 11.11.Successors............................................. 36
Section 11.12.Duplicate Originals.................................... 36
Section 11.13.Separability........................................... 36
SIGNATURES........................................................... 37
Acknowledgements..................................................... 38
Exhibit A - Form of Note.............................................A-1
Exhibit B - Meetings of Securityholders..............................B-1
<PAGE>
INDENTURE dated as of November 12, 1993, between I.C.H. CORPORATION, a
Delaware corporation ("Company"), and MID-AMERICA BANK OF LOUISVILLE AND TRUST
COMPANY, a bank chartered under the laws of the State of Kentucky, as Trustee
("Trustee").
Both parties agree as follows for the benefit of the other and for the
equal and ratable benefit of the Holders of the Company's 11 1/4% Senior
Subordinated Notes due 2003.
ARTICLE 1
Definitions and Incorporation by Reference
Section 1.01. DEFINITIONS.
"Affiliate" of any specified person means any other person directly or
indirectly controlling or controlled by or under common control with such
specified person. No person shall be deemed an Affiliate of another person
solely by virtue of furnishing management, financial or similar services to
such other person.
"Agent" means any Registrar, Paying Agent or co-Registrar.
"Bankruptcy Law" shall have the meaning provided in Section 7.01.
"Board of Directors" means the Board of Directors of the Company or any
committee of the Board of Directors of the Company lawfully empowered to take
the action in connection with which such term is used.
"Company" means the party named as such in this Indenture until a
successor replaces it in accordance with Article 6 of this Indenture and
thereafter means the successor.
"Consolidated Net Earnings" for any period shall mean the amount of
consolidated net income of the Company and its Subsidiaries, all determined in
accordance with generally accepted accounting principles. Net income of a
Subsidiary, or of any business or assets acquired by the Company or any
Subsidiary, shall not be included in Consolidated Net Earnings for any period
prior to (i) the end of the fiscal year next preceding the date on which such
Subsidiary becomes a Subsidiary or the date of such acquisition, as the case
may be, if the acquisition of such Subsidiary, business or assets is accounted
for as a pooling of interests or as a transaction under common control for
financial reporting purposes, or (ii) the date on which such Subsidiary
becomes a Subsidiary or the date of such acquisition, as the case may be, if
the acquisition of such Subsidiary, business or assets is accounted for as a
purchase for financial reporting purposes.
"Consolidated Subsidiary" means a Subsidiary which for financial
reporting purposes is accounted for by the Company as a consolidated
subsidiary.
"Convertible Indebtedness" shall mean any debenture or other evidence of
indebtedness which is issued by the Company and which is convertible at any
time by the terms of the instruments defining the same into shares of capital
stock of the Company.
<PAGE>
2
"Custodian" shall have the meaning provided in Section 7.01.
"Default" means any event which is, or after notice or passage of time
would be, an Event of Default.
"Event of Default" shall have the meaning provided in Section 7.01.
"Exchange Amount" means the aggregate principal amount of Securities
issued from time to time pursuant to the Exchange Offer.
"Exchange Offer" means the transactions contemplated by the Exchange
Offer of the Company dated October 4, 1993, as the same may be amended and/or
extended from time to time, pursuant to which, INTER ALIA, the Company
offered and/or is offering to issue the Securities in exchange for certain of
its outstanding debt securities.
"Holder" or "Securityholder" means the person in whose name a Security
is registered on the Registrar's books.
"Indebtedness" means (1) any liability of any person (a) for borrowed
money, (b) evidenced by a note, debenture or similar instrument (including a
purchase money obligation) given in connection with the acquisition of any
property or assets, including securities, or (c) for the payment of money
relating to the lease of any property to the extent capitalized on the
consolidated balance sheet of the person in accordance with generally accepted
accounting principles; (2) any liability of others described in the preceding
clause (1) which the person has guaranteed or which is otherwise its legal
liability or which is secured by a lien on property of such person; and (3)
any amendment, renewal, extension or refunding of any such liability.
"Indenture" means this Indenture as amended or supplemented from time to
time.
"Legal Holiday" shall have the meaning provided in Section 11.07.
"Notes" shall mean the 11 1/4% Senior Subordinated Notes due 2003 of the
Company issued under this Indenture.
"Officer" means the Chairman of the Board, the President, any Vice
President, the Chief Financial Officer, the Secretary or the Controller of the
Company.
"Officers' Certificate" means a certificate signed by two Officers or by
an Officer and an Assistant Treasurer or Assistant Secretary of the Company.
See Sections 11.04 and 11.05.
"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the Trustee. The counsel may be an employee of or counsel to the
Company or the Trustee. See Sections 11.04 and 11.05.
"Parent" of a specified person is an Affiliate controlling such person
directly, or indirectly through one or more intermediaries.
"Paying Agent" shall have the meaning provided in Section 2.03, except
that for the purposes of Articles 3 and 9 the Paying Agent shall not be the
Company or a Subsidiary.
<PAGE>
3
"person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or other agency or political subdivision thereof.
"principal" of a debt security means the principal of the security plus,
when appropriate, the premium, if any, on the security.
"redemption date," when used with respect to any Security to be
redeemed, means the date fixed for such redemption pursuant to this Indenture.
"redemption price," when used with respect to any Security to be
redeemed, means the price at which it is to be redeemed pursuant to this
Indenture.
"Registrar" shall have the meaning provided in Section 2.03.
"SEC" means the Securities and Exchange Commission.
"Secured Indebtedness" shall mean all Indebtedness secured by any
mortgage, lien, pledge, charge or encumbrance upon property owned, leased or
held by the Company or any Subsidiary, and all Indebtedness secured as
aforesaid even though the Company or a Subsidiary has not assumed or become
liable for the payment thereof; and all Indebtedness of the Company or a
Subsidiary created or arising under any conditional sale or other title
retention agreement with respect to property acquired by the Company or a
Subsidiary, and all Indebtedness created or arising as aforesaid even though
the rights and remedies of the seller or lender under such agreement in the
event of default are limited to repossession or sale of such property.
"Securities" means the Notes, and/or any of them, as amended or
supplemented from time to time, that are issued under this Indenture.
"Senior Indebtedness" shall mean (i) the principal of, premium, if any,
and unpaid interest on any indebtedness for money borrowed from or guaranteed
to banks, trust companies, insurance companies and other financial
institutions and charitable trusts, pension trusts and other investing
organizations ("Institutional Lenders"), now existing or hereafter incurred,
(ii) all obligations, if any, incurred under leases which are capitalized
under generally accepted accounting principles, (iii) Secured Indebtedness (to
the extent provided in Section 5.04) and (iv) all deferrals, renewals,
extensions and refundings of any such indebtedness or obligations.
Notwithstanding anything that may appear to be the contrary in the foregoing,
Senior Indebtedness shall not include (a) Indebtedness of the Company to a
Subsidiary or Affiliate of the Company or of a Subsidiary to a Subsidiary or
Affiliate of the Company for money borrowed or advances from a Subsidiary or
Affiliate of the Company to the Company or a Subsidiary or Affiliate of the
Company or Indebtedness of the Company to a Parent of the Company or (b)
Indebtedness of the Company which by its terms is subordinate to, or pari
passu with, the Securities in right of payment.
"Subsidiary" means (i) a corporation a majority of whose capital stock
with voting power, under ordinary circumstances, to elect directors is at the
time, directly or indirectly, owned by the Company, by the Company and a
Subsidiary of the Company or by a Subsidiary of the Company or (ii) any other
person (other than a corporation) in which the Company, a Subsidiary
<PAGE>
4
of the Company or the Company and a Subsidiary of the Company, directly or
indirectly, at the date of determination thereof has greater than a 50%
ownership interest.
"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code Section
77aaa-77bbbb) as in effect on the date of this Indenture, except as provided
in Section 10.03 hereof.
"Trustee" means the party named as such in this Indenture until a
successor replaces it in accordance with the provisions of this Indenture and
thereafter means the successor.
"Trust Officer" means the Chairman of the Board, the President or any
other officer or assistant officer of the Trustee assigned by the Trustee to
administer its corporate trust matters.
"U.S. Government Obligations" shall have the meaning provided in Section
9.01.
Section 1.02. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.
Whenever this Indenture refers to a provision of the TIA, the provision
is incorporated by reference in and made a part of this Indenture. The
following TIA terms used in this Indenture have the following meanings:
"Commission" means the SEC.
"indenture securities" means the Securities.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on the indenture securities means the Company (or any other
obligor on the Securities).
All other TIA terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rule and not
otherwise defined herein have the meanings assigned to them therein.
Section 1.03. RULES OF CONSTRUCTION.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning assigned
to it in accordance with generally accepted accounting principles;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and words in the plural
include the singular; and
(5) provisions apply to successive events and transactions.
<PAGE>
5
ARTICLE 2
The Securities
Section 2.01. FORM AND DATING.
The Securities, and the Trustee's certificate of authentication, shall
be substantially in the form of Exhibit A. The Securities may have notations,
legends or endorsements required by law, stock exchange rule or usage. Each
Security shall be dated the date of its authentication.
The Securities shall be issuable only in registered form without coupons
and only in denominations of $1,000 and any integral multiple thereof.
The terms and provisions contained in the Securities, annexed hereto as
Exhibit A, shall constitute, and are hereby expressly made, a part of this
Indenture.
Section 2.02. EXECUTION AND AUTHENTICATION.
Two Officers shall sign the Securities for the Company by facsimile
signature. The Company's seal shall be reproduced on the Securities.
If an Officer whose signature is on a Security no longer holds that
office at the time the Trustee authenticates the Security, the Security shall
be valid nevertheless.
A Security shall not be valid until an authorized signatory of the
Trustee manually signs the certificate of authentication on the Security. The
signature shall be conclusive evidence that the Security has been
authenticated under this Indenture.
The Trustee shall authenticate Securities for original issue in the
aggregate principal amount of up to $403,141,000 upon a written order of the
Company signed by two Officers or by an Officer and an Assistant Treasurer or
Assistant Secretary of the Company. The order shall specify the amounts of
Securities to be authenticated and the date on which the original issue of
Securities is to be authenticated. The aggregate principal amount of
Securities outstanding at any time may not exceed such amounts except as
provided in Section 2.07.
The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate Securities. An authenticating agent may authenticate
Securities whenever the Trustee may do so. Each reference in this Indenture
to authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as an Agent to deal with the Company
or any Affiliate of the Company.
Section 2.03. REGISTRAR AND PAYING AGENT.
The Company shall maintain an office or agency where Securities may be
presented for registration of transfer or for exchange ("Registrar") and an
office or agency where Securities may be presented for payment ("Paying
Agent"), which offices or agencies may be one and the same. The Company may
have one or more co-Registrars and one or more additional paying agents. All
payments of principal of and interest on the Securities shall be registered by
the Paying Agent. The term "Paying Agent" includes any additional paying
agent.
<PAGE>
6
The Company shall enter into an appropriate agency agreement with any
Agent not a party to this Indenture. The agreement shall implement the
provisions of this Indenture that relate to such Agent. The Company shall
notify the Trustee of the name and address of any such Agent. If the Company
fails to maintain a Registrar or Paying Agent, the Trustee shall act as such.
The Company initially appoints the Trustee as Registrar and Paying
Agent.
Section 2.04. PAYING AGENT TO HOLD MONEY IN TRUST.
Subject to Section 4.07, the Company will require each Paying Agent
other than the Trustee to agree in writing that the Paying Agent shall hold in
trust for the benefit of Securityholders or the Trustee all money held by the
Paying Agent for the payment of principal of or interest on the Securities
(whether such money has been paid to it by the Company or any other obligor on
the Securities), and shall notify the Trustee of any Default by the Company in
making any such payment. While any such Default continues, the Trustee may
require a Paying Agent to pay all money held by it to the Trustee. If the
Company or a Subsidiary acts as Paying Agent, it shall segregate the money and
hold it as a separate trust fund. The Company at any time may require a Paying
Agent to pay all money held by it to the Trustee and account for any funds
disbursed. Upon doing so the Paying Agent shall have no further liability for
the money.
Section 2.05. SECURITYHOLDER LISTS.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Securityholders. If the Trustee is not the Registrar, the Company shall
furnish to the Trustee on or before each semi-annual interest payment date and
at such other times as the Trustee may request in writing a list in such form
and as of such date as the Trustee may reasonably require of the names and
addresses of Securityholders.
Section 2.06. TRANSFER AND EXCHANGE.
When Securities are presented to the Registrar or a co-Registrar with a
request to register, transfer or exchange them for an equal principal amount
of Securities of like tenor in authorized denominations, the Registrar shall
register the transfer or make the exchange as requested if its requirements
for such transactions are met. To permit registrations of transfer and
exchanges, the Trustee shall authenticate Securities at the Registrar's
request upon satisfaction of the Trustee that such transfer or exchange will
not violate any terms of this Indenture. The Company may require payment of
any tax or governmental charges attendant to a sale, transfer or exchange and
may charge a reasonable fee for any transfer or exchange, but not for any
exchange pursuant to Section 2.10, 3.06 or 10.05.
Section 2.07. REPLACEMENT SECURITIES.
If the Holder of a Security claims that the Security has been lost,
mutilated, destroyed or wrongfully taken, the Company shall issue and the
Trustee shall authenticate a replacement Security of like tenor if the
Trustee's requirements are met. If required by the Trustee or the Company, an
indemnity bond must be furnished in an amount which must be sufficient in the
judgment of both to protect the Company, the Trustee or any Agent from any
loss which any
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7
of them may suffer if a Security is replaced. The Company may charge such
Holder for its expenses in replacing a Security.
Every replacement Security is an additional obligation of the Company.
Section 2.08. OUTSTANDING SECURITIES.
Securities outstanding at any time are all Securities which have been
authenticated by the Trustee except for those cancelled by it, those delivered
to it for cancellation and those described in this Section as not outstanding.
A Security does not cease to be outstanding because the Company or one of its
Affiliates holds the Security.
If a Security is replaced pursuant to Section 2.07, it ceases to be
outstanding unless the Trustee receives proof satisfactory to it that the
replaced Security is held by a bona fide purchaser.
If the Paying Agent holds on a redemption date or maturity date readily
available funds sufficient to pay Securities payable on that date, then on and
after that date such Securities cease to be outstanding and interest on them
ceases to accrue.
Section 2.09. TREASURY SECURITIES.
In determining whether the Holders of the required principal amount of
Securities have concurred in any direction, waiver or consent, Securities
owned by the Company or an Affiliate of the Company shall be disregarded and
deemed not to be outstanding, except that for the purposes of determining
whether the Trustee shall be protected in relying on any such direction,
waiver or consent, only Securities which the Trustee knows are so owned shall
be so disregarded and deemed not to be outstanding.
Section 2.10. TEMPORARY SECURITIES.
Until definitive Securities are ready for delivery, the Company may
prepare and the Trustee shall authenticate temporary Securities. Temporary
Securities shall be substantially in the form of definitive Securities but
have variations that the Company considers appropriate for temporary
Securities. Without unreasonable delay, the Company shall prepare and the
Trustee by a duly authorized signatory shall authenticate definitive
Securities in exchange for temporary Securities.
Section 2.11. CANCELLATION.
The Company at any time may deliver Securities to the Trustee for
cancellation. The Registrar and the Paying Agent shall forward to the Trustee
any Securities surrendered to them for transfer, exchange or payment. The
Trustee and no one else shall cancel and destroy all Securities surrendered
for transfer, exchange, payment or cancellation and shall dispose of cancelled
Securities as the Company directs. The Company may not issue new Securities
to replace Securities it has paid or delivered to the Trustee for
cancellation.
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8
Section 2.12. DEFAULTED INTEREST.
If the Company defaults in a payment of interest on the Securities, it
shall pay the defaulted interest in any lawful manner. It may pay the
defaulted interest, plus any interest payable on the defaulted interest, to
the persons who are Securityholders on a subsequent special record date. The
Company shall establish the special record date and the payment date if and
when funds for the payment of such interest have been received by the Paying
Agent from the Company. At least 15 days before the record date, the Company
shall mail to each Securityholder and the Trustee a notice that states the
record date, the payment date and the amount of defaulted interest to be paid.
ARTICLE 3
Redemption
Section 3.01. RIGHT OF REDEMPTION.
The Securities shall not be redeemable before December l, 1996. On or
after December 1, 1996, otherwise than through the operation of the sinking
fund provided for in Section 3.07, the Securities, subject to the provisions
of Section 4.02, are redeemable, at any time as a whole or from time to time
in part, at the option of the Company exercisable by resolution of the Board
of Directors, at the redemption prices specified in the form of Security set
forth as Exhibit A hereto, plus in each case accrued interest to the
redemption date.
No later than 45 days prior to the redemption date (unless a shorter
notice is satisfactory to the Trustee), the Company shall notify the Trustee
in writing of the redemption date and the principal amount of Securities to be
redeemed.
Section 3.02. SELECTION OF SECURITIES TO BE REDEEMED.
If less than all of the Securities are to be redeemed, the Trustee shall
select, subject to the provisions of Section 3.07, the Securities to be
redeemed either pro rata or by lot or any other method that complies with the
requirements of the principal national securities exchange, if any, on which
the Securities being redeemed are then listed. The Trustee shall make the
selection from the Securities outstanding and not previously called for
redemption. Securities in denominations of $1,000 may only be redeemed in
whole. The Trustee may select for redemption portions (equal to $1,000 or any
integral multiple thereof) of the principal of Securities that have
denominations larger than $1,000. Provisions of this Indenture that apply to
Securities called for redemption also apply to portions of Securities called
for redemption.
The Registrar shall not be required to transfer or exchange any Security
for a period 15 days before a selection of Securities to be redeemed or to
transfer or exchange any Securities selected for redemption.
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9
Section 3.03. NOTICE OF REDEMPTION.
At least 15 days but not more than 60 days before a redemption date, the
Company shall mail a notice of redemption by first class mail to each Holder
whose Securities are to be redeemed.
The notice shall identify the Securities (including CUSIP number) to be
redeemed and shall state:
(1) the redemption date;
(2) the redemption price;
(3) the name and address of the Paying Agent;
(4) that Securities called for redemption must be surrendered to the
Paying Agent to collect the redemption price;
(5) that, unless the Company defaults in making the redemption
payment, interest on Securities called for redemption ceases to accrue on and
after the redemption date and the only remaining right of the Holders of the
Securities is to receive payment of the redemption price, plus accrued
interest to the redemption date, upon surrender to the Trustee of the
Securities; and
(6) if any Security is being redeemed in part, the portion of the
principal amount of such Security to be redeemed and that, after the
redemption date, upon surrender of such Security, a new Security or Securities
in principal amount equal to the unredeemed portion thereof will be issued.
Neither the failure of the Company to cause proper redemption notice to
be given, nor any defect in such notice, shall affect the legality or validity
of proceedings for such redemption.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at the Company's expense.
Section 3.04. EFFECT OF NOTICE OF REDEMPTION.
Once notice of redemption is mailed, Securities called for redemption
become due and payable on the redemption date and at the redemption price.
Upon surrender to the Paying Agent, such Securities shall be paid at the
redemption price, plus accrued interest to the redemption date.
Section 3.05. DEPOSIT OF REDEMPTION PRICE.
On or before the redemption date, the Company shall deposit with the
Paying Agent readily available funds sufficient to pay the redemption price of
and accrued interest on all Securities to be redeemed on that date or may
credit Securities which it has not previously delivered to the Trustee for
cancellation against the principal amount of Securities to be redeemed by so
notifying the Trustee of its intention to do so in its notice to the Trustee
in
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10
accordance with Section 3.01. The Company shall deliver such Securities, duly
endorsed, to the Trustee on or before the redemption date.
Section 3.06. SECURITIES REDEEMED IN PART.
Upon surrender of a Security that is redeemed in part, the Trustee shall
authenticate for the Holder a new Security of like tenor equal in principal
amount to the unredeemed portion of the Security surrendered.
Section 3.07. SINKING FUND.
(a) As and for a sinking fund for the retirement of Securities, the
Company covenants that on or before each of November 30, 2001 and November 30,
2002, it will pay to the Trustee a sum in readily available funds sufficient
to retire by redemption Securities in an aggregate principal amount equal to
twenty-five percent (25%) of the Exchange Amount (in each case not to exceed
$100,785,250) on the next succeeding December 1, at a redemption price which
shall be 100% of the principal amount thereof, plus accrued interest to the
date of redemption; provided, however, that in any such year in which November
30 is not a business day, such payment shall be made to the Trustee on the
last business day preceding such November 30; and provided, further, that such
principal amount of Securities may, at the option of the Company, be reduced
by an amount not exceeding the sum of the following:
(i) the principal amount of Securities theretofore issued
and reacquired (otherwise than through redemption pursuant to this
Article 3) by the Company and delivered to the Trustee for
cancellation and not theretofore made the basis for the reduction
of a sinking fund payment; and
(ii) the principal amount of Securities redeemed and paid
pursuant to the provisions of this Article 3 (otherwise than
through the operation of the sinking fund), or which shall have
been duly called for redemption (otherwise than through the
operation of the sinking fund) and the redemption price of which
shall have been deposited in trust for that purpose, and which
have not theretofore been made the basis for the reduction of a
sinking fund payment.
On or before each of October 1, 2001 and October 1, 2002, the Company shall
deliver to the Trustee an Officers' Certificate stating whether it elects to
reduce the amount to be paid to the Trustee in cash on the next succeeding
November 30, and, if it elects to make such a reduction, setting forth the
amount of the reduction and the basis or bases provided above for such
reduction, together with any Securities theretofore issued and reacquired
(otherwise than through redemption pursuant to this Article 3) by the Company
and not theretofore delivered to the Trustee for cancellation, which are to be
made the basis for such reduction of a sinking fund payment.
(b) All cash paid to the Trustee pursuant to the provisions of this
Section 3.07 shall be applied in accordance with the provisions of this
Article 3.
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11
Section 3.08. APPLICATION OF SINKING FUND PAYMENTS.
(a) ln each year commencing with 2001, as soon as practicable after
October 1, the Trustee shall take the action herein specified to call for
redemption on the next succeeding December 1, at a redemption price which
shall be 100% of the principal amount thereof plus accrued interest to the
redemption date, an amount of Securities sufficient to exhaust, as nearly as
may be, the sums then held by it in the sinking fund or required to be paid to
it for the sinking fund pursuant to Section 3.07(a) prior to such December 1.
(b) Subject to the provisions of Section 9.03, any unused balance of
moneys remaining in the hands of the Trustee on the October 1 preceding the
sinking fund payment date in any year shall be added to any sinking fund
payment to be made in cash in that year, and together with such payment, if
any, shall be applied to the redemption of Securities in accordance with the
provisions of this Section 3.08.
Section 3.09. REDEMPTION IN EVENT OF DEFAULT.
The Trustee shall not redeem less than all of the Securities or mail any
notice of redemption of less than all of the Securities during any period in
which the Trustee is charged with knowledge of the continuance of either a
Default in payment of interest on the Securities or of any Event of Default
(other than an Event of Default occurring as a consequence of this Section
3.09), except that if the notice of redemption of any Securities shall
theretofore have been mailed in accordance with the provisions hereof, and
redemption shall not be prohibited by the provisions of Article 4 hereof, the
Trustee shall redeem such Securities if cash sufficient for that purpose shall
be paid to the Trustee for that purpose in accordance with the terms of this
Article 3. Except as aforesaid, any moneys held for redemption in the sinking
fund or otherwise during any period in which the Trustee is prevented by this
Section from redeeming Securities shall, during such period, be held as
security for the payment of all the Securities; provided, however, that in
case such Event of Default or Default shall have been cured or waived as
provided herein, such moneys shall thereafter be applied on the next date on
which such moneys may be applied pursuant to the provisions of this Section
3.09 or, in the case of redemption of Securities by operation of the sinking
fund, on the next December 1 on which such moneys may be applied pursuant to
the provisions of this Section 3.09.
