SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
Commission File
Number 0-7288
INTERCONTINENTAL LIFE CORPORATION
(Exact name of registrant as specified in its charter)
New Jersey 22-1890938
(State of Incorporation) (I.R.S. Employer identification number)
701 Brazos, Suite 1400, Austin, Texas 78701
(Address of Principal Executive Offices) (Zip Code)
(512) 404-5050
(Registrant's Telephone Number)
Securities Registered pursuant to Section 12(b) of the Act: None
Securities Registered pursuant to Section 12(g) of the Act:
Common Stock, $.22 par value
(Title of Class)
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
and (2) has been subject to such filing requirements for the past
90 days.
YES X NO
The aggregate market value of the voting stock held by non-
affiliates of the Registrant on March 20, 1996, based on the
closing sales price in The Nasdaq Small-Cap Market ($13.38 per
share), was $28,102,910.
As of March 20, 1996, Registrant had 4,181,329 shares of its
Common Stock outstanding (excluding shares held in Treasury and
not entitled to vote).
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulations S-K is not contained herein,
and will not be contained, to the best of Registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
PART I
Item 1. Business
General
InterContinental Life Corporation ("ILCO", the "Company" or the
"Registrant") was incorporated in 1969 under the laws of the
State of New Jersey. Its executive offices are located at 701
Brazos, Suite 1400, Austin, Texas 78701.
The Company is principally engaged, through its subsidiaries, in
administering existing portfolios of individual and group life
insurance, credit life and disability insurance policies and
annuity products. The Company's insurance subsidiaries are also
engaged in the business of marketing and underwriting individual
life insurance, credit life and disability insurance and annuity
products in 49 states and the District of Columbia. Such products
are marketed through independent, non-exclusive general agents.
It also administers an in-force book of health insurance
business.
The Company is controlled by Financial Industries Corporation
("FIC"), a life insurance holding company, through FIC's
ownership of approximately 47% of the Company's outstanding
Common Stock. FIC also holds options to acquire additional
shares, which, if exercised, would result in FIC's owning
approximately 62% of the Company's outstanding shares. FIC, ILCO
and their insurance subsidiaries have substantially identical
managements, and a majority of the directors of ILCO are also
directors of FIC and ILCO's and FIC's insurance subsidiaries. No
non-management director of the Company or FIC is a director of
the other company. Officers allocate their time between ILCO and
FIC in accordance with the comparative requirements of both
companies and their subsidiaries. Roy F. Mitte, Chairman,
President and Chief Executive Officer of FIC, the Company and
their insurance subsidiaries, owns 34% of the outstanding shares
of FIC's common stock. FIC owns Family Life Insurance Company, a
marketer of mortgage protection life insurance based in Seattle,
Washington.
The Company was organized in 1969 to be the publicly owned
holding company for InterContinental Life Insurance Company
("ILIC"). The Company acquired Standard Life Insurance Company
("Standard Life") in 1986, Investors Life Insurance Company of
California ("Investors-CA") and Investors Life Insurance Company
of North America ("Investors-NA") in 1988 and Meridian Life
Insurance Company, now Investors Life Insurance Company of
Indiana ("Investors-IN"), in February 1995.
Acquisitions
Strategy. The Company's strategy has been and continues to be to
grow internally and through acquisitions, while maintaining an
emphasis on cost controls. Management believes that, under
appropriate circumstances, it is more advantageous to acquire
companies with large books of in-force life insurance than to
produce new business, because initial underwriting costs have
already been incurred and mature business is generally less
likely to terminate, making possible more predictable profit
analysis. However, the Company's insurance subsidiaries do
continue to market those products that are profitable, as well as
develop new products and streamline distribution channels. See
"Agency Operations". It is also management's belief that the
continuing consolidation in the life insurance industry presents
attractive opportunities for the Company to acquire life
insurance companies that complement or fit within the Company's
existing marketing structure and product lines. The Company's
objective is to improve the profitability of acquired businesses
by consolidating and streamlining the administrative functions of
these businesses, eliminating unprofitable products and
distribution channels, applying its marketing expertise to the
acquired company's markets and agents, and benefitting from
economies of scale. The Company's ability to make future
acquisitions will be dependent on its being able to obtain the
necessary financing. In addition, since FIC has the same
acquisition strategy as ILCO, a conflict of interest could arise
in the future between ILCO and FIC with respect to acquisition
opportunities.
Acquisition of Standard Life. In November 1986, the Company
acquired Standard Life, headquartered in Jackson, Mississippi,
for a gross purchase price of $54,500,000. A portion of the funds
used by the new life insurance company formed by the Company to
make the acquisition ("New Standard") was the proceeds of a loan
extended to the Company by a national bank in the principal
amount of $15,000,000 (the "Standard Term Loan"). This sum was,
in turn, loaned by the Company to New Standard, and the loan was
evidenced by a surplus debenture. New Standard was merged into
Standard Life in June 1988.
Acquisition of Investors-NA and Investors-CA. In December 1988,
the Company, through Standard Life, purchased Investors-CA and
Investors-NA from CIGNA Corporation for an adjusted purchase
price of $136,000,000. The Company obtained the funds used for
the acquisition from: (a) a senior loan in the amount of
$125,000,000 provided by six financial institutions, (b) a
$10,000,000 subordinated loan provided by two insurance and
financial service organizations and (c) the sale of $5,000,000 of
Class A Preferred Stock to CIGNA and $15,000,000 of Class B
Preferred Stock to the subordinated lenders. Approximately
$15,000,000 of these funds were used to discharge the Standard
Term Loan. The balance of these funds were loaned by the Company
to Standard Life. To evidence this indebtedness, Standard Life
issued a $140,000,000 surplus debenture to the Company. In
connection with the subordinated debt and preferred stock
financing, the Company issued detachable warrants entitling the
holders to purchase 1,107,480 shares of the Company's Common
Stock at $3.33 per share. In May 1990, the holders of the Class A
and Class B Preferred Stock exchanged that stock for subordinated
loans of a like amount. The Company prepaid the subordinated debt
and purchased the warrants in early 1993. See "Refinancing".
Acquisition of Investors-IN. On February 14, 1995, ILCO, through
Investors-NA, purchased from Meridian Mutual Insurance Company
the stock of Meridian Life Insurance Company, an
Indianapolis-based life insurer, for a cash purchase price of
$17.1 million. After the acquisition, Meridian Life changed its
name to Investors Life Insurance Company of Indiana
("Investors-IN").
Investors-IN is licensed in ten states and markets a variety of
individual life and annuity products through independent agents.
Merger of Insurance Subsidiaries. Investors-NA redomesticated
from Pennsylvania to Washington in December of 1992. Investors-CA
merged into Investors-NA on December 31, 1992, and Standard Life
merged into Investors-NA on June 29, 1993. The mergers have
achieved cost savings, such as reduced auditing expenses involved
in auditing one combined company; the savings of expenses and
time resulting from the combined company being examined by one
state insurance department (Washington), rather than three
(California, Pennsylvania and Mississippi); the reduction in the
number of tax returns and other annual filings with 45 states;
and smaller annual fees to do business and reduced retaliatory
premium taxes in most states. Management believes that these
reductions in expenses have further strengthened the financial
condition of the combined company.
Operations
The Company has developed management techniques to reduce
operating expenses by centralizing, standardizing and more
efficiently performing many functions common to most life
insurance companies, such as underwriting and policy
administration, accounting and financial reporting, marketing,
regulatory compliance, actuarial services and asset management.
The Company has selectively recruited personnel in sales,
marketing and various administrative departments.
The Company's centralized management techniques resulted in
significant employee reductions and expense savings in the three
life insurance companies acquired by the Company in 1986 and
1988. During 1995, the general insurance expenses of the
Company's insurance subsidiaries were $13,737,883, which
represented an increase from 1994 primarily as the result of
increased marketing expenses incurred by Investors-NA in 1995 and
ILCO's acquisition of Investors-IN in early 1995. The general
insurance expenses were $12,865,000 in 1994, $14,170,000 in 1993
and $18,182,000 in 1992 (including nonrecurring expenses of
$2,423,200 incurred in connection with the relocation from
Philadelphia to Austin). The attainment of this level of cost
reduction has contributed significantly to the achievement of the
current level of profitability. Management is committed to
maintaining the general insurance expenses of the Company's
insurance subsidiaries at a level which will generate an
acceptable level of profitability while maintaining the
competitive pricing of their insurance products.
In June 1991, FIC acquired Family Life, which had 270 employees.
Following the acquisition of Family Life by FIC, management
integrated the sales, marketing, underwriting, accounting,
contract and licensing, investments, personnel, data processing,
home office support and other departments of Family Life and the
life insurance subsidiaries of ILCO. Management believes this
integration has resulted in cost savings for ILCO's insurance
subsidiaries and Family Life. During 1992, the Company's
insurance operations were centralized at the Company's
headquarters in Austin, Texas, with the exception of certain
services performed in Seattle, Washington (some of the premium
accounting services were moved to Seattle in the first quarter of
1993). Management believes that relocating administrative
functions to Austin has reduced costs and improved the efficiency
of the insurance companies' operations. The number of employees
within the Company and its subsidiaries (including employees who
also perform administrative services for Family Life) was
approximately 330 at December 31, 1995.
Principal Products
The Company's insurance subsidiaries are engaged primarily in
administering existing portfolios of individual and group life
insurance and accident and health insurance policies and annuity
products. Approximately 73.9% of the total collected premiums for
1995 were derived primarily from renewal premiums on insurance
policies and annuity products sold by the insurance subsidiaries
prior to their acquisition by the Company.
The Company's insurance subsidiaries are also engaged in
marketing and underwriting individual life insurance and annuity
products in 49 states and the District of Columbia. These
products are marketed through independent, non-exclusive general
agents. In 1992, Standard Life discontinued its group insurance
marketing and transferred its in-force group insurance to an
unrelated insurance company.
The products currently being distributed include several versions
of universal life insurance and interest-sensitive whole life
insurance. Under a whole life insurance policy, the policyholder
pays a level premium over his or her expected lifetime. The
policy combines life insurance protection with a savings plan
that gradually increases in amount over a period of several
years. The universal and interest-sensitive whole life insurance
policies of the Company's insurance subsidiaries provide
permanent life insurance with adjustable rates of return based on
current interest rates and mortality assumptions. The universal
life insurance portfolio of the Company's insurance subsidiaries
consists primarily of flexible premium universal life insurance
policies.
Under the flexible premium policies, policyholders may vary the
amounts of their coverage (subject to minimum and maximum limits)
as well as the date of payment and frequency of payments.
Direct premiums received from all types of universal life
products were $42.3 million in 1995, as compared to $42.1 million
in 1994 and $46.8 million in 1993. In 1995, premium income from
all life insurance products was derived from all states in which
the Company's insurance subsidiaries are licensed, with
significant amounts derived from Pennsylvania (14%), California
(9%) New Jersey (8%).
Until they discontinued sales of credit life and disability
insurance in the fourth quarter of 1994, two of the Company's
insurance subsidiaries generally sold that insurance to consumers
through lending and credit organizations. Such insurance was
generally written on an individual or group basis to (i) persons
financing the purchase of new automobiles in the State of New
Jersey and (ii) persons obtaining loans from banks and finance
companies in southeastern states. Most policies of this type were
issued for a term of 48 months or less.
Direct premiums received from credit life and accident insurance,
prior to reinsurance, were $4.2 million in 1994 and $6.5 million
in 1993.
Two of the Company's insurance subsidiaries receive premium
income from health insurance policies. In 1995, premium income
from all health insurance policies was $1.1 million, as compared
to $1.4 million in 1994 and $1.9 million in 1993. Premium income
from health insurance in 1995 was derived from all of the states
in which those two insurance subsidiaries are licensed, with
significant amounts derived from Pennsylvania (21%), New Jersey
(21%), and California (9%).
Investors-NA sponsors a variable annuity separate account, which
offers single premium and flexible premium policies. The
policies provide for the contract owner to allocate premium
payments among four different portfolios of Putnam Capital
Manager Trust ("PCM Fund"), a series fund which is managed by
Putnam Investment Management, Inc. Prior to April, 1995, the
underlying investment vehicle for the variable annuity contracts
was the CIGNA Annuity Funds Group. A substitution of the PCM
Fund for the CIGNA Funds was completed in April, 1995. The plan
of substitution was approved by the Securities and Exchange
Commission. Following such approval, the plan was submitted to
policyholders for approval, which was obtained. During 1995,
the premium income realized in connection with these variable
annuity policies was $376,000, which was received from existing
contract owners.
Direct deposits from the sale of fixed annuity products were
$1,359,000 in 1995, as compared to $1,296,000 in 1994 and
$1,695,000 in 1993.
The following table sets forth, for the three years ended
December 31, 1995, the combined premium income and other
considerations received by the Company's insurance subsidiaries
from sales of their various lines of insurance.
Year Ended December 31,
Type of Insurance 1995 1994 1993
(in thousands)
Individual:
Life $16,426 $15,721 $16,196
Accident & Health 1,218 1,435 1,504
Total Individual Lines 17,644 17,156 17,700
Group:
Life 2,594 2,226 3,195
Accident & Health 6 105 275
Total Group Lines 2,600 2,331 3,470
Credit:
Life (222) 3,282 4,354
Accident & Health 240 2,296 2,468
Total Credit Lines 18 5,578 6,822
Total Premiums 20,262 25,065 27,992
Reinsurance premiums ceded (8,568) (10,748) (11,878)
Total Net Premium 11,694 14,317 16,114
Amount Received on
Investment
Type Contracts 44,130 43,372 47,733
Total Premiums and
Deposits Received $55,824 $57,689 $63,847
Investment of Assets
The assets held by the Company's insurance subsidiaries must
comply with applicable state insurance laws and regulations
pertaining to life insurance companies. The investment portfolio
of the Company's insurance subsidiaries is tailored to reflect
the nature of the insurance obligations, business needs,
regulatory requirements and tax considerations relating to the
underlying insurance business with respect to such assets. This
is particularly the case with respect to interest-sensitive life
insurance and deferred annuity products, where the investment
emphasis is to obtain a targeted margin of profit over the rate
of interest credited to policyholders, while endeavoring to
minimize the portfolio's exposure to changing interest rates. To
reduce the exposure to such rate changes, portfolio investments
are selected so that diversity, maturity and liquidity factors
approximate the duration of associated policyholder liabilities.
The investment objective of the Company's insurance subsidiaries
emphasizes the selection of short to medium term high quality
fixed income securities, rated Baa-3 (investment grade) or better
by Moody's Investors Service, Inc. At December 31, 1995, only
5.1% of the Company's total assets were invested in mortgage
loans or real estate. Non-affiliated corporate debt securities
that were non-investment grade represented 1.1% of the Company's
total assets at December 31, 1995. The Company had investments in
debt securities of affiliated corporations aggregating
approximately $61.2 million as of December 31, 1995.
Investments in mortgage-backed securities included collateralized
mortgage obligations ("CMOs") of $280,286,000 and mortgage-backed
pass-through securities of $65,810,000 at December 31, 1995.
Mortgage-backed pass-through securities, sequential CMOs, support
bonds, and z-accrual bonds, which comprised approximately 57.1%
of the book value of the Company's mortgage-backed securities at
December 31, 1995, are sensitive to prepayment and extension
risks. The Company has reduced the risk of prepayment associated
with mortgage-backed securities by investing in planned
amortization class ("PAC"), target amortization class ("TAC")
instruments, accretion directed bonds and scheduled bonds. These
investments are designed to amortize in a predictable manner by
shifting the risk of prepayment of the underlying collateral to
other investors in other tranches ("support classes") of the CMO.
PAC and TAC instruments and accretion directed and scheduled
bonds represented approximately 42.9% and sequential and support
classes represented approximately 34.4% of the book value of the
Company's mortgagebacked securities at December 31, 1995. In
addition, the Company limits the risk of prepayment of CMOs by
not paying a premium for any CMOs. The Company does not invest in
mortgage-backed securities with increased prepayment risk, such
as interest-only stripped pass-through securities and inverse
floater bonds. The Company does invest in z-accrual bonds, but
they constituted only 3.6% of the book value of the Company's
mortgage-backed securities at December 31, 1995. The prepayment
risk that certain mortgage-backed securities are subject to is
prevalent in periods of declining interest rates, when mortgages
may be repaid more rapidly than scheduled as individuals
refinance higher rate mortgages to take advantage of the lower
current rates. As a result, holders of mortgage-backed securities
may receive large prepayments on their investments which cannot
be reinvested at an interest rate comparable to the rate on the
prepaying mortgages. The Company does not invest in non-agency
mortgage-backed securities, which have a greater credit risk than
that of agency mortgage-backed securities.
The Company does not make new mortgage loans on commercial
properties. Substantially all of the Company's mortgage loans
were made by its subsidiaries prior to their acquisition by the
Company. At December 31, 1995, 1.7% of the total book value of
mortgage loans held by the Company had defaulted as to principal
or interest for more than 90 days, and none of the Company's
mortgage loans were in foreclosure. During 1995, none of the
Company's mortgage loans were converted to foreclosed real estate
or were restructured while the Company owned them.
Another key element of the Company's investment strategy is to
avoid large exposure in other investment categories which the
Company believes carry higher credit or liquidity risks,
including private placements, partnerships and bank
participation. These categories accounted for approximately 2.2%
of the Company's invested assets at December 31, 1995.
The Company has established and staffed an investment department,
which manages portfolio investments and investment accounting
functions for ILCO's life insurance subsidiaries.
Agency Operations
ILCO's insurance subsidiaries collectively market through the
"Investors" distribution system. Independent non-exclusive
agents, general agents and brokers are recruited nation-wide to
sell the products. Such agents and brokers also sell insurance
products for companies in competition with ILCO's insurance
subsidiaries. In order to attract agents and enhance the sale of
its products, the Company's insurance subsidiaries pay
competitive commission rates and provides other sales
inducements. The Investors Sales distribution system is presently
concentrating its efforts on the promotion and sale of universal
life, interest-sensitive life and term products. A new interest-
sensitive whole life product was introduced to complement the
Company's life portfolio.
In 1995, the Company continued recruitment of general agents and
repositioned the VIP Gold recruiting program. Investors
continued to pursue select risk marketing and expanded efforts to
rebuild and increase production in traditional markets.
Marketing and sales for all of the Company's insurance
subsidiaries are directed by the Executive Vice President of
Marketing and Sales. The Vice President for Investors Sales
directs Regional Vice Presidents who are responsible for the
recruitment and maintenance of the general agents and managing
general agents for individual insurance sales.
Data Processing
Pursuant to a data processing agreement with a major service
company, the data processing needs of ILCO's and FIC's insurance
subsidiaries were provided at a central location until November
30, 1994. Effective December 1, 1994, all of those data
processing needs have been provided to ILCO's and FIC's Austin,
Texas and Seattle, Washington facilities by FIC Computer
Services, Inc., a new subsidiary of FIC. See Item 13.- Certain
Relationships and Related Transactions with Management.
Competition
There are many life and health insurance companies in the United
States. A significant number of casualty companies also market
health insurance. Agents placing insurance business with ILCO's
life insurance subsidiaries are compensated on a commission
basis. However, some companies pay higher commissions and charge
lower premium rates and many companies have more substantial
resources.
The principal cost and competitive factors that affect the
Company's ability to sell its life and health insurance and
annuity products on a profitable basis are: (1) the general level
of premium rates for comparable products; (2) the extent of
individual policy holder services required to service each
product category; (3) general interest rate levels; (4)
competitive commission rates and related marketing costs; (5)
legislative and regulatory requirements and restrictions; (6) the
impact of competing insurance and other financial products; and
(7) the condition of the regional and national economies.
Reinsurance and Reserves
In accordance with general practices in the insurance industry,
the Company's insurance subsidiaries limit the maximum net losses
that may arise from large risks by reinsuring with other
carriers. Such reinsurance provides for a portion of the
mortality risk to be retained (the "Retention") with the excess
being ceded to a reinsurer at a premium set forth in a schedule
based upon the age and risk classification of the insured. The
reinsurance treaties provide for allowances that help the
Company's insurance subsidiaries offset the expense of writing
new business. ILIC generally retains the first $70,000 of risk on
the life of any individual. On group life insurance, the
retention level is $50,000 per individual life. Investors-NA
generally retains the first $100,000 of risk on the life of any
individual. Investors-IN generally retains the first $50,000 of
risk on the life of any individual.
In 1988, Investors-NA entered into a bulk reinsurance treaty
under which it reinsured all of its risks under accidental death
benefit policies. ILIC had previously obtained similar bulk
reinsurance for accidental death benefit policies. The treaty was
renegotiated with another reinsurer, with a new effective date of
January 1, 1996.
In 1993 ILCO's life subsidiaries entered into a quota share
reinsurance treaty under which all credit life and health
business issued March 1, 1993 and later is 50% reinsured.
In 1995, Investors-NA entered into a reinsurance agreement with
Family Life pertaining to universal life insurance written by
Family Life. The reinsurance agreement is on a co-insurance
basis and applies to all covered business with effective dates on
and after January 1, 1995. The agreement applies to only that
portion of the face amount of the policy which is less than
$200,000; face amounts of $200,000 or more are reinsured by
Family Life with a third party reinsurer. The arrangement
reflects management's plan to develop universal life business at
Investors-NA, with Family Life concentrating on the writing of
term life insurance products.
Although reinsurance does not eliminate the exposure of the
Company's insurance subsidiaries to losses from risks insured,
the net liability of such subsidiaries will be limited to the
portion of the risk retained, provided that the reinsurers meet
their contractual obligations.
The Company's insurance subsidiaries carry reserves on their
books to meet future obligations under their outstanding
insurance policies. Such reserves are believed to be sufficient
to meet policy obligations as they mature and are calculated
using assumptions for interest, mortality, expenses and
withdrawals in effect at the time the policies were issued.
FIC's Acquisition of Control of the Company
In January 1985, FIC acquired 26.53% of ILCO's common stock. FIC
and Family Life subsequently acquired additional shares of ILCO's
common stock and as of March 20, 1996, FIC owned, directly and
indirectly through Family Life, 47.03% of the outstanding shares
of ILCO's common stock. FIC holds options to acquire up to
1,702,155 additional shares of ILCO Common Stock. Giving effect
to the exercise of those options, FIC would own, directly and
indirectly through Family Life, 62.35% of the outstanding shares
of ILCO Common Stock. The exercise price of the options is equal
to the average quoted market price of ILCO's common stock over
the six month period immediately prior to exercise. In addition,
in the event that any other party were to seek to acquire,
without the prior approval of ILCO's Board of Directors,
securities aggregating five percent or more of ILCO's outstanding
common stock, FIC would have the right to acquire, under the same
price formula, that number of shares of ILCO's common stock
which, when added to the number of shares then owned by FIC,
would amount to 51% of ILCO's outstanding common stock.
The stock options were granted in 1986 to FIC by the Company
principally in consideration for a $1,200,000 unsecured loan from
FIC, FIC's agreement to guarantee up to $4,000,000 of
Registrant's financial obligations and FIC's agreement to
guarantee, upon demand, ILCO's performance under its lease on its
headquarters building. In addition, FIC guaranteed a $15,000,000
term loan of ILCO.
FIC's Acquisition of Family Life
After FIC acquired control of ILCO, FIC's primary involvement in
the insurance industry was its indirect investment, through ILCO,
in ILCO's insurance subsidiaries. In June 1991, FIC acquired
Family Life Insurance Company, ("Family Life"), based in Seattle,
Washington, from Merrill Lynch Insurance Group, Inc.
Family Life underwrites and sells mortgage protection life
insurance to customers who are mortgage borrowers from financial
institutions where Family Life has marketing relationships.
Family Life distributes its insurance products primarily through
a national career sales force in 49 states and the District of
Columbia.
The $114 million purchase price for Family Life and an additional
$5 million for transaction costs, working capital and other
related purposes were financed by: (a) a $50 million senior loan
provided by a group of banks, (b) $44 million subordinated notes
issued to the seller and its affiliates and (c) $25 million
senior subordinated notes issued to Investors-CA and
Investors-NA. In addition, FIC granted to Investors-CA and
Investors-NA nontransferable options to purchase up to a total of
9.9% of FIC's common stock at a price of $10.50 per share,
equivalent to the then current market price, subject to
adjustment to prevent dilution. The options will expire on June
12, 1998 if not previously exercised. In July 1993 the
subordinated notes held by the seller and its affiliates were
prepaid. The primary source of the funds used to prepay the
subordinated debt was a new subordinated loan of $34.5 million
obtained from Investors-NA. See Item 13. Certain Relationships
and Related Transactions with Management.
Senior Loan, Subordinated Loans and Warrants
The Company obtained the funds used for the acquisition of
Investors-CA and Investors-NA from the following sources: (1) a
credit facility in the amount of $135,000,000 composed of the
following: (a) a senior loan in the amount of $125,000,000 (the
"Senior Loan") provided by a nationally chartered banking
institution (the "Senior Lender") as the lead bank in a lending
syndicate consisting of six banks and/or other financial
institutions; and (b) a $10,000,000 subordinated loan (the
"Subordinated Loan") provided by two insurance and financial
service organizations (the "Subordinated Lenders"); and (2) the
sale of preferred stock as follows: (a) $5,000,000 of Class A
Preferred stock issued at par to Insurance Company of North
America, a CIGNA subsidiary; and (b) $15,000,000 of Class B
Preferred Stock issued at par to the Subordinated Lenders. In May
1990, the holders of the Class A and Class B Preferred Stock
exchanged such stock for subordinated loans of a like amount (see
"Exchange of Preferred Stock"). Approximately $15,000,000 of
these funds were used to discharge an existing term loan. The
balance of these funds were loaned by ILCO to Standard to
consummate the purchase under the Acquisition Agreement. To
evidence this indebtedness, Standard issued a $140,000,000
surplus debenture to ILCO. The Company prepaid the Subordinated
Loans and amended its Senior Loan in January 1993. See "The
Refinancing."
Senior Loan. The Senior Loan was a secured and guaranteed eight
year term loan in the aggregate principal amount of $125,000,000.
The Senior Loan had a maturity date of December 31, 1996. The
principal was payable in twenty-seven quarterly installments of
$4,000,000 each, commencing on July 1, 1989, followed by four
quarterly installments of $4,250,000 each. The interest rate of
the Senior Loan was subject to periodic change based upon
stipulated percentages above a quoted bank base lending rate or
Eurodollar rate as such are in effect from time to time.
The obligations of the Registrant and its subsidiaries under the
Senior Loan documents were secured by: (1) all of the issued and
outstanding shares of stock of Standard and each other subsidiary
now or hereafter directly owned by the Registrant, (2) an
existing $15,000,000 surplus debenture assumed by Standard and
payable to the Registrant, which had an outstanding principal
balance of $6,956,224 as of December 31, 1995, and (3) a
$140,000,000 surplus debenture issued by Standard to the
Registrant in connection with the transaction, which had an
outstanding principal balance of $62,340,000 as of December 31,
1995. The obligations of the Company under the Senior Loan
documents were guaranteed by FIC. FIC owns approximately 47% of
the Company's issued and outstanding common stock.
