<PAGE>
<PAGE>
RESTATED
CERTIFICATE OF INCORPORATION
OF
SOUTHWESTERN LIFE CORPORATION
(PURSUANT TO SECTION 245 OF THE GENERAL
CORPORATION LAW OF THE STATE OF DELAWARE)
Southwestern Life 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 Southwestern Life Corporation.
Southwestern Life 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 text of the Certificate of Incorporation is hereby
restated to read in its entirety as follows:
ARTICLE ONE. The name of the Corporation is:
Southwestern Life 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.
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
<PAGE>
<PAGE>
(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 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
<PAGE>
<PAGE>
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, 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."
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
<PAGE>
<PAGE>
"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, 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
shall be entitled to receive such dividends as may be 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 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.
<PAGE>
<PAGE>
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. 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 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. Conversion of
<PAGE>
<PAGE>
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
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 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
<PAGE>
<PAGE>
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 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.
4. 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
<PAGE>
<PAGE>
the terms of the respective resolutions authorizing such series.
5. 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; 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 and any series
of Series Preferred Stock or other capital stock of the Corporation that
ranks on parity with the 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
<PAGE>
<PAGE>
affairs of the Corporation, within the meaning of any of the provisions of
this Article Four.
6. 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 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
<PAGE>
<PAGE>
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.
7. 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.
C. $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
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
<PAGE>
<PAGE>
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:
8. 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.
9. 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 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
<PAGE>
<PAGE>
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), 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.
10. 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 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
<PAGE>
<PAGE>
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:
(1) 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 series of preferred stock of
the Company ranking senior to the shares of this Series as to dividend or
liquidation rights;
(2) 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
<PAGE>
<PAGE>
preferences, rights, powers or privileges; or
(3) 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.
11. 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 distribution of assets shall be made to holders of the
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
<PAGE>
<PAGE>
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.
12. 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:
Year Price Year Price
1988 $26.400 1993 $25.525
1989 26.225 1994 25.350
1990 26.050 1995 25.175
1991 25.875 1996 (and thereafter) 25.000
1992 25.700
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
<PAGE>
<PAGE>
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.
13. 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
<PAGE>
<PAGE>
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, 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.
<PAGE>
<PAGE>
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 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. (1) 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,
<PAGE>
<PAGE>
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.
(2) 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).
(3) 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
<PAGE>
<PAGE>
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.
(4) 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.
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
<PAGE>
<PAGE>
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 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
<PAGE>
<PAGE>
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
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
<PAGE>
<PAGE>
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.
14. 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 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
<PAGE>
<PAGE>
intention to exchange pursuant to this Section 7 unless:
(1) 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
(2) all accrued and unpaid dividends on the
outstanding shares of this Series for all past Dividend Periods ending on
the last Dividend Date immediately preceding the Exchange Date have been
declared and paid or set aside for payment.
15. 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.
16. 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.
<PAGE>
<PAGE>
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.
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 10th day of
October, 1994.
SOUTHWESTERN LIFE CORPORATION
By:/s/James R. Kerber
---------------------------
James R. Kerber
Chief Executive Officer
and President
ATTEST:
By:/s/Daniel B. Gail
-----------------
Daniel B. Gail
Secretary
<PAGE>
<PAGE>
BY LAWS
OF
SOUTHWESTERN LIFE CORPORATION
(Amended through October 7, 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.
<PAGE>
<PAGE>
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
<PAGE>
<PAGE>
be produced and kept at the time and place of the meeting during 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
<PAGE>
<PAGE>
proxy, shall constitute a quorum at the meeting for the transaction 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 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
<PAGE>
<PAGE>
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 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.
<PAGE>
<PAGE>
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 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
<PAGE>
<PAGE>
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 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
<PAGE>
<PAGE>
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 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
<PAGE>
<PAGE>
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 communications 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
<PAGE>
<PAGE>
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 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.
<PAGE>
<PAGE>
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 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
<PAGE>
<PAGE>
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 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.
<PAGE>
<PAGE>
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.
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
<PAGE>
<PAGE>
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 President. The Vice President shall perform such other duties and
have such other powers as the Board of Directors may from time to time
prescribe.
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
<PAGE>
<PAGE>
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.
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
<PAGE>
<PAGE>
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 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.
<PAGE>
<PAGE>
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, 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.
<PAGE>
<PAGE>
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 Corporation 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
<PAGE>
<PAGE>
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.
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
<PAGE>
<PAGE>
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 the corporation, and the directors may modify
or abolish any reserve in the manner in which it was created.
CHECKS
Section 3. All checks or demands for money and notes of the
corporation shall be signed by such officer or officers or such
<PAGE>
<PAGE>
other person or persons as the Board of Directors may from time to time
designate.
FISCAL YEAR
Section 4. The fiscal year of the corporation shall be fixed by
resolution of the Board of Directors
SEAL
Section 5. 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.
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.
<PAGE>
<PAGE>
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 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
<PAGE>
<PAGE>
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.
(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 subsection (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
<PAGE>
<PAGE>
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 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
<PAGE>
<PAGE>
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 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
<PAGE>
<PAGE>
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 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
<PAGE>
<PAGE>
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 respective 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:
<PAGE>
<PAGE>
(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 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
<PAGE>
<PAGE>
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.
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
<PAGE>
<PAGE>
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):
(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
<PAGE>
<PAGE>
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 incorporation, 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.
<PAGE>
<PAGE>
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.
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>
<PAGE>
SOUTHWESTERN LIFE CORPORATION
AMENDED AND RESTATED 1990 STOCK OPTION INCENTIVE PLAN
(AS AMENDED EFFECTIVE DECEMBER 14, 1990,
AUGUST 7, 1991, JUNE 30, 1994 AND OCTOBER 10,1994)
1. PURPOSES OF THE PLAN
1.1 The purposes of this Plan are to promote the growth and
profitability of Southwestern Life Corporation (formerly I.C.H.
Corporation, the "Corporation") by enabling it and its subsidiaries to
attract and retain the best available personnel for positions of
substantial responsibility, and to provide key employees of the Corporation
and its subsidiaries with an opportunity for investment in the
Corporation's $1.00 par value common stock ("Common Stock") and to give
them an additional incentive to increase their efforts on behalf of the
long term success of the Corporation and its subsidiaries.
1.2 The Corporation may, from time to time, on or before December 31,
1999, grant to such officers and other employees as may be selected in the
manner hereinafter provided, options to purchase shares of Common Stock of
the Corporation ("Options"), subject to the conditions hereinafter
provided.
2. ADMINISTRATION OF THE PLAN
2.1 This Plan shall be administered by a Stock Option Committee (the
"Committee") of not less than three members of the Board of Directors of
the Corporation who shall be appointed annually by the Board of Directors.
No employee of the Corporation or of any of its subsidiaries who is
eligible to participate in this Plan or who was eligible within the twelve
months preceding appointment to the Committee, or will be eligible within
the twelve months following service on the Committee, to participate in
this Plan or any other stock plan of the Corporation shall be appointed as
a member of the Committee. Vacancies occurring in the membership of the
Committee shall be filled by appointment by the Board of Directors.
2.2 A majority of the Committee shall constitute a quorum. The acts
of the majority of the members of the Committee present at any meeting at
which a quorum is present (or acts approved in writing by a majority of the
Committee) shall be the acts of the Committee. The Committee shall keep
minutes of its proceedings, and from time to time shall make such reports
to the Board of Directors as the Board of Directors shall direct.
<PAGE>
<PAGE>
3. STOCK SUBJECT TO THE PLAN
3.1 The shares to be issued upon exercise of Options shall be made
available, at the discretion of the Board of Directors, either from the
authorized but unissued Common Stock of the Corporation or from shares of
Common Stock reacquired by the Corporation (whether before or after the
date of this Plan), including shares purchased in the open market.
3.2 Subject to the provisions of Section 3.3 of this Plan, the
aggregate number of shares which may be delivered on exercise of Options
shall not exceed 2,900,000 shares. If prior to December 31, 1999, an Option
shall have expired or terminated without having been exercised in full for
any reason, the unpurchased shares shall (unless this Plan shall have been
terminated) become available for grant of Options to other employees.
3.3 In the event that (i) the number of outstanding shares of Common
Stock of the Corporation shall be changed by reason of split-ups,
combinations or reclassifications of shares or otherwise, or (ii) any stock
dividends are distributed to the holders of Common Stock of the
Corporation, or (iii) the Common Stock of the Corporation is converted into
or exchanged for other shares as a result of any merger or consolidation
(including a sale of assets) or other recapitalization then, in any such
case, the number of shares for which Options theretofore granted and the
price per share payable upon exercise of such Options shall be
appropriately adjusted by the Committee so as to reflect such change.
4. OPTION PRICE
4.1 The purchase price of the shares subject to each Option shall be
determined by the Committee ("Option Price"). The Option Price shall not be
less than the fair market value (as defined in Section 4.2) of the shares
of the Common Stock of the Corporation on the day preceding the date on
which such Option is granted; provided, however, that if the sale prices
required to determine the fair market value are not available for such day,
the fair market value shall be determined as of the next preceding day for
which the required sale prices are available.
4.2 For purposes of this Plan, the fair market value of a share of
the Common Stock of the Corporation shall be the mean between the highest
and lowest sale prices of the Common Stock of the Corporation as reflected
on the consolidated tape of issues listed for trading on the American Stock
Exchange (or such other principal national securities exchange on which the
Common Stock is so listed, as determined by the Committee) on the
applicable day specified by this Plan for determining such fair market
value.
5. ELIGIBILITY OF OPTIONEES
5.1 Options may be granted only to key employees of the Corporation
or of its subsidiaries who are in positions of substantial responsibility
in the Corporation or in a subsidiary, as determined by the Committee. The
term "key employees" shall include officers and other employees but shall
not
<PAGE>
<PAGE>
include Directors who are neither officers nor employees devoting their
full time to the Corporation or to a subsidiary. Members of the Committee
shall not be eligible to receive an Option.
5.2 Subject to the terms and conditions of this Plan, the Committee
shall have exclusive authority (i) to select the employees to be granted
Options (it being understood that more than one grant may be made to the
same employee), (ii) to determine the number of shares subject to each
grant, (iii) to determine the time or times when Options will be granted,
(iv) to determine the Option Price of the shares subject to each Option,
(v) to prescribe the form, which shall be consistent with this Plan, of the
instruments evidencing any Options, and (vi) to impose such other
conditions, in addition to those otherwise required by this Plan, which the
Committee may deem to be necessary or desirable to effect the purposes of
this Plan.
6. NON-TRANSFERABILITY OF OPTIONS
6.1 No Option shall be transferable by the grantee otherwise than by
the grantee's last will and testament (including without limitation a
testamentary trust or similar vehicle), or by the laws of descent and
distribution, and during the grantee's lifetime, such Option shall be
exercised only by such grantee or such grantee's guardian or legal
representative.
7. EXERCISE OF OPTION
7.1 Each Option shall terminate on its respective expiration date as
established by the Committee (the "Expiration Date"), which date shall not
be later than the expiration of ten years from the date on which the grant
was made.
7.2 Each Option shall vest in accordance with the respective vesting
schedule established for such Option by the Committee ("Vested Option"),
except that no Option shall vest before the expiration of six (6) months
from the date on which the Option is granted; provided, however, that in
the event of a Change of Control Termination (as hereinafter defined) all
Options granted to any grantee more than six (6) months prior to the Change
of Control Termination Date (as hereinafter defined) shall be Vested
Options; further, provided, however, that if the present value of all
compensation to be paid to a grantee upon a Change of Control Termination,
including, without limitation, the value of the accelerated vesting of the
Options and any all other payments and benefits to be paid or provided to
the grantee as severance compensation, would constitute a "parachute
payment" (as defined in Section 280G(b)(2) of the Internal Revenue Code of
1986, as amended), then the accelerated vesting of the Options shall be
deferred and the vesting of the Options shall be restructured so that such
payments no longer constitute a "parachute payment," as so defined. Except
in cases provided in Section 8 hereof, each Vested Option may be exercised
only during the continuance of the grantee's employment with the
Corporation or a subsidiary. Subject to the provisions of Section 7 and of
Section 8 hereof, each Vested Option may be exercised in whole or, from
time-to-time, in part with respect to the number of shares as to which it
is has been exercisable in accordance with the terms of this Plan.
<PAGE>
<PAGE>
7.3 (a) To exercise a Vested Option granted under this Plan, the
grantee shall complete and deliver to the Secretary of the
Corporation, no later than the close of business on the date
of exercise, a Notice of Exercise of Stock Option, stating:
(i) the number of shares the grantee has elected to pur-
chase;
(ii) the method of payment of the purchase price and with-
holding taxes; and
(iii) whether the amount of the payment or withholding
for applicable federal and state withholding taxes
will be the minimum amount required to be withheld
or will include an additional sum (and the amount
of such additional sum).
(b) Subject to subparagraph (d), a Grantee may, at his election,
pay for the shares and applicable federal and state
withholding taxes:
(i) in cash;
(ii) by surrender of shares of the Corporation's Common
Stock having a total fair market value equal to the
purchase price and/or withholding taxes;
(iii) by having the Corporation withhold a portion of
the shares that would otherwise be distributable
upon exercise of the option having a fair market
value equal to the purchase price and/or
withholding taxes; or
(iv) by any combination of methods (i), (ii) and (iii)
above.
(c) Upon the exercise of a Vested Option or, in the case of an
election by grantee under Section 83 of the Internal Revenue
Code, on or before the Tax Date (as defined in Paragraph
(d)), the grantee shall pay to the Corporation an amount
equal to not less than the minimum state and federal tax
liability required to be withheld and not more than the
total anticipated state and federal tax liability with
respect to such exercise, in accordance with his or her
election under paragraph (b). Unless grantee shall notify
the Corporation in the notice given pursuant to paragraph
(a) or (d) of his desire to pay some other amount, the
minimum withholding tax liability shall be paid to the
Corporation upon exercise of the Vested Option.
(d) Any election of the payment methods described in
subparagraph (b)(i) shall be given in the Notice of Exercise
of Stock Option. Grantees must make their
<PAGE>
<PAGE>
election of a payment method described in subparagraph
(b)(ii), (b)(iii) or (b)(iv) (to the extent it involves the
method of payment described in subparagraph (b)(ii) or
(b)(iii)) before the date the option exercise becomes
taxable ("Tax Date") (normally this would be the date of
exercise of the option; if the grantee has not made an
election under Section 83(b) of the Internal Revenue Code,
however, the date would be six months following the date of
exercise of the Option); provided that to the extent
required by the Securities Exchange Act of 1934 ("Act") or
any rules and regulations adopted pursuant thereto, as may
be amended, grantees subject to the reporting requirements
of Section 16(a) of the Act must make an election of a
payment method described in subparagraph (b)(ii), (b)(iii)
or (b)(iv) (to the extent it involves the payment method
described in subparagraph (b)(ii) or (b)(iii)) not sooner
than six months following the date of the grant of the
option and within one of two time periods:
(i) during the ten day period beginning on the third
business day following the date of the Corporation
releases quarterly and annual summary statements
of sales and earnings; or
(ii) at least six months before the Tax Date.
An election of the payment method described in subparagraph
(b)(ii), (b)(iii) or (b)(iv) (to the extent it involves a
payment method described in subparagraph (b)(ii) or (b)(iii)
shall be given in writing to the Secretary of the
Corporation within the time periods set forth above, shall
be irrevocable and shall be subject to disapproval by the
Committee. If the Committee shall, in its sole discretion,
approve an election to permit delivery or to withhold the
Corporation's Common Stock in payment of the Exercise Price
or withholding tax obligations, it shall pass a resolution
to such effect, but any such approval shall be subject to
revocation by the Committee prior to the exercise of a
Vested Option.
(e) Payment of the purchase price for shares under any of the
methods described in subparagraphs (b)(i), (b)(ii) or
(b)(iv) (to the extent it does not involve withholding of
shares) must accompany the Notice of Exercise of Stock
Option. Until a grantee has made full payment of the
purchase price in cash, shares, withholding or in any
combination thereof, and until a certificate covering the
shares purchased has been issued to the grantee, such
grantee shall not possess any stockholder rights with
respect to any of such shares.
7.4 For purposes of this Section 7, the fair market value (as defined
in Section 4.2) of a share of the Common Stock of the Corporation shall be
determined as of the day preceding the date on which the Option is
exercised in accordance with Section 7.3; provided, however, that if the
sale prices
<PAGE>
<PAGE>
required to determine the fair market value are not available for such day,
then the fair market value shall be determined as of the next preceding day
for which the required sale prices are available.
7.5 For purposes of this SECTION 7:
(a) "Change of Control Termination" means a Termination (as
defined in Section 8.1) that occurs after a Change of Control.
(b) "Change of Control" means (i) the occurrence of an event of
a nature that would be required to be reported in response to Item 1 or
Item 2 of a Form 8-K Current Report of the Corporation promulgated pursuant
to Sections 13 and 15(d) of the Act (as hereinafter defined); provided
that, without limitation, such a Change of Control shall be deemed to have
occurred if (a) any "person," as such term is used in Sections 13(d) and
14(d) of the Act (other than the Corporation, any trustee or other
fiduciary holding securities under any employee benefit plan of the
Corporation, or any company owned, directly or indirectly, by the
stockholders of the Corporation in substantially the same proportions as
their ownership of stock of the Corporation), is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Act), directly or indirectly, of
securities of the Corporation representing thirty-five percent (35%) or
more of the combined voting power of the Corporation's then outstanding
securities or (b) during any period of two consecutive years, individuals
who at the beginning of such period constitute the Board cease for any
reason to constitute at least a majority thereof, unless the election by
the Board or the nomination for election by the Corporation's stockholders
was approved by a vote of at least sixty percent (60%) of the directors
then still in office who either were directors at the beginning of the two-
year period or whose election or nomination for election was previously so
approved; (ii) the stockholders of the Corporation approve a merger or
consolidation of the Corporation with any other corporation, other than a
merger or consolidation that would result in the voting securities of the
Corporation outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting
securities of the surviving entity) more than eighty percent (80%) of the
combined voting power of the voting securities of the Corporation or such
surviving entity outstanding immediately after such merger or
consolidation; or (iii) the stockholders of the Corporation approve a plan
of complete liquidation of the Corporation or any agreement for the sale or
disposition by the Corporation of all or substantially all of the
Corporation's assets.
(c) "Change of Control Termination Date" means the date
Termination occurs in contemplation of or following a Change of Control,
which date shall be not earlier than 60 days prior to nor later than one
year after the effective date of the Change of Control.
8. TERMINATION OF EMPLOYMENT
8.1 If a grantee s employment with the Corporation or a subsidiary
shall cease for any reason other than the grantee s retirement (after
attainment of normal retirement age), disability or death, including,
without limitation, a Change of Control Termination ( Termination ), the
grantee may exercise each Vested Option to the extent that such Vested
Option was exercisable pursuant to
<PAGE>
<PAGE>
Section 7.2 when Termination occurred at any time within three (3) months
after Termination (but in no event after the Expiration Date of such Vested
Option). Any questions as to whether and when there has been a cessation of
employment shall be determined by the Committee and its determination on
such questions shall be final.
8.2 If a grantee s employment with the Corporation or a subsidiary
shall cease due to the grantee s death, the grantee s Vested Options will
be exercisable by the grantee s estate or by the person designated in the
grantee s last will and testament (including, without limitation, a
testamentary trust or similar vehicle) at any time within two (2) years of
the grantee s death (but in no event after the Expiration Date of such
Vested Options).