The Trustee shall not be charged with knowledge of the continuance
either of Default in payment of interest on the Securities or of any Event of
Default unless either (a) a responsible officer of the Trustee assigned to its
corporate trust department shall, as such officer, have actual knowledge
thereof or (b) written notice of such continuance shall have been received by
the Trustee from the Company or the Holders of at least 5% in principal amount
of the Securities at the time outstanding.
Section 3.10. MANNER OF REDEEMING SECURITIES.
The Securities to be redeemed from time to time, as in Section 3.08
provided, shall be selected by the Trustee for redemption in the manner
provided in Section 3.02 and notice thereof shall be given by the Trustee to
the Company, and the Company hereby authorizes the Trustee, in the name of and
at the expense of the Company, to give notice on behalf of the Company of the
call of such Securities, all in the manner and with the effect in this Article
3 specified except that, in addition to the matters required to be included in
such notice by Section 3.03, such
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12
notice shall also state that the Securities therein designated for redemption
are to be redeemed through operation of the sinking fund. Subject to the
provisions of Section 3.09 and to the receipt by the Trustee of the cash and
the accrued interest to be paid to the Trustee pursuant to Sections 3.07 and
3.08, the Trustee shall cause such Securities to be so redeemed and paid in
accordance with such notice in the manner and with the effect provided in
Sections 3.03 and 3.04.
Section 3.11. CANCELLATION OF REDEEMED SECURITIES.
All Securities surrendered to the Trustee, pursuant to the provisions of
this Article 3, shall be forthwith cancelled by it, and, unless the Company in
writing requests otherwise, may be destroyed or otherwise disposed of by the
Trustee, which shall deliver its certificate thereof to the Company.
ARTICLE 4
Subordination
Section 4.01. SECURITIES SUBORDINATED TO SENIOR INDEBTEDNESS.
The Company, for itself and its successors, and each Holder, by his
acceptance of Securities, agree that the payment of the principal of and
premium, if any, and interest on the Securities is subordinated, to the extent
and in the manner provided in this Article 4, to the prior payment in full of
all Senior Indebtedness.
This Article 4 shall constitute a continuing offer to all persons who,
in reliance upon such provisions, become holders of, or continue to hold,
Senior Indebtedness, and such provisions are made for the benefit of the
holders of Senior Indebtedness, and such holders are made obligees hereunder
and they and/or each of them may enforce such provisions.
Section 4.02. NO PAYMENT ON SECURITIES IN CERTAIN CIRCUMSTANCES.
(a) Upon the maturity of any Senior Indebtedness by lapse of time,
acceleration or otherwise, all principal thereof and premium, if any, and
interest thereon shall first be paid in full, or such payment duly provided
for in cash or in a manner satisfactory to the holders of such Senior
Indebtedness, before any payment is made on the account of the principal of or
premium, if any, or interest on the Securities or to acquire any of the
Securities or on account of the redemption provisions of the Securities.
(b) Upon the happening of an event of default with respect to any
Senior Indebtedness, as such event of default is defined therein or in the
instrument under which it is outstanding, which event of default results in
the acceleration of the maturity thereof, then unless and until such event of
default shall have been cured or waived or shall have ceased to exist and such
acceleration shall be declared to be no longer in full force and effect, no
payment shall be made by the Company with respect to the principal of or
premium, if any, or interest on the Securities or to acquire any of the
Securities or on account of the redemption provisions of the Securities.
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13
(c) In the event that notwithstanding the provisions of this Section
4.02 the Company shall make any payment to the Trustee on account of the
principal of or premium, if any, or interest on the Securities, or on account
of the redemption provisions, after the maturity of Senior Indebtedness, as
described in Section 4.02(a) above, or the happening of an event of default
with respect to Senior Indebtedness of the type specified in Section 4.02(b)
above, then, unless and until such Senior Indebtedness shall have been paid in
full, or provision made therefor, or such event of default shall have been
cured or waived or shall have ceased to exist and any acceleration of the
maturity thereof shall be declared to no longer be in full force and effect,
such payment (subject to the provisions of Sections 4.06 and 4.07) shall be
held by the Trustee after written notice from the Company in accordance with
the provisions of this Section 4.02(c) shall have been received by the
Trustee, in trust for the benefit of, and shall be forthwith paid over and
delivered to, the holders of Senior Indebtedness (pro rata as to each of such
holders on the basis of the respective amounts of Senior Indebtedness held by
them) or their representative or the trustee under the indenture or other
agreement (if any) pursuant to which Senior Indebtedness may have been issued,
as their respective interests may appear, for application to the payment of
all Senior Indebtedness remaining unpaid to the extent necessary to pay all
Senior Indebtedness in full in accordance with its terms, after giving effect
to any concurrent payment or distribution to or for the holders of Senior
Indebtedness. The Company shall give prompt written notice to the Trustee of
any event of default under any Senior Indebtedness or under any agreement
pursuant to which Senior Indebtedness may have been issued, and in the event
of any such event of default, shall provide to the Trustee in the form of an
Officers' Certificate the names and addresses of the holders of such Senior
Indebtedness, the amounts of Senior Indebtedness outstanding to each such
holder of Senior Indebtedness, and any necessary information to calculate the
daily increase in indebtedness to such holders of Senior Indebtedness. The
Trustee shall be entitled to rely conclusively on such Officers' Certificate
without independent verification.
Section 4.03. SECURITIES SUBORDINATED TO PRIOR PAYMENT OF ALL SENIOR
INDEBTEDNESS ON DISSOLUTION, LIQUIDATION OR REORGANIZATION OF COMPANY.
Upon any distribution of assets of the Company upon any dissolution,
winding up, liquidation or reorganization of the Company (whether in
bankruptcy, insolvency or receivership proceedings or upon a general
assignment for the benefit of creditors or any other marshalling of the assets
and liabilities of the Company or otherwise):
(a) the holders of all Senior Indebtedness shall first be
entitled to receive payment in full of the principal of and premium, if
any, and interest due thereon or provision satisfactory to the holders
of Senior Indebtedness shall have been provided therefor, before the
Holders are entitled to receive any payment on account of the principal
of or premium, if any, or interest on the Securities; and
(b) any payment or distribution of assets of the Company of any
kind or character, whether in cash, property or securities (other than
securities of the Company as reorganized or readjusted or securities of
the Company or any other corporation provided for by a plan of
reorganization or readjustment the payment of which is subordinate, at
least to the extent provided in this Article 4 with respect to the
Securities, to the payment in full without diminution or modification by
such plan of all Senior Indebtedness) to which the Holders or the
Trustee on behalf of the Holders would be entitled except for provisions
of this Article 4 shall be paid by the liquidating trustee or
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14
agent or other person making such a payment or distribution directly to
the holders of Senior Indebtedness or their representative, or to the
trustee under any indenture under which Senior Indebtedness may have
been issued, to the extent necessary to make payment in full of all
Senior Indebtedness remaining unpaid, after giving effect to any
concurrent payment or distribution or provision therefor to the holders
of such Senior Indebtedness; and
(c) in the event that, notwithstanding the foregoing, any
payment or distribution of assets of the Company of any kind or
character whether in cash, property or securities (other than securities
of the Company as reorganized or readjusted or securities of the Company
or any other corporation provided for by a plan of reorganization or
readjustment the payment of which is subordinate, at least to the extent
provided in this Article 4 with respect to the Securities, to the
payment in full without diminution or modification by such plan of all
Senior Indebtedness) shall be received by the Trustee or the Holders on
account of principal or interest on the Securities before all Senior
Indebtedness is paid in full, or effective provision made for its
payment, such payment or distribution (subject to the provisions of
Sections 4.06 and 4.07) shall be received and held in trust for and
shall be paid over to the holders of the Senior Indebtedness remaining
unpaid or unprovided for or their representative, or to the trustee
under any indenture or agreement (if any) under which Senior
Indebtedness may have been issued, for application to the payment of
such Senior Indebtedness until all such Senior Indebtedness shall have
been paid in full, after giving effect to any concurrent payment or
distribution or provision therefor to the holders of such Senior
Indebtedness.
The Company shall give prompt written notice to the Trustee of any
dissolution, winding up, liquidation or reorganization of the Company and, in
the event of any such dissolution, winding up, liquidation or reorganization,
shall provide to the Trustee in the form of an Officers' Certificate the names
and addresses of the holders of Senior Indebtedness, the amounts of Senior
Indebtedness outstanding to each such holder of Senior Indebtedness, and any
information necessary to calculate the daily increase in indebtedness to such
holders of Senior Indebtedness. The Trustee shall be entitled to rely
conclusively on such Officers' Certificate without independent verification.
Section 4.04. SECURITYHOLDERS TO BE SUBROGATED TO RIGHTS OF HOLDERS OF
SENIOR INDEBTEDNESS.
Subject to payment in full of all Senior Indebtedness, the Holders shall
be subrogated equally and ratably to the rights of the holders of Senior
Indebtedness to receive payments or distributions of assets of the Company
applicable to the Senior Indebtedness until all amounts owing on the
Securities shall be paid in full, and for the purpose of such subrogation, no
such payments or distributions to the holders of Senior Indebtedness by or on
behalf of the Company or by or on behalf of the Holders of Securities by
virtue of this Article 4, which otherwise would have been made to the Holders
shall, as between the Company and the Holders, be deemed to be payment by the
Company to or on account of the Senior Indebtedness, it being understood that
the provisions of this Article 4 are and are intended solely for the purpose
of defining the relative rights of Holders, on the one hand, and the holders
of Senior Indebtedness, on the other hand.
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15
Section 4.05. OBLIGATIONS OF COMPANY UNCONDITIONAL.
Nothing contained in this Article 4 or elsewhere in this Indenture or in
any Security is intended to or shall impair, as between the Company and the
Holders, the obligation of the Company, which is absolute and unconditional,
to pay to the Holders the principal and interest on the Securities as and when
the same shall become due and payable in accordance with their terms, or is
intended to or shall affect the relative rights of the Holders and creditors
of the Company other than the holders of Senior Indebtedness, nor shall
anything herein or therein prevent the Trustee or any Holder from exercising
all remedies otherwise permitted by applicable law upon Default under this
Indenture, subject to the rights, if any, under this Article 4 of the holders
of Senior Indebtedness in respect of cash, property or securities of the
Company received upon the exercise of any such remedy. Upon any distribution
of assets of the Company referred to in this Article 4, the Trustee, subject
to the provisions of Sections 8.01 and 8.02, and the Holders shall be entitled
to rely conclusively upon any order or decree made by any court of competent
jurisdiction in which such dissolution, winding up, liquidation or
reorganization proceedings are pending, or a certificate of the liquidating
trustee or agent or other person making any distribution to the Trustee or to
the Holders for the purpose of ascertaining the persons entitled to
participate in such distribution, the holders of Senior Indebtedness and other
Indebtedness of the Company, the amount thereof or payable thereon, the amount
or amounts paid or distributed thereon and all other facts pertinent thereto
or to this Article 4.
Section 4.06. TRUSTEE ENTITLED TO ASSUME PAYMENTS NOT PROHIBITED IN
ABSENCE OF NOTICE.
The Trustee shall not at any time be charged with knowledge of the
existence of any facts which would prohibit the making of any payment to or by
the Trustee or the taking of any other action under this Article 4 by the
Trustee unless and until the Trustee shall have received written notice
thereof from the Company or from one or more holders of Senior Indebtedness or
from any trustee or representative therefor and, prior to the receipt of any
such written notice, the Trustee, subject to the provisions of Sections 8.01
and 8.02, shall be entitled in all respects conclusively to assume that no
such facts exist.
Section 4.07. APPLICATION BY TRUSTEE OF MONEYS DEPOSITED WITH IT.
Money or securities deposited in trust with the Trustee pursuant to and
in accordance with Section 9.01 shall be for the sole benefit of
Securityholders and, to the extent allocated for the payment of Securities and
the accrued interest thereon, shall not be subject to the subordination
provisions of this Article 4. Otherwise, any deposit of moneys by the Company
with the Trustee or any Paying Agent (whether or not in trust) for the payment
of the principal or interest on any Securities shall be subject to the
provisions of Sections 4.01, 4.02, 4.03 and 4.04 except that, if prior to the
date on which by the terms of this Indenture any such moneys may become
payable for any purpose (including, without limitation, the payment of either
the principal of or the interest on any Security or the redemption price of
any Security), the Trustee shall not have received with respect to such moneys
the notice provided for in Section 4.06, then the Trustee or the Paying Agent
shall have full power and authority to receive such moneys and to apply the
same to the purpose for which they were received, and shall not be affected by
any notice to the contrary which may be received by it on or after such date.
This Section shall be
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16
construed solely for the benefit of the Trustee and Paying Agent and shall not
otherwise affect the rights of holders of Senior Indebtedness.
Section 4.08. SUBORDINATION RIGHTS NOT IMPAIRED BY ACTS OR OMISSIONS OF
COMPANY OR HOLDERS OF SENIOR INDEBTEDNESS.
No right of any present or future holders of any Senior Indebtedness to
enforce subordination as provided herein shall at any time in any way be
prejudiced or impaired by any act or failure to act on the part of the Company
or by any act or failure to act, in good faith, by any such holder, or by any
noncompliance by the Company with the terms of this Indenture, regardless of
any knowledge thereof which any such holder may have or be otherwise charged
with. The holders of Senior Indebtedness may extend, renew, modify or amend
the terms of the Senior Indebtedness or any security therefor and release,
sell or exchange such security and otherwise deal freely with the Company, all
without affecting the liabilities and obligations of the parties to this
Indenture or the Holders of the Securities. No provision in any supplemental
indenture which affects the superior position of the holders of the Senior
Indebtedness shall be effective against the holders of the Senior Indebtedness
who have not consented thereto.
Section 4.09. SECURITYHOLDERS AUTHORIZE TRUSTEE TO EFFECTUATE
SUBORDINATION OF SECURITIES.
Each Holder of the Securities by his acceptance thereof authorizes and
expressly directs the Trustee on his behalf to take such action as may be
necessary or appropriate to effectuate the subordination provided in this
Article 4 and appoints the Trustee his attorney-in-fact for such purpose,
including, in the event of any dissolution, winding up, liquidation or
reorganization of the Company (whether in bankruptcy, insolvency or
receivership proceedings or upon a general assignment for the benefit of
creditors or any other similar remedy or otherwise) tending towards
liquidation of the business and assets of the Company, the immediate filing of
a claim for the unpaid balance of his Securities in the form required in said
proceedings and causing said claim to be approved. If the Trustee does not
file a proper claim or proof of debt in the form required in such proceeding
prior to 30 days before the expiration of the time to file such claim or
claims, then the holders of Senior Indebtedness are hereby authorized to have
the right to file and are hereby authorized to file an appropriate claim for
and on behalf of the Holders of said Securities.
Section 4.10. RIGHT OF TRUSTEE TO HOLD SENIOR INDEBTEDNESS.
The Trustee shall be entitled to all of the rights set forth in this
Article 4 in respect of any Senior Indebtedness at any time held by it to the
same extent as any other holder of Senior Indebtedness, and nothing in this
Indenture shall be construed to deprive the Trustee of any of its rights as
such holder.
Section 4.11. ARTICLE 4 NOT TO PREVENT EVENTS OF DEFAULT.
The failure to make a payment on account of principal or interest on the
Securities by reason of any provisions of this Article 4 shall not be
construed as preventing the occurrence of an Event of Default under Section
7.01.
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Section 4.12. NO FIDUCIARY DUTY CREATED TO HOLDERS OF SENIOR
INDEBTEDNESS.
Neither the Trustee nor the Paying Agent shall be deemed to owe any
fiduciary duty to the holders of Senior Indebtedness by virtue of the
provisions of this Article 4.
ARTICLE 5
Covenants
Section 5.01. PAYMENT OF SECURITIES.
The Company shall pay the principal of and interest on the Securities on
the dates and in the manner provided in the Securities. Principal and
interest shall be considered paid on the date due if the Trustee or Paying
Agent holds on that date readily available funds sufficient to pay all
principal and interest then due.
The Company shall pay interest on overdue principal at the rate then
borne by the Securities, and it shall pay interest on overdue installments of
interest at the same rate as to each of the Securities to the extent lawful.
Section 5.02. MAINTENANCE OF OFFICE OR AGENCY.
The Company will maintain in the Borough of Manhattan, the State of New
York and such other locations as the Company may determine, an office or
agency where Securities may be surrendered for registration of transfer or
exchange and where notices and demands to or upon the Company in respect of
the Securities and this Indenture may be served, which office or agency shall
be subject to the approval of the Trustee. The Company will give prompt
written notice to the Trustee of the location, and any change in the location,
of such office or agency. If at any time the Company shall fail to maintain
any such required office or agency or shall fail to furnish the Trustee with
the address thereof, such presentations, surrenders, notices and demands may
be made or served at the applicable address of the Trustee set forth in
Section 11.02.
The Company may also from time to time designate one or more other
offices or agencies where the Securities may be presented or surrendered for
any or all such purposes and may from time to time rescind such designations;
provided, however, that no such designation or rescission shall in any manner
relieve the Company of its obligation to maintain an office or agency in the
Borough of Manhattan, the State of New York for such purposes.
The Company hereby designates the corporate trust office of the Trustee as
one such office or agency of the Company in accordance with Section 2.03.
Section 5.03. LIMITATION UPON PAYMENT OF DIVIDENDS AND ACQUISITION OF
STOCK.
(a) No dividend or distribution shall be paid or declared on any class
of common stock of the Company (except a dividend or distribution in shares
of, or warrants or rights to subscribe for, or to purchase shares of capital
stock of the Company) nor shall any shares of, or warrants or rights to
subscribe for or purchase shares of any of the capital stock of the
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18
Company be acquired (except through redemption by the Company of preferred
stock pursuant to mandatory redemption provisions) by the Company or any
Subsidiary, if (i) after giving effect to such dividend, distribution or
acquisition, the aggregate value of all payments made for such dividends and
distributions on the common stock of the Company and such non-mandatory
acquisitions of the capital stock of the Company subsequent to September 30,
1986 would exceed the sum of (a) 50% of the Consolidated Net Earnings earned
subsequent to December 31, 1985, (b) the aggregate of the net proceeds
received by the Company from the issuance or sale (other than to a Subsidiary
and other than in connection with acquisitions of Parents of the Company or of
minority interests in Consolidated Subsidiaries), for cash or other property,
of shares of its capital stock (or warrants or rights to subscribe for or
purchase shares of such stock) other than the Company's $1.75 Convertible
Exchangeable Preferred Stock, Series 1986-A, and (c) the aggregate of the net
proceeds received by the Company from the issuance or sale (other than to a
Subsidiary), for cash or other property, of any indebtedness of the Company
which has been converted into shares of its capital stock after September 30,
1986 (less any cash paid in respect of fractional share interests upon such
conversion) but not including indebtedness outstanding pursuant to an exchange
for shares of the Company's exchangeable capital stock, or (ii) at the time of
such action an Event of Default (or an event which, with notice or lapse of
time or both, would become an Event of Default) shall have occurred and be
continuing.
(b) The provisions of this Section 5.03 shall not prevent, restrict or
apply to (i) any acquisition of shares of, or of warrants or rights to
subscribe for or purchase shares of, capital stock of the Company solely in
exchange for other shares of, or other warrants or rights to subscribe for or
purchase shares of, capital stock of the Company; (ii) any acquisition of
shares of, or of warrants or rights to subscribe for or purchase shares of,
capital stock of the Company, through application of the proceeds of a
substantially concurrent sale of shares of, or of warrants or rights to
subscribe for or purchase shares of, capital stock of the Company; (iii) the
payment of any dividend on any class of common stock of the Company within 60
days after the date of declaration thereof, if at such date such declaration
complied with the provisions of this Section 5.03; or (iv) any
reclassification of shares of the capital stock of the Company (whether or not
outstanding), to effect a subdivision or consolidation of such shares.
Notwithstanding the foregoing, any payment pursuant to clause (iii) of this
paragraph shall be taken into account in any subsequent computation made under
this Section 5.03.
(c) For the purposes of any computation under this Section 5.03, the
amount of any dividend declared or other payment or distribution made in
property other than cash, or the amount of any property received, shall be
deemed to be the fair value (as determined by the Board of Directors, whose
determination shall, when made in good faith and in accordance with law, be
conclusive, and described in a statement filed with the Trustee) of such
property at the time of declaration (in the case of dividends) or in other
cases at the time of payment, distribution or receipt, as the case may be.
Section 5.04. LIMITATION ON INCURRENCE OF CERTAIN ADDITIONAL
INDEBTEDNESS.
So long as the Securities remain outstanding, the Company will not, and
will not permit any Subsidiary, to create, issue, assume, incur, guarantee or
otherwise become directly or indirectly liable for any Indebtedness which by
its terms ranks superior in right of payment of principal, premium, if any, or
interest to the Securities except Senior Indebtedness; provided that, Secured
Indebtedness to persons other than Institutional Lenders shall rank senior in
right of payment of principal, premium, if any, and interest to the Securities
only to the extent of
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19
rights of the holder of any such Secured Indebtedness, as such rights are
specified in the instruments creating such Secured Indebtedness, to receive
property (whether tangible, intangible, real, personal or mixed) securing the
payment of principal of, or premium, if any, or interest on such Secured
Indebtedness or the proceeds from a sale of such property (whether tangible,
intangible, real, personal or mixed). In addition, so long as the Securities
remain outstanding, the Company will not permit any Subsidiary to create,
issue, assume, incur, guarantee or otherwise become directly or indirectly
liable for any Indebtedness except (i) Senior Indebtedness and (ii)
Indebtedness due to an Affiliate or the Company. Notwithstanding anything else
in this Section 5.04 to the contrary, any Indebtedness of a person at the time
such person becomes a Subsidiary shall not be subject to the provisions of
this Section 5.04 unless the Company or another Subsidiary is primarily or
secondarily liable therefor.
Section 5.05. NOTES SENIOR TO CONVERTIBLE INDEBTEDNESS AND EQUAL TO
CERTAIN OTHER INDEBTEDNESS.
Notwithstanding the provisions of Article 3 or any other provisions of
this Indenture, each holder of a Security, subject to the rights of the
holders of Senior Indebtedness, shall be first entitled to receive payment in
full of the principal thereof (and the premium, if any) and the interest due
thereon before the holders of any Convertible Indebtedness at any time issued
by the Company are entitled to receive any distributions of assets or
securities of the Company. The Company agrees to take all steps necessary to
insure that the Securities will be senior to Convertible Indebtedness,
including the insertion in all instruments creating or evidencing Convertible
Indebtedness, or pursuant to which Convertible Indebtedness is outstanding, of
a provision stating that such Convertible Indebtedness is junior in right of
payment to the Securities. In addition to the foregoing, the Securities shall
be equal in right of payment to all other Indebtedness of the Company
hereafter issued by the Company other than Senior Indebtedness and equal in
right of payment to the Company's 16 1/2% Senior Subordinated Debentures due
1994 and 11 1/4% Senior Subordinated Notes due 1996.
Section 5.06. CORPORATE EXISTENCE.
Subject to Article 6, the Company will do or cause to be done all things
necessary to preserve and keep in full force and effect its corporate
existence and the corporate, partnership or other existence of each Subsidiary
in accordance with the respective organization documents of each Subsidiary
and the rights (charter and statutory) and franchises of the Company and its
Subsidiaries; provided, however, that the Company shall not be required to
preserve, with respect to itself, any right or franchise, and with respect to
the Subsidiaries, any such existence, right or franchise if the Board of
Directors, or the board of directors, board of trustees or managing partners
of the Subsidiary concerned, shall determine that the preservation thereof is
no longer desirable in the conduct of the business of the Company or any
Subsidiary, and if the loss thereof is not disadvantageous in any material
respect to the Holders.