The Senior Loan documents specified events of default, including,
but not limited to, failure to pay amounts payable with respect
to the Senior Loan documents when due, violation of covenants
included in the Senior Loan documents (including covenants with
respect to the maintenance of a minimum net worth), material
misrepresentations, defaults under other indebtedness, the loss
of any license of an insurance subsidiary of the Registrant which
would have a material adverse effect on the Registrant, defaults
under the FIC guaranty agreement, changes in ownership or control
of FIC or the Company by its controlling person, Roy F. Mitte, or
in the Company by FIC and the occurrence of certain events of
bankruptcy. If Mr. Mitte had ceased to control the management of
the Company solely by reason of (i) his death or (ii) his
permanent inability to perform his usual and customary duties on
a full-time basis on behalf of the Company and FIC as the result
of physical or mental infirmity, a default would have occurred,
and the banks holding in the aggregate at least 66 2/3% of the
outstanding balance of the Senior Loan would have had the right,
on or after 180 days after the date on which such default had
occurred, to declare the Senior Loan immediately due and payable.
The Senior Loan documents also contained various specified
negative, affirmative and financial covenants to be performed or
observed by the Registrant and its subsidiaries.
In July 1990, the Company made an advance payment of the October
1990 and January 1991 installments of the principal payments
under the Senior Loan. This advance payment was in the amount of
$8 million and resulted in a savings in interest costs to the
Company of approximately $334,250. In May 1991 the Company made
another advance payment. This advance payment, in the amount of
$12 million, prepaid the July 1991, October 1991 and January 1992
installments of principal and resulted in savings in interest
costs to the Company of approximately $398,000. The Company made
a payment of $21 million on April 1, 1992, which reduced the
Senior Loan's outstanding principal balance to $60 million. Of
that $21 million payment, $4,642,853 was required by the Senior
Loan documents to be paid as a result of ILCO having Excess Cash
Flow (as defined in the Senior Loan documents) in 1991, and $16
million prepaid the installments of principal through April 1,
1993.
The Senior Loan was amended in January 1993. See "The
Refinancing."
Subordinated Loan. The original amount of the Subordinated Loan
was $10,000,000, for a term of nine years (the "1997 Series
Subordinate Notes"). As a result of the exchange of the Company's
Class A Preferred Stock and Class B Preferred Stock (see
"Preferred Stock"), the Subordinated Loan consisted of (i) the
1997 Series Subordinated Notes, in the principal amount of
$10,000,000, (ii) the 1998 Series Subordinated Notes, in the
principal amount of $5,000,000, plus a make-whole amount due at
maturity equal to 13.25% of the then outstanding balance of the
loan and (iii) the 1999 Series Subordinated Notes, in the
principal amount of $15,000,000. The interest rate on the
Subordinated Loan was 13.25% per annum payable quarterly. In the
event of default, the interest rate would have increased to
15.25% per annum. Registrant was allowed to prepay the 1998
Series Subordinated Notes, in whole or in part, at any time, and
the 1997 and 1999 Series Subordinated Notes, in whole or in part,
after the third anniversary of the loan in 1991, subject to a
make-whole premium payment intended to provide the Subordinated
Lenders with an economic return on the Subordinated Loan
approximately equal to that which they would have received if the
loan was paid at maturity. The Subordinated Loan was subordinated
to the $125,000,000 Senior Loan described above and constituted a
second lien on all assets subject to the first lien of the Senior
Loan. Repayment of the Subordinated Loan was also guaranteed by
FIC.
Pursuant to the terms of the Subordinated Loan, the holders of
the 1997 Series Subordinated Notes and the 1999 Series
Subordinated Notes were issued detachable warrants entitling the
holders to purchase 19.95% of the Registrant's Common Stock on a
fully diluted basis exercisable for a Warrant Exercise Price of
$10.00 per share. As a result of the three-for-one stock split
effective February 15, 1990, the Warrant Exercise Price was
adjusted to $3.33 per share. The warrants provided for a put and
call option under which the holder was entitled to put said
warrants to the Registrant at a specified price during the sixth
through eighth years (which was subject to being extended due to
any postponement periods imposed by a Senior Debt default) of the
Subordinated Loan and the Registrant had the right to call said
warrants commencing at the beginning of the seventh year and
continuing thereafter for a similar three year period. (see
"Warrants").
The Subordinated Loan documents specified events of default,
including, but not limited to, failure to pay principal,
interest, commitment fees or other amounts payable with respect
to the Subordinated Loan documents when due, violation of
covenants included in the Subordinated Loan Documents (including
covenants with respect to the maintenance of a minimum net worth
of $22,500,000), material misrepresentations, defaults under
other indebtedness, changes in ownership or control of FIC by its
controlling person, Roy F. Mitte, or in the Registrant by FIC,
and the occurrence of certain events of bankruptcy.
The Subordinated Loan was prepaid in January 1993. See "The
Refinancing."
Preferred Stock. In 1988, the shareholders approved an amendment
to the Company's Certificate of Incorporation to authorize the
issuance of 5,000,000 shares of Class A Preferred Stock, $1.00
par value, 15,000,000 shares of Class B Preferred Stock, $1.00
par value and 10,000,000 shares of Class C Preferred Stock, $1.00
par value. In connection with the acquisition of the Investors
Life Companies, the Registrant sold 5,000,000 shares of the
Registrant's Class A Preferred Stock to Investors Life Insurance
Company of North America for a total sales price of $5,000,000
and sold 15,000,000 shares of the Registrant's Class B Preferred
Stock to the Subordinated Lenders and their affiliates for a
total sales price of $15,000,000. Under the Senior Loan and the
New Senior Loan (see "The Refinancing"), the Registrant is not
permitted to issue the Class C Preferred Stock.
Exchange of Preferred Stock. Effective as of May 1, 1990, the
Company effected an exchange agreement with the holders of its
Class A Preferred Stock (principal amount of $5 million; dividend
rate of 13.25%) and its Class B Preferred Stock (principal amount
of $15 million; dividend rate of 13.25%). Under the provisions of
the exchange agreement, the holders of the Class A Preferred
Stock received $5 million principal amount of a 13.25% 1998
Series Subordinate Notes, due November 1, 1998, together with a
make whole amount equal to 13.25% of the then outstanding balance
of the Note. The holders of the Class B Preferred Stock received
$15 million principal amount of a 13.25% 1999 Series Subordinated
Notes, due November 1, 1999. Each of the new Series of
Subordinated Notes were included, by amendment, within the
Subordinated Loan documents described in the preceding section
(see "Subordinated Loan").
As a result of this transaction, the Company's interest expense
increased by approximately $1.7 million in 1990 as compared to
1989 and increased by $ 2.7 million in 1991 as compared to 1989,
and net income available to common shareholders in 1990 and 1991
increased by the tax effect of these increases in interest
expense.
Warrants. In connection with the Subordinated Loan and issuance
of the Class B Preferred Stock the Registrant issued to the
holders of the 1997 Series Subordinated Notes and the purchasers
of the Class B Preferred Stock on December 28, 1988 detachable
warrants entitling the warrant holders thereof to purchase a
total of 1,107,480 shares of the Registrant's Common Stock, on a
fully diluted basis, exercisable at $3.33 per share. The warrants
carried a put and call option under which the holder was entitled
to put said warrants to the Company at a price based on a
specified formula during the period commencing at the beginning
of the sixth year from the date of issuance and continuing for
1,095 days thereafter, except that to the extent that the Senior
Loan would have prevented the exercise of such put, they could
have been exercised for such additional period as would have
given the warrant holders 1,095 days of exercise rights. The
Company had the right to call said warrants for a like period
commencing at the beginning of the seventh year from the date of
issuance. The warrants were purchased and cancelled by the
Company in January 1993. See "The Refinancing."
The Refinancing. On January 29, 1993, the Company prepaid all of
its subordinated indebtedness and purchased and cancelled all of
the warrants held by certain of its subordinated noteholders. In
addition to paying the $30 million aggregate principal amount of
the subordinated notes due in 1997, 1998 and 1999 plus accrued
interest, the Company paid approximately $7 million of prepayment
penalty, the after-tax effect of which was a charge against
earnings in 1993, and approximately $8 million for the warrants,
which was a charge directly against retained earnings. The
warrants had entitled the holders to purchase 1,107,480 shares of
the Company's Common Stock (approximately 24% of the outstanding
shares) at an exercise price of $3.33 per share. The currently
estimated price that the warrant holders could have required the
Company to pay for the warrants upon exercise of their put option
was approximately $29.9 million. The earliest that the put option
could have been exercised was December 1993, if such exercise
would not have resulted in a default under the Senior Loan at
that time. The purchase and cancellation of the warrants will
reduce the number of the Company's outstanding shares of common
stock and common stock equivalents used in the computation of its
earnings per share from approximately 7,147,000 shares to
approximately 6,040,000 shares. This adjustment in common stock
equivalents has affected earnings per share for periods after
January 29, 1993.
The primary source of the funds used to prepay the subordinated
debt and to purchase the warrants was an increase in the
outstanding balance of the Senior Loan from $60 million to $110
million pursuant to an amended and restated credit agreement that
the Company entered into on January 29, 1993 with certain banks,
including the same agent bank as in the Company's original bank
group in 1988. The Company's prepayment of subordinated debt,
purchase of warrants and increase in senior bank indebtedness are
referred to herein as the "Refinancing". The terms of the amended
and restated credit facility ("New Senior Loan") are
substantially the same as the Senior Loan. The interest rate on
the $30 million subordinated debt that was replaced by the New
Senior Loan was 13.25%. The average interest rate paid by the
Company on its New Senior Loan was approximately 6.37% during
1993, 7.04% during 1994 and 8.63% during 1995. The maturity date,
which had been December 31, 1996, was extended to July 1, 1998
for the New Senior Loan. On February 14, 1995, the Company
borrowed an additional $15 million under the New Senior Loan to
help finance the acquisition of Investors-IN, and the maturity
date of the New Senior Loan was further extended to July 1, 1999.
The New Senior Loan is a secured and guaranteed six and one-half
year term loan. A required $26 million principal payment was made
on April 1, 1993. Thereafter, the principal is payable in twenty
two quarterly installments of $4.5 million each, commencing on
April 1, 1994 and ending on July 1, 1999. The Company is required
to make mandatory payments on the New Senior Loan equal to (a)
100% of the net proceeds from the issuance of the Company's
capital stock or debt securities and (b) the applicable
percentage of the Company's annual Excess Cash Flow: 100%, if the
outstanding principal balance of the New Senior Loan exceeds $75
million; 75%, if the outstanding balance exceeds $50 million but
is equal to or less than $75 million; or 50%, if the outstanding
balance is equal to or less than $50 million. Excess Cash Flow is
the excess of (i) the sum of the Company's cash and cash
equivalents, principal and interest received by the Company from
surplus debentures, cash dividends received by the Company and
interest income on the Company's cash equivalents over (ii) the
sum of principal and interest paid on the Company's indebtedness,
operating expenses, taxes actually paid and $5 million.
The New Senior Loan bears interest, at the option of the Company,
at a rate per annum equal to (i) the Alternate Base Rate (as
defined below) plus the Applicable Margin (as defined below), or
(ii) LIBOR (adjusted for reserves) for interest periods of 1, 2,
3 or 6 months plus the Applicable Margin. LIBOR is London
Inter-Bank Offered Rates. The Alternate Base Rate for any day is
the higher of (a) the agent bank's corporate base rate as
announced from time to time and (b) the federal funds rate as
published by the Federal Reserve Bank of New York plus 0.5%. The
Applicable Margin, depending on the outstanding principal balance
of the New Senior Loan, ranges from 0.5% to 1.25% for loans that
bear interest based upon the Alternate Base Rate and from 1.75%
to 2.5% for loans that bear interest based upon LIBOR. The
initial Applicable Margin for Alternate Base Rate loans is 1.25%
and the initial Applicable Margin for LIBOR loans is 2.5%.
The obligations of the Company under the New Senior Loan are
secured by: (1) all of the outstanding shares of stock of
Investors-NA, (2) a $15,000,000 surplus debenture of Investors-NA
payable to the Company, which had an outstanding principal
balance of $6,956,224 as of December 31, 1995 and (3) a
$140,000,000 surplus debenture of Investors-NA payable to the
Company, which had an outstanding principal balance of
$62,340,000 as of December 31, 1995. The obligations of the
Company under the New Senior Loan are guaranteed by FIC.
The New Senior Loan prohibits the payment by the Company of cash
dividends on the Common Stock and contains covenants, including
restrictive covenants that impose limitations on the Company's
and its subsidiaries' ability to, among other things: (i) make
investments; (ii) create or incur additional debt; (iii) engage
in businesses other than their present and related businesses;
(iv) create or incur additional liens; (v) incur contingent
obligations; (vi) dispose of assets, (vii) enter into
transactions with affiliated companies; and (viii) make capital
expenditures; and various financial covenants, including
covenants requiring the maintenance of a minimum cash flow
coverage ratio, minimum consolidated net worth and minimum
statutory surplus of subsidiaries, and a minimum ratio (330%) of
the sum of statutory capital and surplus, asset valuation reserve
and interest maintenance reserve of each insurance company
subsidiary to its respective Authorized Control Level RBC (see
"Regulation").
The New Senior Loan specifies events of default, including, but
not limited to, failure to pay amounts under the New Senior Loan
documents when due; defaults or violation of covenants under
other indebtedness; certain defaults or violation of certain
covenants under the Family Life senior bank loan; defaults under
the $34.5 million loan made by Investors-NA to subsidiaries of
FIC in 1993; the loss of any license of an insurance subsidiary
of the Company which would have a material adverse effect on the
Company; defaults under the FIC guaranty agreement; changes in
ownership or control of FIC or the Company by its controlling
person, Roy F. Mitte, or in the Company by FIC; and the
occurrence of certain events of bankruptcy. If Mr. Mitte ceases
to control the management of the Company solely by reason of (i)
his death or (ii) his permanent inability to perform his usual
and customary duties on a full-time basis on behalf of the
Company and FIC as the result of physical or mental infirmity, a
default will occur, and the banks holding in the aggregate at
least 66 2/3% of the outstanding balance of the New Senior Loan
may, on or after 180 days after the date on which such default
occurs, declare the New Senior Loan immediately due and payable.
Mr. Mitte's ability to communicate and his mobility are impaired
as a result of a stroke he suffered in May 1991. However, Mr.
Mitte continues to control the management of the Company, and Mr.
Mitte's impairments did not constitute a default under the Senior
Loan, nor do they constitute a default under the New Senior Loan.
See Item 10(b)-Executive Officers of the Registrant.
The outstanding principal balance of the New Senior Loan was $-
59.4 million as of December 31, 1995.
Regulation
General. The Company's insurance subsidiaries are subject to
regulation and supervision by the states in which they are
licensed to do business. Such regulation is designed primarily to
protect policy owners. Although the extent of regulation varies
by state, the respective state insurance departments have broad
administrative powers relating to the granting and revocation of
licenses to transact business, licensing of agents, the
regulation of trade practices and premium rates, the approval of
form and content of financial statements and the type and
character of investments.
These laws and regulations require the Company's insurance
subsidiaries to maintain certain minimum surplus levels and to
file detailed periodic reports with the supervisory agencies in
each of the states in which they do business and their business
and accounts are subject to examination by such agencies at any
time. The insurance laws and regulations of the domiciliary
states of the Company's insurance subsidiaries require that such
subsidiaries be examined at specified intervals.
Investors-NA and ILIC are domiciled in the states of Washington
and New Jersey, respectively. In December 1992, Investors-NA
redomesticated from Pennsylvania to Washington, and Investors-CA
merged into Investors-NA. In June, 1993 Standard Life merged into
Investors-NA. Investors-IN is domiciled in the State of Indiana.
A number of states regulate the manner and extent to which
insurance companies may test for acquired immune deficiency
syndrome (AIDS) antibodies in connection with the underwriting of
life insurance policies. To the extent permitted by law, the
Company's insurance subsidiaries consider AIDS information in
underwriting coverage and establishing premium rates. An
evaluation of the financial impact of future AIDS claims is
extremely difficult, due in part to insufficient and conflicting
data regarding the incidence of the disease in the general
population and the prognosis for the probable future course of
the disease.
Risk-Based Capital Requirements. Effective for the 1993 calendar
year, the National Association of Insurance Commissioners
("NAIC") has adopted Risk-Based Capital ("RBC") requirements to
evaluate the adequacy of statutory capital and surplus in
relation to investment and insurance risks associated with; (i)
asset quality; (ii) mortality and morbidity; (ii) asset and
liability matching; and (iv) other business factors. The states
will use the RBC formula as an early warning tool to discover
potential weakly capitalized companies for the purpose of
initiating regulatory action. The RBC requirements are not
intended to be a basis for ranking the relative financial
strength of insurance companies. In addition, the formula defines
a new minimum capital standard which will supplement the
prevailing system of low fixed minimum capital and surplus
requirements on a state-by-state basis.
The RBC requirements provide for four different levels of
regulatory attention in those states that adopt the NAIC
regulations, depending on the ratio of the company's Total
Adjusted Capital (which generally consist of its statutory
capital, surplus and asset valuation reserve) to its Authorized
Control Level RBC. A "Company Action Level Event" is triggered
if a company's Total Adjusted Capital is less than 200% but
greater than or equal to 150% of its Authorized Control Level
RBC, or if a negative trend has occurred (as defined by the
regulations) and Total Adjusted Capital is less than 250% but
more than 200% of its Authorized Control Level RBC. When a
Company Action Level Event occurs, the company must submit a
comprehensive plan to the regulatory authority which discusses
proposed corrective actions to improve its capital position. A
"Regulatory Action Level Event" is triggered if a company's Total
Adjusted Capital is less than 150% but greater than or equal to
100% of its Authorized Control Level RBC. When a Regulatory
Action Level Event occurs, the regulatory authority will perform
a special examination of the company and issue an order
specifying corrective actions that must be followed. An
"Authorized Control Level Event" is triggered if a company's
Total Adjusted Capital is less than 100% but greater than or
equal to 70% of its Authorized Control Level RBC, and the
regulatory authority may take any action it deems necessary,
including placing the company under regulatory control. A
"Mandatory Control Level Event" is triggered if a company's total
adjusted capital is less than 70% of its Authorized Control Level
RBC, and the regulatory authority is mandated to place the
company under its control.
Calculations using the NAIC formula and the statutory financial
statements of the Company's insurance subsidiaries as of December
31, 1995 indicate that the Total Adjusted Capital of each of the
Company's insurance subsidiaries is above 500% of its respective
Authorized Control level RBC.
Solvency Laws Assessments. The solvency or guaranty laws of most
states in which the Company's insurance subsidiaries do business
may require the Company's insurance subsidiaries to pay
assessments (up to certain prescribed limits) to fund
policyholder losses or liabilities of insurance companies that
become insolvent. Recent insolvencies of insurance companies
increase the possibility that such assessments may be required.
These assessments may be deferred or forgiven under most guaranty
laws if they would threaten an insurer's financial strength and,
in certain instances, may be offset against future premium taxes.
The insurance companies record the expense for guaranty fund
assessments in the period assessed. The occurrence and amount of
such assessments have increased in recent years. The net amount
of such assessment for the Company's insurance subsidiaries was
approximately $241,692 in the year ended December 31, 1995. That
amount is net of the amounts that can be offset against future
premium taxes. The likelihood and amount of any other future
assessments cannot be estimated and are beyond the control of the
Company.
Surplus Debentures and Dividends. The principal sources of cash
for the Company to make payments of principal and interest on the
Senior Loan are payments under the surplus debentures of
Investors-NA (a Washington-domiciled corporation) and dividends
paid by Investors-NA, ILIC (a New Jersey-domiciled company) and
Investors-IN (an Indiana-domiciled company).
Under current Washington and New Jersey law, any proposed payment
of a dividend or distribution which, together with dividends or
distributions paid during the preceding twelve months, exceeds
the greater of (i) 10% of statutory surplus as of the preceding
December 31 or (ii) statutory net gain from operations for the
preceding calendar year is called an "extraordinary dividend" and
may not be paid until either it has been approved, or a waiting
period shall have passed during which it has not been
disapproved, by the insurance commissioner. Effective July 25,
1993, Washington amended its insurance code to retain the
"greater of" standard but enacted requirements that prior
notification of a proposed dividend be given to the Washington
Insurance Commissioner and that dividends may be paid only from
earned surplus. Investors-NA does not presently have earned
surplus as defined by the regulations adopted by the Washington
Insurance Commissioner and, therefore, is not presently permitted
to pay cash dividends. However, since the new law applies only to
dividend payments, the ability of Investors-NA to make principal
and interest payments under the surplus debentures is not
affected.
Under the Indiana insurance code, a domestic insurer may make
dividend distributions upon proper notice to the Department of
Insurance, as long as the distribution is reasonable in relation
to adequate levels of policyholder surplus and quality of
earnings. Under Indiana law the dividend must be paid from earned
surplus. Extraordinary dividend approval would be required where
a dividend exceeds the greater of 10% of surplus or the net gain
from operations for the prior fiscal year. Investors-IN had
earned surplus of $11,014,294 at December 31, 1995.
The surplus debentures were originally issued by Standard Life.
Upon the merger of Standard Life into Investors-NA, the
obligations of the surplus debentures were assumed by
Investors-NA. Since Investors-NA is domiciled in the State of
Washington, the provisions of Washington insurance law apply to
the surplus debentures. Under the provisions of the surplus
debentures and current law, Investors-NA can pay interest and
principal on the surplus debentures without having to obtain the
prior approval of the Washington Insurance Commissioner; provided
that, after giving effect to such payments, the statutory surplus
of Investors-NA is in excess of $10 million. As of December 31,
1995, the statutory surplus of Investors-NA was $59,496,193.
Investors-NA does give five-days prior notification to the
Washington Insurance Department of each proposed payment on the
surplus debentures in accordance with an agreement between
Investors-NA and the Department. ILCO does not anticipate that
Investors-NA will have any difficulty in making principal and
interest payments on the surplus debentures in the amounts
necessary to enable ILCO to service the Senior Loan for the
foreseeable future.
Pursuant to the surplus debentures, Standard Life, which merged
into Investors-NA on June 29, 1993, had paid to the Company
principal and interest totalling $17,755,412 and $14,970,460 in
1992 and 1993, respectively. After the merger, Investors-NA paid
to the Company principal and interest on the surplus debentures
of $8,573,320 during the balance of 1993, $26,224,640 in 1994
and $22,749,576 in 1995.
Valuation Reserves. Commencing in 1992, the Mandatory Securities
Valuation Reserve ("MSVR") required by the NAIC for life
insurance companies was replaced by a mandatory Asset Valuation
Reserve ("AVR") which is expanded to cover mortgage loans, real
estate and other investments. A new mandatory Interest
Maintenance Reserve ("IMR"), designed to defer realized capital
gains and losses due to interest rate changes on fixed income
investments and to amortize those gains and losses into future
income, is also effective for 1992. Previously, realized capital
gains attributable to interest rate changes were credited to the
MSVR and had the effect of reducing the required MSVR
contributions of ILCO's insurance subsidiaries. Effective in
1992, such realized capital gains are credited to the IMR. As a
result of these changes, management believes that the Company's
insurance subsidiaries are required to accrue greater aggregate
asset valuation reserves. The combination of the AVR and IMR will
affect statutory capital and surplus and may reduce the ability
of the Company's insurance subsidiaries to pay dividends and make
payments on the surplus debentures.
Insurance Holding Company Regulation. Investors-NA, ILIC and
Investors-IN are subject to regulation under the insurance and
insurance holding company statutes of Washington, New Jersey and
Indiana. The insurance holding company laws and regulations vary
from jurisdiction to jurisdiction, but generally require
insurance and reinsurance subsidiaries of insurance holding
companies to register with the applicable state regulatory
authorities and to file with those authorities certain reports
describing, among other information, their capital structure,
ownership, financial condition, certain intercompany transactions
and general business operations. The insurance holding company
statutes also require prior regulatory agency approval or, in
certain circumstances, prior notice of certain material
intercompany transfers of assets as well as certain transactions
between insurance companies, their parent companies and
affiliates.
Under the Washington, New Jersey and Indiana insurance holding
company laws, unless (i) certain filings are made with the
respective department of insurance, (ii) certain requirements are
met, including a public hearing and (iii) approval or exemption
is granted by the respective insurance commissioner, no person
may acquire any voting security or security convertible into a
voting security of an insurance holding company, such as the
Company, which controls an insurance company domiciled in that
state, or merge with such a holding company, if as a result of
such transaction such person would "control" the insurance
holding company. "Control" is presumed to exist if a person
directly or indirectly owns or controls 10% or more or the voting
securities of another person.
Potential Federal Regulation. Although the federal government
generally does not directly regulate the insurance industry,
federal initiatives often have an impact on the business.
Congress and certain federal agencies are investigating the
current condition of the insurance industry (encompassing both
life and health and property and casualty insurance) in the
United States in order to decide whether some form of federal
role in the regulation of insurance companies would be
appropriate. Congress is currently conducting a variety of
hearings relating in general to the solvency of insurers. It is
not possible to predict the outcome of any such congressional
activity nor the potential effects thereof on the Company's
insurance subsidiaries.
Congressional initiatives directed at repeal of the McCarran-
Ferguson Act (which exempts the "business of insurance" from most
federal laws, including the antitrust laws, to the extent it is
subject to state regulation) and judicial decisions narrowing the
definition of "business of insurance" for McCarran-Ferguson Act
purposes may limit the ability of insurance companies in general
to share information with respect to rate-setting, underwriting
and claims management practices. Current and proposed federal
measures which may also significantly affect the insurance
industry include minimum solvency requirements and removal of
barriers preventing banks from engaging in the insurance
business.
Federal Income Taxation
The Revenue Reconciliation Act of 1990 amended the Internal
Revenue Code of 1986 to require a portion of the expenses
incurred in selling insurance products to be deducted over a
period of years, as opposed to an immediate deduction in the year
incurred. Since this change only affects the timing of the
deductions, it does not affect tax expense as shown on the
Company's financial statements prepared in accordance with GAAP.
However, the change will increase the tax for statutory
accounting purposes in the first few years, which will reduce
statutory surplus and, accordingly, may decrease the amount of
cash dividends that Investors Life-NA can pay to the Company. For
the years ended December 31, 1993, 1994 and 1995, the increases
(decreases) in the current income tax provisions of the Company's
insurance subsidiaries due to this change were $429,325, $88,505
and ($118,480), respectively. The change has a negative tax
effect for statutory accounting purposes when the premium income
of the Company's insurance subsidiaries increases, but has a
positive tax effect when their premium income decreases.
Segment Information
The principal operations of the Company's insurance subsidiaries
are the underwriting of life insurance and annuities.