8.3 If a grantee s employment shall cease due to retirement (after
attainment of normal retirement age) or due to disability, the grantee may
exercise each Vested Option at any time within two years after such grantee
shall cease to be an employee (but in no event after the Expiration Date of
such Option); further, with respect to Options of such grantee that are not
Vested Options at the time such grantee shall cease to be an employee due
to retirement (after attainment of normal retirement age) or disability,
such Options shall not be cancelled at such time, but shall instead vest in
accordance with the vesting schedule established for such Options pursuant
to Section 7.2 of this Plan, and such Options shall, upon becoming Vested
Options, be exercisable by the Option grantee at any time within one year
after any such Options shall become Vested Options. If an Option grantee
subject to this Section 8.3 shall die after ceasing to be an employee but
prior to the Options becoming Vested Options, the provisions of Section 8.2
of this Plan shall apply and only Vested Options at the time of such
grantee s death may be exercised pursuant to the provisions of such Section
8.2. The Committee shall from time to time specify the normal retirement
age which shall be applicable to all grantees under this Plan.
9. INTERPRETATION OF PLAN
9.1 The Committee shall have full power and authority to construe and
interpret this Plan. Decisions of the Committee shall be final, conclusive
and binding on all parties, including the Corporation, its subsidiaries and
stockholders, and the grantees, their estates, executors, administrators,
heirs and assigns.
9.2 It is intended that this Plan be interpreted and administered so
as to exempt the Options (including without limitation the grant and
exercise of the Options), to the fullest extent permitted by law (as from
time to time in effect), from all liability provisions of Section 16(b) of
the Act and the regulations promulgated thereunder.
9.3 Nothing in this Plan or in grant hereunder shall confer any right
to remain in the employment of the Corporation or of a subsidiary or in any
way impair the right of the Corporation or of a subsidiary to terminate a
grantee's employment at any time.
<PAGE>
<PAGE>
10. AMENDMENTS TO PLAN
10.1 The Committee, from time to time, may prescribe, amend and
rescind rules and regulations relating to this Plan and, subject to the
approval of the Board of Directors of the Corporation, may at any time
terminate, modify or suspend the operation of this Plan; provided, however,
that, without the approval of the stockholders of the Corporation, no such
modification shall:
(i) materially increase the benefits accruing to participants
under this Plan;
(ii) except as provided in Section 3.3, increase the number of
shares of the Corporation which may be issued under this
Plan; or
(iii) materially modify the requirements as to eligibility
for participation in this Plan.
11. APPLICABLE LAW AND REGULATIONS
11.1 The obligation of the Corporation to sell and deliver shares
under Options shall be subject to (i) all applicable laws, rules and
regulations, and such approvals by any governmental agency as may be
required, including but not limited to, the effectiveness of a Registration
Statement under the Securities Act of 1933, as deemed necessary or
appropriate by counsel for the Corporation, and (ii) the condition that the
shares of Common Stock reserved for issuance upon the exercise of Options
shall have been duly listed upon any stock exchange on which the
Corporation's Common Stock may then be listed. Certificates representing
shares issued upon exercise of any Option shall bear a legend with respect
to each applicable restriction set forth in this Section 11.1.
12. EFFECTIVE DATE
12.1 This Plan shall be effective as of April 12, 1990, subject to its
approval by the stockholders of the Corporation at the 1990 annual meeting
of stockholders.
<PAGE>
<PAGE>
AMENDED AND RESTATED
SUPPLEMENTAL BENEFIT AGREEMENT
THIS AMENDED AND RESTATED SUPPLEMENTAL BENEFIT AGREEMENT (this
"Restated Agreement") made and entered into this 10th day of October, 1994,
by and between FACILITIES MANAGEMENT INSTALLATION, INC., a Delaware
corporation ("FMI"), SOUTHWESTERN LIFE CORPORATION, a Delaware corporation
("SLC"), and ________________ ("Employee"),
W-I-T-N-E-S-S-E-T-H:
WHEREAS, FMI is a wholly-owned subsidiary of SLC and serves as the
employer of substantially all of the employees who provide services to SLC
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 Salaried Employees 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 SLC have
desired and continue to desire to provide additional benefits to Employee
as hereinafter provided; and
WHEREAS, FMI, SLC and Employee have previously entered into an
agreement dated November 30, 1993 under which FMI and SLC agreed to provide
certain supplemental severance and other benefits to Employee, as the same
was amended by Addendum to Agreement dated as of February 21, 1994 and by
Second Addendum to Agreement effective as of November 30, 1993
(collectively, the "Supplemental Benefit Agreement"); and
WHEREAS, the Board of Directors of SLC has recently approved an
amendment to the Supplemental Benefit Agreement to, among other things,
amend the definition of "Sale Date"; and
WHEREAS, the parties also wish to modify the Supplemental Benefit
Agreement to provide for the surrender of Stock Option Shares (as
hereinafter defined) in satisfaction of the exercise price or tax
withholding liabilities associated with such shares to be consistent with
the stock option plans governing such shares, and to make other minor
clarifying changes; and
WHEREAS, the parties also wish to integrate into this Restated
Agreement all prior amendments and addenda to the Supplemental Benefit
Agreement to date;
NOW, THEREFORE, in consideration of the premises and the mutual
promises of the parties
<PAGE>
<PAGE>
hereto and other good and valuable consideration paid by Employee to each
of FMI and SLC, 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 SLC and FMI and their respective Successors.
(b) "Compensation" means compensation paid by FMI, SLC or their
Affiliates or Successors to Employee that 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.
(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, SLC or their Affiliates or Successors, or against any employee,
officer, director, agent or representative of FMI or SLC or any of their
Affiliates or Successors that constitutes a felony under the laws of the
state in which the act is committed.
(f) "Market Transactions" means one or more transactions effected
through a Stock Exchange during the Transaction Period only on one or more
of the Sale Dates at prices equal to or exceeding the Prevailing Market
Price.
(g) "Noninsider Employee" means Employee if and only if Employee is
not subject to the reporting requirements of Section 16(a) of the
Securities Exchange Act of 1934, as amended (the "1934 Act"), or the short-
swing profit provisions of Section 16(b) of the 1934 Act.
(h) "Payment Date" means the first business day that is at least
thirty (30) calendar days after the Employee or the Employee's Estate has
disposed of all of Employee's Restricted Stock Purchase Shares and Stock
Option Shares pursuant to the terms hereof.
(i) "Prevailing Market Price" means the price per share for shares of
$1.00 par value common stock of SLC as reported on a Stock Exchange
composite tape immediately prior to the sale by Employee of the shares then
being sold by Employee.
(j) "Restricted Stock Purchase Agreement Shares" means any shares of
$1.00 par value common stock of SLC 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.
<PAGE>
<PAGE>
(k) "Sale Date" means any one or more of the following dates:
November 25, 1994 and each April 10, May 25, August 25 and November 25 of
each calendar year thereafter; provided that if any of said dates falls on
a day on which the Stock Exchange is closed, the Sale Date shall be the
first day thereafter on which the Stock Exchange is opened; and further
provided that any Employees who are "insiders" subject to the requirements
of Section 16 of the 1934 Act shall not engage in any transaction on a Sale
Date that would violate the short-swing trading prohibitions of Section
16(b) of the 1934 Act. Notwithstanding the foregoing and only with respect
to Noninsider Employees, Sale Date shall also include any day or days on
which the Stock Exchange is open for trading during the period (i)
commencing November 1, 1994 and (ii) continuing until the expiration of the
Transaction Period.
(l) "Stock Exchange" means any stock exchange on which shares of
$1.00 par value common stock of SLC are listed for trading.
(m) "Stock Option Shares" means (i) any shares of $1.00 par value
common stock of SLC owned by the Employee on November 30, 1993 which were
purchased by the Employee pursuant to stock options granted by SLC and/or
its corporate predecessor to the Employee prior to December 31, 1989, and
(ii) any shares of $1.00 par value common stock of SLC which the Employee
purchases after November 30, 1993 pursuant to stock options granted by SLC
to the Employee between December 31, 1989 and November 30, 1993.
(n) "Successor" means the successor to all or substantially 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 SLC, FMI and the Affiliates.
(o) "Supplemental Benefit Cap" means an amount equal to three hundred
percent (300%) of the average, annualized Compensation received by the
Employee during the five consecutive calendar years immediately preceding
the Date of Termination.
(p) "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, that if Termination 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.
(q) "Transaction Period" means the period commencing November 30,
1993 and ending 180 days after the Date of Termination.
(r) "Termination of Employment" means the voluntary or involuntary
termination of Employee's employment with SLC, FMI or with their Affiliates
or Successors for any reason other than the Employee's gross misconduct.
Should Employee continue as an employee of an Affiliate or Successor or
become an employee of an Affiliate or Successor within thirty (30) calendar
days of any
<PAGE>
<PAGE>
event which would otherwise constitute a Termination of Employment, a
Termination of Employment shall be deemed to have occurred unless: (i)
SLC's and FMI's obligations hereunder are not terminated, or (ii) such
Affiliate or Successor expressly assumes in writing all of SLC's and FMI's
obligations hereunder.
1. Supplemental Severance Payment. In the event a Termination 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 (a) Restricted Stock Purchase Shares and Stock Option Shares sold
by the Employee or by the Employee's Estate in Market Transactions on Sale
Dates occurring after the date hereof but prior to the expiration of the
Transaction Period and (b) Stock Option Shares surrendered by the Employee
to SLC after the date hereof but prior to the expiration of the Transaction
Period to satisfy the exercise price for Stock Option Shares and any income
tax withholding obligations for such shares in accordance with the plans
under which such shares were granted to Employee ((a) and (b) shall be
collectively referred to herein as the "Shares Sold"), less (ii) an amount
equal to the aggregate of (a) the gross sales price of the Shares Sold in
Market Transactions and (b) the total fair market value of the Shares Sold
constituting the Stock Option Shares surrendered to satisfy exercise price
or tax withholding obligations on the date of such surrender (as determined
in accordance with the respective plans governing such surrendered Stock
Option Shares).
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. SLC and FMI unconditionally guarantee each
other's obligations under this Restated Agreement.
5. Waiver. The failure on the part of any party to this Restated
Agreement to exercise any rights of that party hereunder shall not
constitute a waiver of such rights.
6. Assignment. This Restated Agreement may not be assigned by
Employee or by Employee's Estate without the prior written consent of SLC
and FMI or their permitted assignees. This Restated Agreement may be
assigned by SLC and FMI to their respective Affiliates or Successors,
provided each such Affiliate or Successor assumes and agrees to perform all
of SLC's or FMI's obligations hereunder, as the case may be. Otherwise,
this Restated Agreement shall not be assigned by SLC or FMI without the
prior written consent of Employee or Employee's Estate.
7. Entire Agreement. This Restated Agreement constitutes the entire
agreement of the parties hereto with respect to the Supplemental Benefit
Agreement and the subject matter hereof and thereof and may not be modified
or amended except in writing signed by or on behalf of the parties
<PAGE>
<PAGE>
hereto.
8. Controlling Law. This Restated Agreement shall be governed by and
construed in accordance with the laws of the state of Texas applicable to
agreements made and to be performed therein.
9. Counterparts. This Restated 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.
SOUTHWESTERN LIFE CORPORATION
By:
--------------------------
James R. Kerber
Chief Executive Officer and
President
FACILITIES MANAGEMENT
INSTALLATION, INC.
By:
---------------------------
C. Fred Rice
Senior Executive Vice President
EMPLOYEE:
____________________________
<PAGE>
<PAGE>
SOUTHWESTERN LIFE CORPORATION COMPANIES
SALARIED EMPLOYEES SEVERANCE PAY PLAN
As Restated Effective October 1, 1994
<PAGE>
<PAGE>
TABLE OF CONTENTS
Page
SECTION 1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 2. ELIGIBILITY . . . . . . . . . . . . . . . . . . . . . . . . 4
SECTION 3. SEVERANCE PAY . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 4. DISTRIBUTION OF BENEFITS . . . . . . . . . . . . . . . . . . 7
SECTION 5. PLAN ADMINISTRATION . . . . . . . . . . . . . . . . . . . . 8
SECTION 6. PLAN MODIFICATION OR TERMINATION . . . . . . . . . . . . . . 9
SECTION 7. GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . 9
<PAGE>
<PAGE>
SOUTHWESTERN LIFE CORPORATION COMPANIES
SALARIED EMPLOYEES SEVERANCE PAY PLAN
(As Restated Effective October 1, 1994)
Circumstances can develop which may make it necessary for a regular,
full-time, salaried employee to be separated from the Company or a
subsidiary or affiliate of the Company or a Participating Company,
involuntarily through no fault of his or her own. The Southwestern Life
Corporation Companies Salaried Employees Severance Pay Plan has been
developed to assist employees affected by such circumstances to cushion the
financial effects of the transition period following separation. The Plan
alone governs all payments to salaried employees in the United States of
America because of separation from employment. All other policies,
practices, procedures and plans relating to such payments, whether known as
severance pay, separation pay, termination pay, notice pay, layoff
allowance, supplemental unemployment benefits, or the like, are hereby
superseded.
SECTION 1. DEFINITIONS
1.1. "Administrative Services Contract" means an agreement under which
the Company, a Participating Company, or an Affiliated Group Member is
obligated to provide administrative or other similar services, including
but not limited to, Administrative Services Only (ASO), Third Party
Administration (TPA), and Administrative Carrier agreements.
1.2. "Affiliated Group Member" means a corporation that would be under
common control within the meaning of section 1563(a) of the Internal
Revenue Code as amended ("the Code"), if the phrase "at least eighty
percent" in such section read "at least fifty percent."
1.3. "Company" means Facilities Management Installation, Inc. and any
successor thereto by merger, purchase or otherwise that expressly adopts
the Plan.
<PAGE>
<PAGE>
1.4. "Controlled Group" means the Company or any successor by merger,
purchase or otherwise and any corporation that is under common control with
the Company within the meaning of section 1563(a) of the Code.
1.5. The "Effective Date" of the Plan is January 1, 1989, and the
effective date of the Plan's restatement is October 1, 1994, or such later
dates as the Plan becomes applicable to a workplace or other portion of the
Company or a Participating Company in accordance with Section 6.2.
1.6. An "Employee" means a person who is employed as a full-time,
salaried employee by the Company or any Participating Company for six (6)
months of Service for a regularly scheduled workweek of thirty (30) hours
or more immediately prior to his or her termination of employment at a
workplace or other portion of the Company or a Participating Company in the
United States of America to which the Plan applies. Notwithstanding the
above, no part-time, temporary, occasional or seasonal employee, sales
representative, employee employed in a foreign country, or employee who is
covered by a separate employment contract that includes severance-type pay,
is an Employee under the Plan. An Employee ceases to be an Employee once he
or she incurs a Severance Date.
1.7. "Participating Company" means any member of the Controlled Group,
other than the Company, designated by the Plan Administrator in writing and
effective as of such date specified therein.
1.8. "Pay" means the base salary of an eligible Employee at his or her
stated rate on his or her Severance Date. "Pay" does not include overtime
pay, bonuses, the receipt of previously deferred compensation, or any other
remuneration. A "Week of Pay" shall be calculated in accordance with the
Company's regular payroll procedures.
1.9. The "Plan" means the Southwestern Life Corporation Companies
Salaried Employees Severance Pay Plan, as amended from time to time.
<PAGE>
<PAGE>
1.10. The "Plan Administrator" is the senior officer of Corporate
Services for Facilities Management Installation, Inc.
1.11. "Retirement" means the retirement of an Employee under any
medical plan sponsored by the Company or a Participating Company, as
applicable.
1.12. "Service" means the period of continuous employment (a)
within the Controlled Group as an Employee and (b) with an Affiliated Group
Member that is recognized by the Company and/or an applicable Participating
Company for purposes of vacation eligibility.
1.13. "Severance Date" means the date after the Effective Date of
the Plan on which an Employee resigns, dies, retires, is discharged or
otherwise terminates employment, voluntarily or involuntarily, for any
reason. An Employee's employment is "Severed" on his or her Severance Date.
Notwithstanding the above, an Employee who incurs any of the following
events, but who remains employed by the Controlled Group or is transferred
or elects to transfer to an Affiliated Group Member in any capacity or
status after any such event, does not incur a Severance Date upon such
event:
a. Cessation of employment status as an Employee and continuation of
employment on a part-time basis;
b. Placement on long term disability status, a leave of absence or
other inactive employment status;
c. Transfer to any member of the Controlled Group, whether or not
such member is a Participating Company, or to any Affiliated
Group Member that has a comparable severance pay plan that
recognizes service with the Company's Controlled Group for
purposes of its severance pay plan, where such transfer is
pursuant to an offer of
<PAGE>
<PAGE>
comparable employment and is fifty (50) miles or less from the
Employee's current employment location; or
d. Any other change in terms or conditions of employment, including,
b u t not limited to, any change in job or job duties,
compensation, benefits or workplace.
1.14. "Severance Pay" means a payment made to eligible Employees
pursuant to Section 2 hereof.
SECTION 2. ELIGIBILITY
2.1. Except as otherwise provided in this Section 2, any person who is
an Employee on his or her Severance Date may, by written request in the
manner prescribed by the Plan Administrator, elect within forty-five (45)
days of his or her Severance Date to receive Severance Pay if his or her
employment is involuntarily Severed for reasons other than poor performance
or "misconduct" (as defined in Section 2.7). Any Employee who fails to so
elect within such forty-five (45) day period shall forfeit any and all
right to receive Severance Pay and shall not again become eligible to
receive Severance Pay unless he or she is thereafter reemployed by the
Company or a Participating Company as an Employee, his or her employment is
later involuntarily Severed and he or she later elects to receive Severance
Pay within such later forty-five (45) day period in accordance with this
Section 2.
2.2. Severance Pay shall not be made to any Employee if the Severance
Date occurs by reason of death or if the Employee dies prior to executing a
release described in Section 2.8.
2.3. Severance Pay shall not be made to any Employee if his or her
employment is voluntarily Severed, such as by:
a. Voluntary resignation (including a quit without notice);
<PAGE>
<PAGE>
b. Voluntary Retirement; or
c. Failure to return to active employment after cessation of
disability or following termination of a leave of absence.
For purposes of this Section 2, an Employee's employment is
voluntarily Severed if the Severance occurs by reason of an Employee's
resignation or Retirement prior to the Severance Date scheduled by the
Company, or if it occurs prior to a date on which the Employee expects to
be involuntarily Severed.
2.4. Severance Pay shall not be made to any Employee who incurs a
Severance Date in connection with (a) the sale of all or part of the
Company, a Participating Company, a Controlled Group Member or an
Affiliated Group Member, at which such Employee works, whether by the sale
of stock or assets, or (b) the merger, consolidation or reorganization of
all or part of the Company, a Participating Company, a Controlled Group
Member or an Affiliated Group Member at which such Employee works, with
another entity, if, before the Employee's Severance Date, the Employee is
(i) offered a position of comparable employment by the purchaser or
surviving business, and (ii) is not required to commute more than fifty
(50) miles from the employment location where he or she was otherwise
employed on the Severance Date.