Section 5.07. PAYMENT OF TAXES AND OTHER CLAIMS.
The Company will pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (a) all taxes, assessments and
governmental charges levied or imposed upon the Company or any Subsidiary or
upon the income, profits or property of the Company or any Subsidiary, and (b)
all lawful claims for labor, materials and supplies which, if unpaid, might by
law become a lien upon the property of the Company or any Subsidiary;
provided,
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20
however, that the Company shall not be required to pay or discharge or cause
to be paid or discharged any such tax, assessment, charge or claim whose
amount, applicability or validity is being contested by the Company in good
faith by appropriate action.
Section 5.08. MAINTENANCE OF PROPERTIES.
The Company will cause all properties used or useful in the conduct of
its business or the business of any Subsidiary to be maintained and kept in
good condition, repair and working order and supplied with all necessary
equipment and will cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereof, all as in the judgment of
the Company may be necessary, so that the business carried on in connection
therewith may be properly and advantageously conducted at all times; provided,
however, that nothing in this Section shall prevent the Company from
discontinuing the operation or maintenance of any of such properties, or
disposing of any of them, if such discontinuance or disposal is, in the
judgment of the Board of Directors or of the board of directors, board of
trustees or managing partners of the Subsidiary concerned, or of an officer
(or other agent employed by the Company or any of its Subsidiaries) of the
Company or such Subsidiary having managerial responsibility for any such
property, desirable in the conduct of the business of the Company or any
Subsidiary, and if such discontinuance or disposal is not disadvantageous in
any material respect to the Holders.
Section 5.09. COMPLIANCE CERTIFICATE.
The Company shall deliver to the Trustee within 90 days after the end of
each fiscal quarter of the Company an Officers' Certificate stating whether
the signers know of any Default by the Company in performing its covenants or
obligations under the Securities or this Indenture, including, without
limitation, its covenants in Sections 5.02, 5.03, 5.04, 5.05, 5.06, 5.07 and
5.08. If they do know of such a Default, the certificate shall describe the
Default and its status. The first certificate to be delivered by the Company
pursuant to this Section 5.09 shall be for the fiscal quarter ending December
31, 1993. The Company shall, upon request of the Trustee, promptly deliver to
Trustee additional Officers' Certificates containing such further assurances
as Trustee may reasonably request. The Company will deliver to the Trustee,
within five days after its knowledge of the occurrence thereof, written notice
of the occurrence of an Event of Default or of any event which with the giving
of notice or lapse of time would become an Event of Default.
Section 5.10. SEC REPORTS.
The Company shall file with the Trustee, within 15 days after it files
them with the SEC, copies of the annual reports and of the information,
documents, and other reports (or copies of such portions of any of the
foregoing as the SEC may by rules and regulations prescribe) which the Company
is required to file with the SEC pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934. The Company also shall comply with the other
provisions of TIA Section314(a).
So long as the Securities remain outstanding, the Company shall cause
its annual reports to stockholders and any quarterly or other financial
reports furnished by it to stockholders, to be mailed to the Holders at their
addresses appearing in the register of Securities maintained by the Registrar.
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21
Section 5.11. WAIVER OF STAY, EXTENSION OR USURY LAWS.
The Company covenants (to the extent that it may lawfully do so) that it
will not at any time insist upon, or plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay or extension law or any usury
law or other law, which would prohibit or forgive the Company from paying all
or any portion of the principal of and/or interest on the Securities as
contemplated herein, wherever enacted, now or at any time hereafter in force,
or which may affect the covenants or the performance of this Indenture; and
(to the extent that it may lawfully do so) the Company hereby expressly waives
all benefit or advantage of any such law, and covenants that it will not
hinder, delay or impede the execution of any power herein granted to the
Trustee, but will suffer and permit the execution of every such power as
though no such law had been enacted.
ARTICLE 6
Successor Corporation
Section 6.01. WHEN COMPANY MAY MERGE, ETC.
The Company shall not consolidate with or merge into any other
corporation or transfer all or substantially all of its properties and assets
as an entirety to any person, unless:
(1) either the Company shall be the continuing person, or the
person formed by such consolidation or into which the Company is merged
or to which the properties and assets of the Company as an entirety are
transferred shall be a corporation organized and existing under the laws
of the United States of America or any state thereof or the District of
Columbia, and shall expressly assume, by an indenture supplemental
hereto, executed and delivered to the Trustee, in form satisfactory to
the Trustee, all the obligations of the Company under the Securities and
this Indenture;
(2) immediately after giving effect to such transaction, no
Event of Default or no Default shall have occurred and be continuing;
and
(3) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and such supplemental indenture comply
with this Article and that all conditions precedent herein provided
relating to such transaction have been complied with.
The successor corporation formed by such consolidation or into which the
Company is merged or to which such transfer is made shall succeed to, and be
substituted for, and may exercise every right and power of, the Company under
this Indenture with the same effect as if such successor corporation had been
named as the Company herein. Thereafter the predecessor corporation in the
case of a consolidation or merger shall be relieved of all obligations and
covenants under this Indenture, but the predecessor Company in the case of a
transfer of property and assets shall not be released from the obligation to
pay the principal of and interest on the Securities.
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22
ARTICLE 7
Default and Remedies
Section 7.01. EVENTS OF DEFAULT.
An "Event of Default" occurs if:
(1) the Company defaults in the payment of interest on any
Securities when the same becomes due and payable and the Default
continues for a period of 30 days;
(2) the Company defaults in the payment of the principal of any
Securities when the same becomes due and payable at maturity, upon
redemption or otherwise, or fails to make any sinking fund payment to
the Trustee prior to or on the date such sinking fund payment is due
pursuant to the terms of this Indenture;
(3) the Company fails to comply in any material respect with any
of its other agreements contained in the Securities or this Indenture
and the Default continues for the period and after the notice specified
below;
(4) (i) the Company or a Subsidiary fails to pay any part of the
principal of or the premium, if any, or the interest on, or any other
payment of money due under, any of its Indebtedness (other than the
Securities) pursuant to an instrument governing Indebtedness having an
outstanding principal balance exceeding $5,000,000 beyond any period of
grace provided with respect thereto; or (ii) the Company or a Subsidiary
fails to perform or observe any other agreement, term or condition
contained in any document evidencing or securing any of its Indebtedness
having an outstanding principal balance exceeding $5,000,000, or in any
agreement under which any such Indebtedness was issued or created,
beyond any applicable grace period, if the effect of such failure in (i)
or (ii) above is either (a) to cause, or permit the holders of such
Indebtedness (or a trustee on behalf of such holders) to cause, all
principal of and interest on such Indebtedness to become due prior to
its stated maturity, or (b) to permit the holders of such Indebtedness
(or a trustee on behalf of such holders) to elect a majority of the
Board of Directors of the Company; provided, however, that if such
failure under (i) or (ii) above shall be annulled or waived by the
holders of such Indebtedness, then the Event of Default having occurred
hereunder by reason of such failure shall be deemed to have been
thereupon annulled or waived;
(5) the Company or any Subsidiary pursuant to or within the
meaning of any Bankruptcy Law:
(A) commences a voluntary case,
(B) consents to the entry of an order for relief against
it in an involuntary case,
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23
(C) consents to the appointment of a Custodian of it or
for all or substantially all of its property, or
(D) makes a general assignment for the benefit of its
creditors; or
(6) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:
(A) is for relief against the Company or any Subsidiary in
an involuntary case,
(B) appoints a Custodian of the Company or any Subsidiary
or for all or substantially all of the properties of either, or
(C) orders the liquidation of the Company or any
Subsidiary,
and in each case the order or decree remains unstayed and in effect for
90 days.
The term "Bankruptcy Law" means title 11, U.S. Code or any similar
Federal or state law for the relief of debtors, including any insolvency or
rehabilitation law under an insurance code. The term "Custodian" means any
receiver, trustee, assignee, liquidator or similar official under any
Bankruptcy Law.
A Default under clause (3) is not an Event of Default until the Trustee
notifies the Company, or the Holders of at least 25% in principal amount of
the outstanding Securities notify the Company and the Trustee, of the Default
and the Company does not cure the Default within 60 days after receipt of the
notice, which notice the Company shall be deemed to have received on the
earlier to occur of the actual receipt of such notice or on the date which is
three days after the date such notice is deposited in the U.S. Mails to the
Company. The notice must specify the Default, demand that it be remedied and
state that the notice is a "Notice of Default." When a Default is cured, it
stops continuing.
Section 7.02. ACCELERATION.
If an Event of Default occurs and is continuing, the Trustee by notice
to the Company, or the Holders of at least 25% in principal amount of the
outstanding Securities by notice to the Company and the Trustee, may declare
the principal of and accrued interest on all the Securities to be due and
payable immediately. Upon such declaration, the unpaid principal and accrued
interest thereon shall be due and payable immediately. The Holders of a
majority in principal amount of the outstanding Securities by notice to the
Trustee may rescind an acceleration and its consequences if all existing
Events of Default have been cured or waived (except nonpayment of principal or
interest that has become due solely because of the acceleration), if all
expenses relating to the Events of Default, including any expenses incurred by
Trustee, have been paid, and if the rescission would not conflict with any
judgment or decree of a court of competent jurisdiction.
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24
Section 7.03. OTHER REMEDIES.
If an Event of Default occurs and is continuing, the Trustee may pursue
any available remedy by proceeding at law or in equity to collect the payment
of principal or interest on the Securities or to enforce the performance of
any provision of the Securities or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any of
the Securities or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Securityholder in exercising any right or
remedy accruing upon an Event of Default shall not impair the right or remedy
or constitute a waiver of or acquiescence in the Event of Default. No remedy
is exclusive of any other remedy. All available remedies are cumulative.
Section 7.04. WAIVER OF PAST DEFAULTS.
Subject to Sections 7.07 and 10.02, the Holders of a majority in
principal amount of the outstanding Securities by notice to the Trustee may
waive an existing Default and its consequences, except a Default in the
payment of principal or interest on any Security as specified in clauses (1)
and (2) of Section 7.01. When a Default is waived, it is cured and stops
continuing.
Section 7.05. CONTROL BY MAJORITY.
The Holders of a majority in principal amount of the outstanding
Securities may direct the time, method and place of conducting any proceeding
for any remedy available to the Trustee or exercising any trust or power
conferred on it. However, the Trustee may refuse to follow any direction that
in its opinion conflicts with law or this Indenture, is unduly prejudicial to
the rights of another Securityholder, or would involve the Trustee in personal
liability.
Section 7.06. LIMITATION ON SUITS.
A Securityholder may not pursue any remedy with respect to this
Indenture or the Securities unless:
(1) the Holder gives to the Trustee written notice of a
continuing Event of Default;
(2) the Holders of at least 25% in principal amount of the
outstanding Securities make a written request to the Trustee to pursue
the remedy;
(3) such Holder or Holders offer to the Trustee indemnity
satisfactory to the Trustee against any loss, liability or expense;
(4) the Trustee does not comply with the request within 60 days
after receipt of the request and the offer of indemnity and the Event of
Default has not been waived; and
(5) during such 60-day period the Holders of a majority in
principal amount of the outstanding Securities do not give the Trustee a
direction which, in the opinion of the Trustee, is inconsistent with the
request.
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25
A Securityholder may not use this Indenture to prejudice the rights of
another Securityholder or to obtain a preference or priority over another
Securityholder.
Section 7.07. RIGHTS OF HOLDERS TO RECEIVE PAYMENT.
Notwithstanding any other provision of this Indenture, the right of any
Holder of a Security to receive payment of principal and interest on the
Security, on or after the respective due dates expressed in the Security, or
to bring suit for the enforcement of any such payment on or after such
respective dates, shall not be impaired or affected without the consent of the
Holder.
Section 7.08. COLLECTION SUIT BY TRUSTEE.
If an Event of Default in payment of interest or principal specified in
Section 7.01(1) or (2) occurs and is continuing, the Trustee may recover
judgment in its own name and as trustee of an express trust against the
Company for the whole amount of principal and interest due and remaining
unpaid.
Section 7.09. TRUSTEE MAY FILE PROOFS OF CLAIM.
The Trustee may file such proofs of claim and other papers or documents
as may be necessary or advisable in order to have the claims of the Trustee
and the Securityholders allowed in any judicial proceedings relative to the
Company, its creditors or its property.
Section 7.10. PRIORITIES.
If the Trustee collects any money pursuant to this Article, it shall pay
out the money in the following order.
First: to the Trustee for amounts due under Section 8.07;
Second: to holders of Senior Indebtedness to the extent required
by Article 4;
Third: to Securityholders for amounts due and unpaid on the
Securities for principal and interest, ratably, without preference or
priority of any kind, according to the amounts due and payable on the
Securities for principal and interest, respectively; and
Fourth: to the Company.
The Trustee, upon prior written notice to the Company, may fix a record
date and payment date for any payment to Securityholders under this Section
7.10.
Section 7.11. UNDERTAKING FOR COSTS.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted
by it as Trustee, a court in its discretion may require the filing by any
party litigant in the suit of an undertaking to pay the costs of the suit, and
the court in its discretion may assess reasonable costs, including reasonable
attorneys' fees,
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26
against any party litigant in the suit, having due regard to the merits and
good faith of the claims or defenses made by the party litigant. This Section
does not apply to a suit by the Trustee, a suit by a Holder pursuant to
Section 7.07, or a suit by Holders of more than 10% in principal amount of the
outstanding Securities.
ARTICLE 8
Trustee
Section 8.01. DUTIES OF TRUSTEE.
(a) If an Event of Default has occurred and is continuing, the Trustee
shall exercise the rights and powers vested in it by this Indenture and use
the same degree of care and skill in their exercise as a prudent man would
exercise or use under the circumstances in the conduct of his own affairs.
(b) Except during the continuance of an Event of Default:
(1) The Trustee shall not be liable except for the performance
of such duties as are specifically set forth in this Indenture and no
others.
(2) In the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness
of the opinions expressed therein, upon certificates or opinions
furnished to the Trustee and conforming to the requirements of this
Indenture. However, the Trustee shall examine the certificates and
opinions to determine whether or not they conform to the requirements of
this Indenture.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(1) This paragraph does not limit the effect of paragraph (b) of
this Section.
(2) The Trustee shall not be liable for any error of judgment
made in good faith by a Trust Officer, unless it is proved that the
Trustee was negligent in ascertaining the pertinent facts.
(3) The Trustee shall not be liable with respect to any action
it takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 7.05.
(d) Every provision of this Indenture that in any way relates to the
Trustee is subject to paragraphs (a), (b) and (c) of this Section.
(e) The Trustee may refuse to perform any duty or exercise any right
or power unless it receives indemnity satisfactory to it against any loss,
liability or expense.
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27
(f) The Trustee shall not be liable for interest on any money received
by it except as the Trustee may agree with the Company. Money held in trust
by the Trustee need not be segregated from other funds except to the extent
required by law.
Section 8.02. RIGHTS OF TRUSTEE.
(a) The Trustee may rely on any document believed by it to be genuine
and to have been signed or presented by the proper person. The Trustee need
not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require an
Officers' Certificate or an Opinion of Counsel. The Trustee shall not be
liable for any action it takes or omits to take in good faith in reliance on
the certificate or opinion.
(c) The Trustee may act through its attorneys and agents and shall not
be responsible for misconduct or negligence of any agent (other than such
agent who is an employee of the Trustee) appointed with due care.
(d) The Trustee shall not be liable for any action it takes or omits
to take in good faith which it believes to be authorized or within its rights
or powers.
Section 8.03. INDIVIDUAL RIGHTS OF TRUSTEE.
The Trustee in its individual or any other capacity may become the owner
or pledgee of Securities and may otherwise deal with the Company or its
Affiliates with the same rights it would have if it were not Trustee. Any
Agent may do the same with like rights. However, the Trustee must comply with
Sections 8.10 and 8.11.
Section 8.04. TRUSTEE'S DISCLAIMER.
The Trustee makes no representation as to the validity or adequacy of
this Indenture or the Securities, it shall not be accountable for the
Company's use of the proceeds from the Securities, and it shall not be
responsible for any statement in the Securities other than its certificate of
authentication or in any registration statement or prospectus used in the
offer or sale of the Securities.
Section 8.05. NOTICE OF DEFAULTS.
If a Default occurs and is continuing and if it is known to the Trustee,
the Trustee shall mail to each Securityholder notice of the Default within 90
days after it occurs. Except in the case of a Default in payment on any
Security, the Trustee may withhold the notice if and so long as a committee of
its Trust Officers in good faith determines that withholding the notice is in
the interests of Securityholders.
Section 8.06. REPORTS BY TRUSTEE TO HOLDERS.
The Trustee shall transmit to the holders of Securities, on or before
July 15, 1994, and on or before the 15th day of July in each year thereafter,
a brief report as of the last preceding
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28
15th of May that complies with TIA Section 313(a). The Trustee also shall
comply with TIA Section 313(b) and Section 313(c).
A copy of each report at the time of its mailing to Securityholders
shall be mailed to the Company and filed with the SEC and each stock exchange,
if any, on which the Securities are listed.
The Company shall notify the Trustee if the Securities become listed on
any securities exchange or become quoted in the National Association of
Securities Dealers Automated Quotation System.
Section 8.07. COMPENSATION AND INDEMNITY.
The Company shall pay to the Trustee from time to time reasonable
compensation for its services. The Trustee's compensation shall not be
limited by any law on compensation of a trustee of an express trust. The
Company shall reimburse the Trustee upon request for all reasonable
out-of-pocket expenses incurred by it. Such expenses shall include the
reasonable compensation and expenses of the Trustee's agents and counsel. The
Company further covenants and agrees to pay interest to the Trustee, at a rate
per annum equal to two percent above the variable rate of interest per annum
established by Citibank, N.A. from time to time as its base or general
reference rate of interest, upon all amounts paid, advanced or disbursed by
the Trustee for which it is entitled to reimbursement or indemnity as herein
provided; provided, however, that in no event shall the amount paid to the
Trustee which is deemed to be interest exceed the maximum rate permitted by
applicable law.
The Company shall indemnify the Trustee against any loss or liability
incurred by it in connection with the acceptance and administration of this
trust and the performance of its duties hereunder. The Trustee shall notify
the Company promptly of any claim for which it may seek indemnity. The Company
shall defend the claim and the Trustee shall cooperate in the defense. The
Trustee may have separate counsel and the Company shall pay the reasonable
fees and expenses of such counsel. The Company need not pay for any settlement
made without its consent. The Company need not reimburse any expense or
indemnify against any loss or liability incurred by the Trustee through
negligence or bad faith other than to the extent permitted by Section 8.01 or
8.02 of this Indenture.
The obligations of the Company to the Trustee under this Section 8.07
shall not be subordinated to the payment of Senior Indebtedness pursuant to
Article 4 of this Indenture. To secure the Company's payment obligations in
this Section, the Trustee shall have a lien prior to the Securities on all
money or property held or collected by the Trustee, except money or property
held in trust to pay principal of or interest on particular Securities.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 7.01(5) or (6) occurs, the expenses and the
compensation for the services are intended to constitute expenses of
administration under any Bankruptcy Law. If and to the extent that the
Trustee, its counsel and other persons not regularly in its employ entitled to
payment under the terms of this Section do not receive such compensation,
reimbursement or indemnity as provided in this Section in any such proceeding
in bankruptcy or if the Trustee shall request, and any court having
jurisdiction over such proceeding shall consent or so order, the Trustee shall
be entitled, in priority to the Holders of the Securities, to receive any
distributions which would
<PAGE>
29
otherwise be made to the Holders of the Securities in any such proceedings and
it is hereby constituted and appointed, irrevocably, the attorney-in-fact for
the Holders of the Securities and each of them to collect and receive, in
their name, place and stead, such distributions, to deduct therefrom the
amounts due to the Trustee and such other entities to which they may be
entitled pursuant to the terms of this Section, and to pay and distribute the
balance, pro rata to the Holders of the Securities.
Section 8.08. REPLACEMENT OF TRUSTEE.
A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this Section.
The Trustee may resign by so notifying the Company. The Holders of a
majority in principal amount of the outstanding Securities may remove the
Trustee by so notifying the Trustee and the Company. The Company may remove
the Trustee if:
(1) the Trustee fails to comply with Section 8.10;
(2) the Trustee is adjudged a bankrupt or an insolvent;
(3) a receiver or public officer takes charge of the Trustee or its
property; or
(4) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a
successor Trustee. Within one year after the successor Trustee takes office,
the Holders of a majority in principal amount of the Securities may appoint a
successor Trustee to replace the successor Trustee appointed by the Company.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Immediately after
that, the retiring Trustee shall transfer all property held by it as Trustee
to the successor Trustee, subject to the lien provided in Section 8.07, the
resignation or removal of the retiring Trustee shall become effective, the
retiring Trustee shall cease to be Trustee hereunder and shall be discharged
from any and all responsibility or obligations and the successor Trustee shall
have all the rights, powers and duties of the Trustee under this Indenture. A
successor Trustee shall mail notice of its succession to each Securityholder.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or
the Holders of a majority in principal amount of the outstanding Securities
may petition any court of competent jurisdiction for the appointment of a
successor Trustee.
If the Trustee fails to comply with Section 8.10, any Securityholder may
petition any court of competent jurisdiction for the removal of the Trustee
and the appointment of a successor Trustee.
<PAGE>
30
Notwithstanding replacement of the Trustee pursuant to this Section
8.08, the Company's obligations under Section 8.07 shall continue for the
benefit of the retiring Trustee with respect to expenses, losses and
liabilities incurred by it for claims arising prior to such replacement.
Section 8.09. SUCCESSOR TRUSTEE BY MERGER, ETC.
If the Trustee consolidates with, merges or converts into, or transfers
all or substantially all of its corporate trust assets to, another
corporation, the resulting, surviving or transferee corporation without any
further act shall be the successor Trustee.
Section 8.10. ELIGIBILITY; DISQUALIFICATION.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA Sections 310(a)(1) and 310(a)(5). The Trustee shall have a
combined capital and surplus of at least $20,000,000 as set forth in its most
recent published annual report of condition. The Trustee shall comply with
TIA Section 310(b); provided that there shall be excluded from the operation of
TIA Section 3.10(b)(1) the Indenture dated as of December 1, 1984, as amended,
between the Company and the Bank of Louisville and Trust Company, as Trustee,
under which the 16 1/2% Senior Subordinated Debentures due 1994 of the Company
are outstanding, and the Indenture dated as of November 15, 1986, as amended,
between the Company and the Bank of Louisville and Trust Company, as Trustee,
under which the 11 1/4% Senior Subordinated Notes due 1996 of the Company are
outstanding.
Section 8.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.
The Trustee shall comply with TIA Section 311(a), excluding any creditor
relationship listed in TIA Section 311(b). A Trustee who has resigned or been
removed shall be subject to TIA Section 311(a) to the extent indicated.
ARTICLE 9
Discharge of Indenture
Section 9.01. TERMINATION OF COMPANY'S OBLIGATIONS.
The Company may terminate its obligations under this Indenture, except
those obligations referred to in the immediately succeeding paragraph, if all
Securities previously authenticated and delivered (other than destroyed,
mutilated, lost or stolen Securities which have been replaced or paid or
Securities for whose payment money or securities have theretofore been held in
trust and thereafter repaid to the Company, as provided in Section 9.03) have
been delivered to the Trustee for cancellation or if (1) the Securities mature
within one year or all of them are to be called for redemption within one year
under arrangements satisfactory to the Trustee for giving the notice of
redemption; and (2) the Company irrevocably deposits with the Trustee or the
Paying Agent money or U.S. Government Obligations sufficient to pay principal
of, premium, if any, and interest on the Securities to maturity or redemption,
as the case may be.