Accordingly, no separate segment information is required to be
provided by the Registrant for the three-year period ending
December 31, 1995.
Item 2. Properties
The Registrant's headquarters are located at Austin Centre, 701
Brazos, Suite 1400, Austin, Texas. Investors-NA purchased Austin
Centre, an office-hotel property in downtown Austin in August
1991 for a purchase price of $31,275,000 from an unrelated seller
that had previously acquired the property through foreclosure.
Austin Centre covers a full city block and is a sixteen story
mixed use development consisting of 343,664 square feet of
office/retail space (predominately office space), a 314 room
hotel and 61 luxury apartments, all united by a 200 foot high
glass atrium. The project was completed in October 1986. At
December 31, 1995, the office tower was approximately 85%
occupied, and during 1995 the hotel averaged about 80% occupancy.
In September 1995, Investors-NA entered into a contract to sell
Austin Centre to an Austin-based real estate investment firm for
a purchase price of $62.675 million, less $1 million to be paid
to a capital reserve account for the purchaser. The contract
provides that the sale will be consummated by March 29, 1996.
ILCO anticipates that the sale proceeds equal to the amount that
Investors-NA presently has invested in Austin Centre will be
retained and reinvested by Investors-NA and that most of the
balance of the net proceeds of the sale will be used to reduce
ILCO's bank indebtedness by approximately $15 million.
On January 31, 1995, ILCO, through Investors-NA, purchased, as an
investment property, an office building project known as
Bridgepoint Office Square in Austin, Texas for a cash purchase
price of $9.75 million. The property consists of 20 acres of land
with four office building sites and two parking structure sites.
The first phase of development of the property was completed in
1986 and consists of a five-story office building with 83,474
square feet of rentable space and a 550-car parking garage. In
the fourth quarter of 1995, construction began on the second
office building, containing approximately 109,000 rentable square
feet, and the other parking garage. This second phase of the
project is projected to be completed in the summer of 1996.
In March 1996, Investors-NA agreed to lease approximately 152,000
square feet at Bridgepoint Office Square to Motorola, Inc. for
use by the Power PC Alliance, composed of engineers from
Motorola, IBM Corp. and Apple Computer Inc. The Alliance will
occupy 100% of the second office building and approximately
43,000 square feet of the third office building, which Investors-
NA began constructing in March 1996. The third building will
contain approximately 81,000 rentable square feet and is
projected to be finished in late 1996.
ILCO leases a building located at 40 Parker Road, Elizabeth, New
Jersey. This building, which was formerly the Company's
headquarters building, contains approximately 41,000 square feet
of office space. The remaining term of the lease is 11 years, and
the lease calls for a minimum base rental of $450,000 per annum.
The lease provides that all costs including, but not limited to,
those for maintenance, repairs, insurance and taxes be borne by
ILCO. The Registrant and ILIC currently occupy a nominal portion
of the space in the 40 Parker Road property and have sub-leased
the remaining portion.
ILIC owns three buildings which are adjacent to the 40 Parker
Road building. One building, which leased to third parties,
contains approximately 3,500 square feet of space. The second
building contains approximately 2,500 square feet of space and is
leased to persons who perform maintenance services for ILIC's and
ILCO's properties in Elizabeth, New Jersey. The third building,
purchased during 1985, contains approximately 3,500 square feet
of space, and is partially leased to third parties and the
remainder is used to provide accommodations for employees working
at the New Jersey office.
Investors-NA owns an office building, located at 206 West Pearl
Street, Jackson, Mississippi. This building is 66 years old and
contains approximately 85,000 square feet of office space.
Investors-NA currently occupies a nominal portion of the space in
this property and leases space to various commercial tenants.
The Company believes that its properties and leased space are
adequate to meet its foreseeable requirements.
Item 3. Legal Proceedings
The Company and its subsidiaries are defendants in certain legal
actions related to the normal business operations of the Company.
Management believes that the resolution of such legal actions
will not have a material impact on the financial statements.
Item 4. Submission of Matters to a Vote of Security Holders
No matter was submitted during the fourth quarter of the fiscal
year ended December 31, 1995 to a vote of security holders.
PART II
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters
A. Market Information
The following table sets forth the quarterly high and low sales
prices for the Company's Common Stock in The Nasdaq Small-Cap
Market for 1995 and 1994.
Prices
High Low
1995:
1st Quarter. . . . . . . $13.50 $10.00
2nd Quarter. . . . . . . 13.00 10.75
3rd Quarter. . . . . . . 12.00 10.25
4th Quarter. . . . . . . 13.25 10.25
1994:
1st Quarter. . . . . . . $13.50 $12.00
2nd Quarter. . . . . . . 12.50 10.00
3rd Quarter. . . . . . . 12.50 10.50
4th Quarter. . . . . . . 12.00 9.25
The Common Stock of the Company is traded in The Nasdaq Small-Cap
Market (NASDAQ Symbol: ILC0). Quotations are furnished by the
National Association of Securities Dealers Automated Quotation
System (NASDAQ).
B. Holders
The approximate number of record holders of the Common Stock of
the Registrant as of March 20, 1996 was 1,600.
C. Dividends
No dividend was declared or paid by the Company during 1993, 1994
or 1995. Under the terms of the Senior Loan and the New Senior
Loan, the Registrant was not, and is not, permitted to declare or
pay any dividends on its Common Stock during the loan term. A
more detailed discussion of the Senior Loan and the New Senior
Loan is set forth in Item 1 hereof.
The ability of an insurance holding company, such as ILCO, to pay
dividends to its shareholders may be limited by the company's
ability to obtain revenue, in the form of dividends and other
payments, from its operating insurance subsidiaries. The right of
such subsidiaries to pay dividends is generally restricted by the
insurance laws of their domiciliary states. See Item 1. Business
Regulation - Surplus Debentures and Dividends.
Item 6. Selected Financial Data (in thousands, except per share
data; certain restatements and adjustments are explained
following this table.)
Years Ended December 31,
1995 1994 1993 1992 1991
Revenues $ 122,390 $ 114,842 $ 117,843 $ 139,009 $ 152,936
Benefits &
Expenses 105,907 99,142 100,525 117,568 133,397
Income from
operations 16,483 15,700 17,318 21,441 19,539
Provision for
federal income
taxes 5,769 5,783 5,118 7,540 6,776
Net Income
before extra-
ordinary item
and cumulative
effect of
change in
accounting
principle $ 10,714 $ 9,917 $ 12,200 $ 13,901 $ 12,763
Extraordinary
Item -0- -0- (6,253) -0- -0-
Net Income
before
cumulative
effect of
change in
accounting
principle 10,714 9,917 5,947 13,901 12,763
Cumulative
effect of
change in
accounting
principle -0- -0- (2,600) -0- -0-
Net Income $ 10,714 $ 9,917 $ 3,347 $ 13,901 $ 12,763
Common
Stock and
Common Stock
Equivalents 5,389 5,378 5,858 7,052 7,149
Net Income per
share before
extraordinary
item and
cumulative
effect of
change in
accounting
principle $ 2.11 $ 1.93 $ 2.20 $ 2.06 $ 1.89
Extraordinary
Item -0- -0- (1.07) -0- -0-
Net income per
share before
cumulative
effect of
change in
accounting
principle 2.11 1.93 1.13 2.06 1.89
Cumulative
effect of
change in
accounting
principle -0- -0- (.44) -0- -0-
Net income per
share $ 2.11 $ 1.93 $ .69 $ 2.06 $ 1.89
Cash Dividend -0- -0- -0- -0- -0-
Long Term Debt$ 59,385 $ 66,585 $ 84,000 $ 90,325 $ 111,300
Total Assets $1,315,293 $1,148,994 $1,266,941 $1,286,733 $1,312,141
1 Net income per share for the years ended December 31,
1995, 1994, 1993, 1992 and 1991 included the dilutive effect
resulting from the increase in the market price of the
Company's common stock. Such increase requires that
outstanding common share equivalents be taken into account
in determining net income per share. See "Notes to
Consolidated Financial Statements" for a description of the
manner of calculation of common share equivalents.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
For the year ended December 31, 1995, ILCO's net income from
operations was $10,714,000 ($2.11 per common share), as compared
to $9,917,000 ($1.93 per common share) in 1994 and $12,200,000
($2.20 per common share), before extraordinary item and change in
accounting principle, in 1993.
Net income for the years 1995 and 1994 was not affected by
extraordinary items. For the year ended December 31, 1993, after
giving effect to the cost of early extinguishment of debt (net of
tax) and the effect of a change in accounting principle, net
income for the period was $3,347,000, or $.69 per common share.
The net income of ILCO for the year 1993 was affected by (i) the
costs associated with the prepayment in January of 1993 of its
Subordinated Loans; the prepayment premium resulted in a one time
charge to earnings in the amount of $6,253,000, net of tax, and
(ii) the one time charge to earnings, in the amount of
$2,600,000, which was incurred in connection with the initial
adoption of Financial Accounting Standard No. 109 ("Accounting
for Income Taxes"). The effect of each of these items was within
the range previously disclosed by management in the Company's
Form 10-K for the year ended December 31, 1992.
The results for 1995 include the operations of Investors Life
Insurance Company of Indiana (formerly known as Meridian Life
Insurance Company) for the period from February 14, 1995 to
December 31, 1995. Investors Life Insurance Company of Indiana
("Investors-IN") was purchased by ILCO and Investors Life
Insurance Company of North America ("Investors-NA") for an
adjusted purchase price of $17.1 million; the transaction was
completed on February 14, 1995. The name change was completed in
May, 1995.
The statutory earnings of the Company's insurance subsidiaries,
as required to be reported to insurance regulatory authorities,
before interest expense, capital gains and losses, and federal
income taxes were $24,511,342 at December 31, 1995, as compared
to $21,119,689 at December 31, 1994 and $20,325,814 at December
31, 1993. These statutory earnings are the source to provide for
the repayment of ILCO's indebtedness.
The operating strategy of the Company's management emphasizes
several key objectives: expense management; marketing of
competitively priced insurance products which are designed to
generate an acceptable level of profitability; maintenance of a
high quality portfolio of investment grade securities; and the
provision of quality customer service.
Premium income, net of reinsurance, for the year 1995 was $11.7
million, as compared to $14.3 million in 1994 and $16.1 million
in 1993. The decline is primarily attributable to the decision
to discontinue the writing of credit life and credit accident and
health insurance, as well as the reduction in premiums received
for traditional (non-universal) life insurance and accident and
health insurance policies. This decline was partially offset by
the premium income resulting from the inclusion of Investors-IN.
For the year 1995, reinsurance premiums ceded were $8.9 million,
as compared to $10.9 million in 1994 and $11.9 million in 1993.
During the first half of 1994, management completed its review of
the credit life and credit disability business of the Company.
As a result of this review, management determined that these
product lines were not producing desired profitability
objectives. Accordingly, management announced that the Company's
subsidiaries which underwrote credit insurance would discontinue
the writing of new credit life and credit disability insurance.
For the full year of 1995, this action had a negative effect on
premium income in the amount of $5.6 million.
Earned insurance charges for the year ended December 31, 1995
were $42.3 million, as compared to $39.4 million for 1994 and
$38.6 million in 1993. This source of revenues is related to the
universal life insurance and annuity book of business of
Investors-NA. The increase in the level of earned insurance
charges for the 1995 year is primarily attributable to the
addition of Investors-IN.
In 1995, Investors-NA entered into a reinsurance agreement with
Family Life Insurance Company (an insurance company subsidiary of
Financial Industries Corporation and an affiliated company of
Investors-NA), pertaining to universal life insurance written by
Family Life. The reinsurance agreement is on a co-insurance
basis and applies to all covered business with effective dates on
and after January 1, 1995. The agreement applies to only that
portion of the face amount of the policy which is less than
$200,000; face amounts of $200,000 or more are reinsured by
Family Life with a third party reinsurer. The arrangement
reflects management's plan to develop universal life business at
Investors-NA, with Family Life concentrating on the writing of
term life insurance products.
Interest expense was $5.7 million for the year ended December 31,
1995, as compared to $5.2 million for the year 1994 and $5.7
million in 1993. The increase in 1995, as compared to 1994, is
attributable to an increase in the average rate of interest paid
on the senior loan - 8.63% in 1995 as compared to 7.04% for 1994,
the effect of which was partially offset by a decrease in the
average amount of the senior loan ($64.3 million in 1995 as
compared to $69.4 million in 1994). The decrease in interest
expense in 1994, as compared to 1993, was attributable to the
lower average amount of the senior loan ($69.4 million for 1994
and compared to $88.9 million in 1993), offset partially by a
slight increase in the average rate of interest paid on the
senior loan (7.04% in 1994, as compared to 6.37% in 1993).
The decline in long-term interest rates during 1995, which was
related to general economic conditions, had a positive effect
upon the market value of the fixed maturities available for sale
segment of the portfolio. As of December 31, 1995, the market
value of the fixed maturities available for sale segment was
$483.6 million as compared to a carrying value of $463.7 million,
or an unrealized gain $19.9 million. There is no assurance that
this unrealized gain willbe realized in the future.
The investment income earned on the Company's portfolio affects
the level of interest rates which the Company credits to its
universal life insurance, whole life insurance and annuity
products. The objective of the Company is to maintain an
appropriate margin between the rate of interest which it earns on
its investments and the rate which it credits to policyholders.
Total assets as of December 31, 1995 ($1.32 billion) increased
from the level as of December 31, 1994 ($1.15 billion). The
increase in total assets is primarily attributable to (a) the
inclusion of Investors-IN and (ii) an increase in the amount of
separate account assets.
On January 31, 1995, ILCO, through Investors-NA, purchased, as an
investment property, an office building project known as One
Bridgepoint Office Square in Austin, Texas for a cash purchase
price of $9.75 million. The property consists of 20 acres of
land, with four office building sites and two sites for parking
garages. At the time of the purchase, the first stage of the
development had already been completed, consisting of a five-
story office building with 83,474 square feet of rentable space
and a 550-car parking garage. That stage of the development was
completed in 1986. In the fourth quarter of 1995, construction
commenced on a second building on the site, with 110,000 square
feet of rentable space, and the second parking garage. The
second phase of the project is expected to be completed in the
summer of 1996.
In March 1996, Investors-NA agreed to lease approximately 152,000
square feet at Bridgepoint Office Square to Motorola, Inc. for
use by the Power PC Alliance, composed of engineers from
Motorola, IBM Corp. and Apple Computer Inc. The Alliance will
occupy 100% of the second office building and approximately
43,000 square feet of the third office building, which Investors-
NA began constructing in March 1996. The third building will
contain approximately 81,000 rentable square feet and is
projected to be finished in late 1996.
In January 1996, the Company announced that Investors-NA had
entered into an agreement to sell the Austin Centre, an office-
hotel complex in Austin, Texas. The selling price is $62.675
million, less $1 million to be paid to a capital reserve account
for the purchaser. The property, which consists of 343,664
square feet of office/retail space, a 314 room hotel and 61
rental apartments, was purchased in 1991 for $31.275 million.
Since 1992, the Company has rented space on three floors of the
office tower as its headquarters. The Company anticipates that a
portion of the sale proceeds, approximately the amount that
Investors-NA has invested in the property, will be retained and
reinvested. The balance of the net proceeds of the sale will be
used to reduce the Company's senior loan obligations by
approximately $15 million. The sale contract provides that the
sale will be consummated by March 29, 1996.
Results of Operations
For the year ended December 31, 1995, the Company's income from
operations before Federal income taxes was $16,483,000 on
revenues of $122,390,000, as compared to $15,700,000 on revenues
of $114,842,000 in 1994. For the year 1993, income from
operations before Federal income taxes, extraordinary item and
cumulative effect of change in accounting principle was
$17,318,000 (on revenues of $117,843,000).
The Company's net income, net of federal income taxes, was
$10,714,000, or $ 2.11 per common share for the year 1995, as
compared to $9,917,000, or $1.93 per common share for the year
1994 For the year 1993, net income, net of federal income taxes,
extraordinary items and cumulative effect of change in accounting
principle, was $3,347,000, or $.69 per common share. Net income
per common share in 1995 was affected by a slight increase in the
number of common stock and common stock equivalents which were
required to be taken into account in determining net income per
share. For the year ended December 31, 1995, the amount of
common stock and common stock equivalents was 5,389,000, as
compared to 5,378,000 in 1994 and 5,858,000 in 1993.
For the year ended December 31, 1995, annualized first-year
premiums and deposits on deposit type contracts of Investors-NA
declined by approximately 19% as compared to 1994. The
corresponding decline from 1993 to 1994 was 7%.
During 1995, the lapse rate with respect to universal life
insurance policies increased slightly from the lapse rate
experienced in 1994. The rate in 1995 was 8.8%, as compared to
8.2% in 1994. The lapse rate with respect to traditional (non-
universal) life insurance policies decreased from the levels
experienced in 1994. The rate in 1995 was 8.8%, as compared to
9.8% in 1994. The lapse rates experienced during the 1995 period
were within the ranges anticipated by management.
As of December 31, 1995, the number of employees within the
Company was approximately 338. This level of staffing includes
employees who provide administrative services to Family Life
Insurance Company, in connection with which Investors-NA receives
an expense reimbursement.
Liquidity and Capital Resources:
ILCO is a holding company whose principal assets consist of the
common stock of Investors Life Insurance Company of North America
and its subsidiaries - Investors Life Insurance Company of
Indiana (formerly known as Meridian Life Insurance Company) and
InterContinental Life Insurance Company ("ILIC"). ILCO's primary
source of funds consists of payments under two Surplus Debentures
from Investors-NA.
As of December 31, 1994, the outstanding principal balance of the
ILCO's senior loan obligations was $66.6 million. On January 2,
1995, the Company made a scheduled payment of $4.5 million under
its Senior Loan. In connection with the acquisition of
Investors-IN in February, 1995, ILCO borrowed an additional $15
million under its Senior Loan to help finance the purchase. On
April 3, 1995, a principal payment in the amount of $13.2 million
was made, which prepaid the Senior Loan until October 1, 1995.
The Senior Loan had a principal balance at December 31, 1995 of
$59.4 million. In January, 1996, the Company made a scheduled
principal payment, in the amount of $4.5 million. As of March
15, 1996, the principal balance of the Senior Loan was $54.9
million.
ILCO's principal source of liquidity consists of the periodic
payment of principal and interest by Investors-NA, pursuant to
the terms of the Surplus Debentures. The Surplus Debentures were
originally issued by Standard Life Insurance Company and their
terms were previously approved by the Mississippi Insurance
Commissioner. Upon the merger of Standard Life into Investors-
NA, the obligations of the Surplus Debentures were assumed by
Investors-NA. As of December 31, 1995, the outstanding principal
balance of the Surplus Debentures was $7.0 million and $62.3
million, respectively. Since Investors-NA is domiciled in the
State of Washington, the provisions of Washington insurance law
apply to the Surplus Debentures. Under the provisions of the
Surplus Debentures and current law, no prior approval of the
Washington Insurance Commissioner is required for Investors-NA to
pay interest or principal on the Surplus Debentures; provided
that, after giving effect to such payments, the statutory surplus
of Investors-NA is in excess of $10 million (the "surplus
floor"). However, Investors-NA has voluntarily agreed with the
Washington Insurance Commissioner that it will provide at least
five days advance notice of payments which it will make under the
surplus debenture. As of December 31, 1995, the statutory
capital and surplus of Investors-NA was $61.9 million, an amount
substantially in excess of the surplus floor. The funds required
by Investors-NA to meet its obligations to the Company under the
terms of the Surplus Debentures are generated from operating
income generated from insurance and investment operations.
In addition to the payments under the terms of the Surplus
Debentures, ILCO has received dividends from Standard Life (now,
from Investors-NA). Effective July 25, 1993, Washington amended
its insurance code to retain the "greater of" standard for
payment of dividends to shareholders, but enacted requirements
that prior notification of a proposed dividend be given to the
Washington Insurance Commissioner and that cash dividends may be
paid only from earned surplus. Investors-NA does not presently
have earned surplus as defined by the regulations adopted by the
Washington Insurance Commissioner and, therefore, is not
permitted to pay a cash dividend. However, since the new law
applies only to dividend payments, the ability of Investors-NA to
make principal and interest payments under the Surplus Debentures
is not affected. ILCO does not anticipate that Investors-NA will
have any difficulty in making principal and interest payments on
the Surplus Debentures in the amounts necessary to enable ILCO to
service the Senior Loan for the foreseeable future.
Investors-IN is domiciled in the State of Indiana. Under the
Indiana insurance code, a domestic insurer may make dividend
distributions upon proper notice to the Department of Insurance,
as long as the distribution is reasonable in relation to adequate
levels of policyholder surplus and quality of earnings. Under
Indiana law the dividend must be paid from earned surplus.
Extraordinary dividend approval would be required where a
dividend exceeds the greater of 10% of surplus or the net gain
from operations for the prior fiscal year. Investors-IN
currently has earned surplus.
ILCO's net cash flow provided by (used in) operating activities
was $10.3 million for the year ended December 31, 1995, as
compared to ($15.3) million for the same period in 1994. This
change is primarily due to fluctuations in the amount of deferred
federal income taxes, related to the market value of the portion
of investments assets that are fixed maturities available for
sale.
Management believes that its cash, cash equivalents and short
term investments are sufficient to meet the needs of its business
and to satisfy debt service.
Investments
As of December 31, 1995, the book value of the Company's
investment assets totaled $669.5 million, as compared to $547.7
million as of December 31, 1994. Total assets as of December 31,
1995 ($1.32 billion) increased from the level as of December 31,
1994 ($1.15 billion). The increase in total assets is
primarily attributable to the inclusion of Investors-IN and an
increase in the amount of separate account assets and the
unrealized gain in the market value of fixed maturities available
for sale.
The level of short-term investments at the end of 1995 was $86.0
million, as compared to $94.9 million at the end of 1994. The
decline in the level of short-term investments reflects the
actions of management to diversify the investment portfolio of
the Company and the investment in the development of Bridgepoint.
The fixed maturities available for sale portion of invested
assets at December 31, 1995 was $483.6 million. The amortized
cost of the fixed maturities available for sale segment as of
December 31, 1995 was $463.7 million, representing a net
unrealized gain of $19.9 million. This unrealized gain
principally reflects changes in interest rates from the date the
respective investments were purchased. To reduce the exposure to
interest rate changes, portfolio investments are selected so that
diversity, maturity and liquidity factors approximate the
duration of associated policyholder liabilities.
The assets held by ILCO's life insurance subsidiaries must comply
with applicable state insurance laws and regulations. In
selecting investments for the portfolios of its life insurance
subsidiaries, the Company's emphasis is to obtain targeted profit
margins, while minimizing the exposure to changing interest
rates. Thisobjective is implemented byselecting primarily short-
to medium-term, investment grade fixed income securities. In
making such portfolio selections, the Company generally does not
select new investments which are commonly referred to as "high
yield" or "non-investment grade."
The Company's fixed maturities portfolio (including short-term
investments), as of December 31, 1995, included a non-material
amount (1.1% of total fixed maturities and short-term
investments) of debt securities which, in the annual statements
of the companies as filed with state insurance departments, were
designated under the National Association of Insurance
Commissioners ("NAIC") rating system as "3" (medium quality) or
below. For the year ended December 31, 1994, the comparable
percentage was 1.1%. The majority of these non-investment grade
investments are concentrated in the medium quality (or "3")
category, with only 0.2% receiving an NAIC rating of "4" (low
quality) or below as of December 31, 1995, as compared to 0.5% as
of December 31, 1994.
The consolidated balance sheets of the Company as of December 31,
1995 include $61.2 million of "Notes receivable from affiliates",
represented by (i) a loan of $22.5 million from Investors-NA to
Family Life Corporation and a $2.5 million loan from Investors-CA
to Financial Industries Corporation (which is now owned by
Investors-NA as a result of the merger of Investors-CA into
Investors-NA) and $1.7 million of additions to the $2.5 million
note made in accordance with the terms of such note; these loans
were granted in connection with the 1991 acquisition of Family
Life Insurance Company by a wholly-owned subsidiary of FIC (ii) a
loan of $30 million by Investors-NA to Family Life Corporation
made in July, 1993, in connection with the prepayment by the FIC
subsidiaries of indebtedness which had been previously issued to
Merrill Lynch as part of the 1991 acquisition and (iv) a loan of
$4.5 million by Investors-NA to Family Life Insurance Investment
Company made in July, 1993, in connection with the same
transaction described above. The NAIC has assigned a rating of
"3" to the notes described above. These loans have not been
included in the preceding description of NAIC rating percentages.
Management believes that the absence of any material amounts of
"high-yield" or "non-investment grade" investments (as defined
above) in the portfolios of its life insurance subsidiaries
enhances the ability of the Company to service its debt, provide
security to its policyholders and to credit relatively consistent
rates of return to its policyholders.
Accounting Development
Stock-Based Compensation:
In October, 1995, the Financial Accounting standards Board issued
Statement of Financial Accounting Standard No. 123, "Accounting
for Stock-Based Compensation." This Statement encourages
companies to adopt a fair value based method of accounting for
employee stock options and other equity instruments awarded as
compensation. Under this method, compensation expense equal to
the fair value of the security at the award grant date is
recognized as compensation expense over the vesting period of the
awarded security. However, the Statement also allows companies
to continue to account for stock-based compensation under the
intrinsic value based method, as prescribed by Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." Under the intrinsic value based method, the
compensation cost is computed as the excess, if any, of the
quoted market price of the equity security at the measurement
date over the amount an employee must pay to acquire the
security. If a company continues to account for stock-based
compensation under the intrinsic value based method, it must make
certain pro-forma disclosures in the footnotes to the financial
statements for the difference in the fair value based method and
the intrinsic value based method. This Statement is effective
for stock-based compensation transactions entered into in fiscal
years that begin after December 15, 1995.
Management intends to continue to account for stock-based
compensation under the intrinsic value based method as prescribed
by APB No. 25, and allowed under SFAS No. 123. The company will
make the appropriate pro-forma disclosures required by SFAS in
1996.
Item 8. Financial Statements and Supplementary Data
The following Financial Statements of ILCO and its consolidated
subsidiaries have been filed as part of this report:
1. Report of Price Waterhouse LLP, Independent
Accountants, dated March 27, 1996.
2. Consolidated Balance Sheets, as of December 31, 1995
and December 31, 1994.
3. Consolidated Statements of Income for the years ended
December 31 1995, 1994 and 1993.
4. Consolidated Statements of Changes in Shareholders'
Equity for the years ended December 31, 1995, 1994 and
1993.
5. Consolidated Statements of Cash Flows for the years
ended December 31, 1995, 1994 and 1993.
6. Notes to Consolidated Financial Statements.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
No independent accountant who audited the Registrant's financial
statements has resigned or been dismissed during the two most
recent fiscal years.