2.5. Severance Pay shall not be made to any Employee who incurs a
Severance Date if, before the Employee's Severance Date, the Employee
receives an offer of comparable employment from an entity (a) engaged under
a service agreement to perform substantial services for the Company, a
Participating Company, a Controlled Group Member or an Affiliated Group
Member, or (b) for whom the Company, a Participating Company, a Controlled
Group Member or an Affiliated Group Member provides substantial services
under a service agreement, and, in connection with the offer of comparable
employment, the Employee is not required to commute more than fifty (50)
miles from the employment location where he or she was otherwise employed
on the Severance Date.
<PAGE>
<PAGE>
2.6. Severance Pay shall not be made to any Employee who incurs a
Severance Date because of the termination of an Administrative Services
Contract if, before the Employee's Severance Date, the Employee is offered
a position of comparable employment by the successor provider of the
services covered by that Administrative Services Contract, and, in
connection with that offer, the Employee is not required to commute more
than fifty (50) miles from the employment location where he or she was
otherwise employed on the Severance Date.
2.7. Any Employee who incurs a Severance Date as a result of the
Employee's misconduct shall not be eligible for Severance Pay. Misconduct
includes, but is not limited to, intentional violation of or negligent
disregard for company rules and procedures, insubordination, theft, violent
acts or threats of violence, or possession of alcohol or controlled
substances on property of the Company, a Controlled Group member or an
Affiliated Group Member.
2.8. No Employee shall be eligible to receive Severance Pay unless he
or she first releases the Company, its Controlled Group members, and its
Affiliated Group Members in writing in the manner prescribed by the Plan
Administrator from claims or liabilities relating to his or her employment
or termination of employment.
SECTION 3. SEVERANCE PAY
The Severance Pay of an eligible Employee shall be equal to the
greater of the amounts calculated using the two following formulas:
a. Severance Pay based upon length of Service:
1. two Weeks of Pay, plus
2. an additional Week of Pay for each full year of Service.
b. Severance Pay based upon title:
1. Manager 4 Weeks of Pay
<PAGE>
<PAGE>
2. Director 8 Weeks of Pay
3. Assistant Vice President 12 Weeks of Pay
4. Vice President 16 Weeks of Pay
5. Officers above Vice President 26 Weeks of Pay
Despite the above, the maximum amount of Severance Pay for any Employee is
52 Weeks of Pay.
SECTION 4. DISTRIBUTION OF BENEFITS
4.1. Severance Pay will be paid in a single sum (after appropriate
withholding and deductions required by law are made) upon the completion of
all requirements for eligibility for Severance Pay and the termination of
any waiting periods required by law.
4.2. Severance Pay shall be made directly out of the general assets of
the Company.
4.3. In the event of a dispute by an Employee as to the amount of any
distribution or its method of payment, such Employee shall present the
reason for his or her claim in writing to the Plan Administrator. The Plan
Administrator shall, within sixty (60) days after receipt of such written
claim, send a written notification to the Employee as to its disposition.
In the event the claim is wholly or partially denied, such written
notification shall (a) state the specific reason or reasons for the denial,
(b) make specific reference to pertinent Plan provisions on which the
denial is based, (c) provide a description of any additional material or
information necessary for the Employee to perfect the claim and an
explanation of why such material or information is necessary, and (d) set
forth the procedure by which the Employee may appeal the denial of his or
her claim. In the event an Employee wishes to appeal the denial of his or
her claim, he or she may request a review of such denial by making
application in writing to the Plan Administrator within sixty (60) days
after receipt of such denial. Such Employee (or his or her duly authorized
legal representative) may, upon written request to the Plan Administrator,
review any documents pertinent to his or her claim, and submit in writing
issues and comments in support of his or her position. Within sixty (60)
days after receipt of a written appeal
<PAGE>
<PAGE>
(unless special circumstances, such as the need to hold a hearing, require
an extension of time, but in no event more than one hundred twenty (120)
days after such receipt), the Plan Administrator shall notify the Employee
of the final decision. The final decision shall be in writing and shall
include specific reasons for the decision, written in a manner calculated
to be understood by the claimant, and specific references to the pertinent
Plan provisions on which the decision is based.
SECTION 5. PLAN ADMINISTRATION
5.1. The Plan shall be interpreted, administered and operated by the
Plan Administrator, who shall serve without compensation and shall have
complete authority, subject to the express provisions of the Plan, to
determine who shall be eligible for Severance Pay and in what amount, to
interpret the Plan, to prescribe, amend and rescind rules and regulations
relating to it, and to make all other determinations necessary or advisable
for the administration of the Plan.
5.2. All questions arising in connection with the interpretation of
the Plan or its administration or operation shall be submitted to and
settled and determined by the Plan Administrator in accordance with the
procedure for claims and appeals described in Section 4.3. Any such
settlement and determination shall be final and conclusive, and shall bind
and may be relied upon by the Company, any Participating Company, each of
the Employees and all other parties in interest. In exercising the
discretion expressly vested in him or her under the Plan, the Plan
Administrator shall act only in accordance with nondiscriminatory rules of
uniform application to similarly situated employees. Except to the extent
prohibited by law, the Plan Administrator is fully protected and shall be
indemnified for actions taken in his or her role as such by the Company and
the Participating Companies.
5.3. The Plan Administrator may delegate any of his or her ministerial
duties under the Plan to such person or persons from time to time as he or
she may designate.
<PAGE>
<PAGE>
SECTION 6. PLAN MODIFICATION OR TERMINATION
6.1. Subject to the approval of the President of the Company, the Plan
may be modified or amended at any time by the Plan Administrator, with or
without notice. Without limiting the foregoing, the Plan may be modified or
amended to increase, decrease or eliminate the Severance Pay payable to any
Employee who incurs a Severance Date after such modification or amendment.
6.2. It is the intention of the Company to continue the Plan and to
make Severance Pay to all eligible Employees. However, the Company, by
action of the Plan Administrator, may for any reason terminate the Plan or
withhold its application as to all or some Employees at a workplace or
other portion of the Company or a Participating Company and may,
accordingly, make no Severance Pay to anyone who has not incurred a
Severance Date at the time of such termination or withholding. The Company,
by action of the Plan Administrator, may also extend the applicability of
the Plan to all or some Employees at a plant or other portion of the
Company or a Controlled Group member.
6.3. Any modification, amendment, termination, withholding, extension
or other action relating to the Plan shall only apply to Severance Dates
occurring after such action. No such action shall reduce or eliminate the
Severance Pay of any Employee whose Severance Date occurs before such
action is taken.
SECTION 7. GENERAL PROVISIONS
7.1. Nothing in the Plan shall be deemed to give any Employee the
right to be retained in the employ of the Company, a Controlled Group
member or an Affiliated Group Member, or to interfere with the right of the
Company, a Controlled Group member or an Affiliated Group Member to
discharge him or her at any time and for any lawful reason, with or without
notice.
7.2. Except as otherwise provided herein or by law, no right or
i n t erest of any Employee under the Plan shall be assignable or
transferable, in whole or in part, either directly or by operation
<PAGE>
<PAGE>
of law or otherwise, including without limitation by execution, levy,
garnishment, attachment, pledge or in any manner; no attempted assignment
or transfer thereof shall be effective; and no right or interest of any
Employee under the Plan shall be liable for, or subject to, any obligation
or liability of such Employee. When a payment is due under this Plan to an
Employee who is unable to care for his or her affairs, payment may be made
directly to his or her legal guardian or personal representative.
7.3. An Employee may, by written designation in the manner prescribed
by the Plan Administrator, designate a beneficiary to receive Severance Pay
in the event he or she dies after a Severance Date.
7.4. To the extent permitted by law, if the Company or a Participating
Company is obligated by law or contract to pay any remuneration other than
Severance Pay under this Plan on account of or in connection with the
Severance Date of an eligible Employee, the Severance Pay amount shall be
reduced, dollar for dollar, by the amount of any such remuneration.
7.5. The Plan shall be governed by, and construed in accordance with,
the Employee Retirement Income Security Act of 1974, as amended and all
applicable rules and regulations thereunder.
Effective October 1, 1994.
FACILITIES MANAGEMENT INSTALLATION, INC.
By:/s/W. Hubert Mathis
-------------------
Name: W. Hubert Mathis
Its: Senior Vice President of
Corporate Services
WITNESS:
/s/Mary E. Norwood
------------------
(Rev. 10/1/94)
<PAGE>
<PAGE>
PARTICIPATION AGREEMENT
THIS PARTICIPATION AGREEMENT (the "Agreement") is entered into
effective as of July 1, 1994, between SOUTHWESTERN LIFE INSURANCE COMPANY,
a Texas life insurance corporation ("Lead") and EMPLOYERS REASSURANCE
CORPORATION, a Kansas corporation ("Participant").
R E C I T A L S:
A. Lead and James M. Fail, an individual resident of the State of
Alabama ("Borrower") have previously entered into that certain Loan
Agreement dated as of January 25, 1993 (such Loan Agreement, as the same
may be amended, supplemented or modified from time to time, is hereinafter
referred to as the "SWL Loan Agreement"), pursuant to which Lead made a
loan to Borrower in the aggregate principal amount of Twelve Million Three
Hundred Fifty-Nine Thousand Nine Hundred Fifty-Seven and No/100 Dollars
($12,359,957.00) (the "SWL Loan").
B. Consolidated Fidelity Life Insurance Company, a Kentucky life
insurance corporation ("CFLIC") and Borrower previously entered into that
certain Loan Agreement dated as of January 25, 1993 (the "CFLIC Loan
Agreement") pursuant to which CFLIC made a loan to Borrower in the original
principal amount of Thirty-Two Million Two Hundred Ten Thousand Two Hundred
Two and No/100 Dollars ($32,210,202.00) (the "CFLIC Loan"). The SWL Loan
and the CFLIC Loan are hereinafter referred to collectively as the "Loan"
and the SWL Loan Agreement and the CFLIC Loan Agreement are hereinafter
referred to collectively as the "Loan Agreements."
C. Pursuant to that certain Assignment and Transfer of Notes, Liens
and Other Rights dated as of June 30, 1994 between Lead and CFLIC, Lead has
purchased all of CFLIC's right, title and interest in and to the CFLIC
Loan, the CFLIC Loan Agreement and each of the other documents and
agreements relating to or evidencing the CFLIC Loan, and all security
interests and liens securing the same.
D. Lead has furnished to Participant copies of the Loan Agreements and
all of the other Loan Documents (as defined in the Loan Agreements) (the
Loan Agreements and all of the other Loan Documents are hereinafter
referred to collectively as the "Loan Documents").
E. The aggregate outstanding unpaid principal balance of the Loans is
$40,318,754.00 and interest has been prepaid through November 3, 1994.
F. Participant has agreed, subject to the terms and conditions
hereinafter set forth, to purchase from Lead a participation in the Loan.
G. Lead and Participant wish to enter into this Agreement to
memorialize their rights and obligations and Participant's Participation
(hereinafter defined) shall be evidenced by this Agreement.
<PAGE>
NOW, THEREFORE, in consideration of the premises and for other
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Lead and Participant agree as follows:
1. Subject to the terms and conditions of this Agreement, Participant
hereby purchases from Lead and Lead hereby sells to Participant a Twenty
Million One Hundred Fifty-Nine Thousand Three Hundred Seventy-Seven and
No/100 Dollar ($20,159,377.00) participation in the Loan and a pro rata
participation in accrued and prepaid interest as of the effective date
hereof and any collateral securing the Loan (the "Participation") (Lead's
retained portion of the Loan not so participated being referred to herein
as the "Retained Portion"). Immediately upon any reduction of Participant's
Participation hereunder, the term "Participation" shall mean Participant's
principal amount of participation as so reduced. For the purposes of this
Agreement, Participant's "pro rata share" shall mean at any time the ratio
of the outstanding principal amount of the Participation to the then
outstanding principal amount of the Loan, which as of the date hereof is
equal to fifty percent.
2. From time to time and at any time hereafter as Lead at its sole
option may elect, Lead may reduce Participant's Participation by: (a)
delivering to Participant written notice of such reduction stipulating a
new principal amount of participation, and (b) remitting to Participant, in
funds available for immediate use by Participant, the amount of the
difference between Participant's then existing Participation and
Participant's new principal amount of participation plus interest thereon
accrued and unpaid to the date of such payment at the same interest rate
which the Loan bore for the same time period.
3. Lead shall, within two Business Days (hereinafter defined) after
receipt thereof, remit to Participant, in funds available for immediate use
by Participant, Participant's pro rata share of each payment received by
Lead with respect to the Loan and interest thereon (whether pursuant to the
Loan Documents, or by voluntary payment, exercise of set-off, banker's
lien, counterclaim, cross-action, realization on or with respect to
collateral, or otherwise); provided, however, if Lead shall ever acquire
any collateral through foreclosure or by a conveyance in lieu of
foreclosure or by retaining the collateral in satisfaction of all or part
of the Loan, Lead shall not be required to remit to Participant its pro
rata share of the Loan or portion thereof that has been satisfied, and
Participant shall only be entitled to a pro rata interest in the collateral
so acquired and shall remain obligated to pay its pro rata portion of all
reasonable attorneys' fees and other expenses incurred by Lead in
connection with the enforcement of the Loan Documents. Except for the
obligation of Lead to account for payments received by it, the sale and
purchase of the Participation hereunder shall be without recourse to Lead
and without representation or warranty by Lead. For purposes of this
Agreement, "Business Day" shall mean any day except a Saturday, Sunday or
any day on which commercial banks in Dallas, Texas are required to close by
law.
4. Lead may execute any of its duties hereunder by or through agents,
employees, or attorneys. Lead and its officers, directors, employees,
attorneys, and agents shall be entitled to rely and shall be fully
protected in relying on any writing, resolution, notice, consent,
certificate, affidavit, letter, cablegram, telegram, telex, teletype
message, facsimile, statement, order, or other document
<PAGE>
<PAGE>
or conversation believed by it to be genuine and correct and to have been
signed or made by the proper person and. with respect to legal matters,
upon the opinion of counsel selected by Lead.
5. Participant hereby represents and warrants to Lead that it is
purchasing its Participation in the Loan hereunder for its own account and
not with a view to distribution and acknowledges that its purchase of its
Participation hereunder constitutes a commercial loan by Participant to
Borrower and does not constitute an "investment" in Borrower as that term
is commonly understood.
6. Participant hereby represents and warrants that it has
independently reviewed the Loan Agreements and the other Loan Documents,
and that there shall be no recourse on, or any liability incurred by, Lead
for any misstatement (whether material or immaterial) or omission (whether
negligent or otherwise) of Borrower contained in any of the Loan Documents
and that Participant has conducted, to the extent it deemed necessary, an
independent investigation of Borrower, including, but not limited to, an
investigation relating to the credit-worthiness of Borrower and the risk
involved to Participant in the loan of its funds to Borrower, and has not
relied upon Lead for any such investigation or assessment of risk.
7. Neither Lead nor any of its officers, directors, employees,
attorneys, or agents shall be liable for any action taken or omitted to be
taken by it or them hereunder or under any Loan Document in good faith and
believed by it or them to be within the discretion or power conferred upon
it or them by this Agreement or any Loan Document, or be responsible for
the consequences of any error of judgment, except for gross negligence or
willful misconduct. Lead shall not be compelled to do any act hereunder or
under any Loan Document or to take any action towards the execution or
enforcement of the powers created under this Agreement or any Loan
Document, or to prosecute or defend any suit in respect hereof or thereof,
unless indemnified to its satisfaction by Participant against loss, cost,
liability, and expense. Lead shall not be responsible in any manner to
Participant for (a) the effectiveness, enforceability, genuineness,
validity, or due execution of any of the Loan Documents, (b) any
representation, warranty, document, certificate, report, or statement made
in any Loan Document, or furnished under or in connection with any of the
Loan Documents, (c) ascertaining or inquiring as to the performance of or
compliance with the terms, covenants, and conditions of the Loan Documents,
(d) the collectibility of the Loan, (e) the validity, enforceability, or
sufficiency of, or title to, any collateral now or hereafter securing the
Loan, or (f) the existence, priority, or perfection of any lien or security
interest granted or purported to be granted under the Loan Documents.
8. Lead shall have the right to exercise or refrain from exercising,
without notice or liability to Participant, any and all rights afforded to
Lead by the Loan Documents or which Lead may have as a matter of law.
Without limiting the generality of the foregoing, Lead may in its sole
discretion, at any time and from time to time, and without notice or
liability to Participant. (a) collect or enforce any or all of the Loan
Documents, (b) compromise, settle, or release any claim, obligation, or
indebtedness, under the Loan Documents or otherwise, (c) give or withdraw
consents or approvals, (d) enter into any amendment or modification of, or
waive compliance with the terms of, any Loan Document, (e) extend or renew
the Loan, and (f) release, substitute, or subordinate any collateral.
<PAGE>
<PAGE>
Lead shall have no liability to Participant for failure or delay in
exercising any rights or powers possessed by the Lead pursuant to the Loan
Documents or otherwise.
9. Participant shall not have any interest in (a) any present or
future guaranties by or for the account of Borrower which are not
contemplated in the Loan Agreement, (b) any present or future offset
exercised by Lead in respect of any extension of credit not contemplated in
the Loan Agreement, (c) any property now or hereafter taken as collateral
for any extension of credit not contemplated in the Loan Agreement, or (d)
any property now or hereafter in the possession or control of Lead which
may be or become collateral for the obligations of Borrower under any Loan
Document by reason of a general description of indebtedness secured or of
property contained in any general loan agreement, collateral agreement, or
collateral note held by Lead; provided, however, if payments in respect of
such guaranties or such property or proceeds thereof shall be applied in
reduction of the Loan, then the Participant shall be entitled to share pro
rata in such application.
10. Except as expressly provided herein to the contrary, should Lead
or Participant ever receive (whether pursuant to the Loan Documents, or by
voluntary payment, exercise of set-off, banker's lien, counterclaim,
cross-action, realization on or with respect to collateral, or otherwise)
any sum applied or to be applied to the obligations of Borrower under the
Loan Documents, any such sum shall be shared pro rata with and, within
three Business Days after receipt thereof, paid to the other party hereto
so that each of the parties hereto receives its pro rata portion of all
such sums. Should any trustee or receiver or any court or other
governmental body of competent jurisdiction, including, without limitation,
any United States bankruptcy court, ever require that any principal,
interest, or other sums received by Participant hereunder be returned to
the Borrower or the Borrower's estate, Participant shall, within three
Business Days after receipt of notice from Lead of such requirement,
transmit to Lead in immediately available funds the amount of principal,
interest, and/or other sums ordered to be so returned to the Borrower or
the Borrower's estate.
11. Participant shall pay its pro rata portion of all reasonable
attorneys' fees and all other expenses incurred by Lead in connection with
the administration and any amendment or modification of the Loan Documents
and the enforcement of the Loan Documents, and Participant shall be
entitled to its pro rata share of any payments received by Lead with
respect to such fees and expenses from Borrower, if, as, and when received
by Lead.
12. Participant shall be entitled to receive its pro rata share of any
interest paid by Borrower to Lead with respect to the Loan. Notwithstanding
anything to the contrary contained herein, Participant shall receive its
pro rata share of the aforementioned interest only if, as, and when said
interest is paid to Lead, and Lead shall incur no liability to Participant
for any sums not received by it.
13. To the extent not already available to Participant, Lead shall
endeavor to provide Participant, promptly after Lead's receipt of
Participant's written request therefor, (a) copies of all current financial
statements then in Lead's possession in respect of Borrower, (b) current
information then in Lead's possession as to the value of collateral and the
status of liens, and (c) other current
<PAGE>
<PAGE>
factual information then in Lead's possession bearing on the continuing
creditworthiness of Borrower; provided, however, nothing contained in this
Section shall impose any liability upon Lead for its failure to provide
Participant any of the foregoing information.