<PAGE>
31
However, the Company's obligations in Sections 2.03, 2.04, 2.05, 2.06,
2.07, 5.01, 5.02, 8.07, 8.08 and 9.03 shall survive until the Securities are
no longer outstanding. Thereafter, the Company's obligations in Sections 8.07
and 9.03 shall survive.
After such deliveries or deposit and receipt by the Trustee of such
Officers' Certificates, Opinions of Counsel and other such assurances as the
Trustee may deem necessary or desirable in connection therewith, the Trustee
upon request shall acknowledge in writing the discharge of the Company's
obligations under this Indenture except for those surviving obligations
specified above.
In order to have money available on a payment date to pay principal or
interest on the Securities, the U.S. Government Obligations shall be payable
as to principal or interest on or before such payment date in such amounts as
will provide the necessary money. U.S. Government Obligations shall not be
callable at the issuer's option.
"U.S. Government Obligations" means direct obligations of the United
States of America for the payment of which the full faith and credit of the
United States of America is pledged.
Section 9.02. APPLICATION OF TRUST MONEY.
The Trustee or Paying Agent shall hold in trust money or U.S. Government
Obligations deposited with it pursuant to this Indenture, and shall apply the
deposited money and the money from U.S. Government Obligations in accordance
with this Indenture to the payment of principal and interest on the
Securities. Money and securities so held in trust, to the extent allocated for
the payment of Securities, are not subject to the subordination provisions of
Article 4, if such money or securities are deposited in trust prior to the
happening of any event of default specified in Section 4.02, and prior to
receipt by the Trustee of notice of the occurrence of any such event of
default.
Section 9.03. REPAYMENT TO COMPANY.
The Trustee and the Paying Agent shall promptly pay to the Company upon
request any excess money held by them at any time. The Trustee and the Paying
Agent shall pay to the Company upon request any money held by them for the
payment of principal or interest that remains unclaimed for two years. After
payment to the Company, Securityholders entitled to money must look to the
Company for payment as general creditors unless an applicable abandoned
property law designates another person.
ARTICLE 10
Amendments, Supplements and Waivers
Section 10.01. WITHOUT CONSENT OF HOLDERS.
The Company and the Trustee may amend or supplement this Indenture or
the Securities without notice to or consent of any Securityholder:
(1) to cure any ambiguity, defect or inconsistency;
<PAGE>
32
(2) to comply with Article 6;
(3) to provide for uncertificated Securities in addition to or
in place of certificated Securities; or
(4) to make any change that does not adversely affect the rights
of any Securityholder.
Section 10.02. WITH CONSENT OF HOLDERS.
Subject to Section 7.07, the Company and the Trustee may amend or
supplement this Indenture or the Securities without notice to any
Securityholder but with the written consent of the Holders of at least a
majority in principal amount of the outstanding Securities affected by any
such amendment or supplement. Subject to Section 7.07, the Holders of a
majority in principal amount of the outstanding Securities may waive
compliance by the Company with any provision of this Indenture or the
Securities. However, without the consent of each Securityholder affected, an
amendment, supplement or waiver, including a waiver pursuant to Section 7.04,
may not:
(1) reduce the amount of Securities whose Holders must consent
to an amendment, supplement or waiver:
(2) reduce the rate or change the method of calculation of or
extend the time for payment of interest on any Security;
(3) reduce the principal of or extend the fixed maturity of any
Security or alter the redemption provisions with respect thereto;
(4) waive a Default in the payment of the principal of, interest
on, or redemption payment with respect to, any Security;
(5) make any changes in Section 7.04, 7.07 or the third sentence
of this Section 10.02;
(6) modify the provisions of Article 4 hereof in a manner
adverse to the Holders; or
(7) make any Security payable in money other than that stated in
the Security.
Notwithstanding any provision of this Article 10, any amendment or
supplement relating solely to the terms of the Securities will require the
requisite consent of only the Holders of the Securities.
It shall not be necessary for the consent of the Holders under this
Section to approve the particular form of any proposed amendment, supplement
or waiver, but it shall be sufficient if such consent approves the substance
thereof.
After an amendment, supplement or waiver under this Section becomes
effective, the Company shall mail to the Holders of each Security affected
thereby a notice briefly describing
<PAGE>
33
the amendment, supplement or waiver. Any failure of the Company to mail such
notice, or any defect therein, shall not, however, in any way impair or affect
the validity of any such amendment, supplement or waiver.
An amendment under this Section may not make any change that adversely
affects the rights under Article 4 of any holder of an issue of Senior
Indebtedness unless the holders of that issue pursuant to its terms consent to
the change.
Section 10.03. COMPLIANCE WITH TRUST INDENTURE ACT.
Every amendment to or supplement of this Indenture or the Securities
shall comply with the TIA as then in effect.
Section 10.04. REVOCATION AND EFFECT OF CONSENTS.
(a) A consent to an amendment, supplement or waiver by a Holder of a
Security shall bind the Holder and every subsequent Holder of a Security or
portion of a Security that evidences the same debt as the consenting Holder's
Security, even if notation of the consent is not made on any Security.
However, any such Holder or subsequent Holder may revoke the consent as to his
Security or portion of a Security. Such revocation shall be effective only if
the Trustee receives the notice of revocation before the date the amendment,
supplement or waiver becomes effective. After an amendment, supplement or
waiver becomes effective, it shall bind every Securityholder unless it makes a
change described in any of clauses (1) through (7) of Section 10.02. In that
case the amendment, supplement or waiver shall bind each Holder of a Security
who has consented to it and every subsequent Holder of a Security or portion
of a Security that evidences the same debt as the consenting Holder's
Security.
(b) The Company may fix a record date for determining which Holders
are entitled to consent to any amendment or waiver. If the Company fixes a
record date, the record date shall be fixed at (i) the later of 30 days prior
to the first solicitation of such consent or the date of the most recent list
of Holders furnished to the Trustee prior to such solicitation pursuant to
Section 2.05, or (ii) such other date as the Company shall designate.
Section 10.05. NOTATION ON OR EXCHANGE OF SECURITIES.
If an amendment, supplement or waiver changes the terms of a Security,
the Trustee may require the Holder of the Security to deliver it to the
Trustee. The Trustee may place an appropriate notation on the Security about
the changed terms and return it to the Holder. Alternatively, if the Company
or the Trustee so determine, the Company in exchange for the Security shall
issue and the Trustee shall authenticate a new Security that reflects the
changed terms.
Section 10.06. TRUSTEE TO SIGN AMENDMENTS, ETC.
The Trustee shall sign any amendment, supplement or waiver authorized
pursuant to this Article if the amendment, supplement or waiver does not
adversely affect the rights of the Trustee. If it does, the Trustee may but
need not sign it. The Company may not sign an amendment or supplement until
the Board of Directors approves it.
<PAGE>
34
ARTICLE 11
Miscellaneous
Section 11.01. TRUST INDENTURE ACT CONTROLS.
If any provision of this Indenture limits, qualifies, or conflicts with
the duties imposed by TIA Section318(c), the imposed duties shall control.
Section 11.02. NOTICES.
Any notice or communication shall be sufficiently given if in writing
and delivered in person or mailed by first-class mail addressed as follows:
If to the Company: I.C.H. Corporation
100 Mallard Creek Road
Suite 400
Louisville, Kentucky 40207
Attention: Chairman of the Board
If to the Trustee Mid-America Bank of Louisville
for notices or and Trust Company
demands: Attn: Corporate Trust Department
P.O. Box 1101
Louisville, Kentucky 40201
If to the Trustee Mid-America Bank of Louisville
for presentations and Trust Company
and surrenders: Attn: Corporate Trust Department
500 West Broadway
Louisville, Kentucky 40202
The Company or the Trustee by notice to the other may designate
additional or different addresses for subsequent notices or communications.
Any notice or communication mailed to a Securityholder shall be mailed
to him at his address as it appears on the registration books of the Registrar
and shall be sufficiently given to him if so mailed within the time
prescribed.
Failure to mail a notice or communication to a Securityholder or any
defect in it shall not affect its sufficiency with respect to other
Securityholders. Except for a notice to the Trustee, which is deemed given
only when received, a notice or communication to a Securityholder or any
defect in it shall not affect its sufficiency with respect to other
Securityholders. Except for a notice to the Trustee, which is deemed given
only when received, if a notice or communication is mailed in the manner
provided above, it is duly given, whether or not the addressee receives it.
<PAGE>
35
Section 11.03. COMMUNICATIONS BY HOLDERS WITH OTHER HOLDERS.
Securityholders may communicate pursuant to TIA Section312(b) with other
Securityholders with respect to their rights under this Indenture or the
Securities. The Company, the Trustee, the Registrar and any other person
shall have the protection of TIA Section312(c).
Section 11.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
Upon any request or application by the Company to the Trustee to take
any action under this Indenture, the Company shall furnish to the Trustee:
(1) an Officers' Certificate stating that, in the opinion of the
signers, all conditions precedent, if any, provided for in this
Indenture relating to the proposed action have been complied with; and
(2) an Opinion of Counsel stating that, in the opinion of such
counsel, all such conditions precedent have been complied with.
Section 11.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.
Each certificate or opinion with respect to compliance with a condition
or covenant provided for in this Indenture shall include:
(1) a statement that the person making such certificate or
opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of such person, he has made
such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(4) a statement as to whether or not, in the opinion of such
person, such condition or covenant has been complied with; provided,
however, that with respect to matters of fact an Opinion of Counsel may
rely on an Officers' Certificate.
Section 11.06. RULES BY TRUSTEE, PAYING AGENT, REGISTRAR.
The rules for action by or at a meeting of Securityholders are set forth
in Exhibit B annexed hereto and incorporated herein, and the Trustee may make
such other reasonable rules as it deems necessary and appropriate. The Paying
Agent or Registrar may make reasonable rules for its functions.
Section 11.07. LEGAL HOLIDAYS.
A "Legal Holiday" is a Saturday, a Sunday or a day on which banking
institutions are not required to be open in New York, New York or any other
city in which the Trustee
<PAGE>
36
administers its corporate trust business. If a payment date is a Legal Holiday
at a place of payment, payment may be made at that place on the next
succeeding day that is not a Legal Holiday, and no interest on the amount paid
shall accrue for the intervening period.
Section 11.08. GOVERNING LAW.
The laws of the State of Texas shall govern this Indenture and the
Securities without regard to principles of conflicts of law.
Section 11.09. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
This Indenture may not be used to interpret another indenture, loan or
debt agreement of the Company or any of its Subsidiaries. Any such indenture,
loan or debt agreement may not be used to interpret this Indenture.
Section 11.10. NO RECOURSE AGAINST OTHERS.
All liability of any director, officer, employee or stockholder, as
such, of the Company is waived and released.
Section 11.11. SUCCESSORS.
All agreements of the Company in this Indenture and the Securities shall
bind its successor. All agreements of the Trustee in this Indenture shall bind
its successor.
Section 11.12. DUPLICATE ORIGINALS.
The parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together represent the same
agreement.
Section 11.13. SEPARABILITY.
In case any provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby, and a Holder shall have no claim therefor against any party hereto.
<PAGE>
37
SIGNATURES
IN WITNESS WHEREOF, said I.C.H. Corporation has caused this Indenture to
be executed in its corporate name by its Chairman of the Board and its
corporate seal to be hereunto affixed and to be attested by its Secretary, and
Mid-America Bank of Louisville and Trust Company, as Trustee, has caused this
Indenture to be executed in its corporate name by one of its Executive Vice
Presidents and its corporate seal to be hereunto affixed and to be attested by
one of its Secretaries all as of the date first written above.
DATED: November 12, 1993
I.C.H. Corporation
By /s/ Robert L. Beisenherz
Chairman of the Board
[SEAL]
ATTEST:
/s/ Cynthia W. Young
Secretary
DATED: November 12, 1993
Mid-America Bank of Louisville and
Trust Company, as Trustee
By /s/ Robert H. Sachs
Executive Vice President
[SEAL]
ATTEST:
/s/ Gail Mount
Secretary
<PAGE>
38
Acknowledgements
STATE OF TEXAS )
) SS.:
COUNTY OF DALLAS )
On this 12th day of November, 1993, before me personally came Robert L.
Beisenherz, to me known, who, being by me sworn did depose and say that he
resides at Dallas, Texas; that he is Chairman of the Board of I.C.H.
Corporation, one of the corporations described in and which executed the above
instrument; that he knows the corporate seal of said corporation; that the
seal affixed to the said instrument is such corporate seal; that it was so
affixed by authority of the Board of Directors of said corporation; and that
he signed his name thereto by like authority.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year in this certificate first above written.
/s/ Donna S. Clarke
Notary Public
[NOTARIAL SEAL]
STATE OF KENTUCKY )
) SS.:
COUNTY OF JEFFERSON )
On this 12th day of November, 1993, before me personally came Robert H.
Sachs to me known, who, being by me sworn did depose and say that he resides
at Louisville, Kentucky; that he is an Executive Vice President of Mid-America
Bank of Louisville and Trust Company, the Kentucky state chartered bank
described in and which executed the above instrument; that he knows the seal
of said Kentucky state chartered bank; that the seal affixed to the said
instrument is such corporate seal; that it was so affixed by authority of the
By-laws of said Kentucky state chartered bank and that he signed his name
thereto by like authority.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year in this certificate first above written.
/s/ Debra Minter
Notary Public
[NOTARIAL SEAL]
<PAGE>
A-1
EXHIBIT A
REGISTERED REGISTERED
I.C.H. CORPORATION
RU___________ $____________
11 1/4% SENIOR SUBORDINATED NOTE DUE 2003
DATE OF ORIGINAL ISSUANCE: ___________, 1993
I.C.H. Corporation, a corporation organized
and existing under the laws of the State of Delaware CUSIP __________
(herein called the "Company," which term shall SEE REVERSE FOR
include any successor corporation), for value CERTAIN
received, hereby promises to pay to DEFINITIONS
S P E C I M E N
, or registered assigns,
the principal sum of DOLLARS
on December 1, 2003, in any coin or currency of the United States of America
which at the time of payment is legal tender for the payment of public and
private debts, and to pay interest thereon at the rate of 11 1/4% per annum, in
like coin or currency, from the most recent date to which interest has been paid
or, if no interest has been paid, from the date of original issuance of this
Note. The Company will pay interest hereon semiannually on June 1 and December
1 in each year, commencing on the first such date to occur after the date of
original issuance of this Note, until said principal amount shall have become
due and payable, and will pay interest on any overdue principal and (to the
extent permitted by law) on any overdue installment of interest at the rate of
11 1/4% per annum. Interest payable hereon (i) as of the first date on which
interest accrued on this Note is payable, or (ii) on any redemption date not
occurring on June 1 or December 1 shall be calculated on the basis of the actual
number of days elapsed over a 365 day period.
The interest so payable on any June 1 or December 1, will, subject to
certain exceptions provided in the Indenture hereinafter referred to, be paid to
the person in whose name this Note is registered at the close of business on the
fifteenth day of the calendar month which precedes such interest payment date.
Both principal and interest on this Note are payable at the office or agency of
the Company maintained for such purpose in the Borough of Manhattan, State of
New York, or such other locations as the Company may determine; PROVIDED,
HOWEVER, that checks in payment of interest on this Note may, at the option of
the Company, be mailed to the registered holder at his or its address set forth
on the register of the Company.
Additional provisions of this Note are contained on the reverse hereof
and such provisions shall for all purposes have the same effect as though fully
set forth at this place.
<PAGE>
A-2
This Note shall not be entitled to any benefit under the Indenture or any
indenture supplemental thereto, or become valid or obligatory for any purpose,
until the certificate of authentication shall have been manually signed by the
Trustee.
IN WITNESS WHEREOF, I.C.H. CORPORATION
has caused this Note to be executed in
its corporate name by the signature of
its Chairman of the Board, President or
one of its Vice Presidents manually or
in facsimile and a facsimile of its
corporate seal to be imprinted hereon
and attested by the manual or facsimile
signature of its Secretary or one of its
Assistant Secretaries.
I.C.H. CORPORATION
By:_____________________
CHAIRMAN OF THE BOARD
ATTEST:
- -------------------------
Secretary
TRUSTEE'S AUTHENTICATION
CERTIFICATE
This Note is one of the Notes
described in the within-mentioned
Indenture.
Dated:
MID-AMERICA BANK OF LOUISVILLE
AND TRUST COMPANY
AS TRUSTEE
- ------------------------
Authorized Signatory
<PAGE>
A-3
[FORM OF REVERSE OF NOTE]
This Note is one of a duly authorized issue of Notes of the Company known
as its 11 1/4% Senior Subordinated Notes due 2003 (herein called the "Notes")
limited to the aggregate principal amount of $403,141,000 all issued under and
equally entitled to the benefits of an Indenture (herein called the
"Indenture"), dated as of _______, 1993, executed by the Company to Mid-America
Bank of Louisville and Trust Company (herein called the "Trustee"), as Trustee,
to which Indenture reference is hereby made for a statement of the rights
thereunder of the Trustee and the owners of the Notes and of the duties
thereunder of the Trustee and the Company.
The indebtedness evidenced by the Notes, including the principal and
interest thereon, is, to the extent and in the manner set forth in the
Indenture, expressly subordinated and subject in right of payment to the prior
payment in full of all Senior Indebtedness (as defined in the Indenture), and
this Note is issued subject to the provisions of the Indenture, and each holder
of this Note, by accepting the same, agrees to and shall be bound by such
provisions and authorizes and directs the Trustee on behalf of such holder to
take such action as may be necessary or appropriate to acknowledge or
effectuate, as between the Noteholders and the holders of Senior Indebtedness,
the subordination as provided in the Indenture and appoints the Trustee
attorney-in-fact of such holder for any and all such purposes.
The Notes are subject to redemption as a whole or in part (otherwise than
through the operation of a sinking fund) at any time prior to maturity, at the
option of the Company, on not less than 15 nor more than 60 days' prior notice
given as provided in the Indenture, at the following redemption prices
(expressed in percentages of the principal amount thereof) together with accrued
and unpaid interest to the date fixed for redemption; PROVIDED, HOWEVER, that
the Company may not redeem any of the Notes pursuant to such option prior to
December 1, 1996.
<TABLE>
<CAPTION>
IF REDEEMED DURING
THE 12-MONTH
PERIOD BEGINNING REDEMPTION
DECEMBER 1 PRICE
---------- -----
<S> <C>
1996. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103%
1997. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
1998 (and thereafter) . . . . . . . . . . . . . . . . . . . . . . 100
</TABLE>
The Notes are also entitled to the benefits of a sinking fund, which
provides for the mandatory redemption on each of December 1, 2001 and December
1, 2002, of 25% of the aggregate original principal amount of all Notes issued
under the Indenture at a redemption price of 100% of the principal amount
thereof together with interest accrued and unpaid thereon to the date fixed for
redemption, all as more fully provided in the Indenture.
To the extent permitted by, and as provided in, the Indenture, including
Article 10 thereof, modifications or alterations of the Indenture and of the
rights and obligations of the Company and of the holders of the Notes may be
made with the consent of the Company and
<PAGE>
A-4
with the consent of the holders of not less than a majority in principal amount
of the Notes entitled to consent then outstanding.
In case an Event of Default, as defined in the Indenture, shall occur and
be continuing, the principal of all the Notes at any such time outstanding under
the Indenture may be declared due and payable, and upon any such declaration
shall become due and payable, upon the conditions and in the manner and with the
effect provided in the Indenture. The Indenture provides that such declaration
may in certain events be rescinded or annulled by the holders of a majority in
principal amount of the Notes outstanding. The Indenture further provides that
no holder of any Note may institute any action to enforce any remedy under the
Indenture unless the Trustee declines or fails to exercise its powers or to
institute such action for more than 60 days after (i) written notice from such
holder of an Event of Default and request of the holders of 25% in principal
amount of all Notes outstanding under the Indenture and (ii) if the Trustee is
entitled thereto, security and indemnity is offered to it, all as more fully
provided in the Indenture; PROVIDED, HOWEVER, that the right of any holder of a
Note to receive payment thereunder when due or to sue for such payment shall not
be impaired or affected without the consent of such holder.
This Note is transferable by the registered owner hereof, in person or by
duly authorized attorney, at the corporate trust office of the Trustee in The
City of Louisville, State of Kentucky and at such other locations as the Company
shall determine, solely on books of the Company to be kept for that purpose,
upon surrender and cancellation of this Note and on presentation of a duly
executed written instrument of transfer, and thereupon a new Note or Notes, of
the same aggregate principal amount and in authorized denominations, will be
issued in registered form to the transferee or transferees, in exchange herefor,
and this Note, with or without other Notes, may in like manner be exchanged for
one or more new Notes of other authorized denominations but of the same
aggregate principal amount, all subject to the terms and conditions set forth in
the Indenture. Any such registration of transfer or exchange shall be without
charge, except that the Company or the Trustee may require the payment of a sum
sufficient to reimburse it for any stamp tax or other government charge or
expense in connection therewith. Notes are issuable only as registered Notes
without coupons in denominations of $1,000 or any integral multiple of $1,000.
The Company and the Trustee shall deem and treat the person in whose name
this Note is registered as the absolute owner hereof for the purpose of
receiving payment of or on account of the principal hereof and interest due
hereon, and for all other purposes, and neither the Company nor the Trustee
shall be affected by any notice to the contrary. All such payments shall be
valid and effectual to satisfy and discharge the liability upon this Note to the
extent of the sum or sums so paid. Pursuant to a recommendation promulgated by
the Committee on Uniform Security Identification Procedures, the Company has
caused CUSIP numbers to be printed on the Notes and has directed the Trustee to
use CUSIP numbers in notice of redemption as a convenience to Noteholders. No
representation is made as to the accuracy of such numbers either as printed on
the Notes or as contained in any notice of redemption, and reliance may be
placed only on the other identification numbers printed hereon.
No reference herein to the Indenture and no provision of this Note or of
the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay
<PAGE>
A-5
the principal of and interest on this Note at the time and place and at the rate
and in the currency herein described.
No recourse shall be had for the payment of the principal of and premium,
if any, and interest on this Note, or for any claim based hereon or on the
Indenture or any indenture supplemental thereto, against any incorporator, or
against any stockholder, director or officer, as such, past, present or future,
of the Company, or of any predecessor or successor corporation, either directly
or through the Company or any such predecessor or successor corporation, whether
by virtue of any constitution, statute or rule of law, or by the enforcement of
any assessment or penalty or otherwise, all such liability, whether at common
law, in equity, or by any constitution, statute or otherwise, of incorporators,
stockholders, directors or officers being released by every owner hereof by the
acceptance of this Note and as part of the consideration for the issue hereof,
and being likewise released by the terms of the Indenture; PROVIDED, HOWEVER,
that nothing herein or in the Indenture contained shall be taken to prevent
recourse to and the enforcement of the liability, if any, of any stockholder or
subscriber to capital stock of the Company or upon or in respect of shares of
capital stock not fully paid up.
It is the intention of the Company and the holder of this Note that the
Company and the holder of this Note strictly comply with applicable usury laws
so that in no event shall the amount paid, agreed to be paid or requested to be
paid to the holder of this Note exceed the maximum amount permitted by
applicable law, and the Company and the holder of this Note agree that the
amounts agreed to be paid or requested to be paid hereby shall not exceed the
maximum amount permitted by applicable law, and in the event the amount paid
exceeds the amount permitted by applicable law such excess shall be applied to
the principal of this Note and any excess refunded to the Company. All sums
deemed to be interest shall be spread throughout the life of this Note.
This Note shall be deemed to be a contract made under the laws of the
State of Texas, and for all purposes shall be governed by, and shall be
construed in accordance with, the laws of such State.
_________________
ABBREVIATIONS
The following abbreviations, when used in the inscription on the face of
this instrument, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common
<PAGE>
A-6
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of survivorship and not as tenants
in common
UNIF GIFT MIN ACT -- .................... Custodian ....................