PART III
Item 10. Directors and Executive Officers of Registrant
(a) Directors of the Registrant
The names and ages of the current directors of the Registrant,
their principal occupations or employment during the past five
years and other data regarding them are set forth below. All of
the directors, other than Mr. Hamm, were elected at the 1995
annual shareholders meeting. Mr. Hamm was appointed a director by
the Board of Directors on September 22, 1995. The data supplied
below is based on information provided by the directors, except
to the extent that such data is known to the Registrant.
Principal Occupations Director
Name and Other Information Since Age
W. Lewis Gilcrease Dentist practicing in San 1988 63
Marcos, Texas. Director of
Financial Industries
Corporation from 1979 to July
6, 1991.
James M. Grace Vice President and Treasurer 1984 52
of the Company since January,
1985. Executive Vice
President, Treasurer and
Director of InterContinental
Life Insurance Company since
1989. Vice President,
Treasurer and Director of
Financial Industries
Corporation since July, 1976.
Executive Vice President and
Treasurer of Investors Life
Insurance Company of North
America since 1989; Executive
Vice President, Treasurer and
Director of Family Life
Insurance Company (a
subsidiary of Financial
Industries Corporation) since
June 1991. Director,
Executive Vice President and
Treasurer of Investors Life
Insurance Company of Indiana
since February 1995.
Richard A. Kosson Certified Public Accountant 1981 63
and a partner in the firm of
Manheim, Kosson & Novick in
Millburn, New Jersey.
Roy F. Mitte Chairman of the Board and 1984 64
Chief Executive Officer of the
Company and InterContinental
Life Insurance Company since
January, 1985. President of
the Company since April, 1985.
Chairman of the Board,
President and Chief Executive
Officer of Financial
Industries Corporation since
1976. Chairman of the Board,
President and Chief Executive
Officer of Investors Life
Insurance Company of North
America since December, 1988.
Chairman of the Board,
President and Chief Executive
Officer of Family Life
Insurance Company since June
1991. Chairman of the Board,
President and Chief Executive
Officer of Investors Life
Insurance Company of Indiana
since February 1995.
Chairman, ILG Securities
Corporation since December
1988.
Donald Shuman Real estate specialist, 1980 71
engaged in sales and
management of real estate for
his own company, Don Shuman
Associates, a real estate
brokerage and management firm.
Eugene E. Payne Vice President of the Company 1989 53
since December 1988 and
Director since May 1989. Vice
President and Director of
Financial Industries
Corporation since February
1992. Executive Vice
President, Secretary and
Director of Investors Life
Insurance Company of North
America since December 1988.
Executive Vice President since
December 1988 and Director
since May 1989 of
InterContinental Life
Insurance Company. Executive
Vice President, Secretary and
Director of Family Life
Insurance Company since June
1991. Director, Executive
Vice President and Secretary
of Investors Life Insurance
Company of Indiana since
February 1995.
Theodore A. Fleron Vice President of the Company 1991 56
since May, 1992. Assistant
Secretary since June, 1990.
Senior Vice President, General
Counsel, Assistant Secretary
and Director of Investors Life
Insurance Company of North
America and InterContinental
Life Insurance Company since
July, 1992. General Counsel,
Assistant Secretary and
Director of Investors Life
Insurance Company of North
America and InterContinental
Life Insurance Company from
January, 1989 to July, 1992.
Senior Vice President, General
Counsel and Assistant
Secretary of Investors Life
Insurance Company of Indiana
since June, 1995.
Joseph F. Crowe Vice President and Director of 1991 57
the Company since May 1991.
Vice President and Director of
Financial Industries
Corporation since February
1992. Executive Vice
President and Director of
Investors Life Insurance
Company of North America and
InterContinental Life
Insurance Company since June
1991. Executive Vice
President and Director of
Family Life Insurance Company
since June 1991. Director and
Executive Vice President of
Investors Life Insurance
Company of Indiana since
February 1995. From December
1986 to March 1991, Executive
Vice President of Personal
Financial Security Division of
Aetna Life & Casualty Company.
Thomas C. Richmond Director from March 1989 to 1994 54
February 1990, Senior Vice
President since January, 1993
and Vice President from March
1989 to January, 1993 of
Investors Life Insurance
Company of North America and
InterContinental Life
Insurance Company. Senior
Vice President of Family Life
Insurance Company since June
1991. Senior Vice President
of Investors Life Insurance
Company of Indiana since June
1995.
Steven P. Schmitt Senior Vice President since 1994 49
April 1992 and Director, Vice
President and Assistant
Secretary since August 1989 of
Investors Life Insurance
Company of North America and
InterContinental Life
Insurance Company. Senior
Vice President since April
1992 and Director and Vice
President since June 1991 of
Family Life Insurance Company.
Director, Senior Vice
President and Assistant
Secretary of Investors Life
Insurance Company of Indiana
since June 1995.
Roger H. Hamm Executive Vice President and 1995 51
Director of Investors Life
Insurance Company of Indiana,
Investors Life Insurance
Company of North America and
Family Life Insurance Company
since August 1995. Vice
President and Director of
Financial Industries
Corporation and the Company
since September 1995.
Executive Vice President of
InterContinental Life
Insurance Company since August
1995. Vice President of Aetna
Life & Casualty Company from
1972 to 1995.
Mr. Shuman was the general partner of Shuman-Carlisle Mall
Associates, a partnership that owned a 400,000 square foot
shopping mall located in Carlisle, Pennsylvania. In January
1993, the partnership filed a petition pursuant to Chapter 11 of
the Federal Bankruptcy Code, and that bankruptcy proceeding was
concluded in early 1995.
The incumbent directors have been nominated for submission to
vote of the shareholders for reelection at the 1996 annual
shareholders' meeting.
(b) Executive Officers of the Registrant
The following table sets forth the names and ages of the persons
who have served as Registrant's Executive Officers during 1995
together with all positions and offices held by them with the
Registrant. Officers are elected to serve at the will of the
Board of Directors or until their successors have been elected
and qualified.
Name Age Positions and Offices
Roy F. Mitte 64 Chairman of the Board,
President and Chief
Executive Officer
James M. Grace 52 Vice President and Treasurer
Eugene E. Payne 53 Vice President and Secretary
Joseph F. Crowe 57 Vice President
Roger H. Hamm 51 Vice President
In May 1991, Roy F. Mitte suffered a stroke, resulting in partial
paralysis affecting his speech and mobility. Mr. Mitte continues
to make the requisite decisions in his capacity as Chief
Executive Officer, although his ability to communicate and his
mobility are impaired.
(c) Identification of certain significant employees
Not Applicable.
(d) Family relationships
Not Applicable.
(e) Business experience
All of the executive officers of the Company are members of the
Board of Directors and their business experience has been
outlined in Item 10(a).
(f) Compliance with Section 16(a) of the Securities
Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's officers and directors, and persons who own more than
ten percent of a registered class of the Company's equity
securities, to file reports of beneficial ownership on Form 3 and
changes in beneficial ownership on Forms 4 and 5 with the
Securities and Exchange Commission. Officers, directors and
greater than ten-percent shareholders are required by SEC
regulation to furnish the Company with copies of all Section
16(a) forms they file. Based solely on review of the copies of
such forms furnished to the Company, or written representations
that no Forms 5 were required, the Company believes that during
the period from January 1, 1995 through December 31, 1995, all
Section 16(a) filing requirements applicable to its officers,
directors and greater than ten-percent beneficial owners were
complied with.
Item 11. Executive Compensation
Summary Compensation Table
The following table sets forth information concerning the
compensation of the Company's Chief Executive Officer and each of
the four other persons who were serving as executive officers of
the Company at the end of 1995 and received cash compensation
exceeding $100,000 during 1995.
Annual Compensation
Long Term
Compensa-
tion
Awards
Name and Stock
Principal Options All Other
Position Year Salary(1) Bonus(1) Other(2) (Shares) Compensation
Roy F.
Mitte,
Chairman,
President
and Chief 1995 $286,643 -0- -0- -0- $713,513(4)
Executive 1994 251,750 576,159(3) -0- -0- 1,376,663(5)
Officer 1993 251,750 -0- -0- -0- 3,237,120(6)
James M.
Grace,
Vice
President 1995 195,000 10,000 -0-(7) -0- -0-
and 1994 195,000 2,500 -0- -0- -0-
Treasurer 1993 195,000 5,000 -0- -0- -0-
Eugene E.
Payne,
Vice
President 1995 195,000 10,000 -0-(8) -0- -0-
and 1994 195,000 5,000 -0- -0- -0-
Secretary 1993 195,000 -0- -0- -0- -0-
Joseph F.
Crowe,
Vice 1995 195,000 10,000 -0- -0- -0-
Presi- 1994 195,000 5,500 -0- -0- -0-
dent 1993 195,000 3,000 -0- -0- -0-
Roger H.
Hamm, Vice
Presi-
dent(9) 1995 67,308 -0- 175,371(10) -0- -0-
(1) The executive officers of the Company have also been
executive officers of the Company's insurance subsidiaries and
FIC and FIC's insurance subsidiary, Family Life. The only
executive officer who has been paid compensation by Family Life
is Mr. Mitte, who received $216,857 in salary in 1995, $251,750
in salary and $538,080 in bonus in 1994 and $251,700 in salary in
1993 from Family Life, which amounts are not included in the
table above. Family Life reimbursed the Company (or, in the case
of Mr. Mitte paid Mr. Mitte directly) the following amounts as
Family Life's share of these executive officers' cash
compensation for 1993, 1994 and 1995: $251,700, $789,830 and
$216,857, respectively, for Mr. Mitte; $55,750, $70,590 and
$88,293, respectively, for Mr. Grace; $91,650, $126,750 and
$79,875, respectively, for Dr. Payne; $55,350, $68,250 and
$88,293, respectively, for Mr. Crowe; and $109,205 (1995 only)
for Mr. Hamm.
(2) Does not include the value of perquisites and other personal
benefits because the aggregate amount of any such compensation
does not exceed the lesser of $50,000 or 10 percent of the total
amount of annual salary and bonus for any named individual.
(3) The Company's Compensation Committee made a recommendation
to the Board of Directors, which the Board adopted, that a bonus
be paid to Mr. Mitte to enable him to pay off the $650,000 loan
that the Company had made to Mr. Mitte in 1989 and to reimburse
him for the amount of federal income tax payable on the bonus.
Since the Company and FIC have usually each paid one-half of Mr.
Mitte's cash compensation, FIC's Board of Directors, acting on
the recommendation of its Compensation Committee, subsequently
authorized FIC to pay $500,000 of that bonus to Mr. Mitte.
Therefore, the Company paid $576,159, and FIC paid $500,000, of
the bonus.
(4) In 1989, the Board of Directors granted Mr. Mitte options
to purchase 600,000 shares (as adjusted for the three-for-one
stock split effective February 15, 1990) of the Common Stock of
the Company in equal annual installments of 150,000 shares each.
Each installment was subject to the approval of the Board of
Directors and is exercisable for a period of ten years from the
date the options become exercisable at a price of $1.00 per share
(as adjusted). The Board of Directors voted to award
installments of 150,000 shares in each of 1989, 1990, 1991 and
1992. In October 1992, Mr. Mitte surrendered to the Company for
cancellation options to purchase 120,000 shares. The Company and
Mr. Mitte entered into a contract in 1993 providing for the
cancellation in 1993 of 240,000 options for an aggregate amount
of $3,237,120 and the cancellation in subsequent years of the
remaining options for an aggregate amount of $3,610,240. In
addition, the Company agreed to pay Mr. Mitte the amount
necessary to ensure that Mr. Mitte will receive the same amount,
after federal income tax, that he would have received if the
options had been cancelled in 1992. During 1995, Mr. Mitte was
paid $836,582 for the cancellation in 1995 of options to purchase
50,000 shares of ILCO's Common Stock, $156,323 for the federal
income tax reimbursement relating to the cancellation in 1994 of
options to purchase 68,500 shares and $127,608 as the final
payment relating to the cancellation in 1993 of options to
purchase 240,000 shares. These option cancellation payments were
made pursuant to the contract referred to above. FIC's
Compensation Committee made a recommendation to FIC's Board of
Directors, which it adopted, that, in lieu of paying Mr. Mitte a
bonus as it has in the past, FIC paid $407,000 of these option
cancellation payments to Mr. Mitte, with the balance of $713, 513
being paid by ILCO.
(5) During 1994, the Company paid Mr. Mitte $997,520 for the
cancellation in 1994 of options to purchase 68,500 shares of the
Company's Common Stock and $379,143 for the federal income tax
reimbursement relating to the cancellation in 1993 of options to
purchase 240,000 shares. Both of these payments were made
pursuant to the contract referred to in footnote (4).
(6) The Company paid this amount in 1993 to Mr. Mitte for the
cancellation of options to purchase 240,000 shares of the
Company's Common Stock pursuant to the contract referred to in
footnote (4).
(7) Mr. Grace exercised stock options in 1995 to purchase 12,000
shares of the Company's Common Stock. See "Aggregated Option
Exercises in 1995" below.
(8) Dr. Payne exercised stock options in 1995 to purchase 16,000
shares of the Company's Common Stock. See "Aggregated Option
Exercises in 1995" below.
(9) Mr. Hamm became an executive officer of the Company in
August 1995.
(10) This amount was paid as relocation assistance by the Company
to Mr. Hamm in connection with his relocation from Connecticut to
Austin, Texas.
Option Grants in 1995
The only executive officer of the Company who was granted stock
options during 1995 was Roger H. Hamm, who was granted non-
qualified stock options on August 14, 1995 to purchase 60,000
shares of the Company's Common Stock at $11.12 per share, which
was the market price on the date of grant. No other options were
granted in 1995. Mr. Hamm's options become exercisable in the
following non-cumulative installments of shares: 20% of the
shares covered by the option on the sixth anniversary of the date
of grant and an additional 20% of the shares on each of the
seventh, eighth, ninth and tenth anniversaries of the date of
grant. The period of exercisability for each 20% installment is
one year from the anniversary date on which such installment
becomes exercisable. To the extent the optionee does not
exercise that 20% portion during the one-year period, it
terminates. The last 20% installment of Mr. Hamm's options
expires on August 14, 2006.
The rules of the Securities and Exchange Commission ("SEC")
require the Company to indicate the value of Mr. Hamm's options
at the end of the option terms if the stock price were to
appreciate annually by 5% and 10%, respectively. Since Mr.
Hamm's options become exercisable in non-cumulative one-year
installments of 20% each, the potential realizable value at the
assumed annual rates of 5% and 10% of stock price appreciation
are set forth in the following table at the end of each of those
five one-year periods:
5% 10%
August 14, 2002 $ 54,360 $126,597
August 14, 2003 63,750 152,600
August 14, 2004 73,609 181,204
August 14, 2005 83,962 212,668
August 14, 2006 94,832 247,279
Total $370,513 $920,348
Therefore, if the price of the Company's Common Stock increased
5% annually during the eleven-year term of Mr. Hamm's option and
if Mr. Hamm exercised all of his options at the end of each of
the five year periods that they are exercisable, the total
potential realizable value of his stock options would be
$370,513. If the annual rate of appreciation were 10% under
those same assumptions, the total potential realizable value
would be $920,348. These potential realizable values are
presented in an effort to comply with the SEC's rules and are not
intended to forecast future appreciation, if any, in the
Company's Common Stock.
Aggregated Option Exercises in 1995
The following table sets forth information concerning each
exercise of stock options during 1995 by each of the executive
officers of the Company.
Shares
Acquired Value
Name On Exercise (#) Realized ($)
James M. Grace 12,000 $ 90,540
Eugene E. Payne 16,000 134,220
Aggregated Stock Option Values
The following table sets forth information with respect to the
unexercised options held by the executive officers of the
Company.
Value of
Number of Unexercised
Unexercised Options In-the-Money
Held at Options at
December 31, 1995 December 31, 1995
Name Exercisable Unexercisable Exercisable Unexercisable
Roy F. 121,500 -0- $1,862,000(1) -0-
Mitte
James M. 42,000 36,000 389,340(2) 339,120(2)
Grace
Eugene E. 26,000 18,000 244,920(2) 169,560(2)
Payne
Joseph F. 30,000 30,000 120,000(2) 120,000(2)
Crowe
Roger H.
Hamm -0- 60,000 -0- 97,800(2)
(1) Represents the amount that the Company has agreed to pay for
the cancellation of Mr. Mitte's options after 1995.
(2) Based on the closing price of the Company's Common Stock on
NASDAQ on December 29, 1995 ($12.75).
Members of Compensation Committee
W. Lewis Gilcrease, Donald Shuman and Richard A. Kosson are the
members of the Company's Compensation Committee, which makes
recommendations to the Board of Directors with respect to the
Chief Executive Officer's compensation.
Compensation Committee Interlocks and Insider Participation
Roy F. Mitte determines the compensation of all executive
officers of the Company, other than the Chief Executive Officer.
Mr. Mitte is the Chairman of the Board, President and Chief
Executive Officer of the Company and FIC. He also determines the
compensation of all executive officers of FIC, other than the
Chief Executive Officer.
Pension Plan Table
The following table sets forth estimated annual pension benefits
payable upon retirement at age of 65 under the Company's
noncontributory defined benefit plan ("Pension Plan") to an
employee in the final pay and years of service classifications
indicated, assuming a straight life annuity form of benefit. The
amounts shown in the table do not reflect the reduction related
to Social Security benefits referred to below.
Years of Service
30 or
Remuneration 15 20 25 more
$125,000 $31,250 $41,667 $52,083 $62,500
150,000 37,500 50,000 62,498 75,000
175,000 43,750 58,333 72,914 87,500
200,000 50,000 66,667 83,330 100,000
The normal retirement benefit provided under the Pension Plan is
equal to 1-2/3% of final average eligible earnings less 3/4% of
the participant's Social Security covered compensation multiplied
by the number of years of credited service (up to 30 years). The
compensation used in determining benefits under the Pension Plan
is the highest average earnings received in any five consecutive
full-calendar years during the last ten full-calendar years
before the participant's retirement date. The maximum amount of
annual salary and bonus that can be used in determining benefits
under the Pension Plan is $200,000 for any year prior to 1994 and
is $150,000 for 1994 and each subsequent year.
The annual eligible earnings, for 1995 only, covered by the
Pension Plan (salary and bonus up to $150,000) with respect to
the individuals reported in the Summary Compensation Table were
as follows, with their respective years of credited service under
the Pension Plan at December 31, 1995 being shown in parentheses:
Mr. Mitte, $150,000 (8 years), Mr. Grace, $150,000 (8 years), Dr.
Payne, $150,000 (7 years) and Mr. Crowe, $150,000 (5 years).
Compensation of Directors
Directors who are not officers or employees of the Company are
paid a $5,000 annual fee, and are compensated $1,000 for each
regular or special meeting of the Board of Directors which they
attend in person. In the case of telephonic meetings of the
Board, non-employee directors who participate in such telephonic
meetings are compensated $500 for such meeting. Directors who
participate via telephone in a regular or special meeting which
is held by other than conference telephone are not entitled to a
fee for such a meeting.
Non-employee directors serving on committees of the Board are
compensated in the amount of $500 for each committee meeting they
attend whether such participation is in person or by telephone,
provided that the committee meeting is held on a day other than
that on which the Board meets.
Employment Agreements and Change In Control Arrangements
The terms and conditions of employment agreements that the
Company would enter into upon the occurrence of certain events
that result in the agreements taking effect were approved by the
Board of Directors with respect to Messrs. Grace, Payne and Crowe
in 1991 and Mr. Hamm in 1995. Each agreement would include two
independent provisions with respect to the effective date and the
term of each agreement. First, the term of the agreement would
begin on the earlier of (i) the date of retirement (early, normal
or deferred) of Roy F. Mitte from his position as Chairman,
President and Chief Executive Officer of the Company or (ii) the
date of death or disability of Mr. Mitte, and would terminate on
the last day of the twelfth month next following the commencement
date of the term of the agreement, unless extended upon mutually
acceptable terms.
Independently, the term of the agreement would commence upon the
date that any person who is not currently a control person with
respect to the Company acquires, or enters into an agreement to
acquire, control of the Company, directly or indirectly, and
would end on the last day of the twelfth month next following the
date on which the employee receives notice of the termination of
his employment with the Company or the life insurance
subsidiaries of the Company.
During the term of the agreement, the employee would be entitled
to perform all of the duties of the position or positions held by
the employee with the Company and all subsidiaries of the Company
on the date immediately preceding the commencement date of the
agreement.
During the term of the agreement, the employee would be entitled
to an annual rate of compensation which is not less than the
annual rate of compensation in effect as of the date immediately
preceding the commencement date of the agreement. During the
term of the agreement, the employee would be entitled to
participate in and benefit from all employee benefit plans and
other fringe benefits on the same basis as such plans and
benefits are made available to other executive personnel of the
Company.
The agreement may be terminated by the Company only in the event
that the employee is guilty of theft of property of the Company
or commits a wrongful act which has a material adverse effect
upon the business of the Company and with respect to which the
employee would not be entitled to indemnification under the
provisions of the Bylaws of the Company in effect as of the
commencement date of the agreement. The employee may terminate
the agreement uponthirty daysadvance written noticeto theCompany.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
The following table presents information as of March 20, 1996 as
to all persons who, to the knowledge of the Company, were
beneficial owners of five (5%) percent or more of the Common
Stock of the Company.
Amount and
Nature of Percent of
Name and Address Beneficial Ownership Class
Financial Industries Corp.
701 Brazos, Suite 1400 1 6
Austin, TX 78701..................3,668,501 62.35%
Roy F. Mitte
701 Brazos, Suite 1400 2,3 6
Austin, TX 78701..................3,894,214 64.85%
Investors Life Insurance Company
of North America
701 Brazos, Suite 1400 4 6
Austin, TX 78701..................... 334,960 8.01%
InterContinental Life Insurance
Company
701 Brazos, Suite 1400 5 6
Austin, TX 78701...................... 281,560 6.73%
1 Includes 1,966,346 shares of the Company's stock presently
owned and an option to purchase up to 1,702,155 shares of
the Company's authorized but unissued Common Stock which is
the balance of the option granted to Financial Industries
Corporation ("FIC") by the Company in December, 1985. This
option may be exercised by FIC at any time at an exercise
price equal to the average bid prices of the Company's
Common Stock over the six-month period immediately preceding
such exercise.
2 As of March 20, 1996 Mr. Mitte owned directly 25,000 shares
of the Company's stock and had an option to purchase 121,500
shares at an exercise price of $1 per share. Mr. Mitte is
also a Trustee of the Company's Employee Stock Ownership
Plan, of which 65,805 un-allocated shares are voted jointly
by him and Mr. Grace (see Note (2), below). Mr. Mitte,
jointly with his wife Joann, also owns 373,304 common shares
of Financial Industries Corporation ("FIC") which
constitutes 34.39 percent of the outstanding common stock of
that company, and holds the position of Chairman, President
and Chief Executive Officer of FIC.
Since FIC holds a controlling interest in the Company, Mr.
Mitte's personal holdings in the Company have been combined
with the holdings of FIC in determining the amount and
percentage of Mr. Mitte's beneficial ownership of the
Company.
3 Includes 13,408 shares allocated to Mr. Mitte's account
under the Employee Stock Ownership Plan.
4 Represents 281,560 shares owned by ILIC and 53,400 shares
owned directly by Investors-NA. ILIC is a life insurance
company subsidiary of Investors-NA. All of these shares are
treated as treasury shares.
5 All are directly owned by ILIC and are treated as treasury
shares.
6 Assumes that outstanding stock options or warrants available
to other persons have not been exercised.
The following table contains information as of March 15, 1995 as
to the Common Stock of the Company beneficially owned by each
director, nominee and executive officer and by all executive
officers and directors of the Company as a group. The
information contained in the table has been obtained by the
Company from each director and executive officer except for
information known to the Company. Except as indicated in the
notes to the table, each beneficial owner has sole voting power
and sole investment power as to the shares listed opposite his
name.
Amount and Nature of Percent of
Name Beneficial Ownership Class
W. Lewis Gilcrease 4,040 *
James M. Grace(1) 124,459(2)(3)(4) 2.95%
Richard A. Kosson 200 *
Roy F. Mitte(1) 3,894,214(2)(4) 64.85%
Donald Shuman 450 *
Eugene E. Payne(1) 51,796(3)(4) 1.23%
Joseph F. Crowe(1) 37,541(3)(4) *
Theodore A. Fleron 13,162(4)(5) *
Thomas C. Richmond 14,528(4)(5) *
Steven P. Schmitt 11,837(4)(5) *
Roger H. Hamm -0- *
All Executive
Officers and
Directors as a
group, all of
whom are listed
above 4,086,422(1)(2)(3)(4)(5) 66.22%
* Less than 1%
(1) Is an executive officer and/or director of FIC which as of
March 20, 1996 beneficially owned 3,668,501 shares of the
Company's Common Stock (including option rights to purchase
1,702,155 shares of the Company). In addition to the
shareholdings of Mr. Mitte in FIC (see Note 2, above), Mr.
Grace owns 1,120 shares of FIC Common Stock.
(2) 379,738 shares of the Company's Common Stock are held by the
Trustees of the Company's Employee Stock Ownership Plan
("ESOP") of which 65,805 shares are unallocated to any
participant's account. Messrs. Grace and Mitte are the
trustees of the ESOP and are entitled to vote such un-
allocated shares. The ESOP participants have the right to
direct the voting of shares allocated to their respective
accounts. Beneficial ownership of these unallocated shares
is disclaimed by Messrs. Grace and Mitte. The same 65,805
shares are included in the above table for each of Messrs.
Grace and Mitte as required for technical compliance with
the definition of beneficial ownership promulgated by the
Securities and Exchange Commission, and are counted once for
purposes of executive officers and directors as a group.
(3) Includes 30,000 shares issuable upon exercise of options
granted under the Incentive Stock Option Plan during 1987 to
Mr. Grace at a price of $3.54 (as adjusted) per share and
12,000 shares issuable upon exercise of options granted
under the Non-Qualified Stock Option Plan during 1988 to Mr.
Grace at a price of $3.33 (as adjusted) per share, all of
which are currently available for exercise. Includes 20,000
shares issuable upon exercise of options granted under the
Incentive Stock Option Plan and 6,000 shares issuable upon
exercise of options granted under the Non-Qualified Stock
Option Plan during 1988 to Dr. Payne at a price of $3.33 (as
adjusted) per share, all of which are currently available
for exercise. Includes 30,000 shares issuable upon exercise
of options granted under the Incentive Stock Option Plan to
Mr. Crowe during 1991 at a price of $8.75 per share, which
are currently available for exercise.
(4) Includes shares beneficially acquired through participation
in the Company's ESOP and/or the Employee Stock Purchase
Plan, which are group plans for eligible employees.
(5) Includes 6,000 shares issuable upon exercise of options
granted under the Non-Qualified Stock Option Plan during
1988 to each of Messrs. Fleron, Richmond and Schmitt at a
price of $3.33 (as adjusted) per share, which are currently
exercisable.