14. Lead may at any time and from time to time grant one or more
participations in the obligations of Borrower under the Loan Documents on
terms as Lead may determine. Lead shall have no obligation to repurchase
the Participation or any part thereof.
15. Participant shall not subdivide, transfer or assign the
Participation without the prior written consent of Lead.
16. This Agreement shall be governed by and construed in accordance
with the laws of the State of Texas, and Participant's obligations
hereunder are performable in Dallas, Dallas County, Texas.
17. None of the provisions of this Agreement shall inure to the
benefit of Borrower or any person other than Lead and Participant;
consequently, Borrower and any persons other than Lead and Participant
shall not be entitled to rely upon or raise as a defense, in any manner
whatsoever, the failure of Lead or Participant to comply with the
provisions of this Agreement. Neither Lead nor Participant shall incur any
liability to Borrower or any other person for any act or omission of the
other party hereto.
18. Whenever this Agreement requires or permits any consent, approval,
notice, request, or demand from one party to another, the consent,
approval, notice, request, or demand must be in writing to be effective and
shall be deemed to have been given when personally delivered, or, if
mailed, when enclosed in an envelope addressed to the party to be notified
at the address stated below (or at such other address as may have been
designated by written notice), properly stamped, sealed, and duly deposited
in the United States mail, registered or certified mail. The address of
each party for purposes hereof is as follows:
LEAD: Southwestern Life Insurance Company
500 North Akard Street
Dallas, Texas 75201
Attention: Daniel B. Gail, Esq.
Executive Vice President
and General Counsel
Copy to: Winstead Sechrest & Minick P.C.
5400 Renaissance Tower
1201 Elm Street
Dallas, Texas 75270
Attention: Edward A. Peterson, Esq.
<PAGE>
<PAGE>
PARTICIPANT: Employers Reassurance Corporation
5200 Metcalf
Overland Park, Kansas
Attention: James D. Maughn
Senior Vice President
and Actuary
EXECUTED to be effective as of the date first above written.
LEAD:
SOUTHWESTERN LIFE INSURANCE COMPANY
By: /s/ Robert L. Beisenherz
------------------------
Name: Robert L. Beisenherz
Title: Chairman and CEO
PARTICIPANT:
EMPLOYERS REASSURANCE CORPORATION
By: /s/ James D. Maughn
-------------------
Name: James D. Maughn
Title: Senior Vice President and Actuary
<PAGE>
<PAGE>
As of June 30, 1994
Consolidated Fidelity Life Insurance Company
4211 Norbourne Boulevard
Louisville, Kentucky 40207
Gentlemen:
On May 21, 1992, Southwestern Life Corporation (formerly named I.C.H.
Corporation) and Consolidated Fidelity Life Insurance Company ("CFLIC")
entered into an Assignment of Right to Purchase Stock and Grant of Call and
Put Option (the "Assignment"), a copy of which is attached hereto as
Exhibit "A", under which Southwestern Life Corporation ("SLC") assigned and
CFLIC assumed and agreed to perform the obligation of SLC to purchase
500,000 shares of $1.00 par value common stock of SLC (the"SLC Common
Stock") from John A. Franco and SLC granted to CFLIC a call and put option
with respect to said 500,000 shares.
On June 30, 1994, in connection with the closing of the transactions
contemplated by the Agreement entered into among SLC, CFLIC and
Consolidated National Corporation dated June 15, 1993, CFLIC transferred to
SLC, among other things, 620,423 shares of SLC Common Stock.
This letter will confirm that the 620,423 shares SLC Common Stock
transferred by CFLIC to SLC on June 30, 1994 included the 500,000 shares of
SLC Common Stock which were subject to the aforementioned Assignment and
that immediately following the transfer of said shares to SLC the
Assignment terminated.
Sincerely,
/s/ John T. Hull
----------------
John T. Hull
Executive Vice President
Treasurer and Chief Financial Officer
AGREED TO AS OF JUNE 30, 1994
CONSOLIDATED FIDELITY LIFE INSURANCE COMPANY
/s/ Jerry W. Rice
-----------------
Jerry W. Rice
Vice President
<PAGE>
<PAGE>
Assignment of Right to Purchase Stock
and Grant of Call and Put Option
I.C.H. Corporation (ICH) hereby transfers, assigns and conveys to
Consolidated Fidelity Life Insurance Company (CFLIC), and CFLIC accepts,
assumes and agrees to perform, the right and obligation of ICH, or its
designee, to purchase 500,000 shares of common stock of ICH (the Shares)
from John A. Franco, as evidenced by that certain letter agreement between
John A. Franco and I.C.H. Corporation, dated November 18, 1991, a true and
complete copy of which is attached hereto as Exhibit A. If the closing of
the purchase of the Shares occurs May 21, 1992, the purchase price for the
Shares will be $4.00 plus one day's interest thereon at the rate equal to
the prime rate plus 1%.
CFLIC represents that it will acquire the Shares for investment purposes
only and acknowledges that the transferability of the Shares will be
restricted under applicable securities laws.
CFLIC hereby grants ICH, or its designee, the right and option to purchase,
on or before December 31, 1996, all, but not less than all, of the Shares
(the Call Option), at a price per Share equal to the greater of (a) $4.00
plus interest for the period of time that CFLIC owns the Shares at the
simple rate of 10% per annum, or (b) the average closing sale price of ICH
common stock, as reported by the American Stock Exchange, for the five
trading days immediately preceding the date the Call Option is exercised.
The Call Option shall be exercisable by ICH, or its designee, by the
delivery of written notice to CFLIC on or before December 16, 1996, with
the closing to occur on the fifteenth day following the date such notice is
delivered.
ICH hereby grants CFLIC the right to require ICH, or its designee, to
purchase, on December 31, 1996, all, but not less than all, of the Shares
(the Put Option), at a price per Share equal to $4.00 plus interest for the
period of time that CFLIC owns the Shares at the simple rate of 10% per
annum. The Put Option shall be exercisable by CFLIC by the delivery of
written notice to ICH on or before December 16, 1996.
The closing of the purchase and sale of the Shares upon timely exercise of
the Call Option or the Put Option shall occur at the principal office of
CFLIC in Louisville, Kentucky at 10:00 a.m. on the closing date. The
purchase price payable at such closing shall be paid in immediately
available funds upon delivery to ICH, or its designee, of good and
marketable and unencumbered title to the Shares.
The Call Option shall be assignable by ICH, but the Put Option shall be
personal to CFLIC, and shall not be transferable or assignable by CFLIC
without the prior written consent of ICH.
Exhibit "A"
<PAGE>
<PAGE>
Dated the 21st day of May, 1992.
I.C.H. CORPORATION
By: /s/ Robert L. Beisenherz
------------------------
Name: Robert L. Beisenherz
Title: Chairman and CEO
CONSOLIDATED FIDELITY LIFE
INSURANCE COMPANY
By: /s/ Jerry W. Rice
-----------------
Name: Jerry W. Rice
Title: Vice President
<PAGE>
<PAGE>
Stephens Inc.
May 3, 1994
I.C.H. Corporation
Lincoln Plaza, Suite 12
500 N. Akard
Dallas, TX 75201
Attention: Robert Beisenherz
Chairman and CEO
Gentlemen:
This letter (the "Agreement") sets forth the terms of engagement of
Stephens Inc. ("Stephens") to act as exclusive financial advisor to I.C.H.
Corporation (the "Company") in connection with a business review (the
"Review") of the Company. The purpose of the Review is to explore various
alternatives available to the Company and its shareholders which would have
the desired effect of maximizing the value of the Company for the benefit
of its shareholders. Such alternatives may include, but not be limited to,
selling the Company or non-strategic subsidiaries or assets of the Company,
seeking an acquisition of or business combination with another entity,
reducing Company expenses, refinancing the Company's debt or recapitalizing
the Company. The Review will be used by the Company's Board of Directors
(the "Board") and will not be distributed outside the Company or Stephens
without the specific written consent of Stephens and the Company.
It is Stephens' understanding that the Review is to be completed as soon as
possible and that a preliminary report, both written and oral, will be
given to the Board on May 26, 1994, with a final report to be delivered to
the Board as soon as practicable thereafter, but in no event later than
July 31, 1994 unless otherwise agreed to by the Board.
Stephens' rights and obligations under this Agreement shall extend from the
date of its acceptance by the Company to the earlier of (i) the first
anniversary of such date, or (ii) thirty days after either the Company or
Stephens delivers written notification to the other party that it wishes to
terminate this Agreement (the "Engagement Period"); provided, however, that
the provisions of the attached indemnification letter and the compensation
provisions of this Agreement will survive such expiration or termination.
<PAGE>
<PAGE>
May 3, 1994
Page 2
In consideration of the services to be rendered by Stephens pursuant to
this Agreement, the Company agrees to pay Stephens a fee in the amount of
$150,000 upon execution of this Agreement and $25,000 per month beginning
August 1, 1994 and each month thereafter through the end of the Engagement
Period. In addition, the Company will reimburse Stephens, upon request, for
reasonable out-of-pocket expenses directly incurred in connection with this
e n gagement, including travel expenses and the reasonable fees and
disbursements of outside counsel. In the event the Company determines to
take any of the actions as may be discussed in the Review, and if Stephens
is engaged by the Company to perform any additional services outside of the
Review, Stephens will perform such services at its normal and customary
fees for such services under separate engagement to be negotiated between
Stephens and the Company.
The Company will furnish Stephens or provide Stephens access to such
information as Stephens believes appropriate to its assignment (all such
information so furnished being the "Information"). Such Information will
include, but not be limited to, current actuarial valuations and access to
the Company's independent consulting actuaries and current financial and
tax information and access to the Company's independent auditors and tax
advisors. The Company recognizes and confirms that Stephens (a) will use
and rely primarily on the Information and on information available from
generally recognized public sources in performing the services contemplated
by this letter without having independently verified the same, and (b) does
not assume responsibility for the accuracy or completeness of the
Information and such other information. Stephens will not disclose to any
third party any of the Information that is not otherwise publicly available
or disclosed by the Company.
Please note that in the ordinary course of business Stephens and its
affiliates at any time may hold long or short positions, and may trade or
otherwise effect transactions as principal or for the accounts of
customers, in debt or equity securities or options on securities of the
Company or any other party that may be involved in the Review.
The Company agrees to indemnify and hold Stephens harmless in accordance
w i t h the attached indemnification letter. This Agreement and the
indemnification letter incorporate the entire understanding of the parties
with respect to this engagement and supersede all previous agreements,
should they exist.
This Agreement has been and is made solely for the benefit of Stephens and
the Company and of the persons, agents, employees, officers, directors and
controlling persons referred to in the indemnification letter and their
respective successors, assigns and heirs, and no other person shall acquire
or have any right under or by virtue of this agreement.
<PAGE>
<PAGE>
May 3, 1994
Page 3
If this letter correctly states our Agreement, please so indicate by
signing below and returning a signed copy to us. Upon receipt of a signed
copy of this letter, the terms of such letter shall constitute a binding
Agreement between Stephens and the Company.
Very truly yours,
STEPHENS INC.
By: /s/ Linda Garner
----------------
Linda Garner
Vice President
ACCEPTED THIS 18th day May, 1994.
I.C.H. Corporation
By: /s/ Robert Beisenherz
---------------------
Robert Beisenherz
President
<PAGE>
<PAGE>
May 3, 1994
Stephens Inc.
111 Center Street
Little Rock, Arkansas 72201
Gentlemen:
This agreement sets forth the terms and conditions upon which we will
reimburse certain expenses, indemnify and hold you harmless, and provide
contribution in connection with our engagement of your firm as described in
your letter to us dated the date hereof.
If in connection with or as a result of the performance of services by you
under such engagement letter you become involved (whether or not as a named
party) in any action, claim or legal proceeding (including any governmental
inquiry or investigation), we agree, subject to the limitations set forth
in the fifth paragraph of this agreement, to reimburse you for your legal
fees, disbursements of counsel and other expenses (including the reasonable
cost of investigation and preparation) as they are incurred by you;
provided, however, that you shall remit to us all such reimbursements to
the extent that a court having jurisdiction shall have determined by a
final judgment that such expense resulted from your bad faith, willful
misconduct or negligence or that of any other person who may be otherwise
entitled to indemnification hereunder.
We also agree to indemnify and hold you harmless against any losses,
claims, damages or liabilities, joint or several, as they are incurred, to
which you may become subject in connection with or as a result of the
performance of services by you under such letter; provided, however, that
we shall not be liable under the foregoing indemnity agreement in respect
of any loss, claim, damage or liability to the extent that a court having
jurisdiction shall have determined by a final judgment that such loss,
claim, damage or liability resulted from your bad faith, willful misconduct
or negligence or that of any other person who may be otherwise entitled to
indemnification hereunder.
In the event that the indemnity in the immediately preceding paragraph is
unavailable, then we shall contribute to amounts paid or payable by you in
respect to such losses, claims, damages and liabilities in proportion that
our interest bears to your interest in the matters contemplated by such
engagement letter (for example, if your engagement concerns a securities
offering or acquisition or divestiture of assets, our interest shall be
deemed to be an amount equal to the proposed or actual consideration to be
paid or received by us and your interest shall be deemed to be an amount
equal to the fees actually paid to you in connection with such engagement);
provided, however, that we shall not be obligated to make any such
contribution to the extent that a court having jurisdiction shall have
determined by a final judgment that such loss, claim, damage or liability
resulted from your bad faith, willful misconduct or negligence or that of
any other person who may be otherwise entitled to contribution hereunder.
If, however, you are not entitled to receive the allocation provided by the
immediately preceding sentence for any reason, then we shall contribute to
such amount paid or payable by you in such proportion as is appropriate to
reflect not only such relative interests but also the relative fault of you
on the one hand and us on the other hand in connection with the matters as
to which such losses, claims, damages or liabilities relate and other
equitable considerations.
<PAGE>
<PAGE>
If any action is brought against a person (an "Indemnified Party") in
respect of which indemnity may be sought against us pursuant to this
agreement, such Indemnified Party shall promptly notify us in writing of
the institution of such action and we shall be entitled to participate in
such action or proceeding and in the investigation of such claim, and,
after written notice to the Indemnified Party, to assume the investigation
or defense of such claim, action or proceeding with counsel of our choice
at our expense; provided, however, that such counsel shall be reasonably
satisfactory to the Indemnified Party. Notwithstanding our election to
assume the defense or investigation of such claim, action or proceeding,
the Indemnified Party shall have the right to employ separate counsel
reasonably satisfactory to us and to participate in the defense or
investigation of such claim, action or proceeding and we shall advance and
bear the reasonable expense of such separate counsel if (i) in the written
opinion of counsel to the Indemnified Party, use of counsel chosen by us
could reasonably be expected to give rise to a material conflict of
interest adversely affecting the legal interests of the Indemnified Party,
(ii) we shall not have employed counsel reasonably satisfactory to the
Indemnified Party within a reasonable time after notice of the institution
of any such action or proceeding, or (iii) we shall authorize the
Indemnified Party to employ separate counsel at our expense; provided,
however, that in no case shall we be responsible for the fees and expenses
of more than one counsel at any time in any jurisdiction for all
Indemnified Parties. Further, we shall not be liable for any settlement of
any such claim or action effected without our prior written consent.
The foregoing agreements shall apply to any additional engagement, and any
modification of your engagement under the letter of agreement of even date
herewith. Further, they shall remain in full force and effect following the
completion or termination of your engagement and shall be in addition to
any rights that you may have at common law or otherwise. The rights
afforded you under this agreement shall, upon the same terms and
conditions, also extend to and inure to the benefit of each person, if any,
who may be deemed to control you, be controlled by you or be under common
control with you within the meaning of Section 15 of the Securities Act of
1933 or Section 20 of the Securities Exchange Act of 1934 and to each of
your and each such person's respective affiliates directors, officers,
employees and agents. This agreement shall be binding on any successor of
ours or any substantial portion of our business or assets.
Very truly yours,
I.C.H. Corporation
By: /s/ Robert Beisenherz
---------------------
Robert Beisenherz
<PAGE>
<PAGE>
EXHIBIT 11.1
SOUTHWESTERN LIFE CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS (LOSS) PER SHARE OF COMMON STOCK
ON AVERAGE SHARES OUTSTANDING AND FULLY DILUTED BASES
(Unaudited)
(Dollars in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
1994 1993 1994 1993
-------- ------- -------- --------
<S> <C> <C> <C> <C>
Computation for statements of earnings:
Operating earnings (loss) $ (145) $ 125,734 $ (34,776) $ 222,881
Less dividends on preferred stock (3,500) (7,700) (11,325) (23,100)
---------- ---------- ---------- ----------
Operating earnings (loss) applicable
to common stock (3,645) 118,034 (46,101) 199,781
Cumulative effect to January 1, 1993 of
change in method of accounting for
postretirement benefits (1,812)
Extraordinary losses (1,360)
---------- ---------- ---------- ----------
Net earnings (loss) applicable to common stock $ (3,645) $ 118,034 $ (46,101) $ 196,609
========== ========== ========== ==========
Weighted average common shares outstanding 47,261,563 47,914,861 47,654,310 47,913,898
========== ========== ========== ==========
Earnings (loss) per common share:
Operating earnings (loss) $(.08) $2.46 $(.97) $4.17
Cumulative effect to January 1, 1993 of
change in method of accounting for
postretirement benefits (.04)
Extraordinary losses (.03)
---------- ---------- ---------- ----------
Net earnings (loss) $(.08) $2.46 $(.97) $4.10
========== ========== ========== ==========
Additional computations (A):
Weighted average common shares outstanding 47,261,563 47,914,861 47,654,310 47,913,898
Incremental common shares applicable to common
stock options based on the common stock
daily average market price during the
period 495,983 664,431 646,734 821,411
---------- ---------- ---------- ----------
Weighted average common shares, as adjusted 47,757,546 48,579,292 48,301,044 48,735,309
========== ========== ========== ==========
Weighted average common shares outstanding 47,261,563 47,914,861 47,654,310 47,913,898
Incremental common shares applicable to common
stock options based on the more dilutive of the
common stock ending or daily average market
price during the period 548,791 842,111 650,145 1,034,481
Assumed conversion of convertible preferred shares 6,153,755 7,867,466 6,153,755 7,867,466
---------- ---------- ---------- ----------
Weighted average common shares, assuming full
dilution 53,964,109 56,624,438 54,458,210 56,815,845
========== ========== ========== ==========
Net earnings (loss) applicable to common stock
assuming conversion of convertible preferred
stock $ (145) $ 122,212 $ (34,776) $ 209,143
========== ========== ========== ==========
</TABLE>
(A) These calculations are submitted in accordance with Securities Exchange
Act of 1934 Release No. 9083, although not required by footnote 2 to
paragraph 14 of Accounting Principles Board Opinion No. 15 because they
result in dilution of less than 3% or antidilution.