(Cust) (Minor)
under Uniform Gifts to Minors Act ..................
(State)
Additional abbreviations may also be used though not in the above list.
_____________________
<PAGE>
A-7
FOR VALUE RECEIVED the undersigned sell(s), assign(s) and transfer(s)
unto
Please insert social security or other
identifying number of assignee
- --------------------------------------------
- -------------------------------------------- -----------------------------
- -------------------------------------------------------------------------------
Please print or typewrite name and address
including postal zip code of assignee
- -------------------------------------------------------------------------------
the within Note and all rights thereunder, hereby irrevocably constituting and
appointing
- ---------------------------------------------------------------------- attorney
to transfer said Note on the books of the Company, with full power of
substitution in the premises.
Dated:----------------------------------
---------------------------------------
NOTICE: The signature to this assignment must correspond with the name as
written upon the face of the within instrument in every particular,
without alteration or enlargement or any change whatever.
- -------------------------------------------------------------------------------
Signature guaranteed by:
------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
B-1
EXHIBIT B
MEETINGS OF SECURITYHOLDERS
I. PURPOSES FOR WHICH MEETINGS MAY BE CALLED
A meeting of Securityholders may be called for the following purposes:
(a) to give any notice to the Company or to the Trustee, or to give
any directions to the Trustee, or to waive or to consent to the waiving of
any Default hereunder and its consequences;
(b) to remove the Trustee, or appoint a successor Trustee or apply to
a court for a successor Trustee;
(c) to consent to the execution of a supplemental indenture; or
(d) to take any other action (i) authorized to be taken by or on
behalf of the Holders of any specified aggregate principal amount of the
Securities under this Indenture, or authorized or permitted by law or (ii)
which the Trustee deems necessary or appropriate in connection with the
administration of the Indenture.
II. MANNER OF CALLING MEETINGS
The Trustee may call a meeting of Securityholders to take any action
specified in Section I. Notice setting forth the time and place of, and the
action proposed to be taken at, such meeting shall be mailed by the Trustee to
the Company and to the Holders of the Securities not less than ten nor more than
60 days prior to the date fixed for the meeting.
Any meeting shall be valid without notice if the Holders of all Securities
are present in person or by proxy, or if notice is waived before or after the
meeting by the Holders of all Securities outstanding, and if the Company and the
Trustee are either present or have, before or after the meeting, waived notice.
III. CALL OF MEETINGS BY COMPANY OR SECURITYHOLDERS
In case at any time the Company or the Holders of not less than 50% in
aggregate principal amount of the Securities then outstanding shall have
requested in writing that the Trustee call a meeting of Securityholders to take
any action specified in Section I, and the Trustee shall not have mailed the
notice of such meeting within 20 days after receipt of such request, then the
Company or the Holders of Securities in the amount above specified may determine
the time and place for such meeting and may call such meeting by mailing notice
thereof.
<PAGE>
B-2
IV. WHO MAY ATTEND AND VOTE AT MEETINGS
To be entitled to vote at any meeting of Securityholders, a person shall
(a) be a Holder of one or more Securities, or (b) be a person appointed by an
instrument in writing as proxy for the Holder of Securities. The only persons
who shall be entitled to be present or to speak at any meeting of
Securityholders shall be the persons entitled to vote at such meeting and their
counsel and any representatives of the Trustee and the Company and their
counsel.
V. REGULATIONS MAY BE MADE BY TRUSTEE;
CONDUCT OF THE MEETING; VOTING RIGHTS
The Trustee may make such reasonable regulations as it may deem advisable
for any meeting of Securityholders, to prove the holding of Securities, the
appointment of proxies, and other evidence of the right to vote, to fix a record
date and to provide for such other matters concerning the conduct of the meeting
as it shall deem appropriate.
At any meeting each Securityholder or proxy shall be entitled to one vote
for each $1,000 principal amount of Securities held by him; provided, however,
that the Company or an Affiliate shall not be entitled to vote any Securities
held of record by it. At any meeting of Securityholders, the presence of
persons holding or representing any number of Securities shall be sufficient for
a quorum.
VI. EXERCISE OF RIGHTS OF TRUSTEE OR SECURITYHOLDERS MAY
NOT BE HINDERED OR DELAYED BY CALL OF MEETING
Nothing herein shall be deemed or construed to authorize or permit, by
reason of any call of a meeting of Securityholders or any rights expressly or
impliedly conferred hereunder to make such call, any hindrance or delay in the
exercise of any rights conferred upon or reserved to the Trustee or to the
Securityholders or by the Securities.
VII. EVIDENCE OF ACTIONS BY SECURITYHOLDERS
Whenever the Holders of a specified percentage in aggregate principal
amount of the Securities may take any action, the fact that the Holders of such
percentage have acted may be evidenced by (a) instruments of similar tenor
executed by Securityholders in person or by attorney or written proxy, or (b)
the Holders of Securities voting in favor thereof at any meeting of
Securityholders called and held in accordance with the provisions of these rules
for meetings of Securityholders, or (c) by a combination thereof. The Trustee
may require proof of any matter concerning the execution of any instrument by a
Securityholder or his attorney or proxy as it shall deem necessary.
<PAGE>
EXHIBIT 10.2
TERMINATION AGREEMENT
This TERMINATION AGREEMENT is entered into by and between
I.C.H. Corporation ("ICH") and Consolidated National Corporation
("CNC").
Recitals
On December 27, 1984, ICH entered into that certain
Management and Consulting Agreement ("Management and Consulting
Agreement") with Consolidated National Successor Corporation and
Consolidated National Corporation. As a result of mergers and name
changes, CNC and ICH represent all of the parties to the Management
and Consulting Agreement and have the right to terminate the
Management and Consulting Agreement pursuant to Section 8 thereof.
CNC and ICH are parties to three Stock Purchase Agree-
ments, each dated January 15, 1994 (collectively, the "Stock
Purchase Agreements"), pursuant to which, at simultaneous closings,
CNC will sell to ICH shares of Class B Common Stock of ICH, and CNC
and its subsidiary, Consolidated Fidelity Life Insurance Company,
will sell to Torchmark Corporation and Stephens Inc. shares of
Common Stock of ICH.
It is a condition to the closings of the Stock Purchase
Agreements that CNC and ICH terminate the Management and Consulting
Agreement and, by letter agreement dated January 10, 1994, CNC and
ICH have agreed to such termination.
The transactions contemplated by the Stock Purchase
Agreements are scheduled to close on this date.
NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, ICH and
CNC hereby agree that the Management and Consulting Agreement is
terminated as of the date hereof, effective immediately.
Executed this 11th day of February, 1994.
I.C.H. Corporation
By: /s/ Robert L. Beisenherz
---------------------------------
Robert L. Beisenherz
Chairman, Chief Executive Officer
and President
Consolidated National Corporation
(formerly Consolidated National Successor
Corporation)
By: /s/ Robert T. Shaw
----------------------------------
Robert T. Shaw, President
<PAGE>
Certain Portions Omitted and Submitted Separately for Confidential Treatment
([] Represents Information Omitted for Confidential Treatment)
September 29, 1993
Mr. Robert L. Beisenherz
President
I.C.H. Corporation
Lincoln Plaza
500 North Akard, Suite 1204
Dallas, Texas 75201
Dear Mr. Beisenherz:
This letter agreement ("Agreement") confirms our understanding of the terms and
conditions under which Perot Systems Corporation ("Perot Systems") will continue
to provide electronic data processing services to I.C.H. Corporation ("ICH") and
its affiliates and subsidiaries ("ICH and its affiliates and subsidiaries being
collectively referred to herein as the "ICH Companies") commencing August 1,
1993 (the "Effective Date"). The services to be provided pursuant to this
Agreement are a continuation of the services provided under that certain July
23, 1990 letter agreement, as amended by that certain January 28, 1991 letter
agreement, as amended by that certain October 7, 1992 interim letter agreement
(collectively, the "Prior Agreement"); it being understood that the services to
be provided pursuant to this Agreement shall at all times be at least of
equivalent quality to those being provided to ICH by Perot Systems on the
Effective Date. Because the Prior Agreement had become difficult to administer
in its existing form, this Agreement is presented as an amendment and
restatement in its entirety of the Prior Agreement. As provided in Paragraph 21
hereof, it is the parties' understanding and intent that this Agreement shall be
the entire agreement between the parties with respect to the subject matter
hereof and shall govern the parties' relationship from and after the Effective
Date.
Pursuant to the terms of this Agreement, Perot Systems will continue to maintain
management responsibility for operating the data center located in Richardson,
Texas (the "RIMF"), or any other data center from which Perot Systems elects to
provide electronic data processing services for the ICH Companies. Except as
provided in Paragraphs 5.1 through 5.3, the term of this Agreement shall be one
(1) year, commencing July 1, 1993 and concluding July 31, 1994 (the "Initial
Term"), and if this Agreement has not been terminated, this Agreement shall
automatically be renewed for successive renewal terms of six (6) months each
(each, a "Renewal Term"), unless either party shall have notified the other
party in writing at least one hundred eighty (180) days
<PAGE>
prior to the commencement of any Renewal Term that it will not consent to such
renewal.
1. DEFINITIONS. For purposes of this Agreement, the following
terms shall have the meanings set forth below:
(a) "Assets" shall mean _[]________________________________
_______________________________________________________
_______________________________________________________
_____________.
(b) "Pooled Data Center Products" shall mean ___[]_________
_______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
___________________________________.
(c) "PSC Shared Direct Costs" shall mean _______[]_________
_______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________________________________
_______________________________.
(d) "ICH Shared Direct Costs" shall mean ______[]__________
_______________________________________________________
_______________________________________________________
_______________________________________________________
___________________________________________.
(e) "ICH Direct Costs" shall mean ___________[]____________
_______________________________________________________
_______________________________________________________
_______________________________________________________
___________________________________________.
(f) "Pertinent ICH Direct Costs" shall mean ___[]__________
_____________________________________________.
(g) "Special Service" shall mean a service provided to an ICH
Company and/or any customer of an ICH Company by Perot Systems
outside of the general scope of services provided under this
Agreement. Special Services will be invoiced to ICH at
___________[]_____________________of Perot Systems' actual
cost of providing such service, but not including reasonable
<PAGE>
travel and entertainment expenses incurred in conjunction with
Special Services, which will be billed to ICH at ___________
_____________[]___________________ . ICH shall have no
liability for any Special Service unless authorized in writing
by the ICH Project Manager prior to performance of the Special
Service.
(h) "Project Managers" shall mean, collectively, the individual
designated by ICH and the individual designated by Perot
Systems to manage the services provided pursuant to this
Agreement.
(i) "ICH Project Manager" shall mean the employee of one of
the ICH Companies designated by ICH to be its Project
Manager who shall have day-to-day responsibility for
interacting with the Perot Systems Project Manager, for
supervising the performance by the ICH Companies of their
obligations under this Agreement. Perot Systems may rely
upon the representations and agreements of the ICH
Project Manager as lawfully binding on the ICH Companies.
As of the Effective Date, the ICH Project Manager shall
be David B. Little. ICH shall promptly notify Perot
Systems in writing of any replacement of the ICH Project
Manager.
(ii) "Perot Systems Project Manager" shall mean the employee
of Perot Systems designated by it to be its Project
Manager who shall have day-to-day responsibility for
interacting with the ICH Project Manager regarding all
matters relating to the services provided hereunder and
for supervising the daily progress and completion of the
work performed by Perot Systems under this Agreement. As
of the Effective Date, the Perot Systems Project Manager
shall be Karl B. Browning. Perot Systems shall promptly
notify ICH in writing of any replacement of the Perot
Systems Project Manager.
(i) "CPU Base Unit Cost" shall mean _____[]______________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
__________________________________________:
___________________________________________________
__________________
<PAGE>
(j) "DASD Base Unit Cost" shall mean
_______[]__________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
____________________________________.
(k) "Monthly CPU Charge" shall mean
______[]___________________________________________________________
___________________________________________________________________
____________________________________.
(l) "Monthly DASD Charge" shall mean
______[]___________________________________________________________
___________________________________________________________________
_____________________________________.
(m) "Minimum Fee" shall mean, in reference to Perot Systems
charges,
______[]___________________________________________________________
___________________________________________________________________
______________.
(n) "ICH Confidential Information" shall mean all confidential and
proprietary information which any of the ICH Companies or any of
their respective customers do not disclose in the ordinary course
of their respective businesses without an obligation of
confidentiality, including, without limitation, customer lists,
cost analyses, invoices, correspondence, marketing reports,
projections, surveys, personnel lists, supplier lists, receipts,
statements, memoranda, ledgers, reports to regulatory authorities,
records, bank statements, and other data pertaining to any of the
ICH Companies or any of their respective customers, any of their
businesses, operations, properties, personnel, suppliers or
customers, that are maintained by or received by Perot Systems on
behalf of any ICH Company or any of their respective customers in
connection with the performance of services, in any form
whatsoever, including, without limitation, hard copy or machine
readable format.
(o) "Perot Systems Confidential Information" shall mean all
confidential and proprietary information which Perot Systems does
not disclose without obligation of confidentiality in the ordinary
course of its business, including, without limitation, customer
lists, cost analyses, invoices, correspondence, marketing reports,
projections, surveys, personnel lists, supplier lists, receipts,
statements, memoranda, ledgers, reports to regulatory authorities,
records, bank statements, and other data pertaining to Perot
Systems, its business, operations, properties,
<PAGE>
personnel, suppliers or customers, that are received by any of the
ICH Companies in connection with the performance of services, in
any form whatsoever, including, without limitation, hard copy or
machine readable format.
2. COSTS.
2.1 (a) During the Initial Term or any Renewal Term, Perot
Systems shall invoice ICH monthly, and ICH shall pay
to Perot Systems a total monthly charge equal to the
sum of:
(i) the greater of (A) the sum of the Monthly CPU
Charge and the Monthly DASD Charge or (B) the
Minimum Fee for that month; and
(ii) the Pertinent ICH Direct Costs incurred or
recognized by Perot Systems; and
(iii)charges for Special Services, if any.
(b) The parties agree that the CPU Base Unit Cost shall
be _[]_ per unit and the DASD Base Unit Cost shall
be _[]_ per unit, subject to the cost of living
adjustment set forth in Paragraph 2.5. The bases
for the calculation of the CPU Base Unit Cost and
the DASD Base Unit Cost are the same as were in
effect immediately prior to the Effective Date.
(c) Except for Special Services which shall be invoiced in
arrears, Perot Systems shall invoice ICH in advance on
the first day of each calendar month, and ICH shall pay
Perot Systems within five (5) business days of receipt of
invoice. The amount invoiced for the Monthly CPU Charge
and the Monthly DASD Charge shall be an estimated amount
equal to the average monthly charges for the previous
calendar quarter, and shall be adjusted on a subsequent
invoice to reconcile the estimated charges with the
actual charges as determined in accordance with this
Agreement.
2.2 All tapes catalogued for ICH's use will be charged at a rate
of _[]__ per tape per month and will be included in the ICH
Direct Costs. By October 1, 1993, ICH will purchase, at a
cost of _[]_ plus sales tax per tape, the number of tapes
catalogued for ICH's use. ICH will own these tapes upon
payment therefor. Perot Systems shall not encumber these
tapes.
<PAGE>
2.3 Without the consent of ICH, which consent shall not be
unreasonably withheld, Perot Systems shall not: (a) modify,
change, encumber or substitute any Asset which constitutes a
Pertinent ICH Direct Cost on the Effective Date other than
such modifications, changes or substitutions necessary to
maintain such Assets or (b) increase the cost of any Assets
constituting ICH Direct Costs or ICH Shared Direct Costs.
2.4 ICH shall have the right on demand to audit or have Coopers &
Lybrand audit the Pertinent ICH Direct Costs and the CPU and
DASD usage by the ICH Companies and their customers. Prior to
being given access to the information needed to conduct the
audit, Coopers & Lybrand must execute Perot Systems' non-
disclosure agreement in substantially the form attached hereto
as EXHIBIT 3. Any processing by Perot Systems as a result of
such audits will be considered part of the ICH Companies'
workload and, therefore, such processing will be performed for
the processing rates set forth in Paragraph 2.1. Any Perot
Systems personnel required to support any such audit, other
than personnel whose primary job function is to provide
services under this Agreement who do not require replacement
while engaged in such audit, and/or any other expenses
incurred by Perot Systems in connection therewith will be
billed to ICH as a Special Service; provided, however, if the
audit reveals an overcharge of greater than five percent (5%),
and such overcharge is not the result of a reasonable
misunderstanding between the parties, Perot Systems shall not
bill ICH for the services of such personnel and/or for any
other expenses incurred by Perot Systems in connection with
the audit. Any such audit shall be conducted upon at least
five (5) days prior written notice and shall be conducted
during Perot Systems' normal business hours. Perot Systems
shall credit ICH for any overcharge that any such audit
reveals. Perot Systems shall not unreasonably withhold
agreement with the results of an audit.
2.5 For the purpose of determining cost of living adjustments to
the CPU Base Unit Costs and the DASD Base Unit Costs, a "Base
Date" of August 1, 1993 shall apply. Beginning August 1,
1994, the CPU Base Unit Costs and the DASD Base Unit Costs
shall be adjusted annually at ____[]_____________ of the
percentage change in the Consumer Price Index for Urban
Consumers, All Cities Average, for All Items (1982-84 = 100),
as published by the Bureau of Labor Statistics of the
Department of Labor (the "CPI"), as calculated from the Base
Date. If the Bureau of Labor Statistics stops publishing the
CPI or substantially changes its content or
<PAGE>
format, the parties shall substitute another comparable
measure published by a mutually agreeable source.
2.6 If any of the ICH Companies and/or their customers migrates
electronic data processing from a Perot Systems facility, ICH
shall continue to be financially responsible for any Pertinent
ICH Direct Costs incurred to provide electronic data
processing services to the party or parties that is or are
removing its or their electronic data processing from a Perot
Systems facility (the "Migrating Party"), until such time as
the Pertinent ICH Direct Costs are transferred to ICH or are
terminated at the request of ICH in accordance with Paragraph
8 hereof.
2.7 If ICH in good faith disputes any amount due Perot Systems
under this Agreement, ICH shall deposit the disputed amount in
escrow in a major U.S. commercial bank to be mutually agreed
with the interest thereon to be allocated to the party
entitled to the principal upon resolution of the dispute.
Such payment to the escrow account shall be due and payable on
the same date as the payment to Perot Systems would have been
due and payable if there was no dispute.
3. EXCLUDED COSTS. Perot Systems will be responsible for all other
costs associated with the provision of electronic data processing
services hereunder, including, without limitation, the costs
associated with those front-end processors and channel extenders
identified in SCHEDULE B. Perot Systems will have full access to
these front-end processors to connect other customers to Perot
Systems' network or to perform other necessary functions, provided
reasonable notice (via telephone) is provided to on-site ICH
personnel.
4. ICH CUSTOMER SERVICES. Any of the ICH Companies may request Perot
Systems to provide electronic data processing services for any of
their respective customers or for any additional ICH Company. At
the request of ICH, Perot Systems shall assist in the migration
into a Perot Systems facility of the electronic data processing of
an ICH Company or any customer of an ICH Company. Perot Systems
shall provide the requested electronic data processing services as
set forth herein, and, subject to Perot Systems' right to propose a
new schedule of charges discussed in this Paragraph below, Perot
Systems shall charge ICH the fee set forth in Paragraph 2.1(a)
hereof for such services. Assistance in migration other than such
electronic data processing services shall be rendered as a Special
Service. The requesting ICH Company shall provide Perot Systems
with at least ninety (90) days prior written notice of any such
impending increase in workload, and to the extent that such
addition is likely to increase the then current workload of Perot
<PAGE>
Systems under the Agreement by more than____[]___________________,
Perot Systems shall have the right to propose a new schedule of
charges applicable only to such additional workload, provided that
such charge shall not exceed ______________[]_____________________
of the then current CPU and DASD Base Unit Costs. The ICH Company
requesting the services shall have the right to approve the
proposed fee increase. Perot Systems shall have no duty to perform
such additional work unless and until the charges are agreed upon
by the ICH Project Manager. Any hiring or training of employees by
Perot Systems that is required to perform such services, and any
Assets that are acquired solely to perform such services, shall be
billed as an ICH Direct Cost or ICH Shared Direct Cost, as
applicable. Perot Systems shall neither hire nor train any
employees or acquire such Assets without the prior consent of ICH,
which consent shall not be unreasonably withheld.
None of the ICH Companies shall resell the services of Perot
Systems to any customers of the ICH Companies that are not
customers on the Effective Date of this Agreement unless such
services include substantive services other than data processing.
In connection therewith, Perot Systems acknowledges and agrees that
the ICH Companies shall determine the fees charged to their
customers for the services of Perot Systems, and Perot Systems
shall not be entitled to any of the revenues received from any such
customer by the ICH Companies.
Upon the written request of ICH, Perot Systems shall continue to
provide electronic data processing services, through any migration
taking a reasonable amount of time, to the Migrating Party at the
rates set forth in Paragraph 2.1 of this Agreement.
5. TERMINATION.
5.1 TERMINATION FOR NONPAYMENT. Perot Systems may terminate this
Agreement if ICH fails to pay any undisputed amounts due
hereunder upon thirty (30) days prior written notice, provided
that such termination shall not occur if ICH cures such non-
payment during such thirty (30) day period.
5.2 TERMINATION FOR BREACH. Subject to paragraph 6, either party
may terminate this Agreement if the other party breaches a
material obligation, representation, warranty or other term of
this Agreement and fails to cure such breach within thirty
(30) days after receipt of a written notice describing such
breach in reasonable detail, or such extended time period as
the parties may agree.
<PAGE>
5.3 TERMINATION FOR OTHER THAN CAUSE. Notwithstanding any other
provision of this Agreement, ICH may, without any penalty
whatsoever, terminate this Agreement at any time without
cause, provided that ICH provides Perot Systems with one
hundred eighty (180) days prior written notice. In the event
of a termination by ICH pursuant to this Paragraph 5.3, the
sole liability of ICH to Perot Systems shall be:
(i) to pay, pursuant to Paragraph 6, for the data processing
services rendered during the out-migration of the data
processing services;
(ii) to pay the Minimum Fees after completion of the out-
migration for the remainder of the Initial Term if the
out-migration is completed prior to expiration of the
Initial Term; and
(iii) to perform its obligations pursuant to Paragraphs 8(c)
and 9.
6. TRANSITION SERVICES. Upon expiration or termination of this
Agreement, except for termination by Perot Systems pursuant to
Paragraph 5.1, until ICH and Perot Systems can complete an orderly
transition, Perot Systems shall continue to process the workload of
the ICH Companies and their customers at the rates set forth in
Paragraph 2.1 of this Agreement for a reasonable period of time.
Upon completion of the orderly transition, invoices submitted by
Perot Systems to ICH for charges pursuant to Paragraph 2.1 shall be
paid by ICH within five (5) business days of receipt of the
invoices. Within thirty (30) days of Perot Systems' reconciliation
of payments made and charges incurred, but in any event within one
hundred twenty (120) days after the date of the expiration or
termination of this Agreement, Perot Systems shall remit to ICH any
advance payments made by ICH to Perot Systems hereunder that are in
excess of the amounts owed by ICH to Perot Systems under this
Agreement.
7. OWNERSHIP OR RIGHT TO POSSESSION. As of the Effective Date, as
between ICH and Perot Systems, Perot Systems has all rights of use
and possession to the facility housing the RIMF and all Assets
located at the RIMF used to provide electronic data processing
services under this Agreement, other than the customer
systems/application software listed on EXHIBIT 1 and any Assets
listed on SCHEDULE E and provided for in Paragraph 9.