Item 13. Certain Relationships and Related Transactions
with Management
The obligations of the Company under the New Senior Loan are
guaranteed by FIC. FIC presently owns 1,966,346 shares of the
company's Common Stock, constituting 47.03% of such shares
outstanding, and holds options to acquire an additional 1,702,155
shares at the average bid price of such shares during the six-
month period preceding the date of any such purchase. In the
event that such options were to be fully exercised, the total
number of the Company's shares owned by FIC would constitute
62.35% of the outstanding shares of the Company's Common Stock.
In May 1989, the Board of Directors of ILCO granted Roy F. Mitte
the right to borrow up to $650,000 from ILCO to be used solely
for the purchase of FIC common stock pursuant to Mr. Mitte's then
existing options. A principal purpose of said loan was to enable
Mr. Mitte to maintain his equity position in FIC, as required
under the terms of the lending agreements entered into in
connection with the purchase of the Investors Life Companies (see
"Acquisition of Investors Life Companies"). Said loan, which was
exercised on June 1, 1989, carried no interest and was payable in
five years. The loan was paid in full in 1994. See Item 11.
Executive Compensation.
When it acquired Austin Centre, Investors-NA leased the hotel to
FIC Realty Services, Inc. ("FIC Realty"), a subsidiary of FIC,
pursuant to which FIC Realty pays monthly rent to Investors-NA in
an amount equal to 95% of the net operating profits of the hotel
for the preceding month (excess of all hotel revenues over all
hotel expenses, including insurance, utilities and property
taxes). Any net operating loss for a month is carried forward and
deducted from the net operating profit for the next month that
has such a profit. During 1995 FIC Realty paid $1,991,356 of
rent to Investors-NA pursuant to this lease. FIC Realty has
delegated the management of the hotel to an unrelated third party
pursuant to a management agreement, but FIC Realty bears most of
the economic risks in operating the hotel. As an inducement to
FIC Realty's agreeing to bear those risks, Investors-NA has
agreed to provide funds to pay expenses in operating the hotel to
the extent that the cash flow from such operations is not
sufficient to do so.
Alcoholic beverages had been sold at the hotel by an unrelated
third party pursuant to a lease it had with FIC Realty until
September 30, 1994. Commencing October 1, 1994, all alcoholic
beverages sales have been conducted by Atrium Beverage
Corporation ("Atrium Beverage"), a new subsidiary of FIC Realty.
Atrium Beverage subleases from FIC Realty space in the hotel for
the storage, service and sale of alcoholic beverages pursuant to
which Atrium Beverage pays monthly rent to FIC Realty of $12,500.
The sublease provides that the rent paid during each calendar
year will be reduced to the extent necessary to insure that
Atrium Beverage's net operating profit from alcoholic beverage
sales is not less than 5% of its gross receipts from such sales.
Atrium Beverage and FIC Realty are also parties to a management
agreement whereby FIC Realty manages Atrium Beverage's alcoholic
beverage operations at the hotel for a monthly fee equal to 28%
of the gross receipts from alcoholic beverages sales. During
1995, Atrium Beverage paid FIC Realty rent and management fees
totalling $319,815. All of that amount was included in the hotel
revenues of FIC Realty for purposes of determining its net
operating profits under the hotel lease agreement with Investors-
NA.
Investors-NA entered into a management agreement in September
1991 with FIC Property Management, Inc. ("FIC Management"), a
subsidiary of FIC, whereby it appointed FIC Management to manage,
lease and operate the office tower, retail areas, underground
parking garage and common areas of Austin Centre. FIC Management
is paid fees in an amount equal to 5% of the net operating profit
that Investors-NA receives from the properties managed and leased
by FIC Management. During 1995, Investors-NA paid $130,760 of
fees to FIC Management under this agreement.
As part of the financing arrangement for the acquisition of
Family Life Insurance Company, Family Life Corporation ("FLC"), a
subsidiary of FIC, entered into a senior loan agreement under
which $50 million was provided by a group of banks. The balance
of the financing consisted of a $30 million subordinated note
issued by FLC to Merrill Lynch Insurance Group, Ins. ("Merrill
Lynch") and $14 million borrowed by another subsidiary of FIC
from an affiliate of Merrill Lynch and evidenced by a senior
subordinated note in the principal amount of $12 million and a
junior subordinated note in the principal amount of $2 million
and $25 million lent by two insurance company subsidiaries of
ILCO. The latter amount was represented by a $22.5 million loan
from Investors-NA to FLC and a $2.5 million loan provided
directly to FIC by Investors-CA. In addition to the interest
provided under those loans, Investors-NA and Investors-CA were
granted by FIC non-transferable options to purchase, in the
amounts proportionate to their respective loans, up to a total of
9.9 percent of shares of FIC's common stock at a price of $10.50
per share, equivalent to the then current market price, subject
to adjustment to prevent dilution. The options will expire on
June 12, 1998 if not previously exercised.
On July 30, 1993, the subordinated indebtedness owed to Merrill
Lynch and its affiliate was prepaid. $38 million plus accrued
interest was paid to retire the indebtedness, which had a
principal balance of approximately $50 million on July 30, 1993.
The primary source of the funds used to prepay the subordinated
debt was new subordinated loans totalling $34.5 million that FLC
and another subsidiary of FIC obtained from Investors-NA. The
principal amount of the new subordinated debt is payable in four
equal annual installments in 2000, 2001, 2002 and 2003 and bears
interest at an annual rate of 9%. The other terms of the new
debt are substantially the same as those of the $22.5 million
subordinated loans that Investors-NA had previously made to FLC
and that continue to be outstanding.
The Company believes that this restructuring of subordinated debt
should enhance the value of the loans that Investors-NA has made
to FIC's subsidiaries and the options it holds to purchase FIC's
stock.
The Company reimbursed FIC for rental expenses and certain other
operating expenses incurred during 1995 on behalf of the Company.
The amount of such reimbursement was approximately $830,000.
Pursuant to a data processing agreement with a major service
company, the data processing needs of ILCO's and FIC's insurance
subsidiaries were provided at a central location until November
30, 1994. Commencing December 1, 1994, all of those data
processing needs are provided to ILCO's and FIC's Austin, Texas
and Seattle, Washington facilities by FIC Computer Services, Inc.
("FIC Computer"), a new subsidiary of FIC. Each of FIC's and
ILCO's insurance subsidiaries has entered into a data processing
agreement with FIC Computer whereby FIC Computer provides data
processing services to each subsidiary for fees equal to such
subsidiary's proportionate share of FIC Computer's actual costs
of providing those services to all of the subsidiaries. The
Company's insurance subsidiaries paid $1,655,486 and Family Life
paid $779,052 to FIC Computer for data processing services
provided during December 1995.
In 1995, Investors-NA entered into a reinsurance agreement with
Family Life pertaining to universal life insurance written by
Family Life. The reinsurance agreement is on a co-insurance
basis and applies to all covered business with effective dates on
and after January 1, 1995. The agreement applies to only that
portion of the face amount of the policy which is less than
$200,000; face amounts of $200,000 or more are reinsured by
Family Life with a third party reinsurer.
Roy F. Mitte serves as Chairman, President and Chief Executive
Officer of both FIC and ILCO. James M. Grace serves as Vice
President, Treasurer and Director of both companies and Secretary
of FIC, and Messrs. Payne and Crowe serve as Vice Presidents and
Directors of both companies. Mr. Roy Mitte holds beneficial
ownership of 34.39% of the outstanding shares of FIC (see
"Security Ownership of Certain Beneficial Owners and
Management").
Part IV
Item 14. Exhibits, Financial Statements, Schedules, and
Reports on Form 8-K
(a) The following documents have been filed as part of this
Report.
1. Financial Statements as identified in Item 8 above.
2. Financial Statement Schedules Required to be filed by
Item 8.
a. Schedule I-Summary of Investments other than
Investments in Related Parties.
b. Schedule II-Amounts Receivable from Related
Parties, Underwriters, Promoters and
Employees other than Related Parties.
c. Schedule III-Condensed Financial Statements
of Registrant.
d. Schedule VI-Reinsurance Ceded and Assumed.
3. Exhibits filed with this report or incorporated herein
by reference are as listed in the Index to Exhibits on
page E-1.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the
last quarter of the fiscal year ended
December 31, 1995.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
InterContinental Life Corporation
(Registrant)
By: /s/ Roy F. Mitte By:/s/ James M. Grace
Roy F. Mitte, Chairman of James M. Grace, Treasurer,
the Board, President and Principal Accounting
Chief Executive Officer and Financial Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities indicated on
March 27, 1996.
/s/ Roy F. Mitte
Roy F. Mitte, Director
/s/ James M. Grace
James M. Grace, Director
/s/ Eugene E. Payne
Eugene E. Payne, Director
/s/ Joseph F. Crowe
Joseph F. Crowe, Director
/s/ Theodore A. Fleron
Theodore A. Fleron, Director
/s/ Roger H. Hamm
Roger H. Hamm, Director
/s/ Thomas C. Richmond
Thomas C. Richmond, Director
/s/ Steven P. Schmitt
Steven P. Schmitt, Director
/s/ W. Lewis Gilcrease
W. Lewis Gilcrease, Director
/s/ Richard A. Kosson
Richard A. Kosson, Director
/s/ Donald Shuman
Donald Shuman, Director
INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
FORM 10-K--ITEM 14 (a)(1) and (2)
LIST OF FINANCIAL STATEMENTS
TABLE OF CONTENTS
The following consolidated financial statements of
InterContinental Life Corporation and Subsidiaries are included
in Item 8:
Report of Independent Accountants.............................F-2
Consolidated Balance Sheets, December 31, 1995 and 1994.......F-3
Consolidated Statements of Income, for the years ended
December 31, 1995, 1994 and 1993.............................F-5
Consolidated Statements of Changes in Shareholders' Equity,
for the years ended December 31, 1995, 1994 and 1993.........F-7
Consolidated Statements of Cash Flows, for the years ended
December 31, 1995, 1994 and 1993............................F-10
Notes to Consolidated Financial
Statements...................................................F-13
The following consolidated financial statement schedules of
InterContinental Life Corporation and Subsidiaries are included:
Schedule I - Summary of Investments Other Than Investments in
Related Parties.............................................F-43
Schedule II - Amounts Receivable From Related Parties and
Underwriters, Promoters, and Employees Other Than Related
Parties......................................................F-44
Schedule III - Condensed Financial Statements of
Registrant...................................................F-46
Schedule VI - Reinsurance Ceded and Assumed.................F-50
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission
are not required under the related instructions or are not
applicable, and therefore have been omitted.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
InterContinental Life Corporation
In our opinion, the consolidated financial statements listed in
the index appearing under Item 14(a)(1) and (2) on page F-1
present fairly, in all material respects, the financial position
of InterContinental Life Corporation and its subsidiaries (the
Company) at December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in
the period ended December 31, 1995, in conformity with generally
accepted accounting principles. These financial statements are
the responsibility of the Company's management; our
responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the
opinion expressed above.
As discussed in Note 1, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 109 "Accounting
for Income Taxes" as of January 1, 1993.
/s/Price Waterhouse
Price Waterhouse LLP
Dallas, Texas
March 27, 1996
INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands of dollars)
December 31,
ASSETS 1995 1994
Investments:
Fixed maturities, at
amortized cost (market value
approximates $14,277 and $24,175) $ 14,420 $ 23,776
Fixed maturities available for sale,
at market value (amortized cost
$463,701 and $388,263) 483,606 357,084
Equity securities, at market value
(cost approximates $368 and $414) 1,559 1,243
Policy loans 53,656 48,096
Mortgage loans 14,836 17,055
Invested real estate and other invested
assets 15,467 5,580
Short-term investments 85,994 94,841
Total investments 669,538 547,675
Cash and cash equivalents 6,537 5,563
Notes receivable from affiliates 61,224 60,759
Accrued investment income 8,190 8,495
Agent advances and other receivables 16,591 19,778
Reinsurance receivables 14,474 14,066
Property and equipment, net 4,460 4,418
Real estate occupied by the Company, net 36,169 34,418
Deferred policy acquisition costs 24,926 25,282
Present value of future profits of
acquired businesses 48,606 46,153
Deferred financing costs 1,597 2,462
Other assets 6,859 6,506
Separate account assets 416,122 373,419
Total Assets $1,315,293 $1,148,994
The accompanying notes are an integral part of the
consolidated financial statements.
INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS, Continued
(in thousands of dollars)
December 31,
LIABILITIES AND SHAREHOLDERS' EQUITY 1995 1994
Liabilities:
Policy liabilities and contractholder
deposit funds:
Future policy benefits $ 128,265 $ 117,761
Contractholder deposit funds 544,621 490,232
Unearned premiums 10,669 12,203
Other policy claims and benefits payable 6,125 8,621
689,680 628,817
Other policyholders' funds 2,700 2,669
Senior loans 59,385 66,585
Deferred federal income taxes 25,462 2,662
Other liabilities 27,105 24,781
Separate account liabilities 413,876 371,173
Total Liabilities 1,218,208 1,096,687
Commitments and Contingencies
(Note 13)
Redeemable preferred stock:
Class A Preferred, $1 par value,
5,000,000 shares authorized, issued 5,000 5,000
Class B Preferred, $1 par value,
15,000,000 shares authorized, issued 15,000 15,000
Redeemable Preferred Stock held 20,000 20,000
in treasury (20,000) (20,000)
-0- -0-
Shareholders' equity:
Common stock, $.22 par value,
10,000,000 shares authorized;
5,166,239 and 5,107,239 shares issued,
4,175,329 and 4,116,329 shares out-
standing in 1995 and 1994, respectively 1,137 1,124
Additional paid-in capital 3,521 2,854
Net unrealized appreciation of
equity securities 748 568
Net unrealized gain (loss) on investments
in fixed maturities available for sale 12,938 (20,266)
Retained earnings 81,759 71,045
Common treasury stock, at cost, 100,103 55,325
990,910 shares (3,018) (3,018)
Total shareholders' equity 97,085 52,307
Total Liabilities and Shareholders'
Equity $1,315,293 $1,148,994
The accompanying notes are an integral part of the
consolidated financial statements.
INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands of dollars)
(except for per share data)
Year Ended December 31,
1995 1994 1993
Revenues:
Premiums $ 11,694 $ 14,317 $ 16,114
Net investment income 64,781 57,553 57,548
Earned insurance charges 42,324 39,370 38,554
Other 3,591 3,602 5,627
122,390 114,842 117,843
Benefits and expenses:
Policyholder benefits and expenses 42,639 41,243 30,639
Interest expense on contractholder
deposit funds 32,375 29,592 34,010
Amortization of present value of
future profits of acquired
businesses 6,211 5,393 6,455
Amortization of deferred policy
acquisition costs 3,929 4,116 2,889
Operating expenses 15,016 13,574 20,793
Interest expense 5,737 5,224 5,739
105,907 99,142 100,525
Income from operations 16,483 15,700 17,318
Provision for federal income taxes:
Current 945 (465) 2,818
Deferred 4,824 6,248 2,300
5,769 5,783 5,118
Net income before extraordinary
item and cumulative effect of
change in accounting principle 10,714 9,917 12,200
Extraordinary Item:
Cost of early extinguishment
of debt, net of tax -0- -0- (6,253)
Net income before cumulative
effect of change in accounting
principle 10,714 9,917 5,947
Cumulative effect of change
in accounting principle -0- -0- (2,600)
Net Income $ 10,714 $ 9,917 $ 3,347
The accompanying notes are an integral part of the
consolidated financial statements.
INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands of dollars)
(except for per share data)
Year Ended December 31,
1995 1994 1993
Net income per share (Note 15):
Common stock and common stock
equivalents 5,389 5,378 5,858
Net income per share available to
common shareholders before
extraordinary item and cumulative
effect of change in accounting
principle $ 2.11 $ 1.93 $ 2.20
Extraordinary Item:
Cost of early extinguishment
of debt, net of tax -0- -0- (1.07)
Net income per share before
cumulative effect of change
in accounting principle 2.11 1.93 1.13
Cumulative effect of change
in accounting principle -0- -0- (.44)
Net income per share
of common stock $ 2.11 $ 1.93 $ .69
The accompanying notes are an integral part of the
consolidated financial statements.
INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(in thousands of dollars)
Additional
Common Stock Paid-in
Shares Amount Capital
Balance at December 31,
1992 5,100 $1,122 $2,761
Net income
Change in net unrealized
appreciation of equity
securities
Change in net unrealized
loss on investments
in fixed maturities
available for sale
Cost of options acquired
Options exercised 2 1 25
Balance at December 31,
1993 5,102 1,123 2,786
Net Income
Change in net unrealized
appreciation of equity
securities
Change in net unrealized
loss on investments
in fixed maturities
available for sale
Options exercised 5 1 68
Balance at December 31,
1994 5,107 1,124 2,854
Net Income
Change in net unrealized
appreciation of equity
securities
Change in net unrealized
gain on investments
in fixed maturities
available for sale
Options exercised 59 13 667
Balance at December 31,
1995 5,166 $1,137 $3,521
The accompanying notes are an integral part of these
consolidated financial statements.
INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(in thousands)
Net Un-
realized
Gain (Loss)
on Invest-
Net Un- ments in
realized Fixed
Appreciation Maturities
of Equity Available Retained
Balance at December 31, Securities For Sale Earnings
1992 $ 1,156 $ 12,122 $ 65,793
Net income 3,347
Change in net unrealized
appreciation of equity
securities (211)
Change in net unrealized
loss on investments
in fixed maturities
available for sale (5,799)
Cost of options acquired (8,012)
Options exercised
Balance at December 31,
1993 945 6,323 61,128
Net Income 9,917
Change in net unrealized
appreciation of equity
securities (377)
Change in net unrealized
loss on investments
in fixed maturities
available for sale (26,589)
Options exercised
Balance at December 31,
1994 568 (20,266) 71,045
Net Income 10,714
Change in net unrealized
appreciation of equity
securities 180
Change in net unrealized
gain on investments
in fixed maturities
available for sale 33,204
Options exercised
Balance at December 31,
1995 $ 748 $ 12,938 $ 81,759
The accompanying notes are an integral part of the
consolidated financial statements.
INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(in thousands)
Common Total
Treasury Shareholders
Stock Equity
Balance at December 31,
1992 $ (3,018) $ 79,936
Net income 3,347
Change in net unrealized
appreciation of equity
securities (211)
Change in net unrealized
loss on investments
in fixed maturities
available for sale (5,799)
Cost of options acquired (8,012)
Options exercised 26
Balance at December 31,
1993 (3,018) 69,287
Net Income 9,917
Change in net unrealized
appreciation of equity
securities (377)
Change in net unrealized
loss on investments
in fixed maturities
available for sale (26,589)
Options exercised 69
Balance at December 31,
1994 (3,018) 52,307
Net Income 10,714
Change in net unrealized
appreciation of equity
securities 180
Change in net unrealized
gain on investments
in fixed maturities
available for sale 33,204
Options exercised 680
Balance at December 31,
1995 $ (3,018) $ 97,085
The accompanying notes are an integral part of the
consolidated financial statements.
INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of dollars)
Year Ended December 31,
CASH FLOWS FROM OPERATING 1995 1994 1993
ACTIVITIES
Net Income $ 10,714 $ 9,917 $ 3,347
Adjustments to reconcile net
income to net cash provided by
(used in) operating activities:
Cost of early extinguishment of
debt -0- -0- 7,136
Amortization of present value of
future profits of acquired
businesses 6,211 5,393 6,455
Amortization of deferred policy
acquisition costs 3,929 4,116 2,889
Depreciation 2,610 268 1,938
Net gain on sales of investments (418) (695) (8,490)
Financing costs amortized(deferred) 865 1,411 4,176
Amortization of deferred gain on
sale of real estate (110) (151) (153)
Changes in assets and liabilities:
(Increase) Decrease in accrued
investment income 1,759 (698) 91
Decrease (Increase) in agent
advances and other receivables 4,656 (2,467) (7,566)
Policy acquisition costs deferred (3,573) (3,597) (4,211)
Decrease in policy liabilities
and contractholder deposit funds (27,753) (17,685) (863)
Increase (Decrease) in other policy
holders' funds (349) 78 (241)
Increase (Decrease) in other
liabilities 911 (707) (3,459)
Increase (Decrease) in deferred
federal income taxes 4,696 (8,124) 3,548
Decrease (Increase) in other assets 7,527 (1,037) (1,030)
Other, net (1,388) (1,371) (3,298)
Net cash provided by (used in)
operating activities 10,287 (15,349) 269
The accompanying notes are an integral part of the
consolidated financial statements.
INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of dollars)
Year Ended December 31,
CASH FLOWS FROM INVESTING 1995 1994 1993
ACTIVITIES
Purchase of insurance subsidary (17,492) -0- -0-
Investments purchased (38,781) (130,710) (190,958)
Proceeds from sales and maturities
of investments 50,181 97,019 256,327
Net change in short-term
investments 8,847 68,505 (2,706)
Purchases & retirements of
equipment (4,403) (655) (420)
Notes receivable from affiliates (465) (413) (34,848)
Net cash (used in) provided by
investing activities (2,113) 33,746 27,395
CASH FLOWS FROM FINANCING
ACTIVITIES
Issuance of senior loan 15,000 -0- 110,000
Repayment of debt (22,200) (17,415) (116,325)
Cost of early extinguishment of
debt -0- -0- (7,136)
Deferred financing cost from
issuance of senior loan -0- -0- (5,717)
Cost of repurchase of warrants -0- -0- (8,012)
Net cash used in financing
activities (7,200) (17,415) (27,190)
Net increase in cash
and cash equivalents 974 982 474
Cash and cash equivalents,
beginning of year 5,563 4,581 4,107
Cash and cash equivalents,
end of year $ 6,537 $ 5,563 $ 4,581
The accompanying notes are an integral part of the
consolidated financial statements.
INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands of dollars)
Supplemental Cash Flow Disclosures:
Year Ended December 31,
1995 1994 1993
Income taxes paid $ 560 $ 2,675 $ 4,955
Interest paid $ 5,905 $ 4,733 $ 6,303
Supplemental Schedule of Non-Cash Investing Activities:
The Company purchased the outstanding capital stock of a life
insurer in the first quarter of 1995 for a cash purchase price of
$17.1 million net of post closing adjustments. This purchase
resulted in the Company receiving tangible assets and assuming
liabilities as follows:
Assets $99,642,000
Liabilities $90,816,000
The accompanying notes are an integral part of the
consolidated financial statements.
INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Summary of Significant Accounting Policies
Organization
InterContinental Life Corporation (ILCO or the "Company") is
principally engaged, through its subsidiaries, in administering
existing portfolios of individual and group life insurance,
credit life and disability insurance policies and annuity
products. The Company's insurance subsidiaries are also engaged
in the business of marketing and underwriting individual life
insurance, credit life and disability insurance and annuity
products in 49 sates and the District of Columbia. Such products
are marketed through independent, non-exclusive general agents.
The Company also administers an in-force book of health
insurance business.
Principles of Consolidation
The consolidated financial statements include the accounts of
InterContinental Life Corporation and its subsidiaries. All
significant intercompany accounts and transactions have been
eliminated.
Basis of Presentation
The financial statements have been prepared in conformity with
generally accepted accounting principles which differ from
statutory accounting principles required by regulatory
authorities for the Company's insurance subsidiaries.
Significant accounting policies followed by the Company are:
Investments
The Company's general investment philosophy is to hold fixed
maturity securities until maturity. However, fixed maturities
may be sold prior to the maturity dates in response to changing
market conditions, duration of liabilities, liquidity factors,
interest rate movements and other investment factors.
Accordingly, consistent with the requirements of Statement of
Financial Accounting Standards No.115 "Accounting for Certain
Investments in Debt and Equity Securities" ("FAS 115") which is
effective for fiscal years beginning after December 15, 1993,
most fixed maturity investments are classified as available for
sale and are carried at market value. All other fixed maturities
are carried at the lower of amortized cost or net realizable
value as management has the positive intent and the Company has
the ability to hold such investments to maturity. Unrealized
gains and losses on securities available for sale are not
recognized in earnings but are reported as a separate component
of equity, net of the income tax effect.
Premiums and discounts on collateralized mortgage obligations
(CMOs) are amortized over the estimated redemption period as
opposed to the stated maturities. An adjustment to the
investment and investment income is booked on a retrospective
basis to reflect the amounts that would have existed had the new
effective yield been applied since the acquisition of the CMOs.
Equity securities are carried at market value. Unrealized gains
and losses on equity securities, net of deferred income taxes, if
applicable, are reflected directly in shareholders' equity.
Mortgage loans and policy loans are recorded at unpaid balances.
Real estate is carried at cost less accumulated depreciation,
which is generally calculated using the straight-line method over
20 to 40 years. Accumulated depreciation on investments in real
estate is $5,021,082 and $4,463,255 at December 31, 1995 and
1994, respectively. Short-term investments are carried at cost,
which approximates market value, and generally consist of those
fixed maturities and other investments that are intended to be
held less than one year from the date of purchase.
Realized gains and losses on disposal of investments are included
in net income. The cost of investments sold is determined on the
specific identification basis, except for equity securities, for
which the first-in, first-out method is employed. When an
impairment of the value of an investment is considered other than
temporary, the decrease in value is reported in net income as a
realized investment loss and a new cost basis is established.
Cash and Cash Equivalents
Short-term investments with maturities of three months or less at
the time of purchase are reported as cash equivalents.
Property and Equipment and Home Office Real Estate
Property and equipment and home office real estate is stated at
cost less accumulated depreciation. Depreciation is calculated
using straight-line and accelerated methods over estimated useful
lives of 10 to 33 years for buildings and improvements and 10
years for furniture and equipment. Maintenance and repairs are
charged to expense when incurred. Accumulated depreciation for
property and equipment and home office real estate was $8,984,287
and $6,931,956 at December 31, 1995 and 1994, respectively.
Deferred Acquisition Costs
The cost of acquiring new and renewal business, principally first
year commissions and certain expenses of the policy issuance and
underwriting departments, which vary with and are primarily
related to the production of new and renewal business, have been
deferred to the extent recoverable. Acquisition costs related to
universal life products are deferred and amortized in proportion
to the ratio of estimated annual gross profits to total estimated
gross profits over the expected lives of the contracts.
Acquisition costs related to traditional life insurance business
are deferred and amortized over the premium paying period of the
related policies.
Present Value of Future Profits
The present value of future profits of acquired businesses is
amortized over the premium paying period of the related policies
in proportion to the ratio of the annual premium revenue to total
anticipated premium revenue applicable to such policies.
Interest on the unamortized balance is accreted at rates from
8.5% to 9%.
For interest-sensitive products, these costs are amortized in
relation to the present value, using the current credited
interest rate, of expected gross profits of the policies over the
anticipated coverage period.