(Continued)
<PAGE>
<PAGE>
SOUTHWESTERN LIFE CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS (LOSS) PER SHARE OF COMMON STOCK
ON AVERAGE SHARES OUTSTANDING AND FULLY DILUTED BASES, Continued
(Unaudited)
(Dollars in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------- --------------------
1994 1993 1994 1993
-------- ------- -------- --------
<S> <C> <C> <C> <C>
Additional computations, continued(A):
Earnings (loss) per common share:
Average shares outstanding:
Operating earnings (loss) $(.08) $2.43 $(.95) $4.10
Cumulative effect to January 1, 1993 of
change in method of accounting for
postretirement benefits (.04)
Extraordinary losses (.03)
----- ----- ----- -----
Net earnings (loss) $(.08) $2.43 $(.95) $4.03
===== ===== ===== =====
Fully diluted, assuming conversion of all
applicable securities(B):
Operating earnings (loss) $ - $2.14 $(.64) $3.69
Cumulative effect to January 1, 1993 of
change in method of accounting for
postretirement benefits (.03)
Extraordinary losses (.02)
----- ----- ----- -----
Net earnings (loss) $ - $2.14 $(.64) $3.64
===== ===== ===== =====
</TABLE>
(B) Fully diluted earnings in 1994 as reflected in this exhibit are
considered "antidilutive" because they result in per share earnings that
exceed per share earnings as determined on the primary basis or per share
losses that are less than per share losses as determined on the primary
basis. Fully diluted earnings per share in 1994 as reflected in the
consolidated statement of earnings (loss) were determined based on primary
earnings per share calculations as a result of such antidilution.
<PAGE>
<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended September 30, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-7697
Southwestern Life Corporation
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 43-6069928
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
</TABLE>
500 North Akard Street, Dallas, Texas 75201
(Address of principal executive offices) (Zip Code)
(214) 954-111
(Registrant's telephone number, including area code)
100 Mallard Creek Road, Suite 400, Louisville, Kentucky 40207
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Class and Title of Shares Outstanding
Capital Stock as of November 4, 1994
------------------ ----------------------
<S> <C>
Common Stock, $1.00 Par Value 47,265,016
</TABLE>
Index to Exhibits appears on page 38.
This filing contains 136 pages.
<PAGE>
<PAGE>
SOUTHWESTERN LIFE CORPORATION
FORM 10-Q
INDEX
Page(s)
-------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets at September 30,
1994 and December 31, 1993 . . . . . . . . 3
Consolidated Statements of Earnings (Loss)
for the Three Months and the Nine Months
Ended September 30, 1994 and 1993 . . . . 4
Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 1994 and
1993 . . . . . . . . . . . . . . . . . . . 5
Notes to Financial Statements . . . . . . . . . 6
Item 2. Management's Discussion and
Analysis of Financial Condition and
Results of Operations . . . . . . . . . . 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . 35
Item 6. Exhibits and Reports on Form 8-K . . . . . 36
Index to Exhibits . . . . . . . . . . . . . . . . . . . . 38
<PAGE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SOUTHWESTERN LIFE CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 1994 1993
------------- ------------
<S> <C> <C>
(In Thousands)
Investments:
Fixed maturities:
Available for sale at fair value $1,675,198 $1,691,693
Held to maturity at amortized cost 15,101 26,149
Equity securities, at fair value 17,272 75,831
Mortgage loans on real estate, at amortized cost 122,540 138,504
Real estate, at lower of cost or fair value 61,696 67,491
Policy loans 174,012 177,736
Collateral loans 55,346 34,099
Investments in limited partnerships 47,386 43,640
Cash and short-term investments 210,881 366,922
Other invested assets 17,325 16,058
---------- ----------
Total investments 2,396,757 2,638,123
Due from reinsurers 251,804 388,083
Notes and accounts receivable and uncollected premiums 17,106 6,951
Accrued investment income 29,669 31,633
Deferred policy acquisition costs 216,466 168,525
Present value of future profits of acquired business 79,664 50,705
Deferred income tax asset 55,875 53,033
Excess cost of investments in subsidiaries over net
assets acquired, net of accumulated amortization 300,435 307,604
Other assets 38,681 47,999
Assets held in separate accounts 5,182 5,207
---------- ----------
$3,391,639 $3,697,863
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Insurance liabilities:
Future policy benefits and other policy liabilities $ 908,169 $ 927,303
Universal life and investment contract liabilities 1,679,929 1,684,396
Notes payable:
Due within one year 3,719 34,546
Due after one year 369,343 383,435
Federal income taxes currently payable 10,787 29,015
Other liabilities 114,273 138,791
Liabilities related to separate accounts 5,182 5,207
---------- ----------
3,091,402 3,202,693
---------- ----------
Stockholders' equity:
Preferred stock 199,997 229,239
Common stock 71,752 71,594
Common stock, Class B 100
Additional paid-in capital 155,605 155,499
Net unrealized investment gains (losses), net of
deferred income taxes in 1993 (95,489) 20,458
Retained earnings 25,731 71,833
---------- ----------
357,596 548,723
Notes receivable collateralized by common stock (1,778) (1,729)
Treasury stock, at cost (55,581) (51,824)
---------- ----------
300,237 495,170
---------- ----------
$3,391,639 $3,697,863
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<PAGE>
SOUTHWESTERN LIFE CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)
(In Thousands, Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
1994 1993 1994 1993
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Income:
Premium income and other
considerations $ 103,001 $ 119,543 $ 332,706 $ 356,142
Net investment income 56,027 43,896 138,031 150,082
Realized investment gains (losses) 3,725 18,876 (41,376) 32,245
Equity in earnings of equity
investees and limited partnerships 937 9,140 1,780 33,662
Gain on sale of investment in
Bankers Life Holding Corporation 197,398 296,774
Other Income 3,266 10,362 14,591 43,708
---------- ---------- ---------- ----------
166,956 399,215 445,732 912,613
---------- ---------- ---------- ----------
Benefits, expenses and costs:
Policyholder benefits 103,711 110,748 293,980 327,301
Amortization of deferred policy
acquisition costs and present
value of future profits 12,277 10,968 37,672 38,720
Other operating expenses 35,922 76,928 108,271 168,692
Amortization of excess cost 2,397 2,401 7,193 7,204
Interest expense 11,581 15,331 36,690 51,613
---------- ---------- ---------- ----------
165,888 216,376 483,806 593,530
---------- ---------- ---------- ----------
Operating earnings (loss) before
income tax 1,068 182,839 (38,074) 319,083
Income tax expense (credit) 1,213 57,105 (3,298) 96,202
---------- ---------- ---------- ----------
Operating earnings (loss) (145) 125,734 (34,776) 222,881
Cumulative effect to January 1, 1993 of
change in method of accounting for
post-retirement benefits, net of tax
effect (1,812)
Extraordinary losses, net of tax effect (1,360)
---------- ---------- ---------- ----------
Net earnings (loss) (145) 125,734 (34,776) 219,709
Less dividends on preferred stock (3,500) (7,700) (11,325) (23,100)
---------- ---------- ---------- ----------
Net earnings (loss) applicable to
common stock $ (3,645) $ 118,034 $ (46,101) $ 196,609
========== ========== ========== ==========
Weighted average shares outstanding 47,261,563 47,914,861 47,654,310 47,913,898
========== ========== ========== ==========
Earnings (loss) per common share:
Primary:
Operating earnings (loss) $(.08) $2.46 $(.97) $4.17
Cumulative effect to January 1, 1993
of change in method of accounting
for postretirement benefits (.04)
Extraordinary losses (.03)
---------- ---------- ---------- ----------
Net earnings (loss) $(.08) $2.46 $(.97) $4.10
========== ========== ========== ==========
Fully diluted:
Operating earnings (loss) $(.08) $2.14 $(.97) $3.69
Cumulative effect to January 1, 1993
of change in method of accounting
for postretirement benefits (.03)
Extraordinary losses (.02)
---------- ---------- ---------- ----------
Net earnings (loss) $(.08) $2.14 $(.97) $3.64
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<PAGE>
SOUTHWESTERN LIFE CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 30, 1994 and 1993
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Cash flows from operating activities:
Operating earnings (loss) $ (34,776) $ 222,881
Items not requiring (providing) cash:
Adjustments related to universal life and
investment products:
Interest credited to account balances 55,881 78,053
Charges for mortality and administration (53,211) (54,648)
Depreciation and amortization 13,266 13,306
Increase (decrease) in future policy benefits 6,716 (120)
Decrease (increase) in deferred policy
acquisition costs (967) 2,944
Increase (decrease) in currently payable
income taxes (18,228) 30,121
Decrease in deferred income taxes 5,758 74,294
Increase (decrease) in policy liabilities, other
policyholder funds, accounts payable
and accrued expenses (11,039) 11,013
Decrease (increase) in notes and accounts
receivable and accrued investment income (4,348) 2,719
Realized (gains) losses 41,376 (32,245)
Equity in earnings of equity investees and
limited partnerships (1,780) (33,662)
Gain on termination of reinsurance (8,735) (22,642)
Gain on sale of stock by BLHC (296,774)
Other, net 3,060 27,062
---------- ----------
Net cash provided (used) by operating
activities (7,027) 22,302
---------- ----------
Cash flows from investing activities:
Sales and maturities of long-term invested assets 690,142 1,262,974
Sale of investment in BLHC 287,639
Purchases of fixed maturities (699,143) (837,916)
Purchases of other long-term invested assets (92,277) (119,205)
Additional investment in CFLIC preferred stock (21,078)
Purchase of subsidiary, net of cash acquired (3,589)
Cash received (transferred) on reinsurance
transactions 10,108 (43,152)
Other (2,500)
---------- ----------
Net cash provided (used) by investing
activities (118,337) 550,340
---------- ----------
Cash flows from financing activities:
Proceeds of collateralized mortgage note
obligations 171,000
Policyholder contract deposits 132,972 152,014
Policyholder contract withdrawals (132,274) (305,128)
Principal payments on notes payable (4,919) (38,119)
Early retirement of subordinated debt (10,081) (38,190)
Principal payments on collateralized mortgage
note obligations (205,356)
Purchase of common stock for treasury (500) (932)
Redemption of preferred stock (50,000)
Dividends on preferred shares (11,325) (23,100)
Other (4,550)
---------- ----------
Net cash used by financing
activities (30,677) (337,811)
---------- ----------
Net increase (decrease) short-term investments (156,041) 234,831
Cash and short-term investments at beginning of
period 366,922 421,765
---------- ----------
Cash and short-term investments at end of period $ 210,881 $ 656,596
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<PAGE>
SOUTHWESTERN LIFE CORPORATION
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
__________
1. SIGNIFICANT ACCOUNTING POLICIES:
Effective June 15, 1994, I.C.H. Corporation changed its name to
Southwestern Life Corporation (the Company or SLC).
The financial information included herein was prepared in
conformity with generally accepted accounting principles, and
such principles were applied on a basis consistent with those
reflected in the 1993 Annual Report to Shareholders.
The information furnished includes all adjustments and accruals
which are, in the opinion of management, necessary for a fair
statement of results for the interim periods.
The disclosures in the notes presume that the users of the
interim financial information have read or have access to the
audited financial statements included in the 1993 Annual Report
to Shareholders.
Primary earnings per share are computed by dividing earnings,
less preferred dividend requirements, by the weighted average
number of common shares outstanding. In computing fully diluted
earnings per share, the weighted average number of common shares
outstanding is adjusted to reflect common stock equivalents
resulting from stock options and the assumed conversion of the
Company's Series 1984-A and 1986-A Preferred Stock into common
shares if outstanding at the end of the reporting period, and
preferred dividend requirements are adjusted to eliminate
dividends on the shares assumed to have been converted. The
computation of fully diluted earnings per share excludes the
assumed conversion of such preferred shares for each period in
which the assumed conversion would be antidilutive.
Previously reported amounts for 1993 have, in some instances,
been reclassified to conform to the 1994 presentation.
2. INVESTMENT IN BANKERS LIFE HOLDING CORPORATION:
The Company continued to reflect its equity in the earnings of
Bankers Life Holding Corporation (BLHC) through the September 30,
1993 date of sale. Following are unaudited condensed statement of
financial results for BLHC for the nine months ended September 30,
1993 and the Company's equity in such results as reflected
in its consolidated statement of earnings (in thousands):
<PAGE>
<PAGE>
SOUTHWESTERN LIFE CORPORATION
NOTES TO FINANCIAL STATEMENTS, Continued
(Unaudited)
__________
2. INVESTMENT IN BANKERS LIFE HOLDING CORPORATION, CONTINUED:
<TABLE>
<S> <C>
Bankers Life Holding Corporation:
Revenues $1,081,680
Earnings from operations 95,300
Extraordinary loss from early debt retirement (5,600)
Net earnings attributable to common stock 85,200
Amounts recorded by the Company:
Equity in operating earnings of BLHC $ 29,117
Equity in extraordinary losses of BLHC (1,370)
----------
Equity in earnings of BLHC $ 27,747
==========
</TABLE>
3. NOTES PAYABLE:
Notes payable at September 30, 1994 and December 31, 1993, are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C>
Borrowings under senior secured loan $ 30,000
11 1/4% Senior Subordinated Notes due 1996 $ 256,101 266,101
11 1/4% Senior Subordinated Notes due 2003 91,161 91,161
9 1/2% unsecured note payable due 1996 25,550 25,550
Note payable, interest at prime,
collateralized by aircraft equipment 4,872
Other 250 297
--------- ---------
$ 373,062 $ 417,981
========= =========
</TABLE>
At September 30, 1994, the Company has notes receivable totaling
$26,500,000 from an unaffiliated third party, which are
collateralized by the Company's note payable with a carrying
value of $20,835,000. The Company has the right to set off its
obligation against the notes receivable. In the accompanying
balance sheets, the Company's notes receivable have been
reflected net of amounts due under the note payable.
4. FEDERAL INCOME TAXES:
The provision for income taxes on operating earnings (loss)
consists of the following components (in thousands):
<PAGE>
<PAGE>
SOUTHWESTERN LIFE CORPORATION
NOTES TO FINANCIAL STATEMENTS, Continued
(Unaudited)
__________
4. FEDERAL INCOME TAXES, CONTINUED:
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------
1994 1993
---- ----
<S> <C> <C>
Current tax expense (credit) $ (9,056) $ 21,908
Deferred tax expense 5,758 74,294
-------- --------
$ (3,298) $ 96,202
======== ========
</TABLE>
In July 1994, the Internal Revenue Service (IRS) completed its
examination of the Company and its subsidiaries for the tax years
1986 through 1989 and issued its Revenue Agent's Report (RAR)
relative to such examination (see Note 5). The Company has
subsequently assessed the effects of the issues reflected in the
RAR on existing net operating loss carryforwards and alternative
minimum tax (AMT) credit carryforwards included in its deferred
income tax asset. As a result of such assessment and updates of
the Company's taxable income projections, at June 30, 1994, the
Company reduced its net deferred tax asset by $12,265,000 through
a charge included in its deferred income tax provision. Because a
substantially similar provision had been included in the
Company's current income tax liabilities for such effects, the
Company concurrently reduced its current income tax liabilities
by $12,265,000 through a credit in its current income tax
provision.
A reconciliation of the income tax provisions based on the
prevailing corporate income tax rate of 35% to the provisions
reflected in the consolidated financial statements is as follows
(in thousands):
<PAGE>
<PAGE>
SOUTHWESTERN LIFE CORPORATION
NOTES TO FINANCIAL STATEMENTS, Continued
(Unaudited)
__________
4. FEDERAL INCOME TAXES, CONTINUED:
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------
1994 1993
---- ----
<S> <C> <C>
Computed expected income tax expense
(credit) at statutory regular tax rate $(13,326) $111,679
Amortization of excess cost 2,518 2,521
Increase in (reduction of) deferred
income tax asset valuation allowance 5,000 (14,573)
Permanent loss of tax deductions from
redemption of Company's equity
securities (see Note 8) 4,532
Effect of change in income tax rate on
deferred income tax asset at beginning
of year (3,500)
Benefit from utilization of capital loss
carryforwards not previously reflected
for financial reporting purposes (9,890)
Capital losses of subsidiary not
includable in consolidated tax return 9,108
Other (2,022) 857
-------- --------
Income tax expense (credit) $ (3,298) $ 96,202
======== ========
</TABLE>
Net unrealized investment gains included in stockholders' equity
at December 31, 1993, are reflected net of deferred income taxes
totaling $8,226,000. The deferred income tax effects of
unrealized investment losses included in stockholders' equity at
September 30, 1994, totaling approximately $33,421,000, have been
offset by an increase in the deferred income tax asset valuation
allowance by a corresponding amount due to the uncertainty as to
the Company's ability to generate capital gains in an amount
sufficient to offset the unrealized capital losses.
5. COMMITMENTS, LITIGATION AND CONTINGENT LIABILITIES:
The Company and its subsidiaries have been under examination by
the IRS for the tax years 1983 through 1992. The IRS had
previously completed its examination for the years 1983 through
1985 and had previously issued Notices of Proposed Deficiencies
totaling approximately $17.5 million, before interest. In March
1994, the Company reached agreement with the IRS relative to such
proposed deficiencies and subsequently paid settlements to the
IRS totaling $3,972,000, including interest. The Company had
previously provided a liability for such settlements and, as a
consequence, the settlements had no effect on the Company's 1994
results of operations.
<PAGE>
<PAGE>
SOUTHWESTERN LIFE CORPORATION
NOTES TO FINANCIAL STATEMENTS, Continued
(Unaudited)
___________
5. COMMITMENTS, LITIGATION AND CONTINGENT LIABILITIES, CONTINUED:
In July 1994, the IRS completed its examination for the tax years
1986 through 1989 and issued Notices of Proposed Deficiencies
totaling approximately $127.7 million, before interest. A
substantial portion of the proposed deficiencies involves the
deductibility of approximately $444 million of interest expense
on certain surplus debentures issued by the Company's insurance
subsidiaries, which was offset by other proposed adjustments that
mitigate, in part, the impact of the proposed disallowance of
surplus debenture interest deductions. Management intends to
vigorously protest the proposed deficiencies and has filed a
written appeal relative to the surplus debenture interest issue
and other significant issues. 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.
Modern American Life Insurance Company (Modern) is a defendant in
a class action lawsuit filed on or about May 14, 1993 in the
Circuit Court of Jackson County, Missouri, styled WILLIAM D.
CASTLE, ET AL. V. MODERN AMERICAN LIFE INSURANCE COMPANY (the
Castle case). The suit purports to be brought on behalf of a
class of persons who own what plaintiffs denominate as charter
contracts, issued by life insurance companies merged into or
acquired by Modern and its predecessors. The suit alleges breach
of contract, and seeks declaratory judgment, costs, expenses and
such other relief as the Court deems appropriate. As an
alternative, the suit seeks rescission. SLC was added as a
defendant to the CASTLE case by an amended petition, filed
February 16, 1994, alleging that the Company should be liable for
any judgment against Modern through either disregarding Modern's
corporate existence or finding tortious interference by the
Company with plaintiff's contracts with Modern. SLC's motion to
dismiss the amended petition as to SLC has been denied. On July
27, 1994, the Circuit Court entered an order granting the
plaintiffs' motion for certification of the suit as a class
action and certified six subclasses composed of the persons who
own or owned the so-called charter contracts purchased from
Modern and five of its predecessor corporations. Management
believes Modern has meritorious defenses to the CASTLE case and
intends to defend the case vigorously.
On or about October 12, 1993, the plaintiffs in the CASTLE case
also filed a lawsuit in the Circuit Court of Cole County,
Missouri, naming Modern and the Director of the Missouri
Department of Insurance (the Missouri Director) as defendants.