8. TRANSFER OF ASSETS ON MIGRATION, EXPIRATION OR EARLY TERMINATION.
<PAGE>
(a) SOFTWARE. Perot Systems represents and warrants that as of
August 31, 1992, to the best of its knowledge, EXHIBIT 1 to
this Agreement contains a full and complete listing of all
software currently used by Perot Systems to provide electronic
data processing services to the ICH Companies and their
customers, whether application, operating or other, that
constitute:
(i) ICH Direct Costs;
(ii) ICH Shared Direct Costs;
(iii)software constituting Pooled Data Center Products; and
(iv) customer systems/application software.
(b) HARDWARE AND EQUIPMENT. Perot Systems represents and warrants
that as of the Effective Date, to the best of its knowledge,
EXHIBIT 2 hereto contains a full and complete listing of all
hardware and equipment currently used by Perot Systems to
provide electronic data processing to the ICH Companies and
their customers that constitute:
(i) ICH Direct Costs; and
(ii) ICH Shared Direct Costs.
(c) DISPOSITION UPON MIGRATION, EARLY TERMINATION OR EXPIRATION.
Except as provided in Paragraph 9, upon a migration,
termination or expiration of this Agreement, the Assets used
to provide electronic data processing services under the
Agreement shall be disposed of as follows:
ICH DIRECT COSTS. If any of the ICH Companies decides to
migrate its or its customers' electronic data processing
from the facilities of Perot Systems, Perot Systems shall
use its reasonable best efforts to promptly transfer to
ICH or its designee all Assets constituting ICH Direct
Costs utilized in connection with providing electronic
data processing services to the Migrating Party; provided,
however, that ICH agrees to accept transfer of such Assets
and financial responsibility therefor. Notwithstanding
the foregoing, Perot Systems shall not be required to
transfer any Assets if Perot Systems determines that such
transfer may violate the terms of a then existing
agreement with a third party vendor with respect to such
Assets.
ICH SHARED DIRECT COSTS. With respect to Assets
constituting ICH Shared Direct Costs utilized in
connection with providing electronic data processing to a
Migrating Party, Perot Systems shall maintain possession
of such Assets constituting ICH Shared Direct Costs and
such Assets shall remain ICH Shared
<PAGE>
Direct Costs; provided, however, that ICH may demand that
Perot Systems transfer and Perot Systems shall use its
reasonable best efforts to promptly transfer to ICH or its
designee any such Assets constituting ICH Shared Direct
Costs to ICH; provided, further, however, that ICH agrees
to accept transfer of such Assets and financial
responsibility therefor. Notwithstanding the foregoing,
Perot Systems shall not be required to transfer any Assets
if Perot Systems determines that such transfer may violate
the terms of a then existing agreement with a third party
vendor with respect to such Assets.
PSC SHARED DIRECT COSTS. With respect to Assets
constituting PSC Shared Direct Costs that are utilized to
provide electronic data processing to both non-ICH
customers and a Migrating Party, Perot Systems shall not
be obligated to transfer such Assets to ICH.
Notwithstanding the foregoing, if the Assets constituting
PSC Shared Direct Costs were provided to Perot Systems by
the ICH Companies or their customers, ICH shall have the
right to demand that Perot Systems transfer and Perot
Systems shall use its reasonable best efforts to promptly
transfer such Assets to ICH; provided, however, that ICH
agrees to accept transfer of such Assets and financial
responsibility therefor. Notwithstanding the foregoing,
Perot Systems shall not be required to transfer any Assets
if Perot Systems determines that such transfer may violate
the terms of a then existing agreement with a third party
vendor with respect to such Assets.
(d) PEROT SYSTEMS OWNED ASSETS. In all instances under this
Paragraph 8 in which Perot Systems transfers to ICH or its
designee any Assets, and such Assets are owned by Perot
Systems, ICH shall, at Perot Systems' request, purchase
any such Assets from Perot Systems at book value as set
forth on the books of Perot Systems on the date of such
purchase.
(e) THIRD PARTY CONSENTS AND TRANSFER AND TERMINATION FEES.
Perot Systems and ICH shall attempt in good faith to
promptly obtain consents needed from third parties to
consummate the transfers described herein. If the
transferor cannot obtain such consents, and the transferor
does not want to retain the Assets for its own use, the
intended transferee shall remain financially responsible
for the fees associated with such Assets. The intended
transferee may request that the transferor, and, upon such
request, the transferor shall use its reasonable best
efforts to, promptly terminate the agreement, lease or
license applicable to such Assets, and the intended
transferee shall be responsible for any penalties or other
fees related to the termination.
<PAGE>
Perot Systems agrees that upon receipt of the written
request of ICH, it shall use its reasonable best efforts
to promptly update EXHIBIT 1 and/or EXHIBIT 2. Such
service shall be performed as a Special Service.
Perot Systems and ICH agree to cooperate with one another
as the other may reasonably request to effectuate the
intent of this Paragraph .
9. SCHEDULE E ASSETS. ICH and Perot Systems agree that (i) attached
hereto as SCHEDULE E is a list of Assets that have been owned,
leased or licensed by ICH (the "Schedule E Assets") that have been
and will continue to be utilized by Perot Systems to provide
services under this Agreement; (ii) Perot Systems shall pay ICH for
the use and purchase of the Schedule E Assets an amount equal to
the monthly depreciation of such Assets, as set forth in SCHEDULE
E; (iii) Perot Systems, in turn, shall charge ICH as appropriate,
for Schedule E Assets which are Pertinent ICH Direct Costs or
Pooled Data Center Products; and (iv) ICH shall not sell or
transfer the Schedule E Assets without the prior written consent of
Perot Systems, which consent shall not be unreasonably withheld or
delayed. Upon the payment by Perot Systems of the full
depreciation of such Assets, Perot Systems shall own the Schedule E
Assets.
Notwithstanding anything in this Agreement to the contrary, upon a
migration, termination or expiration of this Agreement, with
respect to Schedule E Assets that are Pertinent ICH Direct Costs
that are removed from Perot Systems' facilities as contemplated by
Paragraph 8, Perot Systems shall stop paying ICH for the use of
such Schedule E Assets effective the date of removal. As to all
other Schedule E Assets, Perot Systems shall have the right to pay
ICH _______[]_____________________________, _______________________
as set forth in SCHEDULE E. Upon receipt of payment, ICH shall
promptly transfer such Schedule E Assets to Perot Systems, unless
such transfer is delayed by reasons beyond ICH's control (such as
the failure of a third party to consent).
10. WARRANTY DISCLAIMER. EXCEPT AS SPECIFIED IN THIS AGREEMENT, PEROT
SYSTEMS DISCLAIMS ALL WARRANTIES, EXPRESS OR IMPLIED, INCLUDING THE
IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A SPECIFIC
PURPOSE.
11. REMEDIES.
11.1 MEASURE AND LIMITATION OF DAMAGES. The measure of
damages recoverable from one party by the other for any
reason, whether arising by negligence, intended conduct
or otherwise, shall not
<PAGE>
include any amounts for indirect, special, consequential
or punitive damages of any party, including any claim by
either party for indemnification for or contribution to
its liability to any third party, even if such damages
are foreseeable. In the event one party shall be liable
to the other party for damages arising under or in
connection with this Agreement, whether arising by
negligence, intended conduct or otherwise, then that
party may recover from the other its direct damages only,
up to a maximum for all events of ____[]________________;
provided, however, that if, at any time during the
Initial Term or a Renewal Term, ICH desires for Perot
Systems to have liability for direct damages in an amount
in excess of __[]_______________________________, then
Perot Systems shall obtain the cost of insurance for the
liability limit requested by ICH. At ICH's request and
cost, Perot Systems shall obtain such insurance coverage,
in which event Perot Systems shall be liable to ICH for
all losses covered by such insurance to the liability
limits of any insurance so obtained.
11.2 EXCLUSION. The limitations set forth in Paragraph 11.1 are
not applicable to (i) any breach of the nondisclosure and
confidentiality provisions of Section 12, (ii) the failure of
one party to make payments due under this Agreement to the
other or (iii) willful, wanton and malicious misconduct
directed by one party, at the institutional level, at the
other.
12.CONFIDENTIALITY.
12.1 OWNERSHIP AND USE OF ICH CONFIDENTIAL INFORMATION. ICH
Confidential Information shall, as between the ICH Companies
and Perot Systems, be and remain the sole and exclusive
property of the ICH Companies. Upon request of ICH or upon
expiration or termination of this Agreement, Perot Systems
shall promptly return to ICH any or all ICH Confidential
Information, or upon instruction from ICH destroy the same.
Perot Systems shall maintain all ICH Confidential Information
in strict confidence and shall only disclose ICH Confidential
Information to its employees and agents who have: (a) a
legitimate need to know such information; and (b) been advised
of the obligations and restrictions relating to the ICH
Confidential Information contained herein. Perot Systems and
its employees and agents shall not use any ICH Confidential
Information for any purpose other than that of rendering
services under this Agreement, nor shall Perot Systems or its
employees or agents disclose, sell, assign, lease, license,
encumber or otherwise commercially exploit any portion of the
ICH Confidential Information. Perot Systems shall treat ICH
Confidential Information with the same
<PAGE>
care and precaution Perot Systems affords to Perot Systems'
most confidential, valuable and secret information, but in no
event shall Perot Systems, its employees and agents use less
than due care. Perot Systems, its employees and agents shall
not encumber any storage media upon which any portion of ICH
Confidential Information is stored or maintained. Perot
Systems shall be responsible for any breach by its employees
or agents of Perot Systems' obligations set forth in this
Paragraph 12.1.
12.2 OWNERSHIP AND USE OF PEROT SYSTEMS CONFIDENTIAL INFORMATION.
Perot Systems Confidential Information shall, as between the
ICH Companies and Perot Systems, be and remain the sole and
exclusive property of Perot Systems. Upon request of Perot
Systems or upon expiration or termination of this Agreement,
ICH shall promptly return to Perot Systems any or all Perot
Systems Confidential Information, or upon the request of Perot
Systems, destroy the same. ICH shall maintain all Perot
Systems Confidential Information in strict confidence and
shall only disclose Perot Systems Confidential Information to
its employees and employees of the ICH Companies who have:
(a) a legitimate need to know such information; and (b) have
been advised of the obligations and restrictions relating to
Perot Systems Confidential Information contained herein. ICH
and its employees and employees of the ICH Companies shall not
use any Perot Systems Confidential Information for any purpose
other than as set forth herein, nor shall ICH, its employees
or employees of the ICH Companies disclose, sell, assign,
lease, license, encumber or otherwise commercially exploit any
portion of the Perot Systems Confidential Information. ICH
shall treat Perot Systems Confidential Information with the
same care and precaution ICH affords to ICH's most
confidential, valuable and secret information, but in no event
shall ICH use less than due care. ICH shall be responsible
for any breach by its employees and employees of the ICH
Companies of ICH's obligations pursuant to this Paragraph
12.2.
12.3 CONFIDENTIALITY. Except as otherwise provided herein, ICH and
Perot Systems each acknowledge and agree that all ICH
Confidential Information and Perot Systems Confidential
Information discovered, disclosed, observed or communicated to
the other party in connection with the negotiation,
preparation and performance of this Agreement was and shall be
received in confidence and shall be used only for the purposes
set forth in this Agreement. Except as otherwise provided in
Paragraphs 2.4 and 13, the parties agree that each party shall
not disclose ICH Confidential Information or Perot Systems
Confidential
<PAGE>
Information which either has in its possession,
except either party may disclose to third parties ICH
Confidential Information or Perot Systems Confidential
Information which either has in its possession pursuant to a
validly issued judicial or administrative process, subpoena or
request of documents; provided that such party receiving such
validly issued judicial or administrative process, subpoena or
request of documents promptly notifies the party whose
information is sought, and to the extent that such other party
deems necessary, cooperate with such other party as such other
party reasonably requests to protect the confidentiality of
such information, including, without limitation, objecting to
such judicial or administrative process, subpoena or request
of documents, or using reasonable efforts to obtain a
protective order, confidentiality agreement or non-use
agreement with respect to such information. In any event,
either party may disclose to third parties the existence of
this Agreement, but none of its terms, either generally or in
specific without the prior written consent of the other party.
12.4 EXCEPTION. Notwithstanding the obligations of the parties set
forth in Paragraph 12.1, 12.2 or 12.3, neither party shall
have any obligation pursuant to such Paragraphs with respect
to ICH Confidential Information or Perot Systems Confidential
Information which: (a) is already known by the party receiving
the information prior to such party learning or receiving such
information from the disclosing party; (b) is generally known
to the public; (c) becomes generally known to the public other
than as a result of an unauthorized act of the party receiving
such information; (d) is received by a party from a third
party without knowledge of any breach of such third party of
any similar non-disclosure agreement; or (e) is independently
developed by a party without use of any such information.
13. DISPUTE RESOLUTION. Perot Systems and ICH (on behalf of the ICH
Companies) each individually represent and warrant that to the best
of its knowledge, as of the Effective Date, there are no claims,
controversies, disputes or facts which exist that would cause Perot
Systems to bring a cause of action against ICH or that would cause
ICH to bring a cause of action against Perot Systems.
All controversies or claims, whether based on contract, tort or
other theory of liability, arising out of or relating to this
Agreement or its inducement or breach, other than controversies or
claims seeking relief from irreparable harm, shall be settled by
arbitration in Dallas, Texas, in accordance with the Commercial
Arbitration Rules of the American Arbitration Association (the
"Rules of Arbitration") and judgment on
<PAGE>
the award rendered by the arbitration panel may be entered in any
court or tribunal of competent jurisdiction.
The party seeking arbitration shall give written notice (the
"Arbitration Notice") to the other party specifying the nature of
the dispute or controversy to be arbitrated, the name and address
of the arbitrator appointed by the party initiating such
arbitration, and such other matters as may be required by the Rules
of Arbitration. The Arbitration Notice shall be given no later than
the earlier of (i) the expiration of any applicable statute of
limitations, or (ii) two (2) years after the cause of action
arises.
The party who receives an Arbitration Notice shall appoint an
arbitrator and notify the initiating party of such arbitrator's
name and address within fourteen (14) days after delivery of the
Arbitration Notice; otherwise, a second arbitrator shall be
appointed at the request of the party who delivered the Arbitration
Notice as provided in the Rules of Arbitration. The two (2)
arbitrators so appointed shall appoint a third arbitrator who shall
be chairman of the arbitration panel. Should the arbitrators
appointed by the parties not agree upon the appointment of the
third arbitrator within fourteen (14) days from the appointment of
the second arbitrator, the third arbitrator shall be appointed in
accordance with the Rules of Arbitration. All decisions of the
arbitration panel shall be binding on all parties to the Agreement.
All costs in connection with an arbitration shall be borne by the
non-prevailing party. The arbitration panel may award pre-award
interest but shall not award punitive damages. Under no
circumstances shall any of the arbitrators be employed by one of
the ICH Companies or Perot Systems, or by a competitor of Perot
Systems.
This Agreement shall be construed and enforced in accordance with
the laws of the State of Texas without regard to conflict of law
principles.
14. OFFERS OF EMPLOYMENT. Except as may otherwise be provided by
applicable law, ICH and Perot Systems each agree that, during the
term of this Agreement and for one (1) year thereafter, neither it
nor any of its subsidiaries or affiliates shall, except with the
prior written consent of the other, which consent may be withheld
in the other party's sole discretion, offer employment to or employ
any person employed then or within the preceding twelve (12) months
by the other or any subsidiary or affiliate of the other if such
person was involved directly or indirectly in the performance of
this Agreement.
<PAGE>
15. PERFORMANCE STANDARDS. The parties have agreed on performance
standards for the services provided hereunder which are set forth
in EXHIBIT 4 hereto.
16. SEVERABILITY. If any provision of this Agreement is held to be
unenforceable, then both parties shall be relieved of all
obligations arising under such provision, but only to the extent
that such provision is unenforceable, and this Agreement shall be
deemed amended by modifying such provision to the extent necessary
to make it enforceable while preserving its intent or, if that is
not possible, by substituting another provision that is enforceable
and achieves the same objective and economic result. If such
unenforceable provision does not relate to the payments to be made
to Perot Systems, and if the remainder of this Agreement is capable
of substantial performance, then the remainder of this Agreement
shall be enforced to the extent permitted by law.
17. BINDING NATURE AND ASSIGNMENT. This Agreement shall bind the
parties and their successors and permitted assigns. Neither party
may assign this Agreement without the prior written consent of the
other, which consent shall not be unreasonably withheld or delayed.
18. NOTICES. When one party is required or permitted to give notice to
the other, such notice shall be deemed given when delivered by hand
or when mailed by United States mail, registered or certified mail,
return-receipt requested, postage prepaid, and addressed as
follows:
In the case of Perot Systems:
Perot Systems Corporation
12377 Merit Drive
Suite 1100
Dallas, TX 75251
Attn: [name of Perot Systems Project Manager]
with a copy to:
Perot Systems Corporation
12377 Merit Drive
Suite 1100
Dallas, TX 75251
Attn: General Counsel
<PAGE>
In the case of ICH:
I.C.H. Corporation
Lincoln Plaza
500 North Akard, Suite 1204
Dallas Texas 75201
Attn: [name of ICH Project Manager]
with a copy to:
I.C.H. Corporation
100 Mallard Creek, Suite 400
Louisville, Kentucky 40207
Attn: General Counsel
Either party may change its address for notification purposes by
giving the other party written notice of the new address and the
date upon which it will become effective.
19. RELATIONSHIP OF PARTIES. Perot Systems, in furnishing services to
ICH, is acting only as an independent contractor. Except where
this Agreement expressly provides otherwise, Perot Systems does not
undertake by this Agreement or otherwise to perform any obligation
of ICH, whether regulatory or contractual, or to assume any
responsibility for ICH's business or operations. Perot Systems has
the sole right and obligation to supervise, manage, contract,
direct, procure, perform or cause to be performed, all work to be
performed and resources used by Perot Systems under this Agreement,
except where it is specifically stated that ICH must give approval
or consent.
20. WAIVER. No delay or omission by either party to exercise any right
or power it has under this Agreement shall impair or be construed
as a waiver of such right or power. A waiver by either party of
any covenant or breach shall not be construed to be a waiver of any
succeeding breach or of any other covenant. All waivers must be in
writing and signed by the party waiving its rights.
21. ENTIRE AGREEMENT. This Agreement, including all of its Schedules
and Exhibits, each of which is incorporated into this Agreement, is
the entire agreement between the parties with respect to its
subject matter, and there are no other representations,
understandings or agreements between the parties relative to such
subject matter. No amendment to, or change, waiver or discharge of
any provision of this Agreement shall be valid unless in writing
and signed by an authorized representative of the party against
which such amendment, change, waiver or discharge is sought to be
enforced.
<PAGE>
22. SURVIVABILITY. The provisions of Paragraphs 6, 8(c), 9, and 11
through 22 shall survive the termination, for any reason, of this
Agreement.
If these terms and conditions conform to your understanding, please so indicate
by signing in the space provided below and returning this Agreement to me. We
look forward to continuing our relationship with the ICH Companies.
Very truly yours,
Perot Systems Corporation
By /s/Karl B. Browning
___________________________
Karl B. Browning
ICH Account Manager
ACCEPTED AND AGREED to as of
the Effective Date:
I.C.H. Corporation
By:/s/ Robert L. Beisenherz
______________________________
Robert L. Beisenherz
President
<PAGE>
Exhibit 1
POOLED DATA CENTER SOFTWARE
--------------------------------------------------
[]
(Confidential Treatment Has Been Requested)
Page 1
<PAGE>
Exhibit 1
POOLED DATA CENTER SOFTWARE
--------------------------------------------------
[]
(Confidential Treatment Has Been Requested)
Page 2
<PAGE>
Exhibit 1
POOLED DATA CENTER SOFTWARE
--------------------------------------------------
[]
(Confidential Treatment Has Been Requested)
Page 3
<PAGE>
Exhibit 1
ICH DIRECT SOFTWARE
--------------------------------------------------
[]
(Confidential Treatment Has Been Requested)
<PAGE>
Exhibit 1
ICH SHARED DIRECT SOFTWARE
--------------------------------------------------
[]
(Confidential Treatment Has Been Requested)
<PAGE>
CUSTOMER SYSTEMS/APPLICATION SOFTWARE
----------------------------------------------
[]
(Confidential Treatment Has Been Requested)
<PAGE>
EXHIBIT 2
ICH DIRECT HARDWARE
----------------------------------------------
[]
(Confidential Treatment Has Been Requested)
<PAGE>
EXHIBIT 2
ICH DIRECT HARDWARE
----------------------------------------------
[]
(Confidential Treatment Has Been Requested)
<PAGE>
Exhibit 3
---------
NON-DISCLOSURE AGREEMENT
This Non-Disclosure Agreement ("Agreement") is made and entered into this ____
day of _______, 199__, and relates to the protection of proprietary information
belonging to Perot Systems Corporation, a Texas corporation ("PEROT SYSTEMS")
and provided to ____________________, ________________ a corporation ("ICH
AUDITOR") in order that ICH AUDITOR may audit the Pertinent ICH Direct Costs and
the CPU and DASD usage by the ICH Companies and their customers (the "Audit") in
accordance with the rights set forth in Paragraph 2.5 of that certain letter
agreement executed August __, 1993, by and between PEROT SYSTEMS and I.C.H.
Corporation (the "Letter Agreement").
In consideration of PEROT SYSTEMS providing proprietary information to ICH
AUDITOR and other good and valuable consideration, PEROT SYSTEMS and ICH AUDITOR
agree as follows:
1. "Proprietary Information" is any information, written or oral, which
relates to PEROT SYSTEMS' business, products, processes and services,
including, but not limited to, information related to research,
development, computer program designs, programming techniques, flow charts,
source code, object code, manufacturing, purchasing, accounting,
engineering, marketing, merchandising, pricing, and selling, and any list
of employees and customers, with the following exceptions: (a) information
which was already known to the ICH AUDITOR prior to any dealings between
ICH AUDITOR and PEROT SYSTEMS; (b) information ascertainable or obtainable
from public or published information; (c) information received from a third
party not known by ICH AUDITOR to be employed by or affiliated with PEROT
SYSTEMS or under an obligation to PEROT SYSTEMS to keep such information
confidential; and (d) information which is or becomes known to the public
other than through a breach of this Agreement.
2. ICH AUDITOR will maintain all Proprietary Information in confidence and
will only disclose any Proprietary Information to I.C.H. Corporation and no
other third party, including, without limitation, affiliates,
subcontractors, customers, prospective customer's licensees, consultants,
or prospective purchasers of any part of the business of ICH AUDITOR, nor
make use of any Proprietary Information that is inconsistent with the
purpose described in this Agreement without the prior written consent of
PEROT SYSTEMS.
3. ICH AUDITOR will restrict access to Proprietary Information to only such
authorized employees who require Proprietary Information in connection with
their activities as contemplated by this Agreement, and will take all steps
necessary to ensure that such employees comply with the terms hereof. ICH
AUDITOR will
<PAGE>
ensure that each of its employees to whom Proprietary Information is
disclosed or made available is informed of the terms of this Agreement and
that all such employees and agents agree to be bound by the terms hereof.
4. ICH AUDITOR will not use any Proprietary Information for the benefit of
anyone other than I.C.H. Corporation without PEROT SYSTEMS' prior written
consent.
5. All materials provided to ICH AUDITOR by PEROT SYSTEMS containing
Proprietary Information shall remain the property of PEROT SYSTEMS and
shall be returned to PEROT SYSTEMS, together with all copies thereof,
immediately upon request.
6. Providing Proprietary Information to ICH AUDITOR by PEROT SYSTEMS does not
constitute the grant of a license of any type under any patent, trademark,
or intellectual property right owned, applied for, or controlled by PEROT
SYSTEMS.