Retrospective adjustments of these amounts are made periodically
upon the revision of estimates of current or future gross profits
on universal life-type products to be realized from a group of
policies. Recoverability of present value of future profits is
evaluated periodically by comparing the current estimate of
future profits to the unamortized asset balances.
Anticipated investment returns, including realized gains and
losses, from the investment of policyholder balances are
considered in determining the amortization of present value of
future profits acquired.
Deferred Financing Costs
Financing costs associated with the Company's Senior Loan have
been deferred and are being amortized over the borrowing periods
using the interest method.
Separate Accounts
Separate account assets, carried at market value, and liabilities
represent policyholder funds maintained in accounts having
specific investment objectives. The net investment income, gains
and losses of these accounts, less applicable contract charges,
generally accrue directly to the policyholders and are not
included in the Company's statement of income.
Solvency Laws Assessments
The solvency or guaranty laws of most states in which the
Company's insurance subsidiaries do business may require the
Company's insurance subsidiaries to pay assessments (up to
certain prescribed limits) to fund polichyholder losses or
liabilities of insurance companies that become insolvent. These
assessments may be deferred or forgiven under most guaranty laws
if they would threaten an insurer's financial strength and, in
certain instances, may be offset against future premium taxes.
The Company's insurance subsidiaries record the expense for
guaranty fund assessment from states which do not allow premium
tax offsets in the period assessed. The Company's insurance
subsidiaries expensed approximately $241,692, $192,371 and
$206,965 in the years ended December 31, 1995, 1994 and 1993,
respectively, as a result of such assessments.
Policy Liabilities and Contractholder Deposit Funds
Liabilities for future policy benefits related to traditional
life products are computed using the net level premium method or
an equivalent actuarial method. Assumptions for future
investment yields are incorporated in these liabilities
(principally 8% for guaranteed premium products). Assumptions
for mortality and withdrawal, based on industry and Company
experience for all products, include provisions for possible
unfavorable deviations. The liability for future policy benefits
for traditional life policies is graded to reserves stipulated by
regulatory authorities over a 30-year period or the end of the
premium paying period, if less.
Contractholder deposit funds are liabilities for universal life
and annuity products. These liabilities consist of deposits
received from customers and accumulated net investment income on
their fund balances, less administrative charges. Universal life
fund balances are also assessed mortality charges. The cash
value benefit for these products is based on actual crediting
rates, which are lower than assumed investment yields.
Liabilities for future policy benefits related to non-cancelable
and guaranteed renewable accident and health contracts are
computed based on industry and Company experience and estimated
future investment yields ranging from 4 1/2% to 6%. Unearned
premium reserves for credit life and accident and health
contracts are computed on either the sum-of-the-year's digits or
pro rata methods depending upon the type of coverage.
Other policy claims and benefits payable
The liability for other policy claims and benefits payable
represents management's estimate of ultimate unpaid losses on
claims and other miscellaneous liabilities to policyholders
reduced by amounts anticipated to be recovered from reinsurance.
Estimated unpaid losses on claims are comprised of losses on
claims that have been reported but not yet paid, including
estimates of additional development of initial claims estimates,
and claims that have been incurred but not yet reported (IBNR) to
the Company.
The liability for other policy claims and benefits payable is
subject to the impact of changes in claim severity, frequency and
other factors. Although there is considerable variability
inherent in such estimates, management believes that the
liability recorded is adequate.
Revenue Recognition
Premiums on traditional life and health products are recognized
as revenue over the premium paying period when due. Credit life
and health insurance premiums are recognized over the contract
period on a pro rata basis, or the sum of years digits basis.
Benefits and expenses are associated with earned premiums, so as
to result in recognition of profits over the lives of the
contracts.
Proceeds from investment-related products and universal life
products are recorded as liabilities when received. Revenues for
investment-related products consist of contract charges assessed
against the deposit fund values and net investment income.
Related benefit expenses primarily consist of interest credited
to the fund values after deductions for investment and policy
charges. Revenues for universal life products consist of net
investment income, mortality and administration charges against
deposits and fund values and surrender charges assessed against
the fund values. Related benefit expenses include universal life
benefit claims in excess of fund values and interest credited to
universal life fund values.
Net Income Per Share
Net income per share is based on the weighted average number of
shares of common stock and common stock equivalents outstanding
during each year and net income increased by the reduction in
interest expense caused by the assumed conversion of common stock
equivalents. There are no significant differences between
primary and fully diluted income per share amounts.
Federal Income Taxes
In February 1992, the Financial Accounting Standards Board (FSAB)
issued Statement of Financial Accounting Standards (FAS) No. 109,
"Accounting for Income Taxes" ("FAS 109"). The Company adopted
FAS 109 on a prospective basis effective January 1, 1993. FAS
109 mandates the asset and liability method for computing
deferred income taxes. Under this method, balance sheet amounts
for deferred income taxes are computed based on the tax effect of
the temporary differences between the financial reporting and
federal income tax basis of assets and liabilities using the tax
rates which are expected to be in effect when these temporary
differences are anticipated to reverse.
Under FAS 109, assets acquired and liabilities assumed in
purchase business combinations are assigned their fair values
assuming equal tax basis and deferred taxes are provided for
lower or higher tax basis. Under APB 11 (the previous accounting
standard used by the Company to account for income taxes), values
assigned to assets acquired and liabilities assumed were net-of-
tax. In adopting FAS 109, the Company adjusted the carrying
amounts of Investors-NA which was acquired in 1988. Pre-tax
income from operations for the calendar year ended December 31,
1993 was not impacted.
Under FAS 109, as under APB 11, the Company will disclose in its
financial statements a reconciliation between the effective tax
rate and the amount derived by multiplying pre-tax accounting
income by the currently enacted federal income tax rate.
As a result of adopting FAS 109, a charge of $2,600,000 was
recorded in 1993 relating to the cumulative effect of a change in
accounting principle.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
New Accounting Pronouncements:
In May 1993, the FASB issued FAS No. 114, "Accounting by
Creditors for Impairment of a Loan", effective for fiscal years
beginning after December 15, 1994. This statement requires that
impaired loans be valued at the present value of the expected
future cash flows discounted at the loan's effective interest
rate or, as a practical expedient, at the loan's observable
market price or the fair value of the collateral if the loan is
collateral dependent. It further amends FAS No. 5, "Accounting
for Contingencies," to require that all contractual principal and
interest payments be considered in determining the impairment of
a loan. The adoption of FAS No. 114 in January 1995 did not have
a material impact on the Company's financial statements.
In March 1995, the FASB issued FAS No. 121, "Accounting For the
Impairmant of Long-Lived Assets and For Long-lived Assets to be
Disposed of." This Statement requires that long-lived assets and
certain identifiable intangibles to be held and used by an entity
be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may
not be recoverable. In addition, the Statement requires that
long-lived assets and certain identifiable intangibles to be
disposed of be reported at the lower of carrying amount or fair
value less cash to sell.
FAS No. 121 is effective for fiscal years beginning after 1995.
The Company plans to adopt FAS No. 121 effective January 1, 1996.
Management does not anticipate that adoption of this Statement
will have a material impact on the Company's financial
statements.
During 1995, the FASB issued FAS No. 123 "Accounting for Stock-
Based Compensation," which encourages companies to adopt the fair
value based method of accounting for stock-based compensation.
This method requires the recognition of compensation expense
equal to the fair value of such equity securities at the date of
the grant. This statement also allows companies to continue to
account for stock-based compensation under the intrinsic value
based method, as prescribed by Accounting Principles Board
Opinion No. 25 "Accounting for Stock Issued to Employees," with
footnote disclosure of the pro forma effects of the fair value
based method. FAS No. 123 is effective for transactions entered
into in years that begin after December 15, 1995.
The Company plans to adopt FAS No. 123 during 1996 by continuing
to account for stock-based compensation under the intrinsic value
method and disclosing the pro forma effects of the fair value
method in the footnotes to the financial statements.
2. Investments
Fixed Maturities
The amortized cost, gross unrealized gains and losses and market
values of fixed maturities available for sale and fixed
maturities held to maturity at December 31, 1995 and 1994,
respectively were as follows (in thousands):
Gross Gross
Amort- Unreal- Unreal-
ized ized ized Market
Cost Gains Losses Value
Fixed Maturities Available
For Sale as of December 31,
1995:
U.S. Treasury securities and
obligations of U.S.
government agencies and
corporations $ 15,826 $ 1,494 $ 5 $ 17,315
Obligation of states and
political subdivisions 4,686 266 -0- 4,952
Foreign government debt
securities 15 -0- 1 14
Corporate securities 98,822 5,092 1,048 102,866
Mortgage-backed securities 344,352 14,600 493 358,459
Total Fixed Maturities
Available For Sale 463,701 21,452 1,547 483,606
Fixed maturities held to
Maturity:
Private Placements-Corporate 14,420 370 513 14,277
Total Fixed Maturities $478,121 $ 21,822 $ 2,060 $497,883
Fixed Maturities Available
For Sale as of December 31,
1994:
U.S. Treasury securities and
obligations of U.S.
government agencies and
corporations $ 14,388 $ 127 $ 508 $ 14,007
Obligations of states and
political subdivisions 2,182 48 180 2,050
Foreign government debt
securities 16 -0- 2 14
Corporate securities 76,815 260 8,742 68,333
Mortgage-backed securities 294,862 1,798 23,980 272,680
Total Fixed Maturities
Available For Sale 388,263 2,233 33,412 357,084
Fixed Maturities held to
Maturity:
Private Plavements-Corporate 23,776 888 489 24,175
Total Fixed Maturities $412,039 $ 3,121 $ 33,901 $381,259
The amortized cost and market value of fixed maturities carried
at amortized cost at December 31, 1995 is shown below by
contractual maturity. Actual maturities may differ from
contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment
penalties.
Fixed Maturities Available for Sale
Amortized Market
Cost (in thousands) Value
Due in one year or less......$ 4,370 $ 4,370
Due after one through
five years................. 15,407 16,043
Due after five through ten
years...................... 22,005 23,973
Due after ten years.......... 77,567 80,761
Mortgage backed securities... 344,352 358,459
Total Fixed Maturities
Available for Sale $ 463,701 $ 483,606
Fixed Maturities Held to Maturity
Amortized Market
Cost (in thousands) Value
Due in one year or less.....$ 372 $ 361
Due after one through
five years................ 6,107 6,167
Due after five through ten
years..................... 7,164 7,007
Due after ten years......... 777 742
Mortgage backed securities.. 0 0
Total Fixed Maturities
Held to Maturity $ 14,420 $ 14,277
Proceeds from sales and maturities of investments in fixed
maturities during 1995, 1994 and 1993 were approximately
$47,316,000, $59,247,000 and $ 243,999,000. Gross gains of
approximately $578,000, $824,000 and $5,888,000 and gross losses
of approximately $22,000, $193,000 and $65,000 were realized on
those sales and maturities in 1995, 1994 and 1993, respectively.
Equity Securities
The change in net unrealized appreciation for equity securities
was $ 277,000 and ($579,000) for the years ended December 31,
1995 and 1994, respectively. Amounts as of December 31 were as
follows:
1995 1994
(in thousands)
Unrealized appreciation $ 1,172 $ 887
Unrealized depreciation (21) (13)
Net unrealized appreciation $ 1,151 $ 874
Net Investment Income
The components of net investment income are summarized as
follows:
Year Ended December 31,
(in thousands)
1995 1994 1993
Fixed maturities $49,329 $40,938 $46,287
Equity securities 65 12 6
Other, including policy loans,
real estate and mortgage loans 19,392 19,650 15,839
68,786 60,600 62,132
Investment expenses (4,005) (3,047) (4,584)
Net investment income $64,781 $57,553 $57,548
Realized Gains and Losses
Net realized gains (losses) included in net investment income are
summarized below:
Year Ended December 31,
(in thousands)
1995 1994 1993
Fixed maturities available for sale $ 556 $ 78 $ 5,822
Equity securities (26) 324 3
Other investments (97) 293 2,664
433 695 8,489
Income taxes 152 243 2,971
Net realized gains $ 281 $ 452 $ 5,518
Non-income producing investments
The carrying value of non-income producing investments were as
follows as of December 31:
1995 1994
(in thousands)
Fixed maturities $ 48 $ 106
Mortgage loans 400 305
Total $ 448 $ 411
Mortgage loans and invested real estate
The Company's mortgage loans and invested real estate are
diversified by property type, location and issuer. Mortgage
loans are collaterized by the related properties and such loans
generally range from 15% to 80% of the property's value at the
time the loan is made. No new mortgage loans were made during
the three year period ended December 31, 1995.
Financial Industries Corporation
Equity securities includes a $1,404,150 investment, ($318,390 at
cost), in 37,950 shares of common stock of Financial Industries
Corporation (FIC) (See Note 8). This represents 3.5% of FIC's
outstanding common stock at December 31, 1995.
3. Disclosures about Fair Value of Financial Instruments
The estimated fair values of the Company's financial instruments
at December 31, 1995 are as follows:
Carrying Fair
Amount Value
(in thousands)
Financial assets:
Fixed maturities $478,121 $497,883
Policy loans 53,656 53,656
Mortgage loans 14,836 16,187
Short-term investments 85,994 85,994
Cash and cash equivalents 6,537 6,537
Notes receivable from affiliates 61,224 61,224
Carrying Fair
Amount Value
(in thousands)
Financial liabilities:
Deferred annuities $124,208 $123,567
Supplemental contracts 12,066 11,597
Senior loans 59,385 59,385
The following methods and assumptions were used to estimate the
fair value of each class of financial instrument:
Fixed maturities
Fair values are based on quoted market prices or dealer quotes.
Policy loans
Policy loans are, generally, issued with coupon rates below
market rates and are considered early payment of the life
benefit. As such, the carrying amount of these financial
instruments is a reasonable estimate of their fair value.
Mortgage loans
The fair value of mortgage loans is estimated using a discounted
cash flow analysis using rates for BBB- rated bonds with similar
coupon rates and maturities.
Cash and cash equivalents and short-term investments
The carrying amount of these instruments approximates market
value.
Notes receivable from affiliates
The fair value is estimated based on a discounted cash flow
analysis using current rates offered to the Company for debt of
the same remaining maturities.
Senior loans
The fair value has been set at the price to call the debt.
Deferred annuities and supplemental contracts
The fair value of deferred annuities is estimated using cash
surrender values. Fair values for supplemental contracts is
estimated using a discounted cash flow analysis, based on
interest rates currently offered on similar products.
4. Present value of future profits of acquired business
An analysis of the present value of future profits of acquired
businesses is as follows:
1995 1994
Beginning balance $ 46,153 $ 51,546
Acquisition of insurance subsidiary 8,664 -0-
Accretion of interest 4,437 4,588
Amortization (10,648) (9,981)
Ending balance $ 48,606 $ 46,153
Amortization of the present value of future profits included in
the consolidated statements of income is net of the accretion of
interest.
The estimated amount of present value of future profits to be
amortized net of interest accretion during each of the next five
years is as follows:
1996 $ 5,642
1997 $ 5,337
1998 $ 4,994
1999 $ 3,162
2000 $ 2,485
5. Acquisition of Business
On February 14, 1995, the Company and Investors-NA completed the
purchase of Meridian Life Insurance Company (MLIC), a life
insurer domiciled in Indiana, from Meridian Mutual Insurance
Company. Under the terms of the agreement, the Company acquired
approximately 82% of the outstanding common stock of MLIC for $14
million. Investors-NA acquired the remaining 18% for $3 million.
Immediately after finalizing the transaction, ILCO contributed
its acquired shares to unassigned surplus of Investors-NA,
resulting in MLIC being a wholly owned subsidiary of Investors-
NA. ILCO's senior loan was increased by $15 million (through an
amendment to the loan agreement) to fund its portion of the
purchase price. Subsequent to the purchase, MLIC's name was
officially changed to Investors' Life Insurance Company of
Indiana (INVIND). The transaction was accounted for as a
purchase business combination. Accordingly, the results of
INVIND's operations are included in income from the date of the
acquisition to December 31, 1995. The purchase price has been
allocated to the fair values of the assets and liabilities
acquired, including the present value of future profits disclosed
in Note 4.
The pro forma unaudited results of operations for the years ended
December 31, 1995 and 1994, assuming the acquisition of MLIC had
been consummated as of the beginning of 1994, are as follows:
Unaudited
1995 1994
(in thousands, except
per share data)
Total revenues $123,905 $134,431
Net income $ 10,391 $ 9,889
Net income per share
available to common shareholders $ 2.05 $ 1.92
6. Senior Loans
On January 29, 1993, the Company prepaid all of the Subordinated
Notes Payable and purchased and canceled all of the detachable
warrants (See Note 9). The Company paid approximately $7 million
of prepayment penalty, the after-tax effect of which was charged
against earnings in the first quarter of 1993. The primary
source of funds for this debt prepayment and warrant cancellation
was an increase in the outstanding balance of the Senior Loan
from $60 million to $110 million pursuant to an amended and
restated credit agreement that was entered into on January 29,
1993 (the "New Senior Loan"). The terms of the New Senior Loan,
which then matured on July 1, 1998, are substantially the same as
the Senior Loan.
Following is a summary of outstanding debt at December 31, 1995
and 1994:
1995 1994
(in thousands)
A series of separate notes,
each of which is payable to a member bank
of a lending syndicate with principal
payments beginning April 1, 1993 and a
final payment on or before July 1,
1999. Interest payable at the Company's
option based on (1) the managing bank's
corporate base rate plus 1.25%
declining to .5% as principal declines,
or (2) LIBOR plus 2.5% declining to
1.75%. The rate in effect at December 31,
1995 and 1994 was 8.18% and 8.00%. $ 59,385 $ 66,585
The obligations of the Company under the New Senior Loan are
secured by: (1) all of the outstanding shares of stock of
Investors-NA, (2) a $15,000,000 surplus debenture of Investors-NA
payable to the Company, which had an outstanding principal
balance of $6,956,224 as of December 31, 1995 and (3) a
$140,000,000 surplus debenture of Investors-NA payable to the
Company, which had an outstanding principal balance of
$62,340,000 as of December 31, 1995. The obligations of the
Company under the New Senior Loan are guaranteed by FIC.
The New Senior Loan documents also require the Company to make
additional mandatory principal payments which reduce the
quarterly principal payments in the inverse order of their due
dates. The payments are equal to (a) 100% of the net proceeds
from the issuance of the Company's capital stock or debt
securities and (b) the applicable percentage of the Company's
annual Excess Cash Flow (as defined). Additional mandatory
principal payments during 1995, 1994 and 1993 were $4,200,000,
$3,915,000 and $-0-, respectively. The Senior Loan may be
prepaid, in whole or in part, without penalty or premium.
In connection with the acquisition of Meridian Life Insurance
Company in February, 1995 (See Note 5), the Company borrowed an
additional $15 million under the New Senior Loan to help finance
the purchase. In addition, the maturity schedule was extended
one year to July 1, 1999. Maturities of the New Senior Loan over
the next four years, are as follows:
(in thousands)
1996 $ 18,941
1997 18,000
1998 18,000
1999 4,444
$ 59,385
7. Federal Income Taxes
The Company files consolidated federal income tax returns with
its non-life subsidiaries. The Company's life insurance
subsidiaries file consolidated federal income tax returns. In
accordance with the Company's tax allocation agreement, federal
income tax expense or benefit is allocated to each member of the
consolidated group as if each member were filing a separate
return.
The Omnibus Budget Reconciliation Act of 1993 passed by Congress
in August 1993 ("the enactment date") increased the federal
corporate income tax rate to 35%, retroactive to January 1, 1993.
In accordance with SFAS No. 109, the effect of the rate change
was reflected in the third quarter 1993 financial statements.
The rate change increased the provision for income taxes by an
adjustment to the January 1, 1993 deferred tax liability of
approximately $287,000.
The U.S. federal income tax provision (benefit) charged to
continuing operations for the years ended December 31, was as
follows:
1995 1994 1993
(amounts in thousands)
Current tax provision $ 945 $ (465) $2,818
Deferred tax provision 4,824 6,248 2,300
Total provision for income taxes $5,769 $ 5,783 $5,118
Provision has not been made for state and foreign income tax
expense since expense is minimal.
The provision for income taxes is less than the amount of income
tax determined by applying the U.S. statutory federal income tax
rate (35% in 1995, 1994 and 1993) to pre-tax income from
continuing operations before extraordinary item as a result of
the following differences:
1995 1994 1993
Income taxes at the statutory rate $ 5,769 $ 5,495 $ 6,061
Increase (decrease) in taxes resulting
from:
Deferred compensation arrangement -0- 375 (961)
Effect of tax rate change -0- -0- 287
Other items, net -0- (87) (269)
Total provision for income taxes $ 5,769 $ 5,783 $ 5,118
Deferred taxes are recorded for temporary differences between the
financial reporting bases and the federal income tax bases of the
Company's assets and liabilities. The sources of these
differences and the estimated tax effect of each are as follows:
Dec. 31, Dec. 31,
1995 1994
Deferred Tax Liability:
Deferred policy acquisition
costs $ 4,058 $ 4,215
Present value of future profits 10,201 8,639
Invested assets 998 721
Net unrealized appreciation on
marketable equity securities 7,369 -0-
Acquisition discounts on
mortgages/policy loans 2,404 2,846
Other taxable temporary
differences 3,135 2,326
Total deferred tax liability $ 28,165 $18,747
Dec. 31, Dec. 31,
1995 1994
Deferred Tax Asset:
Policy Reserves $ 804 $ 3,832
Net unrealized depreciation of
marketable equity securities -0- 10,607
Deferred gains on real estate 527 580
Depreciable Property -0- -0-
Other deferred tax assets 1,109 311
Deferred Compensation 263 755
Less: Valuation allowance -0- -0-
Total deferred tax asset $ 2,703 $16,085
Net deferred tax liability $25,462 $ 2,662
Deferred federal income tax expense (benefit) of $17,976,000 and
($14,372,000) for 1995 and 1994, respectively, have been provided
on the unrealized appreciation (depreciation) of marketable
securities and included in the deferred tax liability. This
increase in deferred tax liability has been recorded as a
reduction to the equity adjustment due to the net change in
unrealized appreciation or depreciation and has not been
reflected in the deferred income tax expense.
Under the provisions of pre-1984 life insurance company income
tax regulations, a portion of "gain from operations" of ILIC and
Investors-NA was not subject to current taxation but was
accumulated, for tax purposes, in special tax memorandum accounts
designated as "policyholders' surplus accounts". Subject to
certain limitations,"policyholders' surplus" is not taxed until
distributed or the insurance company no longer qualifies to be
taxed as a life insurance company. The accumulation in these
accounts for Investors-NA and ILIC at December 31, 1995 was
$8,225,000 and $4,357,000, respectively. Federal income tax of
$2,879,000 and $1,525,000 would be due if the entire balance is
distributed at a tax rate of 35%.
The Company does not anticipate any transactions that would cause
any part of the policyholders' surplus accounts to become taxable
and, accordingly, deferred taxes have not been provided on such
amounts. At December 31, 1995, Investors-NA and ILIC have
approximately $90,000,000 and $6,000,000, respectively, in the
aggregate in their shareholders' surplus accounts from which
distributions could be made without incurring any federal tax
liability.
At December 31, 1995, the Company and its non-life wholly-owned
subsidiaries have net operating loss carryforwards of
approximately $2.4 million.
At December 31, 1995, there were no IRS examinations in progress
for the Company or its subsidiaries.
8. Reinsurance
The Company reinsures portions of certain policies thereby
providing greater diversification of risk and minimizing exposure
on larger policies. The Company's retention on any one
individual ranges from $60,000 to $250,000 depending on the
company and the risk. The Company remains liable to the extent
the reinsurance companies are unable to meet their obligations
under the reinsurance agreements.
The amounts reported in the consolidated financial statements for
reinsurance ceded are as follows:
December 31,
1995 1994
(in thousands)
Future policy benefits $ 7,964 $ 8,479
Unearned premiums 2,634 2,265
Other policy claims and benefits
payable 155 271
Amounts recoverable on paid claims 3,721 3,051
Reinsurance receivables $ 14,474 $ 14,066
Years ended December 31,
1995 1994 1993
(in thousands)
Premiums $ 8,898 $ 10,907 $ 11,878
Policyholder benefits and
expenses $ 14,404 $ 14,176 $ 14,472
9. Shareholders' Equity
The Company is controlled by FIC, a life insurance holding
company, through FIC's ownership of approximately 47% of the
Company's outstanding common stock. FIC also holds options to
purchase up to an additional 1,702,155 shares of the Company's
authorized but unissued common stock at a price equal to the
average market value during the six months preceding the exercise
date. If all of these options were exercised at December 31,
1995, FIC would own approximately 62.42% of the issued and
outstanding shares of the Company's common stock, assuming no
other options or warrants held by other parties were exercised.
In the event that any other party seeks to acquire the Company's
outstanding shares, FIC has the right to acquire, without prior
approval and under the same pricing formula, the number of shares
of common stock which when added to the number of shares then
owned by FIC, amount to 51% of the outstanding shares of the
Company. These options will remain in effect as long as any
indebtedness guaranteed by FIC remains outstanding (See Note 6).
The Company's ability to pay dividends to its shareholders is
affected, in part, by the receipt of dividends from Investors-NA,
which is organized under the laws of the state of Washington.
Under current Washington law, any proposed payment of a dividend
or distribution which, together with dividends or distributions
paid during the preceding twelve months, exceeds the greater of
(i) 10% of statutory surplus as of the preceding December 31 or
(ii) statutory net gain from operations for the preceding
calendar year is called an "extraordinary dividend" and may not
be paid until either it has been approved, or a waiting period
shall have passed during which it has not been disapproved, by
the insurance commissioner.
In addition, Washington Laws require that prior notification of a
proposed dividend be given to the Washington Insurance
Commissioner and that dividends may be paid only from earned
surplus. Investors-NA does not presently have earned surplus as
defined by the regulations adopted by the Washington Insurance
Commissioner and, therefore, is not presently permitted to pay
cash dividends.
The New Senior Loan described in Note 6 restricts the Company
from paying any dividends on its common stock during its term.
Net income (before surplus debenture interest expense) and
capital and surplus of Investors-NA as reported to insurance
regulators and as determined in accordance with statutory
accounting practices are as follows:
Year Ended December 31
(in thousands)
1995 1994 1993
Net Income $ 23,810 $ 21,706 $ 21,767
Capital and Surplus $ 61,896 $ 53,841 $ 60,957
In December 1994, the AICPA approved Statement of Position 94-5,
"Disclosures of Certain Matters in the Financial Statements of
Insurance Enterprises." This statement requires insurance
enterprises to make disclosures in their financial statements
regarding the accounting methods used in their statutory
financial statements that are permitted by state insurance
departments rather than prescribed statutory accounting
practices. Prescribed statutory accounting practices include a
variety of publications of the NAIC as well as state laws,
regulations and general administrative rules. Permitted
statutory accounting practices encompass all accounting practices
not so prescribed.