The second lawsuit, styled ROBERT J. MEYER, ET AL. V. JAY ANGOFF,
DIRECTOR OF
SOUTHWESTERN LIFE CORPORATION
NOTES TO FINANCIAL STATEMENTS, Continued
(Unaudited)
___________
<PAGE>
<PAGE>
5. COMMITMENTS, LITIGATION AND CONTINGENT LIABILITIES, CONTINUED:
THE MISSOURI DEPARTMENT OF INSURANCE AND MODERN AMERICAN LIFE
INSURANCE COMPANY (the MEYER case), was an appeal from the
regulatory proceedings before the Missouri Department of
Insurance, by which Modern received regulatory approvals required
for it to participate in a restructuring of the Company's
insurance holding company organization. The restructuring was
completed on or about September 29, 1993. The plaintiffs in the
MEYER case were seeking reversal or remand of the Director's
order of approval, declaratory judgment and such other relief to
which they claim they were entitled. On July 16, 1994, the Cole
Circuit Court issued an order indicating it had reviewed the
Department's decision on the record pursuant to Missouri's
administrative procedure act and affirmed the Missouri Director's
orders. On August 16, 1994, the plaintiffs appealed the Cole
Circuit Court order to the Missouri Court of Appeals.
Various other lawsuits and claims are pending against the Company
and its subsidiaries. Based in part upon the opinion of counsel
as to the ultimate disposition of the above discussed and other
matters, management believes that the liability, if any, will not
be material.
6. REALIZED INVESTMENT GAINS (LOSSES):
Following is an analysis of the major components of gains
(losses) on investments (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Fixed maturities $ 887 $ (796) $ 3,132 $ 13,227
Mortgage-backed
securities (3,342) (46,448) (4,356)
Equity securities 272 31,783 (213) 37,896
Investment in limited
partnership (5,013)
Real estate 2,840 (4,287) 2,586 (5,042)
Other (274) (4,482) (433) (4,467)
------- -------- -------- --------
$ 3,725 $ 18,876 $(41,376) $ 32,245
======= ======== ======== ========
</TABLE>
7. EXTRAORDINARY LOSSES:
For the nine months ended September 30, 1993, the Company
reflected an extraordinary loss totaling $690,000, resulting from
the premium
SOUTHWESTERN LIFE CORPORATION
NOTES TO FINANCIAL STATEMENTS, Continued
(Unaudited)
____________
<PAGE>
<PAGE>
7. EXTRAORDINARY LOSSES, CONTINUED:
paid to effect the early redemption of $37.5 million principal
amount of the Company's 16 1/2% Senior Subordinated Debentures
due 1994. In addition, the Company reflected its equity in the
extraordinary loss of BLHC resulting from early retirement of
debt totaling $1,370,000. The extraordinary losses have been
reflected net of the estimated tax effects totaling $700,000.
8. TRANSACTIONS WITH CONSOLIDATED FIDELITY LIFE INSURANCE COMPANY:
On June 15, 1993, the Company, the Company's then-controlling
shareholder, Consolidated National Corporation (CNC), and CNC's
subsidiary, Consolidated Fidelity Life Insurance Company (CFLIC),
entered into an agreement (the 1993 Agreement) under which (i)
the Company was authorized, and undertook the obligation, to
negotiate the termination of reinsurance agreements pursuant to
which CFLIC reinsured certain annuity business written by
Southwestern Life Insurance Company (Southwestern), a subsidiary
of the Company, and Bankers Life and Casualty Company (Bankers),
a former subsidiary of the Company, and (ii) the Company
transferred assets, consisting of a limited partnership interest
(that has since been liquidated) and 83% of the outstanding
common stock of I.C.H. Funding Corporation (ICH Funding), to
CFLIC to acquire preferred stock of CFLIC, with a stated value of
$63,000,000. Under the terms of the 1993 Agreement, the CFLIC
preferred stock was to be repurchased by CFLIC immediately
following the termination of the CFLIC reinsurance agreements.
The reinsurance agreements had been entered into in 1990 in
conjunction with the Company's sale of Marquette National Life
Insurance Company (Marquette) to CNC and its stockholders. Under
the reinsurance agreements, Employers Reassurance Corporation
(ERC), an independent third party reinsurer, retroceded to CFLIC
certain annuity business which was reinsured with ERC by each of
Southwestern and Bankers.
On June 30, 1994, the CFLIC reinsurance agreements were
terminated, and the business reinsured thereunder was recaptured,
effective as of April 1, 1994. Immediately prior to the
termination of the CFLIC reinsurance agreements, Union Bankers
Insurance Company (Union Bankers), a subsidiary of the Company,
utilized available cash to purchase all of the outstanding stock
of Marquette, a subsidiary of CFLIC, for $8,215,000. The purchase
price was based on the fair value of Marquette's underlying net
assets, consisting primarily of cash and U.S. Treasury
obligations, adjusted for the value of Marquette's various state
insurance licenses, as determined by an independent actuarial
firm. Marquette's results of operations have been included in the
Company's consolidated results of operations
<PAGE>
<PAGE>
SOUTHWESTERN LIFE CORPORATION
NOTES TO FINANCIAL STATEMENTS, Continued
(Unaudited)
___________
8. TRANSACTIONS WITH CONSOLIDATED FIDELITY LIFE INSURANCE COMPANY,
CONTINUED:
for periods subsequent to June 30, 1994. Following completion of
the terminations, CFLIC repurchased the shares of its preferred
stock held by the Company by transferring to the Company the
senior secured loan of the Company with an outstanding principal
balance of $30 million, all of the outstanding shares of the
Company's Series 1984-A Preferred Stock with a stated value of
$22,242,000, all of the outstanding shares of the Company's
Series 1987-B Preferred Stock with a stated value of $7,000,000,
a U.S. Treasury note (par value $1,050,000), and 620,423 shares
of the Company's Common Stock. Immediately following the
repurchase of the CFLIC preferred stock, SLC retired the senior
secured loan and the SLC preferred stocks. The shares of SLC
Common Stock received were placed in treasury.
Upon termination of the CFLIC reinsurance agreement relating to
the business written by Southwestern, CFLIC transferred cash and
invested assets to ERC with a fair value equal to the reserve
liabilities being recaptured, net of the ceding fees payable. Due
primarily to a requirement by insurance regulatory authorities to
transfer such investments upon termination of the reinsurance
agreements at their fair value, the Company increased its basis
in the CFLIC preferred stock by investing an additional
$26,212,000 (including $21,078,000 cash and a $5,134,000
receivable) immediately prior to the terminations to enable CFLIC
to have sufficient assets (other than the Company's securities
being transferred to the Company upon redemption of the CFLIC
preferred stock) to complete the terminations. A substantial
portion of such amount was attributable to a decline in the fair
value of the 83% interest in ICH Funding subsequent to the
Company's transfer of such investment to CFLIC in June 1993.
In conjunction with the termination of the CFLIC reinsurance
agreement relating to the business written by Southwestern,
annuity reserve liabilities totaling $323,305,000 were assumed by
ERC and invested assets with a fair value of $289,414,000 were
transferred by CFLIC to ERC. The difference between the reserve
liabilities assumed by ERC and the assets transferred from CFLIC,
totaling $33,891,000, represented the aggregate ceding fee paid
to CFLIC to effect the termination. Immediately thereafter,
Southwestern recaptured $107,163,000 of the reserve liabilities
from ERC and received invested assets from ERC totaling
$93,942,000. The assets consisted of cash, short-term investments
and marketable fixed maturity investments totaling $25,455,000,
CFLIC's investment in ICH Funding and certain pass-through
certificates issued by a
<PAGE>
<PAGE>
SOUTHWESTERN LIFE CORPORATION
NOTES TO FINANCIAL STATEMENTS, Continued
(Unaudited)
___________
8. TRANSACTIONS WITH CONSOLIDATED FIDELITY LIFE INSURANCE COMPANY,
CONTINUED:
special purpose trust with an estimated fair value totaling
$12,528,000, collateral loans due from James M. Fail and CFSB
Corporation totaling $50,640,000, and other assets, principally
mortgage loans, totaling $5,319,000. The difference between the
reserve liabilities recaptured by Southwestern and the assets
transferred from ERC, totaling $13,221,000, represented a ceding
fee paid by Southwestern, and reduced ERC's net ceding fees
incurred to effect the CFLIC reinsurance termination to
$20,670,000. The reinsurance agreement between Southwestern and
ERC was amended to provide that ERC will be permitted to recover
the net ceding fees incurred out of the future profits on the
portion of Southwestern's annuity business it retained, together
with interest at 2% per annum on the unamortized balance of such
ceding fees. For financial reporting purposes, the reinsurance
arrangement between Southwestern and ERC has been reflected as a
financing arrangement and, accordingly, is not be reflected in
the Company's financial statements except for the interest paid
to ERC.
The amount of the ceding fees paid to CFLIC in connection with
the recapture was determined by management of the Company
utilizing the methodology developed by an independent actuarial
firm, with appropriate adjustments in assumptions to reflect
changes in market interest rates and other factors.
Pursuant to the 1993 Agreement, the Company agreed to bear the
federal income tax consequences resulting from the termination of
the CFLIC reinsurance agreements. Upon closing of the CFLIC
termination, the Company agreed to indemnify CNC and CFLIC for
tax liabilities of CFLIC and Marquette arising through June 30,
1994, and deposited into an escrow account $8,825,000 of cash
which the Company was to have received upon CFLIC's repurchase of
its preferred stock as a source of funds for the payment of taxes
for which the Company is responsible. With the payment of such
tax liabilities, the Company will be entitled to all tax refunds
to which CFLIC is entitled through the carryback of capital
losses resulting from the termination of the CFLIC reinsurance
agreements or as a result of any redetermination of CFLIC's tax
liabilities through the first taxable period of CFLIC and
Marquette ending after such termination. Management of the
Company has estimated that CFLIC will be entitled to tax refunds
totaling approximately $5.8 million through the carryback of
capital losses. Upon collection of the tax refund, the Company
will utilize a portion of the proceeds to satisfy the remaining
$5,134,000 receivable held by CFLIC.
<PAGE>
<PAGE>
SOUTHWESTERN LIFE CORPORATION
NOTES TO FINANCIAL STATEMENTS, Continued
(Unaudited)
___________
8. TRANSACTIONS WITH CONSOLIDATED FIDELITY LIFE INSURANCE COMPANY,
CONTINUED:
For financial reporting purposes, the Company recorded the
redemption of its preferred stocks received from CFLIC at their
stated value which, in management's opinion, approximated the
fair value of such securities as of the date the 1993 Agreement
was entered into. The 620,423 shares of the Company's Common
Stock received from CFLIC were recorded at their market value, or
$5.25 per share, as of the date of closing. The termination of
the CFLIC reinsurance agreements, the receipt of a payment-in-
kind dividend from CFLIC representing dividends on such preferred
stock from the date of issuance through the date of redemption,
and the redemption of the Company's securities resulted in a pre-
tax gain totaling approximately $8,735,000 and an after-tax gain
totaling approximately $1,936,000. Because the redemption of the
CFLIC preferred stock involved the receipt by the Company of its
own equity securities, approximately $12.9 million of the tax
basis loss on such exchange cannot be deducted for federal income
tax purposes and, as a consequence, the income tax effects
associated with these transactions approximated 78% of the pre-
tax gain.
9. CHANGE IN CONTROL:
On February 11, 1994, the Company purchased all of the 100,000
shares of its Class B Common Stock held by CNC for total cash
consideration of $500,000. The Class B Common Stock had entitled
CNC to elect 75% of the Company's Board of Directors. Upon the
purchase, the Class B shares were automatically converted into an
identical number of shares of Common Stock and at June 30, 1994,
have been reflected as Treasury Shares. Concurrently with the
purchase of such stock, the Company entered into Independent
Contractor and Services Agreements (Services Agreements) with
Robert T. Shaw and C. Fred Rice, the controlling shareholders of
CNC. The Services Agreements provide for a lump sum payment to
Messrs. Shaw and Rice totaling $2 million as of the closing date
and additional payments totaling $8,575,000 over a ten-year
period. In addition, the Company agreed to provide customary
employee benefits to Messrs. Shaw and Rice and their dependents.
In the event of the deaths of Messrs. Shaw or Rice, any amounts
not previously paid under the Services Agreements will become
immediately payable to their estates. In consideration for the
Services Agreements, Messrs. Shaw and Rice agreed that they would
attempt to identify business opportunities in the insurance
industry which may be suitable for the Company and to consult
with the Company regarding such other matters as the Company may
reasonably request. In addition, Mr. Rice continues to serve as
an
<PAGE>
<PAGE>
SOUTHWESTERN LIFE CORPORATION
NOTES TO FINANCIAL STATEMENTS, Continued
(Unaudited)
___________
9. CHANGE IN CONTROL, CONTINUED:
executive officer of the Company and was re-elected 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 to acquire the two
aircraft owned by the Company at their depreciated book values.
In cash transactions completed on June 30 and August 5, 1994, an
entity controlled by Mr. Shaw purchased one aircraft for
$1,144,000 and an unrelated third party to whom the option was
assigned purchased the other aircraft for $4,005,000,
respectively. The Company provided a liability for the present
value of amounts payable under the Services Agreements totaling
$9,050,000 in its financial statements for the year ended
December 31, 1993.
<PAGE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES:
On February 11, 1994, SLC purchased all of the 100,000
shares of its Class B Common Stock from CNC for total cash
consideration of $500,000. As a result of the repurchase, and
subsequent conversion, SLC is no longer authorized to issue Class
B Common Stock and all references in SLC's Certificate of
Incorporation to the Class B Common Stock have been eliminated.
Concurrent with the repurchase of the Class B Common Stock,
Stephens Inc. (Stephens) and Torchmark Corporation (Torchmark)
purchased 4,457,000 shares and 4,667,000 shares, respectively, of
SLC Common Stock from CNC, which reduced CNC and its
subsidiaries' holding in SLC Common Stock to approximately
1,620,000 shares, or 3.4% of SLC's then outstanding shares.
Additional information regarding the repurchase of the Class B
Common Stock and other terms of the transaction are included in
Note 9 of the Notes to Financial Statements included elsewhere in
this Form 10-Q. Management believes the repurchase of the Class B
Common Stock is significant for various reasons. Most
importantly, management believes that SLC's access to both debt
and equity capital markets has been limited because of the
control position held by CNC through the Class B Common Stock,
and that the repurchase and conversion of the Class B Common
Stock and considerable reduction in CNC's holdings of SLC Common
Stock could ultimately enhance SLC's ability to refinance its
currently outstanding debt. In May 1994, SLC engaged Stephens, an
investment banking firm, to conduct a review of SLC in order to
provide advice and recommendations to SLC's Board of Directors
concerning SLC's strategic plans.
On June 30, 1994, reinsurance agreements involving certain
annuity business written by SLC's subsidiary, Southwestern, and
SLC's former subsidiary, Bankers, that had been reinsured through
an independent third party reinsurer, ERC, to CFLIC, a subsidiary
of CNC, were terminated in accordance with an agreement entered
into among SLC, CNC and CFLIC effective June 15, 1993, as
amended. See Note 8 of the Notes to Financial Statements included
elsewhere in this Form 10-Q for additional information and a more
detailed discussion of the terms of these transactions.
The termination of the CFLIC reinsurance agreements, the
receipt of a $3.9 million payment-in-kind dividend from CFLIC
representing dividends on its preferred stock from the date of
issuance through the date of repurchase, and the redemption of
certain of SLC's securities resulted in a pre-tax gain totaling
approximately $8.7 million and an after-tax gain totaling
approximately $1.9 million which have been reflected in SLC's
statement of earnings for the nine months ended September 30,
1994. In addition, there were no dividends declared or paid on
the SLC preferred stocks received in the transaction for the
three months
<PAGE>
<PAGE>
ending June 30, 1994, resulting in dividend savings totaling
approximately $.8 million. Because the redemption of the CFLIC
preferred stock involved the receipt by SLC of its own equity
securities, approximately $12.9 million of the tax basis loss on
such exchange cannot be deducted for federal income tax purposes
and, as a consequence, the income tax effects associated with
these transactions approximated 78% of the pre-tax gain.
Management believes the completion of the CFLIC transactions as
described above and in Note 8 to the Financial Statements is
significant in that it has eliminated a significant transaction
with a former affiliate, has reduced outstanding debt and
preferred stock, has simplified SLC's structure and has reduced
state insurance regulatory concerns. Based on the prime rate in
effect as of June 30, 1994, the retirement of SLC's senior
secured loan is expected to result in annual interest expense
savings totaling approximately $2.5 million, and the retirement
of the SLC preferred stocks will result in a reduction in annual
preferred dividend requirements totaling $3.3 million. In
addition, CNC's and CFLIC's ownership in shares of SLC Common
Stock was further reduced to 2.1% of SLC's outstanding shares as
a result of these transactions.
During the nine months ended September 30, 1994, SLC
experienced a significant decline in the fair value of its
available for sale fixed maturity investments, primarily as a
result of increases in market interest rates. Because such
securities are reflected at their fair value for financial
reporting purposes, the decline in fair value, coupled with a
loss after preferred dividend requirements in the first nine
months of 1994, had a significant impact on stockholders' equity
and book value per common share. Common stockholders' equity
declined $165.7 million, from $265.9 million, or $5.55 per share,
at year-end 1993 to $100.2 million, or $2.12 per share, at
September 30, 1994. Of this decline, $115.9 million, or $2.45 per
share, was attributable to the change in unrealized investment
gains and losses. Because of its available liquidity and other
factors, management does not anticipate that SLC will be required
to liquidate a substantial portion of its available for sale
fixed maturity portfolio over the near-term. See "Investment
Portfolio" below for additional information regarding SLC's
available for sale fixed maturities.
The following table reflects SLC's cash sources and
requirements on a projected basis for 1994, based on actual
results through September 30, 1994, (in millions):
<PAGE>
<PAGE>
<TABLE>
<S> <C>
Cash sources:
Dividends from insurance subsidiaries $ 35.0
Dividends from noninsurance subsidiaries 5.0
Investment income 6.9
Sale or redemption of investments 11.2
Other 6.7
------
Total sources 64.8
------
Cash requirements/uses:
Long-term debt principal payments 8.5
Early retirement of subordinated debt 10.0
Interest 50.1
Preferred dividends 14.8
Purchase 11 1/4% Notes due 1996 from
subsidiaries 12.6
Additional investment in CFLIC preferred stock 21.1
Other 12.7
------
Total requirements/uses 129.8
------
Net cash required during year (65.0)
Cash and marketable securities available,
beginning of year 132.1
------
Cash and marketable securities available,
end of year $ 67.1
======
</TABLE>
SLC's projected 1994 cash sources as reflected in the above
table exceed the previously projected 1994 cash sources, as
reflected in SLC's 1993 Annual Report on Form 10-K, by
approximately $14.2 million. Included in the increase in such
cash sources is a $5.0 million prepayment on a note receivable,
anticipated receipts from CFLIC totaling $6.5 million, and other
miscellaneous sources totaling $2.7 million. SLC's projected cash
requirements/uses as reflected in the above table exceed the
previously projected cash requirements by approximately $17.9
million. Included in the increase in such cash requirements/uses
is a $21.1 million additional investment in the preferred stock
of CFLIC (see Note 8 of the Notes to Financial statements
included elsewhere in this Form 10-Q). In addition, other cash
uses not previously projected include the use of $10.0 million
cash to purchase $10.0 million principal amount of 11 1/4% Notes
due 1996 in July 1994 and an increase in other miscellaneous uses
totaling $8.3 million. Offsetting such increases in the projected
uses of cash in 1994 is a $21.5 million reduction in the
anticipated purchase by SLC of its 11 1/4% Notes due 1996 from
certain of its subsidiaries.