7. ICH AUDITOR acknowledges that the legal remedies for breach of the
provisions of this Agreement may be inadequate and therefore agrees that in
the event of any actual or threatened breach of any provision of this
Agreement by ICH AUDITOR, in addition to any other right or remedy which
PEROT SYSTEMS may have, PEROT SYSTEMS shall be entitled to specific
performance of such provision through injunctive or other equitable relief
obtained from a court with appropriate equity jurisdiction.
8. The invalidity or unenforceability of any particular provision of this
Agreement shall not affect the other provisions, and this Agreement shall
be construed in all respects as if such invalid or unenforceable provision
had not been contained herein.
9. This Agreement contains the entire agreement between PEROT SYSTEMS and ICH
AUDITOR with respect to the subject matter hereof; all representations,
promises, and prior or contemporaneous understandings between them are
merged into and expressed in this Agreement; and any and all prior
agreements between them are hereby canceled. This Agreement shall not be
amended, modified, or supplemented without the written agreement of PEROT
SYSTEMS and ICH AUDITOR at the time of such amendment, modification, or
supplement.
10. This Agreement shall inure to the benefit of, and be binding upon, the
respective legal representatives, successors, and assigns of the parties
hereto.
11. This Agreement shall be governed by, construed in accordance with, and
subject to the laws of the State of Texas.
2
<PAGE>
IN WITNESS WHEREOF, each party hereto has caused this Agreement to be executed
by its duly authorized representative to be effective as of the date first set
forth above.
Perot Systems Corporation ______________________________
By: __________________________ By: __________________________
(Authorized Signature) (Authorized Signature)
Name:________________________ Name:_________________________
(Type or Print) (Type or Print)
Title:_________________________ Title:________________________
3
<PAGE>
Exhibit 4
PERFORMANCE STANDARDS
The following sections represent the Service Level goals to be provided to ICH.
These Service Levels are objectives and are not subject to either bonus or
penalty conditions.
1. ON-LINE SYSTEMS AVAILABILITY. This section describes how on-line
systems availability is measured and computed.
On-line Systems Availability is measured according to the following
computation:
(SCHEDULED ON-LINE AVAILABILITY)-(UNSCHEDULED ON-LINE DOWN TIME)
---------------------------------------------------------------
Scheduled On-line Availability
Scheduled On-line Availability Time = the total scheduled time, as
provided in writing by individual ICH sites, for which specified
systems are to be available each month.
Unscheduled On-line Down Time = the total time that the specified
systems are not fully operational when scheduled to be available.
This includes network communication and is not limited to CPU
availability.
Perot Systems is responsible for delivering on-line availability in
accordance with Table 1. Failures that are not in Perot Systems'
control are not counted in the Unscheduled on-line Down Time used to
compute the availability in Table 1.
Examples of non-Perot Systems failures (Note - the list below is not meant
to be all-inclusive):
. On-line files are not available due to late batch production
cycles because of application run time (long running jobs);
. On-line files are not available due to late production cycles
caused by application system problems (abends, etc.);
. Down-time caused by On-line application problems (looping
transactions, transaction abends, storage violations, etc.);
. ICH requests that on-line files are to be closed for reasons
other than errors caused by Perot Systems;
<PAGE>
. Accessibility to the computer is impaired by failure of equipment
which is maintained by ICH;
. Any problem caused by non-vendor supported software being
operated due to an ICH requirement;
Examples of Perot Systems failures (Note - the list below is not meant to
be all-inclusive):
. Data center hardware failures;
. Failures caused by standard operating system or system software
(_[]__, __________, _____, _____, _____);
. On-line system is not up due to late production cycle caused by
the following:
Operating errors;
____[]____ (_____, _____, _____);
Errors caused by the Production Scheduling Function;
Insufficient DASD.
2. ON-LINE SYSTEMS RESPONSE TIME. This section describes how on-line
systems response time is measured and computed.
Two primary response time measurements are reported monthly. Internal
CICS response time and TSO response time performance standards are
listed in Table 1.
Internal Response Time is measured from the time the transaction is
received by the computer until the transaction is sent from the
computer. This information is used as a tool to tune the system.
TSO Response Time is measured from the time the transaction is
received by the computer until the transaction is sent from the
computer.
2
<PAGE>
TABLE 1
ON-LINE AVAILABILITY AND RESPONSE TIME STANDARDS
[]
__________
__________ __________
__________ __________ __________ __________
__________ __________ __________ __________
3. BATCH CYCLE COMPLETION. This section specifies the
critical points at which nightly processing needs to be completed and
available for ICH to print.
Batch processing must be complete and output in ICH print queues in
order to permit printing to be completed prior to the start of the
business day. Specific, critical-path, cycle jobs and print jobs will
be selected for each ICH site as the critical milestones to be used in
computing Batch Cycle Completion.
The performance standard for cycle jobs will be to complete _[]__ of
the selected cycle jobs at the indicated times each day, computed
monthly. The goal for print jobs is to start _[]__ of the specified
print jobs not later than the indicated time each day, computed
monthly.
3
<PAGE>
Perot Systems is responsible for delivering batch cycle processing in
accordance with the specifications to be developed by the parties.
Failures that are not in Perot Systems' control are not counted in the
monthly statistics used to compute the Batch Cycle Completions.
Examples of non-Perot Systems Failures (Note - the list below is not meant
to be all-inclusive.):
. At the request of ICH, on-line files are kept open past the
normally scheduled time that on-line systems are closed, thus
compressing the available time in which the nightly processing is
performed;
. Application problems, such as abending batch jobs, which are not
corrected by ICH personnel in sufficient time to meet schedules;
. Erroneous scheduling information given to Perot Systems;
. Long running batch jobs due to increased volumes or special
processing.
Examples of Perot Systems Failures (Note - the list below is not meant to
be all inclusive.):
. Data center hardware failures;
. Problems caused by standard operating system or platform software
(_[]__, _____, _____, _____.);
. Operation errors;
. Production scheduling problems;
. DASD pool management errors.
4. TEST ENVIRONMENT. This section establishes the requirements for
completion of testing and non-production computer jobs.
Test turnaround time is measured from the time the job is received in
the testing queue until it completes processing. The following table
sets forth turnaround time objectives and performance standards.
4
<PAGE>
TABLE 2
JOB TURNAROUND TIME STANDARDS
[]
5. CHANGE MANAGEMENT. This section establishes Perot Systems'response
objectives for routine changes to the operating environment.
Change Management standards establish the response time objectives of
Perot Systems for ICH initiated change requests to various operating
environment elements. Table 3 sets forth the objectives and
performance standards.
5
<PAGE>
TABLE 3
CHANGE MANAGEMENT STANDARDS
[]
6. PERFORMANCE MEASUREMENT REPORTING
Each of the categories identified in Section 3 is calculated
separately and reports are produced by the 15th of the month for the
preceding month and mailed to the ICH Project Manager.
7. CONTINGENCY PLANNING
It is understood and agreed by ICH that Perot Systems will execute
contingency planning in accordance with Perot Systems' disaster
recovery plan. This execution does not guaranty that ICH will be able
to conduct business out of an alternative data center in the event of
a disaster. Perot Systems will provide the delineated services as a
Special Service.
6
<PAGE>
7.1 PEROT SYSTEMS SERVICES
Perot Systems shall:
(a) Review of the Perot Systems contingency requirements on a regular
basis.
(b) Maintain reasonable contingency plans in the event of a disaster
at Perot Systems' data center.
(c) Test the contingency plans described above.
(d) Audit existing plans for the Perot Systems' data center
(e) Appoint a contingency planning coordinator to serve as a focal
point of activities with ICH with respect to Perot Systems'
contingency plans.
(f) Execute Perot Systems' data center contingency plans as needed
during disaster situations.
(g) Provide copies of Perot Systems' data center contingency plans
and test results to ICH on a timely basis.
(h) Maintain in a secure off-site environment any additional copies
in a suitable medium of files and data for reconstruction of lost
or altered files.
7.2 ICH OBLIGATIONS
ICH shall:
(a) Maintain application and network contingency plans including the
routine periodic backup of application datasets.
(b) Plan and schedule application and network contingency tests on a
mutually agreeable schedule.
(c) Test application and network contingency plans.
(d) Appoint a contingency planning coordinator to serve as a focal
point with Perot Systems.
(e) Execute application and network contingency plans as needed
during disaster situations.
7
<PAGE>
SCHEDULE B
FRONT-END PROCESSORS
Qty Manufacturer Device Model Description Location
[]
8
<PAGE>
SCHEDULE E
ANNUAL DEPRECIATION CHARGES
- -------------------------------------------------------------------------------
[]
<PAGE>
EXHIBIT 10.34
Mr. Robert T. Shaw
784 Harrington Lake Drive North
Venice, Florida 34293
Dear Bob:
As a part of a series of transactions contemplated and
approved by the Board of Directors on January 8, 1994, I.C.H.
makes the following commitment.
During the period commencing on the date of this agreement and
ending on the later of (i) the date that is three months following
the closing of the Stock Purchase Agreement among I.C.H.
Corporation (the "Company"), Consolidated National Corporation,
Robert T. Shaw ("Shaw"), C. Fred Rice and Torchmark Corporation
(the "Agreement") or (ii) the date of the consummation of all of
the transactions provided in the Agreement dated June 15, 1993
among Consolidated National Corporation, Consolidated Fidelity Life
Insurance Company, and the Company, Shaw will have the option
(which option shall be assignable by Shaw to any of his affiliates)
to purchase from the Company either or both of the aircraft
currently owned by the Company (any aircraft so purchased being
referred to herein as a "Purchased Aircraft"), at a purchase price
equal to the depreciated book value of the Purchased Aircraft (the
"First Option"). If Shaw does not exercise the First Option to
purchase both aircraft, but during the period of the First Option
either purchases one Purchased Aircraft or no Purchased Aircraft
then, in either of those events, Shaw may, during the First Option
period, provide written notice to the Company identifying one, but
not both, such aircraft in which he might be interested. In that
case, for a period of three months following the expiration of the
First Option, Shaw will continue to have the option to purchase the
one aircraft so identified in the notice.
This letter agreement is effective January 15, 1994. It
supersedes the letter, dated January 15, 1994, we previously
executed relating to your option to purchase the aircraft currently
owned by the Company.
Very truly yours,
I.C.H. Corporation
By: /s/ Robert L. Beisenherz
-------------------------------
Robert L. Beisenherz
<PAGE>
Mr. Robert T. Shaw
Page 2
AGREED TO BY:
/s/ Robert T. Shaw
- ----------------------------------
Robert T. Shaw
<PAGE>
EXHIBIT 10.40
AGREEMENT
THIS AGREEMENT made and entered into by and between FACILITIES
MANAGEMENT INSTALLATION, INC., a Delaware corporation ("FMI"),
I.C.H. CORPORATION, a Delaware corporation ("ICH"), and __________
_______________ ("Employee"),
W-I-T-N-E-S-S-E-T-H:
WHEREAS, FMI is a wholly-owned subsidiary of ICH and serves as
the employer of substantially all of the employees who provide
services to ICH and its affiliated companies; and
WHEREAS, Employee is an employee of FMI and has served
faithfully and diligently as an employee of FMI and/or its
predecessors and affiliates for many years; and
WHEREAS, Employee is entitled to participate in FMI's welfare
benefit plans on the same terms and conditions as all other
employees of FMI, including, without limitation, FMI's severance
pay plan ("FMI Severance Pay Plan") and FMI's group life insurance
plan ("FMI Group Life Insurance Plan"); and
WHEREAS, as a reward for Employee's past services, FMI and ICH
desire to provide additional benefits to Employee as hereinafter
provided,
NOW, THEREFORE, in consideration of the premises and the
mutual promises of the parties hereto and for Ten Dollars ($10.00)
and other good and valuable consideration in hand paid by Employee
to each of FMI and ICH, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:
1. DEFINITIONS. The following terms shall have the meanings
set forth below:
(a) "Affiliate" has the meaning ascribed to it in Rule
144 promulgated under the Securities Act of 1933, as amended, and
when used herein includes Affiliates of ICH and/or FMI and their
Successors.
(b) "Compensation" means compensation paid by FMI and/or
ICH and/or their Affiliates or Successors to Employee which is
includible as gross income in Employee's federal income tax return.
(c) "Date of Termination" means the date on which the
Termination of Employment occurs.
<PAGE>
(d) "Estate" means the Employee's probate estate and
includes the Employee's heirs and personal representatives.
(e) "Gross Misconduct" means an act committed by the
Employee against FMI and/or ICH and/or their Affiliates or
Successors and/or against any employee, officer, director, agent or
representative of FMI and/or ICH and/or any of their Affiliates or
Successors which constitutes a felony under the laws of the state
in which the act is committed.
(f) "Market Transactions" means transactions effected
during the Transaction Period only on one or more of the Sale Dates
through a Stock Exchange at prices equal to or exceeding the
Prevailing Market Price.
(g) "Payment Date" means the earlier of (i) thirty (30)
days after the Employee has sold all of his or her Restricted Stock
Purchase Shares and Stock Option Shares, or (ii) ninety (90) days
after the Date of Termination.
(h) "Prevailing Market Price" means the closing price
per share reported on the American Stock Exchange, Inc. composite
tape for shares of $1.00 par value common stock of ICH as of the
most recent preceding date on which such shares were traded.
(i) "Restricted Stock Purchase Agreement Shares" means
any shares of $1.00 par value common stock of ICH which the
Employee purchased under a Restricted Stock Purchase Agreement
entered into between the Employee and System Services Group, the
predecessor of FMI, dated March 12, 1982, as amended.
(j) "Sale Date" means any one of more of the following
dates: August 25, 1994, October 25, 1994 and April 10, May 25,
August 25, and October 25 of each calendar year after 1994;
provided, that if any of said dates fall 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 open.
(k) "Stock Exchange" means any stock exchange on which
shares of $1.00 par value common stock of ICH are listed for
trading.
(l) "Stock Option Shares" means any shares of $1.00 par
value common stock of ICH which the Employee purchases after the
date of this Agreement pursuant to stock options granted by ICH to
the Employee subsequent to December 31, 1989 and prior to the date
of this Agreement.
(m) "Successor" means the successor to all or substan-
tially all of the assets of the transferor whether such assets are
transferred by merger, consolidation, assignment or otherwise and
when used herein includes Successors of ICH and/or FMI and/or their
Affiliates.
<PAGE>
(n) "Supplemental Benefit Cap" means an amount equal to
three hundred percent (300%) of the annualized Compensation
received by the Employee during the five consecutive calendar years
immediately preceding the Date of Termination.
(o) "Supplemental Severance Benefit" means an amount
equal to two hundred percent (200%) of the Employee's salary,
excluding bonuses, for the twelve (12) consecutive calendar months
preceding the Date of Termination; provided, however, if Termina-
tion of Employment occurs prior to the death of the Employee, the
Supplemental Severance Benefit shall be reduced by an amount equal
to any payments which the Employee is entitled to receive under the
FMI Severance Pay Plan.
(p) "Transaction Period" means the period commencing
with the date of this Agreement and ending on the Date of Termina-
tion; 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 ninety (90) days after the date of the Employee's death.
(q) "Termination of Employment" means the voluntary or
involuntary termination of Employee's employment with ICH 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 such thirty day period, Employee's
employment shall be deemed not to have terminated.
1. SUPPLEMENTAL SEVERANCE PAYMENT. In the event a Termina-
tion of Employment occurs, FMI agrees to pay the Supplemental
Severance Benefit to Employee within thirty (30) days after the
Date of Termination.
2. SUPPLEMENTAL BONUS PAYMENT. On the Payment Date, FMI
agrees to pay to Employee an amount equal to (i) $5.875 multiplied
by the aggregate number of Restricted Stock Purchase Shares and/or
Stock Option Shares sold by the Employee and/or by the Employee's
Estate in Market Transactions after the date hereof ("Shares
Sold"), less (ii) an amount equal to the aggregate gross sales
price of the Shares Sold.
3. SUPPLEMENTAL BENEFIT CAP. Notwithstanding any other
provision herein, the aggregate amount of monies which the Employee
shall be entitled to receive under Paragraphs 1 and 2 above shall
not exceed an amount equal to the Supplemental Benefit Cap.
4. CROSS GUARANTEES. ICH and FMI unconditionally guarantee
each other's obligations under this Agreement.
5. WAIVER. The failure on the part of any party to this
Agreement to exercise any rights of that party hereunder shall not
constitute a waiver of such rights.
<PAGE>
6. ASSIGNMENT. This Agreement may not be assigned by
Employee without the prior written consent of ICH and FMI and/or
their Successors. This Agreement may be assigned by ICH and/or FMI
to their respective Successors provided each such Successor assumes
and agrees to perform all of ICH's and/or FMI's obligations
hereunder, as the case may be. Otherwise, this Agreement shall not
be assigned by ICH and/or FMI without the prior written consent of
Employee.
7. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement of the parties hereto with respect to the subject matter
hereof and may not be modified or amended except in writing signed
by or on behalf of the parties hereto.
8. CONTROLLING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of
Kentucky applicable to agreements made and to be performed therein.
9. COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall constitute an original copy
hereof but all of which together shall constitute a single
instrument.
EXECUTED this _____ day of ____________, 199__.
________________________________________
,
Employee
I.C.H. CORPORATION
By:_____________________________________
Sheryl G. Snyder
Executive Vice President and
General Counsel
FACILITIES MANAGEMENT INSTALLATION, INC.
By:_____________________________________
Sheryl G. Snyder
Executive Vice President and
General Counsel
<PAGE>
EXHIBIT 10.40
ADDENDUM TO AGREEMENT
THIS ADDENDUM TO AGREEMENT made and entered into by and between FACILITIES
MANAGEMENT INSTALLATION, INC., a Delaware corporation, ("FMI"), I.C.H.
CORPORATION, a Delaware corporation ("ICH") and ("Employee"),
W-I-T-N-E-S-S-E-T-H:
WHEREAS, FMI, ICH and Employee entered into an agreement dated November 30,
1993 under which FMI and ICH agreed to provide certain supplemental severance
and other benefits to Employee (the "Supplemental Benefit Agreement"); and
WHEREAS, it was intended that the definition of Stock Option Shares
contained in the Supplemental Benefit Agreement include all shares of $1.00 par
value Common stock of ICH ("ICH Common Stock") purchased by the Employee prior
to the date of the agreement but such definition inadvertently excluded shares
of ICH Common Stock purchased by the Employee pursuant to stock options granted
in 1983; and
WHEREAS, 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 partied hereto, they hereby covenant and agree as follows:
l. AMENDMENT. The parties hereto agree that:
(a) Paragraph 1(1) of the Supplemental Benefit Agreement is hereby amended
to read as follows:
"'Stock Option Shares' means (i) any shares of $1.00 par value common stock
of ICH owned by the Employee on November 30, 1993 which were purchased by the
employee pursuant to stock options granted by ICH and/or its corporate
predecessor to the Employee prior December 31, 1989, and (ii) any shares of
$1.00 par value common stock of ICH which the Employee purchases after November
30, 1993 pursuant to stock options granted by ICH to the Employee between
December 31, 1989 and November 30, 1993."
(b) Paragraph 1(j) of the Supplemental Benefit Agreement is hereby amended
to delete "August 25, 1994".
2. CONFIRMATION. The Supplemental Benefit Agreement shall otherwise
remain unchanged and in full force and effect.
1
<PAGE>
3. ENTIRE AGREEMENT. The Supplemental Benefit Agreement, as amended
herein, 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 this _____ day of __________, 1994
------------------
Employee
I.C.H. Corporation
------------------------
By: Robert L. Beisenherz
Chairman, Chief Executive
Officer and President
Facilities Management
Installation, Inc.
------------------------
By: C. Fred Rice
Senior Executive Vice
President
2
<PAGE>
EXHIBIT 10.42
AMENDMENT NO. 2 TO OFFICE LEASE
This Amendment No. 2 (herein so called) is made to this 18th day of March
to that certain office Lease dated April 2, 1990 between Crow-Kessler-Woodhouse
#5 ("Landlord") and Facilities Management Installation, Inc. ("Tenant") as
modified by that certain Amendment No. 1 dated July 3, 1990 between the parties
(the Office Lease, as so modified by such Amendment No. 1 is hereinafter
referred to as the "Lease").
The following recitals form a part of this Amendment:
A. Capitalized terms contained but not otherwise defined herein shall
have the same meaning ascribed to such terms in the Lease.
B. Pursuant to the Lease, Tenant presently occupies 21,837 rentable
square feet on the third and fourth floor of the Building.
C. Landlord and Tenant desire to amend the Lease to incorporate an
additional 4,006 rentable square feet of space on the third floor of the
building into the lease premises and to modify other terms accordingly.
Now, therefore in consideration of the mutual promises contained
herein and in the Lease, and for other good and valuable consideration, Landlord
and Tenant agree that the Lease is hereby modified and amended as follows:
1. Paragraph 1.02 of the Lease is amended in its entirety to read as
follows:
1.02. PREMISES. Landlord leases to Tenant Suite 400, which constitutes
the entire fourth floor, and a portion of the third floor (Premises) of the
building (Building) in which the Premises are located, as shown cross
hatched on the attached floor plans (Exhibits A, A-1 and A-2). The
Premises contain the fixtures, improvements, and other property now
installed plus any improvements required by paragraph 1.05 and Exhibits D,
E, E-1, and E-2.
Landlord warrants that the Premises contain 25,843 rentable square feet and
the Building in which the Premises are located (Exhibit B) contains 75,462
rentable square feet.
Tenant and its agents, employees, and invitees have the nonexclusive right
with others designated by landlord to the free use of the common areas in
the Building and of the land (Land) in which the Building is located
(Exhibit C) for the common areas intended and normal purpose. Common areas
include elevators, sidewalks, parking areas, driveways, hallways,
stairways, public bathrooms, common entrances, lobby, and other similar
public areas and access ways. Landlord may change the common areas if the
changes do not
<PAGE>
materially and unreasonably interfere with Tenant's access to the Premises
or use of them.
2. Paragraph 1.05 of the Lease is amended in its entirety to read as
follows:
1.05. IMPROVEMENTS. Landlord shall make improvements to the Premises
in accord with Exhibits D, E, E-1, and E-2 (Improvements). Landlord shall
be liable for the expense of constructing the Improvements limited to the
amount of the build-out allowance set forth in such Exhibits (Building
Standard Work). The expense of the Improvements in excess of the build-out
allowance (Building Non-Standard Work) shall be the liability of Tenant and
shall be paid to Landlord within ten (10) days of Tenant's receipt of an
invoice stating the amount due. Landlord shall submit an invoice for
forty-five percent (45%) of such excess expense at any time after the
Improvements are forty-five percent (45%) completed; for an additional
forty-five percent (45%) at any time after ninety percent (90%) completion;
and for the balance at any time after the Beginning Date. The degree of
completion shall be established by certificate of landlord's architect in
charge. The Improvements shall be completed in a good and workmanlike
manner and comply with all applicable laws, ordinances, rules and
regulations of governmental authorities.
3. Paragraph 2.02 (a) (iii) of the Lease is amended in its entirety to
read as follows:
(iii). Tenant's pro rata share: means 34.245 percent, calculated by
dividing the rentable square footage of the Premises (numerator) by the
rentable square footage of the Building (denominator), and expressing the
fraction as a percentage.
4. Paragraph 4.01 (a) of the Lease is amended in its entirety to read as
follows:
4.01 (a). DEFINITIONS. "Alterations" means alterations, additions,
substitutions, installations, changes, and improvements, but excludes minor
decorations and the Improvements Landlord is to make under paragraph 1.05
and Exhibits D, E, E-1, and E-2.