The insurance regulations of the state of Washington limit the
amount an insurer may invest in the obligations of any one
corporation to four percent of the insurer's statutory admitted
assets. Investors-NA held $52,500,000 in subordinated notes
issued by Family Life Corporation, a wholly-owned subsidiary of
FIC, at December 31, 1995 and 1994. This investment exceeds the
limit on investments prescribed by the state of Washington by
$9,282,287 and $10,784,423 at December 31, 1995 and 1994,
respectively. Prior to the acquisition of these notes,
Investors-NA received written approval from the Washington State
Insurance Department for the inclusion of the full amount of
these notes in its statutory admitted assets. At December 31,
1995 and 1994, this permitted practice increased statutory
surplus by $9,282,287 and $10,784,423 over what it would have
been under prescribed statutory accounting practices.
In 1988, the Company authorized the issuance of 10 million shares
of Class C Preferred Stock, $1.00 par value. The Company is not
permitted, under the provisions of the Senior Loan Agreement (See
Note 6), to issue any preferred stock except Class A and Class B
issued in connection with the acquisition of the Investors Life
Companies. The Company has reacquired the Class A and Class B
Preferred Stock and holds the shares in treasury.
10. Detachable Warrants
The Company issued on December 28, 1988, a total of 1,107,480
detachable warrants entitling the warrant holders to purchase
19.95% of the Company's common stock, on a fully diluted basis,
at an exercise price of $3.33 per share. On January 29, 1993,
the Company purchased and canceled all of the detachable warrants
for approximately $8 million (See Note 6).
11. Retirement Plans and Employee Stock Plans
Retirement Plan
The Company maintains a retirement plan, ("ILCO Pension Plan"),
covering substantially all employees of the Company. The plan
is a non-contributory, defined benefit pension plan, which covers
each eligible employee who has attained 21 years of age and has
completed one year or more of service. Each participating
company contributes an amount necessary (as actuarially
determined) to fund the benefits provided for its participating
employees.
The normal retirement benefit provided under the plan is equal to
1-2/3% of final average eligible earnings less 3/4% of the
participant's Social Security Covered Compensation multiplied by
the number of years of credited service (up to 30 years).
The compensation used in determining benefits under the plan is
the highest average earnings received in any five consecutive
full-calendar years during the last ten full-calendar years
before the participant's retirement date. The plan provides for
reduced early retirement benefits at age 60, with at least 5
completed years of service.
In connection with the acquisition of the Investors Companies,
the Company adopted a non-contributory defined benefit pension
plan, ("The IIP Pension Plan") that provided benefits
substantially similar to the benefits provided under the CIGNA
Corporation pension plan, for all employees of the Investors
Companies who had been eligible to participate in the CIGNA
Pension Plan. As of January 1, 1990, the IIP Pension Plan was
merged into the ILCO Pension Plan. Accrued benefits under the
IIP Pension Plan were frozen as of December 31, 1989.
Accordingly, accrued benefits under the ILCO Pension Plan
applicable to former participants in the IIP Pension Plan consist
of two components: (a) an accrued benefit determined in
accordance with the provisions of the IIP Pension Plan, frozen as
of December 31, 1989 and (b) an accrued benefit determined on the
benefit formula described above, based on credited service earned
after January 1, 1990.
The pension costs for all plans include the following components:
1995 1994
(in thousands)
Service cost-benefits earned
during the period $ 313 $ 316
Interest cost on projected
benefit obligation 571 509
Return on plan assets (1,081) (1,027)
Amortization (269) (268)
Pension benefit $ (466) $ (470)
The following summarizes the funded status of the plans at
December 31:
1995 1994
(in thousands)
Actuarial present value of:
Vested benefit obligation $ (7,495) $ (5,858)
Accumulated benefit obligation $ (7,870) $ (6,026)
Projected benefit obligation $ (9,155) $ (6,701)
Plan assets at market value 14,316 13,665
Plan assets in excess of projected
benefit obligations $ 5,161 $ 6,964
Unrecognized prior service cost $ (1,888) $ (2,156)
Unrecognized net loss (gain) $ 700 $ (1,301)
Prepaid pension expense $ 3,973 $ 3,507
The significant assumptions for the plans are as follows:
The discount rate for projected benefit obligations was 7.00% and
8.00% in 1995 and 1994, respectively. The assumed long-term rate
of compensation increases was 6.5% for 1995 and 1994. The
long-term rate of return on plan assets was 8.0% for 1995 and
1994.
Savings and Investment Plan
The Company adopted a Savings and Investment (401(k)) Plan that
allows eligible employees who have met a one-year service
requirement to make contributions to the Plan on a tax-deferred
basis. A Plan participant may elect to contribute up to 16% of
eligible earnings on a tax deferred basis, subject to certain
limitations applicable to "highly compensated employees" as
defined in the Internal Revenue Code. Plan participants may
allocate contributions, and earnings thereon, between a
Guaranteed Fund and a Variable Fund. Effective January 1, 1994,
the Plan was amended to include four additional investment
options which may be selected by participants. The Account
Balance of each Participant is 100% vested at all times. Prior
to January 1, 1990, the Company made matching contributions of up
to 50% of the first 6% of eligible compensation contributed by
the plan participants. Vesting of such company contributions is
based on number of years of service. The employer contributions
were discontinued effective January 1, 1990.
During 1995, the Plan was ammended to allow for the addition of
Family Life Insurance Company (FLIC), a wholly-owned subsidiary
of FIC, as a participating employer, thus allowing FLIC employees
to participate in the Plan. The amendment did not affect the
Plan's tax-qualified status.
Employee Stock Ownership Plan
During 1979, the Company established an Employee Stock Ownership
Plan and a related trust for the benefit of its employees. The
Plan generally covers employees who have attained the age of 21
and have completed one year of service. Vesting of benefits to
employees is based on number of years of service. No
contributions were made to the Plan in 1995, 1994 or 1993. At
December 31, 1995, the Plan had a total of 313,932 shares which
are allocated to participants and 65,805 which remain
unallocated.
During 1995, the Plan was amended to allow for the addition of
FLIC as a participating employer, thus allowing FLIC employees to
participate in the Plan. The amendment did not affect the Plan's
tax-qualified status.
Stock Option Plans
Under the Company's Incentive Stock Option Plan, options to
purchase shares of the Company's common stock, at 100% of fair
market value on the date of grant, have been granted to key
employees. A total of 315,000 shares of the Company's common
stock are currently reserved for issuance under this plan. As
of December 31, 1995, options to purchase 327,850 shares have
been granted since the plans inception. As of December 31, 1995,
208,250 options have been exercised and 86,100 options have been
terminated.
At December 31, 1995 33,500 options to purchase shares of the
Company's common stock at prices ranging from $3.33 to $9.25
remain outstanding. The number of options exercised in 1995, 1994
and 1993 were 59,000, 5,500 and 2,000, respectively.
Under the Non-Qualified Stock Option Plan for certain officers,
directors, agents and others, the Board of Directors is
authorized to issue options to purchase up to 600,000 shares of
the Company's common stock at 100% of the fair market value on
the date of grant but in no case less than $3.33 per share. In
1988, options to purchase 330,000 shares were granted at a price
of $3.33 per share. In 1991, options to purchase 50,000 shares
were granted at prices ranging from $8.75 to $9.25. In 1992 and
and 1990 options to purchase 60,000 and 30,000 shares
respectively, expired. In 1995, options to purchase 60,000
shares were granted at a price of $11.12 per share.
In 1989 options to purchase 600,000 shares of the Company's
common stock at $1.00 per share were granted by the Board of
Directors to the Company's Chairman of the Board. These options
became exercisable upon approval of the Board of Directors in
annual installments of 150,000 shares each. The last installment
was granted in 1992. In 1992, the chairman surrendered for
cancellation 120,000 of these options. In October of 1993, the
Company entered into an agreement with the Chairman, whereby the
Chairman agreed to surrender all of his remaining common stock
options between 1993 and 1996. Pursuant to this agreement,
358,500 options were surrendered through December 31, 1995, with
121,500 options remaining to be surrendered during 1996 (see Note
13).
12. Leases
The Company and its subsidiaries occupy office facilities under
lease agreements which expire at various dates through 2005.
Certain office space leases may be renewed at the option of the
Company.
Rent expense in 1995, 1994, and 1993 was $2,531,085, $1,424,946,
and $2,091,220, respectively, under these lease agreements.
Minimum annual future rentals are as follows:
(in thousands)
1996 1,274
1997 1,115
1998 637
1999 637
2000 637
Thereafter 3,183
$ 7,483
13. Related Party Transactions
On June 12, 1991, FIC (which owns approximately 47% of the
outstanding common stock of the Registrant) completed the
purchase of all the outstanding shares of Family Life Insurance
Company, a Washington domiciled life insurance company, from
Merrill Lynch Insurance Group, Inc. The transaction was
financed, in part, by a senior subordinated loan of $22.5 million
by Investors - NA to Family Life Corporation (FLC), an indirect,
wholly-owned subsidiary of FIC, and a senior loan of $2.5 million
by Investors - NA to FIC. In addition to the interest provided
under the terms of said loans, Investors - NA was granted non-
transferrable options to purchase up to a total of 9.9 percent of
the common shares of FIC. The option price is $10.50 per share,
equivalent to the then current market price, subject to
adjustment to prevent the effect of dilution. The options provide
for their expiration at the time of final repayment of each of
the respective loans.
On July 30, 1993, FLC prepaid its Merrill Lynch subordinated
loans. The transaction was financed, in part, by a subordinated
loan of $30 million by Investors - NA to FLC and by a
subordinated loan of $4.5 million by Investors - NA to Family
Life Insurance Investment Company, (FLIIC), a wholly-owned
subsidiary of FIC and parent of FLC.
Notes receivable from affiliates of $61,224,000 include
$52,500,000 senior subordinated loans by Investors - NA to FLC, a
subordinated loan of $4,500,000 to FLIIC, and a senior loan of
$4,224,000 to FIC. Interest earned by ILCO on the aforementioned
loans totaled $6,044,322, $5,993,512, and $4,104,661 in 1995,
1994 and 1993, respectively. At December 31, 1995 and December
31, 1994 accrued interest was $1,459,408 and $1,933,169,
respectively.
In May, 1989, the Board of Directors of the Company granted the
Chairman of the Board the right to borrow up to $650,000 from the
Company to be used solely for the purchase of FIC common stock
pursuant to his then existing options. This loan, which was
issued on June 1, 1989, carries no interest and is repayable in
five years unless forgiven at the discretion of the Board of
Directors or upon the occurrence of certain designated events.
This loan was repaid in full in 1994.
Rent and certain other operating expenses aggregating
approximately $830,000, $585,000, and $860,000, were incurred by
FIC in 1995, 1994 and 1993, respectively, on behalf of the
Company. The Company reimbursed FIC for these costs.
ILCO received $15 million, $13 million, and $13 million from
Family Life Insurance Company for direct costs incurred by ILCO
on behalf of Family Life Insurance Company's operations in 1995,
1994 and 1993, respectively. Under an agreement between ILCO and
Family Life all direct costs incurred on behalf of the other are
to be reimbursed.
In connection with the purchase of the Austin Centre, an
office-hotel property in Austin, Texas, Investors-NA entered into
an agreement with FIC Realty Services, Inc.("FIC Realty") , a
subsidiary of FIC, to furnish real estate brokerage services. In
connection with the agreement, FIC Realty received commissions
from Investors-NA of $159,500. In addition, Investors-NA leased
a portion of the Austin Centre to FIC Realty pursuant to a lease
agreement in which FIC Realty pays monthly rent to Investors-NA
in an amount equal to 95% of the net operating profits of the
hotel. Total rent payable to Investors-NA under the terms of the
lease agreement is $1,991,356, $1,346,160, and $745,665 in 1995,
1994 and 1993, respectively.
Alcoholic beverages had been sold at the hotel by an unrelated
third party pursuant to a lease it had with FIC Realty until
September 30, 1994. Commencing October 1, 1994, all alcoholic
beverages sales have been conducted by Atrium Beverage
Corporation ("Atrium Beverage"), a new subsidiary of FIC Realty.
Atrium Beverage subleases from FIC Realty space in the hotel for
the storage, service and sale of alcoholic beverages pursuant to
which Atrium Beverage pays monthly rent to FIC Realty of $12,500.
The sublease provides that the rent paid during each calendar
year will be reduced to the extent necessary to insure that
Atrium Beverage's net operating profit from alcoholic beverages
sales is not less than 5% of its gross receipts from such sales.
Atrium Beverage and FIC Realty are also parties to a management
agreement whereby FIC Realty manages Atrium Beverage's alcoholic
beverage operations at the hotel for a monthly fee equal to 28%
of the gross receipts from alcoholic beverages sales. During
1995 and 1994, Atrium Beverage paid FIC Realty rent and
management fees totalling $319,815 and $81,233, respectively.
All of that amount was included in the hotel revenues of FIC
Realty for purposes of determining its net operating profits
under the hotel lease agreement with Investors-NA.
Investors-NA entered into a management agreement in September
1991 with FIC Property Management, Inc. ("FIC Management"), a
subsidiary of FIC, whereby it appointed FIC Management to manage,
lease and operate the office tower, retail areas, underground
parking garage and common areas of Austin Centre. FIC Management
is paid fees in an amount equal to 5% of the net operating profit
that Investors-NA receives from the properties managed and leased
by FIC Management. During 1995, Investors-NA paid fees of
$130,760 to FIC Management under this agreement as compared to
$106,460 and $77,115 in 1994 and 1993, respectively.
In October of 1993, the Company entered into an agreement with
the Chairman, whereby the Chairman agreed to surrender all of his
remaining common stock options for consideration of $6,847,000
(see Note 11). Prior to entering into this agreement, the
Company had accrued compensation expense related to these options
of $4,225,000. Upon entering into the agreement, additional
compensation was recorded totaling $2,622,000 for the year ended
December 31, 1993 to increase total compensation to the surrender
price. Accordingly, a liability was recorded for the unpaid
portion of the agreement. Pursuant to this agreement, during
1993 the Chairman was paid $3,237,120 for cancellation of 240,000
of these options and during 1994 he was paid $997,520 for
cancellation of 68,500 options and $379,143 for federal income
tax reimbursement relating to the cancellation of options in
1993. During 1995, the Chairman was paid $836,582 for the
cancellation in 1995 of options to purchase 50,000 shares of
ILCO's Common Stock, $156,323 for the federal income tax
reimbursement relating to the cancellation in 1994 of options to
purchase 68,500 shares and $127,608 as the final payment relating
to the cancellation in 1993 of options to purchase 240,000
shares. The federal income tax reimbursements are expensed in
the period when they are incurred.
Pursuant to a data processing agreement with a major service
company, the data processing needs of ILCO's and FIC's insurance
subsidiaries were provided by an offsite third party until
November 30, 1994. Commencing December 1, 1994, all of those
data processing needs are provided to ILCO's and FIC's Austin,
Texas and Seattle, Washington facilities by FIC Computer
Services, Inc. ("FIC Computer"), a new subsidiary of FIC. Each
of FIC's and ILCO's insurance subsidiaries has entered into a
data processing agreement with FIC Computer whereby FIC Computer
provides data processing services to each subsidiary for fees
equal to such subsidiary's proportionate share of FIC Computer's
actual costs of providing those services to all of the
subsidiaries. Family Life paid $151,977 and $779,052 and
Investors-NA, Investors-IN and ILIC paid $181,971 and $1,655,486
to FIC Computer for data processing services provided during
December 1994 and 1995, respectively.
14. Commitments and Contingencies
The Company and its subsidiaries are defendants in certain legal
actions related to the normal business operations of the Company.
Management believes that the resolution of such matters will not
have a material impact on the financial statements.
15. Net Income Per Share
Net income per share was determined by dividing net income
available to common shareholders by the weighted average number
of shares of common stock and common stock equivalents
outstanding during each year.
For the years ended December 31, 1995, 1994 and 1993, net income
available to common shareholders is calculated as follows:
1995 1994 1993
Income before extraordinary (in thousands)
item and cumulative effect of
change in accounting principle $10,714 $ 9,917 $12,200
Interest expense reduction,
net of income tax effect 671 472 660
Income before extraordinary
item and cumulative effect
of change in accounting
principle available to
common shareholders 11,385 10,389 12,860
Cost of early extinguishment
of debt, net of tax -0- -0- (6,253)
Income before cumulative
effect of change in accounting
principle available to common
shareholders 11,385 $10,389 6,607
Cumulative effect of change in
accounting principle -0- -0- (2,600)
Net income available to
common shareholders $11,385 $10,389 $ 4,007
Changes in the market price of the Company's common stock also
impacts the number of common stock options and warrants which are
considered dilutive under the treasury stock method of
calculating the weighted average common stock and common stock
equivalents. For the years ended December 31, 1995, 1994 and 1993,
weighted average common stock and common stock equivalents is
calculated as follows:
1995 1994 1993
(In thousands)
Weighted average common
shares outstanding 4,139 4,116 4,109
Common stock equivalents:
Common stock options 2,085 2,084 2,480
Common stock warrants 91
Less assumed repurchase of
shares using the treasury
stock method (835) (822) (822)
Common stock and common
stock equivalents 5,389 5,378 5,858
16. Quarterly Financial Data (unaudited)
(in thousands, except per share amounts)
Three Months Three Months
Ended Ended
March 31, June 30,
1995 1994 1995 1994
Net Operating Revenue $29,105 $29,325 $31,017 $29,437
Net Income $ 2,589 $ 2,892 $ 2,601 $ 2,031
Net income per share
available to common
shareholders $ 0.51 $ 0.56 $ 0.52 $ 0.40
Three Months Three Months
Ended Ended
September 30, December 31,
1995 1994 1995 1994
Net Operating Revenue $30,453 $27,595 $31,815 $28,651
Net Income $ 2,498 $ 2,099 $ 3,026 $ 2,895
Net income per share
available to common
shareholders $ 0.50 $ 0.42 $ 0.58 $ 0.57
INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
SCHEDULE I - SUMMARY OF INVESTMENTS OTHER THAN
INVESTMENTS IN RELATED PARTIES
December 31, 1995
(in thousands of dollars)
Column A Column B Column C Column D
Amount at
Which
Shown in
the
Balance
Type of Investment Costs Value Sheet
Fixed maturities available for
sale:
United States Government and
government agencies and
authorities $ 15,826 $ 17,315 $ 17,315
States, municipalities and
political subdivisions 4,686 4,952 4,952
Foreign governments 15 14 14
Corporate securities 98,822 102,866 102,866
Mortgage-backed securities 344,352 358,459 358,459
Total fixed maturities available
for sale 463,701 483,606 483,606
Fixed maturities held to maturity 14,420 14,277 14,420
Total fixed maturities 478,121 497,883 498,026
Equity securities:
Public utilities 2 3 3
Banks, trust and financial
institutions 31 87 87
Industrial, miscellaneous and all
other 57 65 65
Total equity securities 90 155 155
Policy loans 53,656 53,656 53,656
Mortgage loans 14,836 16,187 14,836
Real estate 15,467 15,467 15,467
Short term investments 85,994 85,994 85,994
Total investments $648,164 $669,342 $668,134
INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
SCHEDULE II - AMOUNTS RECEIVABLE FROM RELATED PARTIES AND
UNDERWRITERS, PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
December 31, 1995, 1994 and 1993
Column A Column B Column C
Balance at
Beginning
Name of Debtor of Period Additions
December 31, 1995 $ -0- -0-
December 31, 1994
Roy F. Mitte
Non-interest bearing loan
repayable in two years unless
forgiven by Board of Directors $650,000 -0-
December 31, 1993
Roy F. Mitte
Non-interest bearing loan
repayable in three years unless
forgiven by Board of Directors $650,000 -0-
INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
SCHEDULE II - AMOUNTS RECEIVABLE FROM RELATED PARTIES AND
UNDERWRITERS, PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
December 31, 1995, 1994 and 1993, Continued
Column A Column D Column E
Amounts Balance
Amounts Written at End of
Name of Debtor Collected Off Period
December 31, 1995 $ -0- -0- $ -0-
December 31, 1994
Roy F. Mitte
Non-interest bearing loan
repayable in two years unless
forgiven by Board of Directors $650,000 -0- $ -0-
December 31, 1993
Roy F. Mitte
Non-interest bearing loan
repayable in three years unless
forgiven by Board of Directors -0- -0- $650,000
INTERCONTINENTAL LIFE CORPORATION (PARENT COMPANY)
SCHEDULE III - CONDENSED FINANCIAL STATEMENTS OF REGISTRANT
BALANCE SHEETS
December 31, 1995 and 1994
(in thousands of dollars)
ASSETS 1995 1994
Short-term investments $ 7,022 $ 8,305
Cash and cash equivalents 63 195
Subordinated debenture receivables
from Investors Life Insurance
Company of North America,
due September 30, 1999 72,835 87,795
Investments in and advances to
subsidiaries 76,730 21,778
Accounts receivable 6,117 6,149
Property, plant and equipment, net 279 192
Federal income tax receivable -0- -0-
Other assets 2,237 2,877
$ 165,283 $ 127,291
INTERCONTINENTAL LIFE CORPORATION (PARENT COMPANY)
SCHEDULE III - CONDENSED FINANCIAL STATEMENTS OF REGISTRANTS
BALANCE SHEETS, continued
December 31, 1995 and 1994
(in thousands of dollars)
LIABILITIES AND SHAREHOLDERS' EQUITY 1995 1994
Liabilities:
Accounts payable and accrued expenses $ 5,293 $ 4,570
Senior loans 59,385 66,585
Senior subordinated debenture payable to
Intercontinental Life Insurance Company -0- 200
Deferred gain on sale of real estate 1,066 1,175
65,744 72,530
Redeemable preferred stock:
Class A preferred stock, $1 par value,
shares authorized and issued 5,000 5,000
Class B preferred stock, $1 par value,
shares authorized, and issued 15,000 15,000
20,000 20,000
Redeemable preferred stock, repurchased and
held as treasury stock (20,000) (20,000)
-0- -0-
Shareholders' equity:
Class C preferred stock, $1 par value,
10,000,000 shares authorized, none issued
Common stock, $.22 par value, 10,000,000
shares authorized; 5,166,239 and 5,107,239
shares issued, 4,175,329 and 4,116,329
shares outstanding in 1995 and 1994
respectively 1,137 1,124
Additional paid-in capital 3,521 2,854
Net unrealized appreciation of securities
held by insurance subsidiaries 748 568
Net unrealized gain (loss)
on investments in fixed
maturities available for sale held by
insurance subsidiaries 12,938 (20,266)
Retained earnings (including $78,639 and
$68,654 of undistributed earnings of
subsidiaries at December 31, 1995 and 1994,
respectively) 81,759 71,045
Common treasury stock, at cost, 665,950 100,103 55,325
shares in 1995 and 1994 (564) (564)
Total shareholders' equity 99,539 54,761
Total liabilities and shareholders' equity $165,283 $127,291
INTERCONTINENTAL LIFE CORPORATION (PARENT COMPANY)
SCHEDULE III - CONDENSED FINANCIAL STATEMENTS OF REGISTRANT,
STATEMENTS OF INCOME,continued
Years Ended December 31, 1995, 1994 and 1993
(in thousands of dollars)
1995 1994 1993
Revenues charged to
subsidiaries:
Interest income $ 8,236 $ 7,888 $ 8,850
Other income 134 113 112
8,370 8,001 8,962
Operating expenses 1,779 1,386 4,409
Interest expense 5,469 4,914 5,666
7,248 6,300 10,075
Income (loss) from
operations 1,122 1,701 (1,113)
Federal income tax
provision 393 970 3,215
Net income (loss) before
equity in undistributed
earnings from subsidiaries
extraordinary item and
change in accounting
principle 729 731 (4,328)
Equity in undistributed
earnings from subsidiaries 9,985 9,186 16,528
Net income before extra-
ordinary item and cumula-
tive effect of change in
accounting principle 10,714 9,917 12,200
Extraordinary Item:
Cost of early extinguish-
ment of debt, net of tax -0- -0- (6,253)
Net income before cumula-
tive effect of change in
accounting principle 10,714 9,917 5,947
Cumulative effect of change
in accounting principle -0- -0- (2,600)
Net income $ 10,714 $ 9,917 $ 3,347
INTERCONTINENTAL LIFE CORPORATION (PARENT COMPANY)
SCHEDULE III - CONDENSED STATEMENTS OF REGISTRANT
STATEMENT OF CASH FLOWS, continued
(in thousands of dollars)
Year ended December 31,
CASH FLOWS FROM OPERATING 1995 1994 1993
ACTIVITIES:
Net income $ 10,714 $ 9,917 $ 3,347
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Amortization of deferred gain on
sale of real estate (109) (109) (109)
Unrealized appreciation
(depreciation) of equity
securities held by insurance
subsidiaries 180 (377) 211
Decrease in accounts receivable 32 615 40
Increase in investment
in and advances to subsidiaries (21,748) (3,742) (8,997)
Increase (decrease) in accounts
payable and accrued expenses 723 384 (1,496)
Decrease in deferred federal income
taxes, net -0- 83 417
Decrease (increase) in other assets 640 1,028 (1,541)
Other (87) 79 38
Net Cash (used in) provided by
operating activities (9,655) 7,878 (8,090)
CASH FLOWS FROM INVESTING
ACTIVITIES:
Investments (purchased) sold 1,283 (302) 8,423
Net cash provided by (used in)
investing activities 1,283 (302) 8,423
CASH FLOWS FROM FINANCING
ACTIVITIES:
Repayment of debt (7,200) (17,415) (6,325)
Payment on subordinated debenture
payable (200) (50) (50)
Stock options exercised 680 -0- -0-
Payment received on subordinated
debenture receivable 14,960 8,744 15,000
Accretion and dividends on
preferred stock -0- -0- (8,012)
Net cash provided by (used in)
financing activities 8,240 (8,721) 613
Net increase in cash (132) (1,145) 946
Cash, beginning of year 195 1,340 394
Cash, end of year $ 63 $ 195 $ 1,340
INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
SCHEDULE VI - REINSURANCE CEDED AND ASSUMED
For the years ended December 31, 1995, 1994 and 1993
(in thousands of dollars)
Ceded To Assumed
Direct Other From Other
1995 Amount Companies Companies
Life insurance in-force $7,693,274 $ 864,512 $ 8,124
Premium:
Life insurance $ 17,877 $ 8,773 $ 811
Accident-health insurance 2,260 (205) 38
Total $ 20,137 $ 8,568 $ 849
1994
Life insurance in-force $7,056,436 $ 427,611 $ 24,073
Premium:
Life insurance $ 20,712 $ 9,998 $ 676
Accident-health insurance 3,703 909 133
Total $ 24,415 $ 10,907 $ 809
1993
Life insurance in-force $7,728,737 $ 381,160 $ 20,147
Premium:
Life insurance $ 23,061 $ 10,545 $ 684
Accident-health insurance 4,129 1,333 118
Total $ 27,190 $ 11,878 $ 802
INTERCONTINENTAL LIFE CORPORATION AND SUBSIDIARIES
SCHEDULE VI - REINSURANCE CEDED AND ASSUMED
For the years ended December 31, 1995, 1994 and 1993
(in thousands of dollars)
Percentage
Net Of Amount
1995 Amount Assumed
Life insurance in-force 6,836,886 .12%
Premium:
Life insurance $ 9,915 8.18%
Accident-health insurance 2,503 1.52%
Total $ 12,418 6.84%
1994
Life insurance in-force $6,652,898 .36%
Premium:
Life insurance $ 11,390 5.94%
Accident-health insurance 2,927 4.54%
Total $ 14,317 5.65%
1993
Life insurance in-force $7,367,724 .27%
Premium:
Life insurance $ 13,200 5.18%
Accident-health insurance 2,914 4.05%
Total $ 16,114 4.98%
Exhibit Index
Exhibit Page Description
Number Number
4(a) Certificate of Incorporation of Registrant
filed May 22, 1969 and Amendments
thereto (2)
(i) Amendment filed July 16, 1973
(ii) Amendment filed August 4, 1977
(iii)Amendment filed February 10, 1983
(iv) Amendment filed December 14, 1988
(v) Amendment filed February 9, 1990
4(b) By-laws of Registrant. (3)
10(a) Registrant's Incentive Stock Option Plan.