Although SLC believes it has the ability to meet its
commitments over the next twelve months, its ability to meet its
commitments beyond November 1995 is dependent on being able to
effect a restructuring or refinancing of its presently
outstanding
<PAGE>
<PAGE>
debt obligations or the sale of certain assets. The projected
available cash at the parent company level at the end of 1994,
plus the anticipated level of earnings and, therefore, available
dividends from its life insurance subsidiaries, will be
insufficient to meet all of its principal requirements beginning
in November 1995, at which time sinking fund requirements
totaling $100 million will become due. SLC is presently exploring
various alternatives to eliminate the anticipated 1995 liquidity
deficit. While there can be no assurances that SLC will be able
to accomplish a refinancing or restructuring of its presently
outstanding debt or to successfully negotiate and complete the
sale of certain of its assets, management believes that SLC has
the ability and that there is sufficient time to develop and
execute a plan which will accomplish the desired objectives
before the above principal obligations become due in November
1995.
INVESTMENT PORTFOLIO:
In 1993, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" issued by the
Financial Accounting Standards Board (FASB), which established
new standards of accounting and reporting for, among other
things, all investments in debt securities. SFAS No. 115 expanded
the use of fair value accounting (which is defined as the amount
at which a financial instrument could be exchanged in a current
transaction between willing parties, other than in a forced or
liquidation sale) and required financial institutions to classify
their fixed maturity investments in one of three categories:
held-to-maturity, available-for-sale, or trading. The Company
classified its fixed maturity investments as either held-to-
maturity or available-for-sale. Under SFAS No. 115, securities
classified as "held-to-maturity" are carried at amortized cost
and declines in value do not result in a writedown to fair value
unless such losses are determined to be other than temporary.
Securities classified as "available-for-sale" are carried at
their fair value and losses are reflected as unrealized losses,
unless the decline in value is determined to be other than
temporary, in which case the losses must be reflected as realized
losses and charged to earnings. SFAS No. 115 also indicates that
a decline in value of a security below its amortized cost is
properly classified as other than temporary if the value of the
security cannot reasonably be expected to increase to at least
its amortized cost in the near future.
In 1993, the Emerging Issues Task Force (EITF) of the FASB
also issued EITF Issue No. 93-18, "Impairment Recognition for
Purchased Investment in a Collateralized Mortgage Obligation
Investment or in a Mortgage-Backed Interest Only Certificate,"
which provided an analytical framework for measuring the
impairment of certain "high-risk" CMO's and which has been widely
used to provide guidance as to when write-downs should be taken
on other CMO investments in accordance with SFAS No. 115. Under
EITF No. 93-
<PAGE>
<PAGE>
18, if the projected future cash flows from an investment on a
discounted basis utilizing a "risk-free" rate of return are less
than the investment's amortized cost on the basis of generally
accepted accounting principles (GAAP), a write-down to present
value is required.
In light of SFAS No. 115 and positions taken by the EITF,
the Company classified its investments in certain Class B pass-
through certificates issued by Fund America Investors Corporation
II (the Fund America Investment) and the residual interest in a
special purpose trust, the Secured Investors Structured Trust
1993-1 (the SIST Residual), as available-for-sale and reduced the
carrying value of such investments from $95.5 million to $67.1
million at December 31, 1993. The reduction in fair value of
$28.4 million was determined to be temporary and thus was
accounted for as an unrealized investment loss and reported as a
charge to stockholders' equity.
The Fund America Investment and the SIST Residual are
collateralized by the principal component of bonds (the RFCO
Strips) issued by the Resolution Funding Corporation, a mixed-
ownership government corporation established for the sole purpose
of providing financing for the Resolution Trust Corporation, the
agency charged with resolving failed savings and loan
associations. By their terms, the payment of the RFCO Strips are
due in full in single payments in April 2030 (in the case of the
Fund America Investment) and in January 2021 (in the case of the
SIST Residual) in amounts sufficient to assure the full recovery
of SLC's Fund America Investment and SIST Residual. Although not
obligations of, or guaranteed as to principal by, the United
States of America, the Offering Circulars for the RFCO Strips
stated that the principal amount of the RFCO Strips would be
fully repaid from proceeds of noninterest bearing obligations of
the United States issued by the Secretary of the Treasury and
deposited in a separate account at the Federal Reserve Bank in
New York. Accordingly, management believed that these investments
were not "high risk" CMOs, as defined in current authoritative
accounting literature, and that, if held to maturity, there would
be no permanent impairment in the value of these investments.
The Fund America Investment and the SIST Residual are both
highly sensitive to changes in mortgage loan prepayment rates and
changes in market interest rates, particularly the London
Interbank Offered Rate (LIBOR) upon which interest payments to
holders of senior classes of these investments are generally
based. During the first three months of 1994, mortgage loan
prepayment rates and LIBOR both increased, as a consequence, the
aggregate unrealized losses on the Fund America Investment and
SIST Residual increased to $46.4 million at March 31, 1994. The
Company, after consulting with its independent accountants and
other advisors, re-evaluated the Fund America Investment and the
SIST Residual. Notwithstanding the collateral provided by the
RFCO Strips as discussed above, on
<PAGE>
<PAGE>
the basis of its review of these investments, and the application
of SFAS No. 115 and EITF No. 93-18, the Company determined that
the declines in value of these investments at March 31, 1994 were
other than temporary and that a reflection of such declines
through a charge to earnings was appropriate. Accordingly, at
March 31, 1994, SLC reflected a charge to earnings for the
writedown of these investments from their GAAP book value
totaling $96.4 million to their fair value totaling $50.0
million, or a total charge of $46.4 million. For financial
reporting purposes, the $50.0 million fair value of these
investments became their new cost basis for periods after March
31, 1994. Prior to March 31, 1994, SLC and its subsidiaries had
accrued investment income on these investments at an annual rate
of 6% of their prior GAAP book values, or approximately $5.7
million of annual investment income. Because the fair values of
these investments at March 31, 1994 were determined based on an
assumed 11% discount rate, investment income on these investments
has been accrued at 11% of their new cost basis for periods
subsequent to that date, or approximately $5.5 million of annual
investment income. As a consequence, the writedowns reflected at
March 31, 1994, are not expected to have a significant effect on
the Company's future reported results of operations. However, as
discussed below, significant additional writedowns in future
periods could ultimately have a substantial effect on reported
results.
The declines in value of the Fund America Investment and the
SIST Residual have not had, and are not expected to have, a
substantial effect on the Company's operating cash flows. For
purposes of statutory accounting, the Investment Working Group of
the National Association of Insurance Commissioners (NAIC) has
tentatively decided not to follow or adopt the GAAP accounting
standards of SFAS No. 115 and EITF No. 93-18 described above.
At September 30, 1994 aggregate unrealized investment losses
on the Fund America Investment and the SIST Residual totaled
approximately $29.0 million and the carrying value of such
investments after the reflection of such unrealized losses
totaled $25.0 million. Although no further writedowns of the Fund
America Investment and the SIST Residual through the statement of
earnings were required at September 30, 1994, further increases
in interest rates and continued unsettled activity in the market
for CMOs may necessitate further substantial writedowns of these
investments. Any such additional writedowns will be reported as a
charge to earnings for the period or periods in which they are
realized. The Company is presently unable to predict the size or
timing of any such additional writedowns, if any. Additional
writedowns, if required, could result in a substantial reduction
in subsequently reported earnings.
At December 31, 1993, SLC reflected unrealized investment
gains of $20,458,000 and at September 30, 1994, reflected
unrealized investment losses of $95,489,000. Following is an
<PAGE>
<PAGE>
analysis of the major components of such unrealized gains
(losses) (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
------------ -----------
<S> <C> <C>
Available for sale fixed maturities $(120,719) $ 21,424
Equity securities 1,154 7,271
Equity in unrealized gains of
limited partnerships 4,921 5,349
Other 179 (159)
--------- ---------
(114,465) 33,885
Less effect on other balance sheet
accounts:
Deferred policy acquisition costs 25,376 (16,647)
Unearned revenue reserves (6,400) 6,266
--------- ---------
Gross unrealized investment gains
(losses) (95,489) 23,504
Minority interest in unrealized losses 5,180
Deferred income taxes (8,226)
--------- ---------
Net unrealized investment gains
(losses) $ (95,489) $ 20,458
========= =========
</TABLE>
The fair values of other than the above discussed mortgage-
backed debt securities declined approximately $141.6 million
between the two dates primarily as a result of increases in
market interest rates and the negative effect of such rate
increases on the fair values of such securities. At year-end
1993, unrealized investment losses totaling $28.4 million had
been reflected relative to the Fund America Investment and the
SIST Residual. As a result of the $46.4 million writedown of such
investments at March 31, 1994, the $28.4 million of unrealized
investment losses at year-end 1993 were eliminated; however,
subsequent to March 31, 1994, additional unrealized losses on
such investments totaling $29.0 million have been reflected.
Unless determined to be other than temporary, changes in the
fair values of available for sale fixed maturities have no effect
on SLC's reported results of operations, but can have a volatile
effect on SLC's stockholders' equity and book value per common
share, as the carrying values of available for sale fixed
maturities are adjusted in SLC's balance sheet to their fair
values at each reporting date through a charge or credit to
stockholders' equity. In addition, unrealized investment losses
generally have a more significant impact on stockholders' equity
than unrealized gains because of deferred income tax effects. Net
unrealized investment gains must be tax-effected, or reduced for
the potential income tax expense associated with such gains,
through a provision of a deferred income tax liability. Net
unrealized investment losses are likewise tax-effected, or
reduced for the potential income tax benefits associated with
such losses; however, if such
<PAGE>
<PAGE>
tax - effecting results in a deferred income tax asset,
consideration must be given to providing a valuation allowance
against such deferred income tax asset. At present, the Company
does not have sufficient unrealized investment gains to offset
its unrealized investment losses and cannot predict its ability
to realize the potential income tax benefits if its unrealized
investment losses were actually incurred. Accordingly, a
valuation allowance has been provided against the Company's
deferred income tax asset related to unrealized investment
losses, which effectively eliminates the recognition of any
portion of the income tax benefits associated with such
unrealized losses. Because of its available liquidity and other
factors, such as its seasoned block of traditional life insurance
business, SLC has no current plans, and management believes that
SLC will not have the need over the near-term future, to
liquidate any significant portion of its available for sale fixed
maturity investments at a loss. Following is an analysis of gross
unrealized investment gains and losses on available for sale
fixed maturities as of September 30, 1994 and December 31, 1993
(in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
------------ -----------
<S> <C> <C>
Gross unrealized gains $ 8,050 $ 63,535
Gross unrealized losses (128,769) (42,111)
---------- -----------
Net unrealized gains (losses) $ (120,719) $ 21,424
========== ===========
</TABLE>
The following table sets forth the carrying value and
quality for each of the two categories of fixed maturities as of
September 30, 1994, classified in accordance with the rating
assigned by Standard & Poor's Corporation (S&P) or, if not rated
by S&P, based on ratings assigned by the National Association of
Insurance Commissioners, with Class 1 treated as A, Class 2
treated as BBB-, Class 3 treated as BB- and Classes 4, 5 and 6
treated as B and below (in millions):
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Held to
Available Maturity Percent of Percent
for Sale at Total Total of Total
Investment at Fair Amortized Fixed Fixed Invested
Quality Value Cost Maturities Maturities Assets
---------- ---------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
AAA $ 682.5 $ 1.7 $ 684.2 40.5% 28.6%
AA 206.8 206.8 12.2 8.6
A 425.4 425.4 25.1 17.7
BBB+ 80.8 80.8 4.8 3.4
BBB 94.7 94.7 5.6 4.0
BBB- 92.1 7.0 99.1 5.9 4.1
--------- ------- --------- ---- ----
Total
investment
grade 1,582.3 8.7 1,591.0 94.1 66.4
--------- ------- --------- ---- ----
BB+ 29.2 29.2 1.7 1.2
BB and BB- 46.6 46.6 2.8 1.9
B and Below 17.1 6.4 23.5 1.4 1.0
--------- ------- --------- ---- ----
Total
investment
grade 92.9 6.4 99.3 5.9 4.1
--------- ------- --------- ---- ----
Total
fixed
maturi-
ties $ 1,675.2 $ 15.1 $ 1,690.3 100.0% 70.5%
========= ======= ========= ===== ====
</TABLE>
Fixed maturities classified as held to maturity are
principally private placement corporate securities and gross
unrealized gains and losses on such investments totaled $.1
million and $2.1 million, respectively, as of September 30, 1994.
The amortized cost and fair value of noninvestment-grade
fixed maturities totaled $113.4 million and $98.8 million,
respectively, at September 30, 1994.
Effective March 31, 1994, SLC's subsidiaries sold
substantially all of their commercial mortgage loans with
remaining principal balances of less than $300,000 for
approximately $9.0 million. No significant gains or losses were
incurred as a result of such sale. SLC is currently considering
the sale of substantially all of its remaining commercial
mortgage loan portfolio. At September 30, 1994, mortgage loans
represented approximately 5% of SLC's total investment portfolio.
Cash and short-term investments declined from $366.9 million
at year-end 1993 to $210.9 million at September 30, 1994,
primarily as a result of reinvestments made in higher-yielding
longer duration securities.
As discussed in the 1993 Annual Report, the claims-paying
ratings assigned to certain of SLC's subsidiaries by various
nationally recognized statistical rating organizations were
lowered
<PAGE>
<PAGE>
over the past two years. Except as discussed below, management
believes SLC's subsidiaries have not experienced more than normal
policy surrenders and withdrawals as a result of these ratings
downgrades. For the nine months ended September 30, 1994,
policyholder contract deposits totaled $132.9 million and
policyholder contract withdrawals totaled $132.3 million.
Approximately $68.8 million of such withdrawals represented
scheduled maturities of guaranteed investment contracts (GICs)
which were not reinvested with an SLC subsidiary. Because of its
available liquidity and readily marketable securities, the
subsidiary has not encountered, and management does not
anticipate that the subsidiary will encounter, any difficulty in
meeting its obligations relative to such withdrawals. Exclusive
of the GIC withdrawals, policyholder contract deposits exceeded
policyholder withdrawals by $69.4 million.
RESULTS OF OPERATIONS:
For the nine months ended September 30, 1994, SLC reflected
an operating loss and net loss, before preferred dividend
requirements, of $34.8 million. The 1994 first nine months
results compare to a gain from operations for the same period in
1993 of $222.9 million and net earnings, before preferred
dividend requirements, totaling $219.7 million. Preferred
dividend requirements totaled $11.3 million in the first nine
months of 1994, as compared to $23.1 million in the first nine
months of 1993. Results in 1993 also included a charge for a
change in accounting for postretirement benefits totaling $1.8
million and extraordinary losses related to the early retirement
of debt totaling $1.4 million.
SLC's results for the first nine months of both 1994 and
1993 were affected by several items of an infrequent and non-
recurring nature, including the gain recognized on the stock
offering by BLHC and a gain on the sale of SLC's interest in BLHC
in 1993, gains from the termination of reinsurance arrangements
in both periods and significant writedowns of mortgage-backed
securities in 1994. In addition, in the first nine months of
1993, SLC included in its results of operations its equity in the
earnings of BLHC and reflected significant provisions for
consolidation, reorganization expenses and litigation expenses.
Following is a condensed summary of results for the three months
and the nine months ended September 30, 1994 and 1993, by major
sources of income and expense (in thousands):
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------- -------------------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Earnings (loss) before non-recurring
income (charges), equity in the earnings
of BLHC, realized investment gains
(losses), interest expense on long-term
debt, and provision for income taxes $ 8,924 $ (1,743) $ 31,257 $ 15,090
Gain on BLHC stock offering 99,376
Gain on sale of investment in BLHC 197,398 197,398
Gain on reinsurance terminations 5,525 8,735 22,643
Equity in operating earnings of BLHC 8,578 29,117
Realized investment gains (losses) 3,725 18,876 (41,376) 32,245
Consolidation and reorganization expenses (23,870) (23,870)
Provision for costs of litigation
and other contingencies (7,320) (7,320)
Interest expense on long-term debt (11,581) (14,605) (36,690) (45,596)
Income tax (expense) credit (1,213) (57,105) 3,298 (96,202)
---------- ---------- ---------- ----------
Operating earnings (loss) (145) 125,734 (34,776) 222,881
Less dividends on preferred stock (3,500) (7,700) (11,325) (23,100)
---------- ---------- ---------- ----------
Operating earnings (loss) attributable to
common stock $ (3,645) $ 118,034 $ (46,101) $ 199,781
========== ========== ========== ==========
</TABLE>
For the nine months ended September 30, 1994, premium income
and other considerations decreased $23.4 million, or 6.6%, as
compared to the corresponding period 1993. Following is a summary
of premiums by major line of business for each of the respective
periods (in thousands):
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------
1994 1993
---- ----
<S> <C> <C>
Individual life and annuity $ 89,207 $ 86,001
Individual health 163,787 165,230
Group and other 79,712 104,911
--------- ---------
$ 332,706 $ 356,142
========= =========
</TABLE>
Group and other premium income declined $25.2 million, or
2 4 %, primarily as a result of terminating several large
unprofitable group health cases in late 1993 and early 1994.
SLC's subsidiaries presently derive substantial revenues from
their interest-sensitive and universal life products; however,
for financial reporting purposes, these types of products are
treated as deposit products and, therefore, premiums received are
not reflected as a component of premium income.
During the nine months ended September 30, 1994, net
investment income decreased $12.1 million, or 8%, as compared to
the corresponding period in 1993. Net investment income includes
1) earnings on surplus investments and assets invested to support
the reserve liabilities of the Company's traditional and
interest-sensitive life and health insurance products (general
investment
<PAGE>
<PAGE>
portfolio) and 2) investment activity related to separately held
assets supporting a GIC product, the credited rate on which is
indexed to the S&P 500 Stocks Composite Average (S&P 500). In
addition, in 1993, net investment income included investment
income on certain mortgage-backed securities held in a special
purpose trust (the Trust) securing the Trust's collateralized
mortgage note obligation. The accounts of the Trust are no longer
consolidated with those of the Company for periods after July 30,
1993, as the result of SLC's sale of a 75% interest in the Trust.
Assets supporting the S&P 500 GIC product include, among other
investments, put and call options on various equity based index
futures, including the S&P 500. The return on such investments is
highly volatile and, under certain market conditions, such as the
overall decline in equity markets experienced in the first nine
months of 1994, can result in investment losses, or negative
investment yields. The negative investment yield experienced in
the first half of 1994 on the assets supporting the indexed GIC
product was more than offset by a reduction in GIC benefits as
discussed below under the analysis of change in policyholder
benefits. Following is a summary of investment income (loss) for
the three categories of investments as described above for the
nine months ended September 30, 1994 and 1993 (in thousands):
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------
1994 1993
---- ----
<S> <C> <C>
General investment portfolio $138,591 $125,874
Investments supporting indexed GIC
product 6,468 20,714
Mortgage-backed securities held in
the Trust 13,029
-------- --------
Gross investment income 145,059 159,617
Less investment expenses (7,028) (9,535)
-------- --------
Net investment income $138,031 $150,082
======== ========
</TABLE>
The increase in investment income from the general
investment portfolio was attributable, in part, to a $3.9 million
payment-in-kind dividend received on the CFLIC preferred stock
and a $2.0 million fee received upon the prepayment of certain
notes by Financial Benefit Group during the 1994 second quarter.