5. Paragraph 9.02 (a) of the Lease is amended in its entirety to read as
follows:
9.02 (a). DISCHARGE LIEN. Tenant shall, within ten (10) business days
after receiving notice of any mechanic's lien for material or work claimed
to have been furnished to the Premises on Tenant's behalf and at Tenant's
request, except for work contracted by Landlord including the Buildout
described in paragraph 1.05 and Exhibits D, E, E-1, and E-2
<PAGE>
(i) discharge the lien; or
(ii) post a bond equal to the amount of the disputed claim with companies
reasonably satisfactory to landlord.
If Tenant posts a bond, it shall contest the validity of the lien. Tenant
shall indemnify, defend, and hold Landlord harmless from losses incurred
from these liens
6. Paragraph 12.15 of the Lease is amended in its entirety to read as
follows:
12.15. DEFINITION OF LEASE. This Lease consists of the following:
(i) Title Page;
(ii) Table of Contents;
(iii) Sections 1 through 12;
(iv) Signature Page; and
(v) Exhibits A through G;
(vi) Amendment No. 1.
(vii) Amendment No. 2.
7. Exhibit A-2 attached hereto is incorporated into the Lease.
8. Exhibit E-2 attached hereto is incorporated into the Lease.
9. Exhibit G to the Lease is amended in its entirety to read as set forth
in the replacement Exhibit G attached hereto and hereby incorporated into the
Lease.
10. All of the terms and conditions of the Lease shall remain in full
force and effect, subject to the modifications contained herein.
11. The parties acknowledge that the Beginning Date of the Lease was May
23, 1990.
12. This Amendment No. 2 and Amendment No. 1 (to the extent not modified
or superseded hereby) shall be a part of the Lease.
<PAGE>
LANDLORD: CROW-KESSLER-WOODHOUSE #5, a
Texas limited partnership
By: CROW-LOUISVILLE I, INC.,
General Partner
By: /s/ Donald E. Dennis
---------------------------------
Title: Donald E. Dennis, Jr., President
---------------------------------
TENANT: FACILITIES MANAGEMENT
INSTALLATION, INC., a
Delaware corporation
By: /s/ C. Fred Rice
----------------------------------
Title: Executive Vice President
----------------------------------
<PAGE>
EXHIBIT A
Floor plan of the third floor shows (1) currently (as of the date of Amendment
No. 2 to Office Lease) leased space of 645 square feet for a conference room,
(2) currently (as of the date of Amendment No. 2 to Office Lease) leased space
of 4,006 square feet, and (3) proposed (as of the date of Amendment No. 2 to
Office Lease) leased space of 645 square feet for a conference room.
NOTE: The actual floor plan is attached to the paper copy of the 10-K.
<PAGE>
EXHIBIT A-1
Floor plan of the third floor shows option space (as of the date of Amendment
No. 2 to Office Lease) of approximately 4,000 rentable square feet (R.S.F.).
NOTE: The actual floor plan is attached to the paper copy of the 10-K.
<PAGE>
EXHIBIT A-2
Floor plan of the third floor shows currently (as of the date of Amendment No. 2
to Office Lease) leased space of approximately 4,006 rentable square feet
(R.S.F.).
NOTE: The actual floor plan is attached to the paper copy of the 10-K.
<PAGE>
EXHIBIT E-2
By letter agreement dated March 29, 1991, executed contemporaneously
herewith, Landlord and Tenant have agreed that Tenant may defer construction of
the improvements to the additional space required to be made by Landlord for up
to 18 months after the execution thereof. Upon Tenant's election to have
improvements commenced, Landlord and Tenant have agreed to prepare plans for
improvements to the additional space and attach them hereto as Exhibit E-2. The
buildout allowance to be set forth in such exhibit shall be $11 per rentable
square foot of such additional space.
<PAGE>
[F.M.I. LETTERHEAD]
March 29, 1991
Mr. Donald E. Dennis, Vice President
Crow-Kessler-Woodhouse No. 5
100 Mallard Creek Road
Louisville, Kentucky 40207
RE: Office Lease dated April 2, 1990 between Facilities Management
Installation, Inc. and Crow-Kessler-Woodhouse No. 5, a Texas limited
partnership, as amended by an Amendment No. 1 to Office Lease dated
July 3, 1990 between such parties ("Office Lease")
In connection with and in consideration of the contemporaneous execution of
Amendment No. 2 to the referenced Office Lease, Facilities Management
Installation, Inc. ("FMI") and Crow-Kessler-Woodhouse #5, a Texas limited
partnership ("Crow") agree as follows:
1. FMI may defer commencement of construction of improvements to the
additional space for up to 18 months following the date hereof. Upon
notice to Crow from FMI within such 18 month period, FMI and Crow will
diligently proceed to prepare the space plans setting forth the
improvements for the additional space, initial and date them, and attach
them as Exhibit E-2 to the Office Lease. Such improvements shall be
completed in accordance with the terms of the Office Lease within two
months following the request by FMI ("Completion Date"). If the
improvements are not completed by the Completion Date, rent applicable to
such space shall abate until such improvements are so completed.
2. Subject to the provisions for abatement of rent set forth above, rent
for the additional space shall be paid in accordance with Exhibit G of the
Lease. Provided, however, FMI shall pay rent for the additional space in
the amount of $3,986.58 for the period from April 1 to May 22, 1991,
inclusive.
3. FMI is entitled to an $11 per rentable square foot build-out allowance
for the additional space. FMI has requested Crow to perform certain
alterations to previously leased space on the fourth floor. FMI shall be
entitled to apply the cost of such alterations as an expense allocable to
the $11 per square foot build-out allowance for the additional space.
500 N. AKARD STREET, DALLAS, TX 75201
TELECOPIER NUMBER - (214) 954-7008
<PAGE>
4. If FMI elects to use any portion of the additional space in a manner
requiring the construction of shelving, and so notifies Crow thereof prior
to completion of the build-out improvements, Crow or its engineers will
indicate to FMI the allowable configuration of such shelving and Crow will
enter into an agreement with FMI (comparable to the similar agreement
entered into with respect to original leased space) releasing FMI from
structural damage caused by a shelving system used in conformity with the
indicated configuration.
5. FMI shall have the option to add to the space under lease up to an
additional 4,000 rentable square feet of contiguous space ("Option Space")
on the third floor of the building as shown on the attached exhibit. The
option must be exercised on or before October 1, 1991 by notice to Crow in
accordance with the Office Lease provision for giving notice. The
provisions of the lease addressing Rent, Additional Rent, Cancellation Fee,
and other affected matters shall be amended to reflect the addition of the
Option Space upon such terms as the parties shall negotiate upon exercise
of the option.
Please indicate your agreement and consent to the foregoing by signing and
returning a copy of this letter to me at your earliest convenience.
Sincerely,
/s/ C. Fred Rice
C. Fred Rice
Executive Vice President
Agreed and Consented to by:
CROW-KESSLER-WOODHOUSE #5
a Texas limited partnership
By: CROW-LOUISVILLE I, General Partner
By: /s/ Donald E. Dennis
-----------------------------------
Title: Donald E. Dennis, Jr., President
--------------------------------
Date: May 31, 1991
--------------------------------
<PAGE>
EXHIBIT G.
Rent Addendum to a Lease Agreement by and between
Crow-Kessler-Woodhouse #5,
a Texas Limited Partnership, ("Landlord"),
and
Facilities Management Installation, Inc.,
a Delaware Corporation, ("Tenant"),
dated April 2, 1990 (the "Lease").
2.01. BASE RENT AND SECURITY DEPOSIT:
Rent as set forth in Paragraph 2.01 shall be paid as follows:
<TABLE>
<CAPTION>
Months Monthly Rent Annual Rent
------ ------------ -----------
<S> <C> <C>
1-12 $ 0 $ 0
13-24 $18,230.17 $218,762.04
25-36 $19,140.55 $229,680.60
37-48 $25,509.17 $306,110.40
49-60 $29,148.67 $349,784.04
61-72 $31,051.88 $372,622.56
73-84 $32,212.13 $386,545.56
85-96 $33,706.21 $404,474.52
97-108 $34,783.01 $417,396.12
109-120 $35,943.25 $431,319.00
</TABLE>
---------------------------------
End of Exhibit G.
<PAGE>
AMENDMENT #3 TO LEASE
BETWEEN
HFH ONE LAKEVIEW PROPERTIES LIMITED PARTNERSHIP
SUCCESSOR TO CROW-KESSLER-WOODHOUSE #5
("LESSOR")
AND
FACILITIES MANAGEMENT INSTALLATION, INC.
("LESSEE")
This Amendment to Lease is entered into by and between HFH One Lakeview
Properties Limited Partnership successor to Crow-Kessler-Woodhouse #5 ("Lessor")
and Facilities management Installation, Inc. ("Lessee") to amend the terms of a
certain lease dated April 2,1990 as modified by Amendment #1 dated July 3, 1990
and Amendment #2 dated March 18th (hereinafter the "Lease") between Lessor and
Lessee for certain office space located in Suite 400,100 Mallard Creek Road,
Louisville, Kentucky 40207.
RECITALS
WHEREAS, Lessor and Lessee entered into Lease dated April 2,1990; and,
WHEREAS, the Lessee's Premises presently consists of 25,843 rentable square feet
of office space which space has been physically reduced by agreement between
Lessee and Lessor by 2,245 rentable square feet; and,
WHEREAS, the expiration date of the current lease term is May 31, 2000 subject
to cancellation by Lessee's Option to Cancel as per the Lease; and
WHEREAS, the rent is currently $229,744.27 annually and is payable in monthly
installments of $19,145.36 subject to annual increases as per the Lease, and
Lessee currently receives a $2,059.92 per month credit for the 2,245 square foot
reduction of space; and,
WHEREAS, the current Estimated Operating Expense Recoveries are being escrowed
at $.75 per square foot or 25,843 square feel minus 2,245 square feet times $.75
divided by 12 months equals monthly payments of $1,474.88.
WHEREAS, Lessee desires to Amend the Lease to reflect the reduction in space of
2,245 square feet and to further reduce the Premises by the remaining shell
space within the Premises of 1,761 square feet under the terms and conditions of
the Letter from Trammell Crow Realty Services to ICH dated October 19, 1992
attached as Exhibit A (the "Letter") and Lessor agrees to same under the terms
and conditions as are contained in the Lease except as the same are modified by
this Amendment.
NOW, THEREFORE, in consideration for Lessor further reducing the Premises,
Lessor and Lessee mutually agree to the following.
1. Lessee's leased Premises shall be changed from 25,843 square feet to 21,837
square feet (25,843 square feet less 2,245 square feet that has already
been released less the balance 1,761 shell space equals a reduction of
4,006 square feet).
2. Lessee's rent shall be changed to reflect Lessee's new square footage of
21,837.
<TABLE>
<CAPTION>
Per Lease Amended
Commencing: Rate psf Monthly Rent
<S> <C> <C>
March 1993 8.89 $16,177.58
June 1993 11.84 $21,545.84
June 1994 13.53 $24,621.22
June 1995 14.42 $26,240.80
June 1996 14.96 $27,223.46
June 1997 15.65 $28,479.09
June 1998 16.15 $29,388.96
June 1999 10.69 $30,371.63
</TABLE>
The Amended Monthly Rent shall be payable by Lessee to Lessor on the first
day of every month commencing March 1, 1993.
<PAGE>
3. The current Estimated Operating Expense Recoveries are being escrowed at
$.75 per square foot or 21,837 square feet times $.75 divided by 12 months
equals monthly payments of $1,364.81.
4. As per the Letter, Lessee shall pay a buy-out fee to Lessor equal to $6.50
per square foot for each square foot that is reduced from the Premises. For
the original reduction space of 2,245 square feet, this buy-out fee was
paid by Lessee to Lessor. For the remaining 1,761 square feet, this amount
shall be due from Lessee to Lessor upon execution of this Amendment #3 to
Lease. The buy-out fee due is 1,761 square feet times $6.50 equals
11,446.50.
5. This Amendment to Lease and all exhibits incorporated herein shall become
binding on Lessor only upon execution and delivery thereof by Lessor. Until
such execution and delivery, Lessee shall have no rights under this
Amendment.
Except as modified herein, all terms and conditions of the Lease are hereby
ratified and acknowledged to be unchanged and shall remain in full force and
effect. In the event of any conflict between the terms and conditions of the
Lease and the terms and conditions of this Amendment, this Amendment shall
govern and control.
LESSOR: HFH ONE LAKEVIEW PROPERTIES LIMITED PARTNERSHIP
BY: HFH Lakeview Properties, Inc.
its Authorized Agent
/s/ Fred Faulkner
----------------------------------------
Fred Faulkner, President
LESSEE: FACILITIES MANAGEMENT INSTALLATION, INC.
BY: /s/ C. Fred Rice
----------------------------------------
PRINT NAME: C. Fred Rice
TITLE: Executive Vice President
<PAGE>
Trammell Crow Realty Services
100 Mallard Creek Road
Suite 340
Louisville, Kentucky 40207
502/893-6000
502/893-8021 Fax
October 19, 1992
Mr. C. Fred Rice
ICH
100 Mallard Creek Road
Suite 400
Louisville, Kentucky 40207
Dear Mr. Rice:
As per your handwritten letter to Trammell Crow Realty Services and Banc
One Mortgage Corporation, we will try to re-lease the 4,006 R.S.F. located on
the third floor of the Lakeview Office Building, 100 Mallard Creek Road,
Louisville, Kentucky 40207, which is currently under contract between Banc One
Mortgage Corporation and Facilities Management Installation, Inc.. This letter
authorizes Banc One Mortgage Corporation to enter into agreements with other
tenants to lease either part or all of the 4,006 R.S.F. currently being leased
by Facilities Management Installation, Inc. Once a lease agreement has been
executed between a tenant and Banc One Mortgage Corporation for part or all of
the 4,006 R.S.F., Facilities Management Installation, Inc. immediately forfeits
all rights to that portion of the space that has been re-leased. If only part of
the 4,006 R.S.F. space is re-leased, that amount of square footage will be
subtracted from the entire lease agreement (ie. 1,000 R.S.F. is leased thus
reducing Facilities Management's space by 1,000 R.S.F.). The rental reduction
amount will be $11.00 per R.S.F. multiplied by the amount of R.S.F. that has
been re-leased. The rental reduction will commence the first day of the
following month.
In consideration of the time, effort and monetary requirements associated
with the re-leasing of the space, Facilities Management will pay a buy-out fee
to Banc One Mortgage Corporation of $6.50 per rentable square foot for each
rentable square foot that is re-leased (ie. 1,000 R.S.F. re-leased x $6.50
equals $6,500.00 payment to Banc One Mortgage Corporation). The buy-out fee will
only be paid to Banc One Mortgage Corporation upon written commitment from a new
tenant to lease part or all of the space. This will only be a lump sum payment
if all of the 4,006 R.S.F. is re-leased at one time.
Once the lease has commenced and the buy-out payment received, Facilities
Management's future obligations to the space will completely cease the first day
of the following month. All past obligations, including rent, will remain
totally intact. In the case of a partial re-leasing of the space, Facilities
Management will be required to continue all obligations on the remaining
unleased space.
<PAGE>
Trammell Crow Company
Page Two
Mr. C. Fred Rice
October 19, 1992
By signing this letter, Facilities Management agrees and accepts all the
terms and conditions contained herein. A lease amendment will be attached to the
original lease once all the total 4,006 R.S.F. has been re-leased.
Sincerely, AGREED AND ACCEPTED:
TRAMMELL CROW REALTY SERVICES BY: /s/ C. Fred Rice
--------------------------------------
TITLE: Executive Vice President
/s/ M. Clark Davis
M. Clark Davis DATE: ____________________
Project Manager
<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
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1993 1992 1991
----------- ----------- -----------
<S> <C> <C> <C>
Computation for statements of earnings:
Operating earnings.................. $ 211,924 $ 50,855 $ 25,429
Less dividends on preferred stock... (28,784) (30,800) (30,800)
----------- ----------- -----------
Operating earnings (loss) applicable
to common stock.................... 183,140 20,055 (5,371)
Cumulative effect of changes in
accounting methods................. (6,734) 8,783
Extraordinary losses................ (1,919) (4,342)
----------- ----------- -----------
Net earnings applicable to common
stock.............................. $ 174,487 $ 15,713 $ 3,412
----------- ----------- -----------
----------- ----------- -----------
Weighted average common shares
outstanding........................ 47,915,551 48,139,870 48,181,751
----------- ----------- -----------
----------- ----------- -----------
Primary earnings per common share:
Operating earnings.............. $ 3.82 $ .42 $ (.11)
Cumulative effect of changes in
accounting methods............. (.14) .18
Extraordinary losses............ (.04) (.09)
----- ----- -----
Net earnings................ $ 3.64 $ .33 $ .07
----- ----- -----
----- ----- -----
Additional computations(A):
Weighted average common shares
outstanding........................ 47,915,551 48,139,870 48,181,751
Incremental common shares applicable
to common stock options based on
the common stock daily average
market price during the year...... 762,500 315,504 224,760
----------- ----------- -----------
Weighted average common shares, as
adjusted........................... 48,678,051 48,455,374 48,406,511
----------- ----------- -----------
----------- ----------- -----------
Weighted average common shares
outstanding........................ 47,915,551 48,139,870 48,181,751
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 year...... 767,975 315,504 224,760
Assumed conversion of convertible
preferred shares................... 7,867,451 7,867,527 7,867,527
----------- ----------- -----------
Weighted average common shares,
assuming full dilution............. 56,550,977 56,322,901 56,274,038
----------- ----------- -----------
----------- ----------- -----------
Net earnings applicable to common
stock assuming conversion of
convertible preferred stock....... $ 191,157 $ 32,383 $ 20,082
----------- ----------- -----------
----------- ----------- -----------
Earnings per common share:
Primary, including common stock
equivalents:
Operating earnings (loss)... $ 3.77 $ .41 $ (.11)
Cumulative effect of changes
in accounting methods...... (.14) .18
Extraordinary losses........ (.04) (.09)
----- ----- -----------
Net earnings............ $ 3.59 $ .32 $ .07
----- ----- -----------
----- ----- -----------
Fully diluted, assuming
conversion of all applicable
securities:
Operating earnings.......... $ 3.53 $ .65 $ .20
Cumulative effect of changes
in accounting methods...... (.12) .16
Extraordinary losses........ (.03) (.08)
----- ----- -----------
Net earnings............ $ 3.38 $ .57 $ .36
----- ----- -----------
----- ----- -----------
<FN>
- ----------
(A) These calculations are submitted in accordance with Securities Exchange
Act of 1934 Release No. 9083, although not required in certain periods by
footnote 2 to paragraph 14 of Accounting Principles Board Opinion No. 15 because
they result in dilution of less than 3%. Fully diluted earnings in 1992 and 1991
are considered "antidilutive" because they result in per share earnings that
exceed per share earnings as determined on the primary basis. Fully diluted
earnings per share in 1992 and 1991 as reflected in the consolidated statement
of earnings were determined based on primary earnings per share calculations as
a result of such antidilution.
</TABLE>
106
<PAGE>
EXHIBIT 12.1
I.C.H. CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIOS OF CONSOLIDATED EARNINGS
TO FIXED CHARGES AND PREFERRED DIVIDENDS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------
1993 1992 1991
----------- ----------- ----------
<S> <C> <C> <C>
Operating earnings...................... $ 211,924 $ 50,855 $ 25,429
Extraordinary losses, excluding equity
in extraordinary losses of less than
50%-owned equity investees and limited
partnerships........................... (549) (3,260)
Equity in undistributed operating
(earnings) losses of less than
50%-owned equity investees and limited
partnerships........................... (32,906) 3,293 (6,750)
Income tax expense:
Operations............................ 93,706 (69,256) 7,839
Extraordinary losses.................. (1,033) (2,237)
Fixed charges deducted from net
earnings:
Interest expense...................... 66,153 78,961 98,570
Interest portion of lease
obligations(A)....................... 2,200 3,800 5,000
----------- ----------- ----------
Total fixed charges deducted from
operating earnings............... 68,353 82,761 103,570
----------- ----------- ----------
Operating earnings available for fixed
charges and preferred dividends........ $ 341,077 $ 67,653 $ 130,088
----------- ----------- ----------
----------- ----------- ----------
Earnings available for fixed charges and
preferred dividends(B)................. $ 339,495 $ 62,156 $ 130,088
----------- ----------- ----------
----------- ----------- ----------
Fixed charges deducted from operating
earnings per above..................... $ 68,353 $ 82,761 $ 103,570
Dividends on preferred stock(C)......... 44,283 46,667 46,667
----------- ----------- ----------
Total fixed charges and preferred
dividends........................ $ 112,636 $ 129,428 $ 150,237
----------- ----------- ----------
----------- ----------- ----------
Ratio of operating earnings to fixed
charges................................ 5.0 --(D) 1.3
-- -- --
-- -- --
Ratio of operating earnings to fixed
charges and preferred dividends........ 3.0 --(D) --(D)
-- -- --
-- -- --
Ratio of earnings to fixed charges(B)... 5.0 --(D) 1.3
-- -- --
-- -- --
Ratio of earnings to fixed charges and
preferred dividends(B)................. 3.0 --(D) --(D)
-- -- --
-- -- --
<FN>
- ---------
(A) Represents one-third of rentals on real and personal property.
(B) Earnings include extraordinary losses and excludes the cumulative effect
of changes in accounting methods.
(C) Adjusted to an amount equal to the pre-tax necessary to provide the
required dividends using the marginal tax rate of ICH and its consolidated
non-insurance subsidiaries.
(D) Operating earnings and earnings for the year ended December 31, 1992 and
1991 were insufficient to cover fixed charges and preferred dividends by the
following amounts (in thousands):
</TABLE>
<TABLE>
<CAPTION>
1992 1991
----------- -----------
<S> <C> <C>
Operating earnings to fixed charges..... $ 15,108
Operating earnings to fixed charges and
preferred dividends.................... 61,775 $ 20,149
Earnings to fixed charges............... 20,605
Earnings to fixed charges and preferred
dividends.............................. 67,272 20,149
</TABLE>
107
<PAGE>
EXHIBIT 22.1
SUBSIDIARIES OF REGISTRANT
Accumulation Interest Corporation (Delaware)
American MedCAP, Inc. (Texas)
Bankers Life and Casualty Company of New York (New York)
Bankers Multiple Line Insurance Company (Illinois)
BML Agency, Inc. (Illinois)
BML Agency, Inc. of Ohio (Ohio)
Care Financial Corporation (Delaware)
Constitution Life Insurance Company (Kentucky)
Dallas Insurance Service Company (Texas)
Facilities Management Installation, Inc. (Delaware)
I.C.H. Financial Services, Inc. (Delaware)
Independence National, Inc. (Delaware)
Integrity National Life Insurance Company (Pennsylvania)
Investment Dissolution Corporation (Missouri)
Modern American Life Insurance Company (Missouri)
NACT, Inc. (Texas)
Philadelphia American Life Insurance Company (Pennsylvania)
Philadelphia American Property Corporation (Texas)
REO Holding Corporation (Illinois)
Southeast Agency, Inc. (Florida)
Southeast Title and Insurance Company (Florida)
Southwestern Life Insurance Company (Texas)
SWL Holding Corporation (Delaware)
Union Bankers Insurance Company (Texas)
Western Pioneer Corporation (Kentucky)
Western Pioneer Life Insurance Company (Kentucky)
*Some of the names of the direct or indirect subsidiaries of Registrant may be
omitted, provided, when considered in the aggregate, all omitted subsidiaries do
not constitute a significant subsidiary.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement
of I.C.H. Corporation on Form S-8 number 33-61766 of our report, which includes
an explanatory paragraph relating to certain changes in accounting principles,
dated March 14, 1994, on our audits of the consolidated financial statements and
financial statement schedules of I.C.H. Corporation as of December 31, 1993 and
1992, and for the years ended December 31, 1993, 1992, and 1991, which report is
included in this Annual Report on Form 10-K.
Coopers & Lybrand
Dallas, Texas
March 21, 1994
108