In addition, beginning April 1, 1994, the effective date of the
CFLIC reinsurance recaptures, the Company has reflected
investment income on the investments transferred from CFLIC to
ERC. Investment income on such assets approximated $10.4 million
in the 1994 period. Exclusive of the non-recurring dividend from
CFLIC and the fee received from Financial Benefit Group, yields
on the general investment portfolio averaged approximately 7.2%
in the first nine months of 1994 as compared to 6.5% in the same
1993 period.
<PAGE>
<PAGE>
Realized investment losses totaled $41.4 million for the
first nine months of 1994, as compared to investment gains
totaling $32.2 million for the comparable 1993 period.
Substantially all of the investment losses in 1994 were
attributable to writedowns of certain mortgage-backed securities,
as discussed under "Investment Portfolio." Investment gains in
1993 included $8.2 million of gains resulting from BLHC's
redemption of certain of its securities utilizing proceeds of its
stock offering and $27.8 million of gains on the sale of SLC's
investment in CCP Insurance, Inc. Other gains in 1993 resulted
primarily from sales of fixed maturities and equity securities,
which were offset, in part, by a $5.0 million writeoff of the
Company's investment in a partnership owning equity securities in
a company which had filed for bankruptcy. See Note 6 of the Notes
to Financial Statements included elsewhere in this Form 10-Q for
a comparative analysis of realized investment gains and losses.
Equity in the earnings of equity investees and limited
partnerships includes SLC's pro rata share of the operating
earnings of BLHC and other investments in limited partnerships
which are accounted for by the equity method. Following is an
analysis of the components of such earnings (in thousands):
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------
1994 1993
---- ----
<S> <C> <C>
Equity in operating earnings of:
BLHC $ 29,117
Limited partnership investments $ 1,780 4,545
-------- --------
$ 1,780 $ 33,662
======== ========
</TABLE>
In 1994, other income includes a $4.8 million gain on the
termination of the CFLIC reinsurance agreement and the redemption
of certain of SLC's debt and equity securities, as previously
discussed. In 1993, other income included $22.6 million of non-
recurring income associated with the termination of a reinsurance
agreement between Bankers and an SLC subsidiary. Excluding the
income from the reinsurance transaction, other income decreased
from $21.1 million in 1993 to $9.8 million in 1994. A substantial
portion of the decline in other income was as a result of the
recapture of the CFLIC reinsurance. Previously, the Company had
reflected its share of the profits from such reinsurance as an
experience refund under the other income caption. Effective April
1, 1994, the Company recaptured such business and has
subsequently reflected the results in the various line items of
its statement of earnings, including primarily net investment
income and policyholder benefits.
Following is a summary of policyholder benefits by major
business segment (in thousands):
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------
1994 1993
---- ----
<S> <C> <C>
Individual life and annuity $107,538 $103,489
Individual health 112,814 106,548
Group and other 50,910 77,139
Accumulation products 22,718 40,125
-------- --------
$293,980 $327,301
======== ========
</TABLE>
Life and annuity benefits increased approximately $4.0
million, or 4%. A substantial portion of the increase in such
benefits was attributable to the recapture of the CFLIC
reinsurance effective April 1, 1994, and the reflection of the
related benefits in the 1994 second and third quarters which was
offset, in part, by a reduction in credited rates on interest-
sensitive life insurance policies between the periods. Individual
health benefits increased $6.3 million, reflecting a
deterioration in the individual health benefit ratio from 64.5%
in 1993 to 68.9% in 1994. The benefit ratio applicable to the
Company's medicare supplement business increased from 68.7% in
the first nine months of 1993 to 75.8% in the comparable 1994
period, reflecting a deficiency in premiums charged for Medicare
supplement products in 1994. The Company received rate increases
for some of these products in 1994 and may seek approval for
additional rate increases in 1995. Group benefits decreased
approximately $26.2 million, or 34%, primarily as a result of the
termination of several large group health cases, as previously
discussed. The group benefit ratio decreased from 73.5% in 1993
to 63.9% in 1994. Benefits related to accumulation products
include primarily interest credited to annuity and GIC account
balances. As previously discussed, due to reduced investment
earnings, benefits attributable to the GIC product indexed to the
S&P 500 totaled $4.3 million in the first nine months of 1994 as
compared to benefits totaling $19.7 million in 1993.
Other operating expenses decreased approximately $60.4
million from the 1993 period to the 1994 period. Following is a
summary of the major items included in other operating expenses
(in thousands):
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------
1994 1993
---- ----
<S> <C> <C>
Non-deferrable commissions $ 29,232 $ 32,895
General and administrative expenses 66,441 87,258
Taxes, licenses and fees 12,598 12,936
Consolidation and reorganization 23,870
Provision for costs of litigation
and other contingencies 7,320
Placement fee for collateralized
mortgage note obligations 4,413
-------- --------
$108,271 $168,692
======== ========
</TABLE>
Non-deferrable commissions decreased primarily as a result
of a reduction in the sale of new group health insurance
products. General and administrative expenses decreased primarily
as a result of the expense reduction and consolidation programs
implemented during 1993. The consolidation and reorganization
expenses in the 1993 third quarter included a $10.8 million
writedown of certain home office real estate, a $9.8 million
writeoff of certain capitalized data processing costs and a $3.3
million writeoff of furniture and equipment. In addition, during
the 1993 third quarter a $7.3 million provision was reflected for
the costs associated with pending litigation and certain other
contingencies. The placement fee in 1993 relates to the
refinancing of a previously-consolidated subsidiary's
collateralized mortgage note obligations.
Interest expense declined $14.9 million, or approximately
29%, in the first nine months of 1994 as compared to the same
period in 1993. In 1994, SLC incurred interest expense only on
its outstanding long-term debt, whereas in 1993 it had two
categories of interest expense, including interest on long-term
debt and collateralized mortgage obligations. Interest expense
relative to long-term debt, declined $8.9 million, or 19%,
primarily as a result of the retirement of approximately $120.9
million of SLC's 16 1/2% Senior Subordinated Debentures during
1993. Through July 1993, SLC's consolidated results included the
accounts of the Trust that held mortgage-backed securities used
to collateralize certain promissory notes payable to unaffiliated
parties. SLC, through ICH Funding, sponsored the formation of and
held a residual equity interest in the Trust. Interest expense
related to the Trust's obligations and included in SLC's
consolidated results totaled $6.0 million for the first seven
months of 1993. In July 1993, SLC's and an affiliate's ownership
interests were reduced through a sale of a 75% interest in the
Trust. As a consequence of the sale, the accounts of the Trust
are no longer included in SLC's consolidated results and no
similar interest expense was incurred in 1994.
An income tax credit in the 1994 first nine month period
totaled $3.3 million on a pre-tax loss of $38.1 million,
representing 8.7% of the pre-tax loss. In the first nine months
of
<PAGE>
<PAGE>
1993, income tax expense represented 30% of pre-tax earnings. The
unusual relationship in 1994 resulted primarily from the
amortization of excess cost for which there are no income tax
consequences, the loss of approximately $4.5 million in income
tax benefits as a result of SLC's redemption of its own equity
securities in the CFLIC transactions (see Note 8 of the Notes to
Financial Statements included elsewhere in this Form 10-Q), and a
$5.0 million increase in the deferred income tax asset valuation
allowance due to uncertainties as to the Company's ability to
generate future investment gains in an amount sufficient to
utilize all of the losses resulting from the writedown of certain
mortgage-backed securities. In 1993, the effective tax rate
differed from the expected 35% rate as a result of amortization
of excess cost and an $8.8 million reduction in the valuation
allowance relative to SLC's deferred income tax assets. SLC's
deferred income tax assets, before valuation allowance, declined
from $145.1 million at year-end 1992 to $28.1 million at
September 30, 1993, primarily as a result of the gain recognized
on the BLHC stock offering and other realized and unrealized
investment gains in the first nine months of 1993. Accordingly,
the valuation allowance relative to SLC's deferred income tax
assets totaling $24.1 million at year-end 1992 was reduced to
$15.3 million at September 30, 1993, based on management's
assessment that SLC's ability to realize the benefits of its
r e maining tax assets, specifically its capital loss
carryforwards, had been significantly enhanced.
SLC recognized a $1.8 million charge in 1993, net of $.9
million in deferred taxes, for the cumulative effect to January
1, 1993, of the adoption of Statement of Financial Accounting
Standards (SFAS) No. 106, "Employers' Accounting for
Postretirement Benefits Other than Pensions." SLC had previously
provided a liability totaling $20.1 million for postretirement
benefits for retirees of certain acquired companies through its
purchase accounting relative to such companies. The 1993 charge
reflected the cost of providing postretirement benefits for its
remaining employees. SLC also reported extraordinary losses in
1993 totaling $1.4 million, net of tax effects, related to early
extinguishment of debt. See Note 7 of the Notes to Financial
Statements included elsewhere in this Form 10-Q for additional
information regarding such extraordinary losses.
Preferred dividend requirements declined $11.8 million from
$23.1 million in the first nine months of 1993 to $11.3 million
in the 1994 comparable period. Utilizing proceeds from the sale
of its interest in BLHC, SLC redeemed $50 million stated value of
its 11% Series 1987-A Preferred Stock on September 30, 1993, and
$50 million stated value of its 16% Series 1987-C Preferred Stock
on December 2, 1993. In addition, SLC redeemed $29.2 million
stated value of its preferred stocks in the CFLIC transaction and
there were no dividends declared on such preferred stocks during
the 1994 second quarter.
<PAGE>
<PAGE>
SLC incurred a $.1 million operating loss (before preferred
dividend requirements) for the three months ended September 30,
1994, as compared to operating earnings of $125.7 million for the
same period in 1993. The operating results for the third quarter
of 1993 were effected by numerous items of a non-recurring nature
as previously discussed under the analysis of results for the
first nine months, including the gain on the sale of SLC's
investment in BLHC and realized investment gains primarily
resulting from the sale of SLC's investment in CCP Insurance. In
addition, in the 1993 third quarter, SLC reflected a substantial
provision for consolidation and reorganization expenses and a
provision for certain litigation costs and other contingencies.
Results of operations, before the nonrecurring credits (charges),
equity in the earnings of BLHC, realized investment gains
(losses), interest expense on long-term debt and provisions for
income taxes, improved approximately $10.6 million, from a loss
of $1.7 million for the three months ended September 30, 1993, to
earnings of $8.9 million for the three months ended September 30,
1994. Factors contributing to such improvement include the same
items as previously discussed under the analysis of results for
the first nine months, including a reduction in operating
expenses, an improvement in the results of the group and other
insurance segment, an improvement in investment yields, and a
widening of the spread between earnings on invested assets and
interest credited to policyholder account balances. These
improvements were offset, in part, by a slight increase in death
benefits in the individual life insurance segment. Individual
life insurance death benefits can vary significantly from period
to period. The ratio of benefits incurred for individual health
insurance products totaled 67.5% of earned premiums in the third
quarter of 1994, as compared to 67.4% for the same period in
1993.
Realized investment gains for the three months ended
September 30, 1994, totaled $3.7 million, primarily from sales of
real estate. Realized gains in the third quarter of 1993
consisted primarily of the gain reflected on the sale of CCP
Insurance, reduced by losses on mortgage-backed securities, real
estate and other investments. See Note 6 of the Notes to
Financial Statements included elsewhere in this Form 10-Q for a
comparative analysis of realized gains and losses. Interest
expense declined 24.5% from $15.3 million in the 1993 third
quarter to $11.6 million in the 1994 third quarter, primarily as
a result of debt reductions as previously discussed. Similarly,
preferred dividend requirements declined 54.5% from $7.7 million
in the 1993 third quarter to $3.5 million in the 1994 third
quarter, primarily as a result of the redemption of $129.2
million of SLC's preferred stocks between the periods.
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
<PAGE>
<PAGE>
necessary, make appropriate refinements, with the resulting
effect being reported in current operations. Only at year-end is
the Company able to assess retrospectively the precision of its
previous quarter estimates. The Company's fourth quarter results
contain the effect of the difference between previous estimates
and final year end results, and therefore, the results for an
interim period may not be indicative of the results for the
entire year.
<PAGE>
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Reference is made to Item 1 of Part II of the Quarterly
Report on Form 10-Q of the Registrant for the quarter ended
September 30, 1994, in which developments in the following legal
proceedings numbered 1 and 2 were reported:
1. WILLIAM D. CASTLE, ET AL. V. MODERN AMERICAN LIFE
INSURANCE COMPANY, CV93-10275 (the "CASTLE case"): On July 27,
1994, the Circuit Court entered an order granting the plaintiffs'
motion for certification of the suit as a class action and
certified six subclasses composed of the persons who own or owned
the so-called charter contracts purchased from Modern and five of
its predecessor corporations.
2. ROBERT J. MEYER, ET AL. V. JAY ANGOFF, DIRECTOR OF THE
MISSOURI DEPARTMENT OF INSURANCE AND MODERN AMERICAN LIFE
INSURANCE COMPANY, CV193-1331CC (the "MEYER case"): On July 16,
1994, the Cole Circuit Court issued an order indicating that it
had reviewed the Department's decision on the record pursuant to
Missouri's administrative procedure act and affirmed the order of
the Missouri Director of Insurance. On August 16, 1994, the
plaintiff's in the MEYER case appealed the order of the Cole
Circuit Court to the Missouri Court of Appeals.
Management believes they have meritorious defenses to both
the CASTLE and MEYER cases and intend to defend both cases
vigorously. For further information regarding the MEYER and
CASTLE cases, see Note 5 to the Financial Statements included
elsewhere in this Form 10-Q, which Note is incorporated herein by
reference in its entirety.
3. DEPARTMENT OF INSURANCE OF THE STATE OF CALIFORNIA (THE
"DEPARTMENT") PROCEEDING AGAINST PHILADELPHIA AMERICAN LIFE
INSURANCE COMPANY ("PALICO"): On September 30, 1994, PALICO,
without admitting that it had engaged in a pattern or practice of
violating the Unfair Claims Settlement Practices Regulations (the
"Regulations") of California, entered into a stipulation and
waiver with the Department pursuant to which PALICO agreed to
cease and desist from violating certain of the Regulations and
the California Insurance Code and paid $200,000 to the Department
in respect of this matter.
4. IRS PROCEEDING. For updated information relating to the
Notices of Proposed Deficiencies issued by the IRS for the tax
years 1986 through 1989, see Note 5 to the Notes to Financial
Statements included elsewhere in this Form 10-Q, which discussion
is incorporated herein by reference.
<PAGE>
<PAGE>
The Company has no developments to report for the quarter
ended September 30, 1994 in any other previously reported legal
proceeding.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The exhibits listed on the Index to Exhibits appearing
on page 38 are filed herewith.
(b) During the quarter ended September 30, 1994, on July
15, 1994, SLC filed a Report on Form 8-K, dated June 30, 1994, to
report, under Item 5 of that form, the recapture of insurance
business and repurchase of securities contemplated by that
certain agreement, dated June 15, 1993, among SLC, Consolidated
Fidelity Life Insurance Company ("CFLIC") and Consolidated
National Corporation ("CNC"), as amended, including (1)
termination of the agreement pursuant to which CFLIC reinsured
certain business written by a subsidiary of the SLC and (2) SLC's
acquisition from CFLIC of the following debt and equity
securities of SLC that CFLIC held: a senior secured loan, with an
outstanding principal balance of $30 million; 541,563 shares of
Series 1984-A Preferred stock, stated value $22,242,000,
constituting all of the shares of that series then outstanding;
140,000 shares of $4.50 Redeemable Preferred stock, Series 1987-
B, stated value $7,000,000, constituting all of the shares of
that series then outstanding; and 620,423 shares of Common Stock.
On October 13, 1994, SLC filed a Report on Form 8-K, dated
October 10, 1994, to report under Item 5 of that form, (1)
realized losses in the amount of $46.4 million in the value of
certain of its investments in collateralized mortgage obligations
were appropriate as of the quarter ended March 31, 1994 and (2)
the resignation of Robert L. Beisenherz as the Chairman of the
Board, Chief Executive Officer and President of the Registrant
and the appointment of James R. Kerber as the Registrant's
President and Chief Executive Officer and as a director of the
Registrant.
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SOUTHWESTERN LIFE CORPORATION
BY:/s/James R. Kerber
---------------------------
James R. Kerber
Chief Executive Officer and
President
BY:/s/John T. Hull
---------------------------
John T. Hull
Executive Vice President,
Chief Financial Officer and
Principal Accounting Officer
Date: November 14, 1994
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
INDEX TO EXHIBITS
Exhibit Sequential
No. Description Page No.
------- ------------ ----------
<C> <S> <C>
3.1 Restated Certificate of Incorporation of
Registrant dated October 10, 1994 . . . . . . . . 39
3.2 Bylaws of Registrant dated October 7,
1994 . . . . . . . . . . . . . . . . . . . . . . 64
10.1 Amended and Restated 1990 Stock Option
Incentive Plan of Registrant dated
October 10, 1994 . . . . . . . . . . . . . . . . 96
10.2 Amended and Restated Supplemental Benefit
Agreement of Registrant dated October 10,
1994 . . . . . . . . . . . . . . . . . . . . . . 104
10.3 Salaried Employees Severance Pay Plan of
Registrant as restated effective October 1,
1994 . . . . . . . . . . . . . . . . . . . . . . 109
10.4 Participation Agreement between Registrant
and Employers Reassurance Corporation dated
July 1, 1994 . . . . . . . . . . . . . . . . . . 121
10.5 Letter Agreement between Registrant and
Consolidated Fidelity Life Insurance
Company Regarding Termination of Call and
Put Option dated June 30, 1994 . . . . . . . . . 127
10.6 Letter Agreement between Registrant and
Stephens Inc. Regarding Engagement to
Perform Investment Advisory Services for
the Registrant dated May 3, 1994 . . . . . . . . 130
11.1 Computation of Earnings (Loss) Per Share of
Common Stock on Average Shares Outstanding
and Fully Diluted Bases for the Three
Months and the Nine Months ended
September 30, 1994 and 1993 . . . . . . . . . . . 135
27 Financial Data Schedules . . . . . . . . . . . . 137
</TABLE>
<PAGE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> SEP-30-1994
<DEBT-HELD-FOR-SALE> 1,675,198
<DEBT-CARRYING-VALUE> 15,101
<DEBT-MARKET-VALUE> 13,619
<EQUITIES> 17,272
<MORTGAGE> 122,540
<REAL-ESTATE> 61,696
<TOTAL-INVEST> 2,185,876
<CASH> 210,881
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 296,130
<TOTAL-ASSETS> 3,391,639
<POLICY-LOSSES> 2,588,098
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 373,062
<COMMON> 71,752
0
199,997
<OTHER-SE> 28,488
<TOTAL-LIABILITY-AND-EQUITY> 3,391,639
332,706
<INVESTMENT-INCOME> 138,031
<INVESTMENT-GAINS> (41,376)
<OTHER-INCOME> 14,591
<BENEFITS> 293,980
<UNDERWRITING-AMORTIZATION> 37,672
<UNDERWRITING-OTHER> 108,271
<INCOME-PRETAX> (38,074)
<INCOME-TAX> (3,298)
<INCOME-CONTINUING> (34,776)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (34,776)
<EPS-PRIMARY> (.97)
<EPS-DILUTED> (.97)
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