(1)
10(m) Lease dated December 20, 1985 between
Registrant and Parker Road Associates for
the rental of 40 Parker Road, Elizabeth,
New Jersey. (4)
10(o) (i) Grid Note dated December 18, 1985 in the
amount of $800,000 made by the
Registrant and payable to Midlantic
National Bank. (4)
(ii) Demand Note dated December 18, 1985
in the amount of $491,165.03 made
by Registrant and payable to
Midlantic National Bank.(4)
10(ah) Credit Agreement for $125,000,000 dated
as of December 28, 1988 among Registrant
and certain banks identified therein.
(5)
10(ai) Note Purchase Agreement dated as of
December 31, 1988 between Registrant and
a Rhode Island based insurance/financial
services company. A Note Purchase
Agreement in substantially identical
form was executed with seven other
entities identified in this exhibit. (5)
10(aj) Class A Preferred Stock Purchase
Agreement dated as of December 1, 1988
between Registrant and Insurance Company
of North America. (5)
10(ak) Class B Preferred Stock Purchase
Agreement dated as of December 1, 1988
between Registrant and a Rhode Island
based/insurance/financial services
company. A Class B Preferred Stock
Purchase Agreement in substantially
identical form was executed with seven
other entities identified in this
exhibit. (5)
10(al) Pledge Agreement dated as of December
28, 1988 between Registrant and The
First National Bank of Chicago, as
Agent. (5)
10(am) Surplus Debenture dated as of December
28, 1988 in the amount of $140,000,000
made by Standard to Registrant. (5)
10(an) Warrant Agreement dated as of December
29, 1988 between Registrant and a
Connecticut based insurance/financial
services company. A Warrant Agreement
in substantially identical form was
executed with seven other entities. (5)
10(aq) Registrant's Defined Benefit Pension
Plan, effective as of January 1, 1988.
(6)
10(ar) Registrant's Employee Stock Purchase
Plan, effective as of August 25, 1989.
(6)
10(as) Registrant's Non-Qualified Stock Option
Plan. (6)
10(at) Exchange and Amendment Agreement dated
July 30, 1990 between Registrant and the
holders of its Class A Preferred Stock
and its Class B Preferred Stock. (7)
10(au) Amendment dated July 30, 1990 to Senior
Loan Agreement among the Registrant and
certain banks identified therein. (7)
10(av) InterCreditor Agreement dated June 12,
1991, among Investors Life Insurance
Company of North America, Investors Life
Insurance Company of California, Merrill
Lynch Insurance Group, Inc. and Merrill
Lynch & Co., Inc. (8)
10(aw) Note dated June 12, 1991 in the amount
of $22.5 million made by Family Life
Corporation in favor of Investors Life
Insurance Company of North America. (8)
10(ax) Note dated June 12, 1991 in the amount
of $2.5 million made by Financial
Industries Corporation in favor of
Investors Life Insurance Company of
California. (8)
10(ay) InterCreditor Agreement among Investors
Life Insurance Company of North America,
Investors Life Insurance Company of
California and the Agent under the
Credit Agreement dated as of June 12,
1991. (8)
10(az) Option Agreement by Financial Industries
Corporation in favor of Investors Life
Insurance Company of North America and
Investors Life Insurance Company of
California. (8)
10(aaa) Hotel Lease Agreement dated as of August
22, 1991 between Investors Life
Insurance Company of North America and
FIC Realty Services, Inc. (9)
10(aab) Management Agreement dated as of
September 4, 1991 between Investors Life
Insurance Company of North America and
FIC Property Management, Inc. (9)
10(aac) Amended and Restated Credit Agreement
dated January 29, 1993 among the
Registrant and certain banks identified
therein. (10)
10(aad) Amended and Restated Pledge Agreement
dated January 29, 1993 between the
Registrant and the agent bank named
therein. (10)
10(aae) Stock Option Agreement dated March 8,
1986 between Registrant and Financial
Industries Corporation. (10)
10(aaf) Surplus Debenture dated as of November
13, 1986 in the amount of $15,000,000
made by New Standard to Registrant. (10)
10(aag) Terms and Conditions of Employment
Contracts of James M. Grace, Eugene E.
Payne and Joseph F. Crowe approved by
Registrant's Board of Directors on May
16, 1991. (10)
10(aah) Letter agreement and addendum dated July
23, 1992 between Investors Life
Insurance Company of North America and
Mr. and Mrs. Theodore A. Fleron. (10)
10(aai) Letter agreement dated October 15, 1992
between Roy F. Mitte and Registrant
evidencing surrender and cancellation of
stock options. (10)
10(aaj) Note dated July 30, 1993 in the amount
of $30 million made by Family Life
Corporation in favor of Investors Life
Insurance Company of North America.
(11)
10(aak) Note dated July 30, 1993 in the amount
of $4.5 million made by Family Life
Insurance Investment Company in favor of
Investors Life Insurance Company of
North America. (11)
10(aal) Amendment No. 1 dated July 30, 1993
between Family Life Corporation and
Investors Life Insurance Company of
North America amending $22.5 million
note. (11)
10(aam) Cancellation of Stock Option Agreement
dated October 21, 1993 between
Registrant and Roy F. Mitte. (11)
10(aan) Waiver and Amendment Agreement dated as
of July 23, 1993 among the Registrant
and certain banks identified therein.
(12)
10(aao) Amendment Agreement dated as of December
20, 1993 among the Registrant and
certain banks identified therein. (12)
10(aap) Amendment Agreement dated as of March
12, 1994 among the Registrant and
certain banks identified therein. (12)
10(aaq) Amendment Agreement dated as of December
22, 1994 among the Registrant and
certain banks identified therein. (12)
10(aar) Amendment Agreement dated as of February
10, 1995 among the Registrant and
certain banks identified therein. (12)
10(aas) Data Processing Agreement dated as of
November 30, 1994 between
InterContinental Life Insurance Company
and FIC Computer Services, Inc. (12)
10(aat) Data Processing Agreement dated as of
November 30, 1994 between Investors Life
Insurance Company of North America and
FIC Computer Services, Inc. (12)
10(aau) Data Processing Agreement dated as of
November 30, 1994 between Family Life
Insurance Company and FIC Computer
Services, Inc. (12)
10(aav) Lease Agreement dated as of September
30, 1994 between FIC Realty Services,
Inc. and Atrium Beverage Corporation.
(12)
10(aaw) Management Agreement dated as of
September 30, 1994 between HCD Austin
Corporation as agent for FIC Realty
Services, Inc. and Atrium Beverage
Corporation. (12)
10(aax) Amendment Agreement dated as of August
8, 1995 among the Registrant and certain
banks identified therein.
10(aay) Amendment Agreement dated as of December
15, 1995 among the Registrant and
certain banks identified therein.
10(aaz) Agreement of Sale dated as of September
5, 1995 between Omni Congress Joint
venture as Buyer and Investors Life
Insurance Company of North America as
Seller, with exhibits, amendments and
assignment.
21 Subsidiaries of the Registrant.
23 Consent of Price Waterhouse LLP.
(1) Filed with the Registrant's Annual Report on Form 10-
K for the fiscal year ended December 31, 1983,
Commission File No. 0-7290, and incorporated herein
by reference.
(2) Filed with the Registrant's Registration Statement on
Form S-8 (Registration No. 2085333) and incorporated
herein by reference; except Amendment filed December
14, 1988 (item (iv)), which was filed with
Registrant's Current Report on Form 8-K dated January
12, 1989, and incorporated herein by reference; and
Amendment filed February 9, 1990, which was filed
with Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1989, and incorporated
herein by reference.
(3) Filed with the Registrant's Annual Report on Form 10-
K for the fiscal year ended December 31, 1984 and
incorporated herein by reference.
(4) Filed with the Registrant's Annual Report on Form 10-
K for the fiscal year ended December 31, 1985 and
incorporated herein by reference.
(5) Filed with Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1988, and
incorporated herein by reference.
(6) Filed with Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1989, and
incorporated herein by reference.
(7) Filed with Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1990, and
incorporated herein by reference.
(8) Filed with Financial Industries Corporation's Current
Report on Form 8-K dated June 25, 1991, and
incorporated herein by reference.
(9) Filed with Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1991, and
incorporated herein by reference.
(10) Filed with Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1992, and
incorporated herein by reference.
(11) Filed with Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1993, and
incorporated herein by reference.
(12) Filed with Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1994, and
incorporated herein by reference.
EXHIBIT 10(aax)
INTERCONTINENTAL LIFE CORPORATION
AMENDMENT AGREEMENT
This Amendment Agreement (the "Agreement") is entered into
as of August 8, 1995 by and among InterContinental Life
Corporation (the "Company"), the undersigned lenders (the
"Lenders") and The First National Bank of Chicago, as agent for
the Lenders (the "Agent").
W I T N E S S E T H :
WHEREAS, the Company, the Lenders and the Agent are parties
to that certain Amended and Restated Credit Agreement dated as of
January 29, 1993 (as amended, the "Credit Agreement");
WHEREAS, the Company, the Lenders and the Agent desire to
amend the Credit Agreement as hereinafter set forth.
NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the
parties hereto hereby agree as follows:
1. Defined Terms. Capitalized terms used herein and not otherwise
defined herein shall have the meanings attributed to such terms
in the Credit Agreement.
2. Amendment to Credit Agreement. Section 6.19 of the Credit
Agreement is hereby deleted in its entirety and the following is
inserted in lieu thereof:
"6.19. Fixed Asset Expenditures. The Company will not, nor
will it permit any Subsidiary to, expend, or be committed to
expend, in the acquisition of fixed assets (including
leasehold improvements), on a non-cumulative basis, in the
aggregate for the Company and the Subsidiaries, in excess of
(a) $3,000,000 in the aggregate for the period covered by
fiscal years 1993, 1994 and 1995 with respect to fixed
assets other than leasehold improvements, (b) $1,000,000
during any fiscal year beginning in fiscal year 1996 with
respect to fixed assets other than leasehold improvements,
(c) $6,000,000 in the aggregate for the period covered by
fiscal years 1993 and 1994 for leasehold improvements, and
(d) and $2,000,000 in each fiscal year beginning in fiscal
year 1995 for leasehold improvements. A commitment to expend
in the acquisition of fixed assets (including leasehold
improvements) pursuant to this Section 6.19 shall, for
purposes of calculating the amounts set forth in the
immediately preceding sentence, be included in the period or
year in which such expenditure is to be paid."
3. Conditions Precedent. Section 2 of this Agreement shall not
become effective unless and until the Company has furnished, or
caused to be furnished, to the Agent, with sufficient copies for
each Lender, the following:
(i) A consent from FIC, in the form of Exhibit A to
this Amendment.
(ii) Copies, certified by the Secretary or Assistant
Secretary of the Company, of its Board of Directors
resolutions authorizing the execution of this Agreement.
(iii) An incumbency certificate, executed by the
Secretary or Assistant Secretary of the Company, which shall
identify by name and title and bear the signature of the
officers of the Company authorized to sign this Agreement,
upon which certificate each Lender shall be entitled to rely
until informed of any change in writing by the Company.
4. Representation and Warranty. The Company hereby represents and
warrants to the Lenders that after giving effect to the amendment
herein contained (i) all of the representations and warranties
contained in the Credit Agreement are true and correct as of the
date hereof, (ii) no Default or Unmatured Default exists or is
continuing and (iii) the Company has performed all the agreements
on its part to be performed prior to the date hereof as set forth
in the Credit Agreement.
5. Effectiveness of Amendment. This Agreement shall become
effective as of the date first above written provided that all of
the conditions precedent set forth in Section 3 of this Agreement
are satisfied and upon receipt by the Agent of counterparts of
this Agreement duly executed by the Company and the Required
Lenders.
6. Reference to and Effect on the Credit Agreement.
a. Upon the effectiveness of Section 2 hereof, on or
after the date hereof each reference in the Credit Agreement
to "this Agreement," "hereunder," "hereof," "herein" or
words of like import and each reference to the Credit
Agreement in the Notes and all other documents (the "Loan
Documents") delivered in connection with the Credit
Agreement shall mean and be a reference to the Credit
Agreement as amended hereby.
b. Except as specifically amended above, all of the
terms, conditions and covenants of the Credit Agreement and
all other Loan Documents shall remain unaltered and in full
force and effect and shall continue to be binding upon the
Company in all respects and are hereby ratified and
confirmed.
c. The execution, delivery and effectiveness of this
Agreement shall not, except as expressly provided herein,
operate as a waiver of (i) any right, power or remedy
of the Lenders or the Agent under the Credit Agreement
or any of the Loan Documents, or (ii) any Default or
Unmatured Default under the Credit Agreement.
7. Costs, Expenses and Taxes. The Company agrees to pay on demand
all costs and expenses of the Agent in connection with the
preparation, execution and delivery of this Agreement, including
the reasonable fees and out-of-pocket expenses of counsel for the
Agent with respect thereto.
8. CHOICE OF LAW. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE
WITH THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE
STATE OF ILLINOIS, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE
TO NATIONAL BANKS.
9. Execution in CounterParts. This Agreement may be executed in
any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be
deemed to be an original and all of which taken together shall
constitute one and the same agreement.
IN WITNESS WHEREOF, the Company, the undersigned Lenders and
the Agent have executed this Agreement as of the date first above
written.
INTERCONTINENTAL LIFE CORPORATION
By: /s/ Roy F. Mitte
Title: President
THE FIRST NATIONAL BANK OF CHICAGO,
Individually and as Agent
By: /s/ Paul T. Schultz
Title: Vice President
BARCLAYS BANK, PLC
By: /s/ Chris Cathcart
Title: Vice President
FIRST UNION NATIONAL BANK OF NORTH
CAROLINA
By: /s/ Jay S. Bullock
Title: Vice President
SHAWMUT BANK CONNECTICUT, N.A.
By: /s/ James H. Steane
Title: Senior Vice President
CORESTATES PHILADELPHIA NATIONAL BANK N.A.
By: /s/ Kathleen M. Petrelli
Title: Assistant Vice President
EXHIBIT A
CONSENT OF GUARANTOR
Financial Industries Corporation, as guarantor under the
Amended and Restated Guaranty dated January 29, 1993 (the
"Guaranty") in favor of the Lenders party to the Amended and
Restated Credit Agreement dated as of January 29, 1993 (as
amended, the "Credit Agreement") hereby consents to the Amendment
Agreement dated as of August 8, 1995 and hereby confirms and
agrees that the Guaranty is, and shall continue to be, in full
force and effect and is hereby confirmed and ratified in all
respects.
This Consent is executed and delivered as of August 8, 1995.
FINANCIAL INDUSTRIES CORPORATION
By:
Title:
EXHIBIT 10(aay)
INTERCONTINENTAL LIFE CORPORATION
AMENDMENT AGREEMENT
This Amendment Agreement (the "Agreement") is entered into
as of December 15, 1995 by and among InterContinental Life
Corporation (the "Company"), the undersigned lenders (the
"Lenders") and The First National Bank of Chicago, as agent for
the Lenders (the "Agent").
W I T N E S S E T H :
WHEREAS, the Company, the Lenders and the Agent are parties
to that certain Amended and Restated Credit Agreement dated as of
January 29, 1993 (as amended, the "Credit Agreement");
WHEREAS, the Company, the Lenders and the Agent desire to
amend the Credit Agreement as hereinafter set forth.
NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the
parties hereto hereby agree as follows:
1. Defined Terms. Capitalized terms used herein and not
otherwise defined herein shall have the meanings attributed to
such terms in the Credit Agreement.
2. Amendment to Credit Agreement. The Credit Agreement is hereby
amended as follows:
(A) Section 6.16(b)(v) of the Credit Agreement is hereby
amended by deleting the reference to "$18,000,000"
contained in Section 6.16(b)(v) and inserting
"$24,000,000" in lieu thereof.
(B) Section 6.19 of the Credit Agreement is hereby amended
to insert the following sentence to the end of Section
6.19:
"Notwithstanding the foregoing, amounts which are
permitted by Section 6.16(b)(v) hereof to be expended
by Investors - North America in connection with the
Bridgepoint Property (as defined in Section 6.16(b)(v)
hereof) shall be excluded when testing compliance with
this Section 6.19."
3. Conditions Precedent. Section 2 of this Agreement shall not
become effective unless and until the Company has furnished, or
caused to be furnished, to the Agent, with sufficient copies for
each Lender, the following:
(i) A consent from FIC, in the form of Exhibit A to
this Amendment.
(ii) Copies, certified by the Secretary or Assistant
Secretary of the Company, of its Board of Directors
resolutions authorizing the execution of this Agreement.
(iii) An incumbency certificate, executed by the
Secretary or Assistant Secretary of the Company, which shall
identify by name and title and bear the signature of the
officers of the Company authorized to sign this Agreement,
upon which certificate each Lender shall be entitled to rely
until informed of any change in writing by the Company.
4. Representation and Warranty. The Company hereby represents
and warrants to the Lenders that after giving effect to the
amendment herein contained (i) all of the representations and
warranties contained in the Credit Agreement are true and correct
as of the date hereof, (ii) no Default or Unmatured Default
exists or is continuing and (iii) the Company has performed all
the agreements on its part to be performed prior to the date
hereof as set forth in the Credit Agreement.
5. Effectiveness of Amendment. This Agreement shall become
effective as of the date first above written provided that all of
the conditions precedent set forth in Section 3 of this Agreement
are satisfied and upon receipt by the Agent of counterparts of
this Agreement duly executed by the Company and the Required
Lenders.
6. Reference to and Effect on the Credit Agreement.
a. Upon the effectiveness of Section 2 hereof, on or
after the date hereof each reference in the Credit Agreement
to "this Agreement," "hereunder," "hereof," "herein" or
words of like import and each reference to the Credit
Agreement in the Notes and all other documents (the "Loan
Documents") delivered in connection with the Credit
Agreement shall mean and be a reference to the Credit
Agreement as amended hereby.
b. Except as specifically amended above, all of the
terms, conditions and covenants of the Credit Agreement and
all other Loan Documents shall remain unaltered and in full
force and effect and shall continue to be binding upon the
Company in all respects and are hereby ratified and
confirmed.
c. The execution, delivery and effectiveness of this
Agreement shall not, except as expressly provided herein,
operate as a waiver of (i) any right, power or remedy of the
Lenders or the Agent under the Credit Agreement or any of
the Loan Documents, or (ii) any Default or Unmatured Default
under the Credit Agreement.
7. Costs, Expenses and Taxes. The Company agrees to pay on demand
all costs and expenses of the Agent in connection with the
preparation, execution and delivery of this Agreement, including
the reasonable fees and out-of-pocket expenses of counsel for the
Agent with respect thereto.
8. CHOICE OF LAW. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE
WITH THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE
STATE OF ILLINOIS, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE
TO NATIONAL BANKS.
9. Execution in Counterparts. This Agreement may be executed in
any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be
deemed to be an original and all of which taken together shall
constitute one and the same agreement.
IN WITNESS WHEREOF, the Company, the undersigned Lenders and
the Agent have executed this Agreement as of the date first above
written.
INTERCONTINENTAL LIFE CORPORATION
By: /s/ Roy F. Mitte
Title: President
THE FIRST NATIONAL BANK OF CHICAGO,
Individually and as Agent
By: /s/ Paul T. Schultz
Title: Vice President
BARCLAYS BANK, PLC
By: /s/ Chris Cathcart
Title: Vice President
FIRST UNION NATIONAL BANK OF NORTH
CAROLINA
By: /s/ Jill A. White
Title: Vice President
FLEET NATIONAL BANK OF CONNECTICUT
By: /s/ James H. Steane
Title: Senior Vice President
CORESTATES PHILADELPHIA NATIONAL BANK N.A.
By: /s/ Kathleen M. Petrelli
Title: Assistant Vice President
EXHIBIT A
CONSENT OF GUARANTOR
Financial Industries Corporation, as guarantor under the
Amended and Restated Guaranty dated January 29, 1993 (the
"Guaranty") in favor of the Lenders party to the Amended and
Restated Credit Agreement dated as of January 29, 1993 (as
amended, the "Credit Agreement") hereby consents to the Amendment
Agreement dated as of December 15, 1995 and hereby confirms and
agrees that the Guaranty is, and shall continue to be, in full
force and effect and is hereby confirmed and ratified in all
respects.
This Consent is executed and delivered as of December 15, 1995.
FINANCIAL INDUSTRIES CORPORATION
By:
Title:
EXHIBIT 10(aaz)
AGREEMENT OF SALE
by and between
OMNI CONGRESS JOINT VENTURE
AS BUYER
and
INVESTORS LIFE INSURANCE COMPANY OF NORTH AMERICA
AS SELLER
September 5, 1995
TABLE OF CONTENTS
1. Purchase and Sale . . . . . . . . . . . . . . . . . . . . 5
2. Consideration . . . . . . . . . . . . . . . . . . . . . . 6
3. Documents and Deliveries at Closing; By Seller . . . . . . 6
4. Documents and deliveries at Closing; By Buyer . . . . . . 8
5. New Leases . . . . . . . . . . . . . . . . . . . . . . . 9
6a. Seller's Documents and Title Commitment to be Made
Available . . . . . . . . . . . . . . . . . . . . . . . 9
6b. Delivery of Survey and
Estoppel Certificates . . . . . . . . . . . . . . . . 10
7. Closing Expenses . . . . . . . . . . . . . . . . . . . . 10
8. Conditions to Obligations of Buyer . . . . . . . . . . . 11
9. Conditions to Obligations of Seller . . . . . . . . . . 12
10. Casualty to Property . . . . . . . . . . . . . . . . . . 12
11. Condemnation . . . . . . . . . . . . . . . . . . . . . . 14
12. Real Estate Broker . . . . . . . . . . . . . . . . . . . 14
13. Closing . . . . . . . . . . . . . . . . . . . . . . . . 15
14. Apportionments and Additional Payments . . . . . . . . . 15
15. Past Due Rents and Past Due Accounts . . . . . . . . . . 17
16. Inspection of the Property . . . . . . . . . . . . . . . 18
17a. Covenants of Seller . . . . . . . . . . . . . . . . . . 20
17b. Covenants of Buyer . . . . . . . . . . . . . . . . . . . 23
18a. Seller's Representations and Warranties . . . . . . . . 23
(a) Existing Leases . . . . . . . . . . . . . . . . . . 23
(b) Certificate of Occupancy, Law and Ordinances,
Condemnation and Zoning . . . . . . . . . . . . . 24
(c) Operating Statements . . . . . . . . . . . . . . . 24
(d) Restrictions and Easements . . . . . . . . . . . . 25
(e) Service Contracts . . . . . . . . . . . . . . . . . 25
(f) Construction Contracts . . . . . . . . . . . . . . 25
(g) Licenses and Permits . . . . . . . . . . . . . . . 25
(h) Warranties and Guaranties . . . . . . . . . . . . . 26
(i) Trade Materials . . . . . . . . . . . . . . . . . . 26
(j) Legal Proceedings and Bankruptcy . . . . . . . . . 26
(k) FIRPTA . . . . . . . . . . . . . . . . . . . . . . 26
(l) Authority, Actions of Seller, Authorization
and Consents . . . . . . . . . . . . . . . . . . . 26
18b. Buyer's Representations and Warranties . . . . . . . . . 27
19. Safe Deposit Boxes . . . . . . . . . . . . . . . . . . . 28
20. Baggage Inventory . . . . . . . . . . . . . . . . . . . 29
21. Indemnity and Survival . . . . . . . . . . . . . . . . . 30
22. Deposit . . . . . . . . . . . . . . . . . . . . . . . . 30
23. Termination, Default and Remedies . . . . . . . . . . . 30
24. Assignment . . . . . . . . . . . . . . . . . . . . . . . 32
25. Supplemental Documents . . . . . . . . . . . . . . . . . 32
26. Definitions . . . . . . . . . . . . . . . . . . . . . . 32
27. Notices . . . . . . . . . . . . . . . . . . . . . . . . 35
28. Section Headings . . . . . . . . . . . . . . . . . . . . 36
29. Entire Contract . . . . . . . . . . . . . . . . . . . . 36
30. Invalid Provisions . . . . . . . . . . . . . . . . . . . 36
31. Construction . . . . . . . . . . . . . . . . . . . . . . 36
32. Covenant Not to Record . . . . . . . . . . . . . . . . . 37
33. Choice of Law . . . . . . . . . . . . . . . . . . . . . 37
34. Binding Effect . . . . . . . . . . . . . . . . . . . . . 37
35. Counterparts and Copies . . . . . . . . . . . . . . . . 37
36. Effective Date . . . . . . . . . . . . . . . . . . . . . 37
Exhibits and Schedules
Exhibit "A" - Metes and Bounds Description of Land
Exhibit "B" - Tangible Personal Property
Exhibit "C-1" - Office Leases
Exhibit "C-2" - Residential Leases
Exhibit "C-3" - EntelCom Leases
Exhibit "D" - Permitted Exceptions
Exhibit "E" - Form of Special Warranty Deed
Exhibit "F" - Form of Assignment and Assumption of Leases
Exhibit "G" - Form of Bill of Sale
Exhibit "H" - Form of Assignment and Assumption of
Contracts and Saint David's Lease
Exhibit "I" - Form of Assignment and Assumption of Licenses
and Permits
Exhibit "J" - Form of Assignment and Assumption of
Warranties and Guaranties
Exhibit "K-1" - Form of Notice Letter to Office and
Residential Tenants
Exhibit "K-2" - Form of Notice Letter to Managers
Exhibit "K-3" - Form of Notice Letter to Saint David's Lease
Landlord
Exhibit "L" - Form of Certificate of Corporate Officers and
Resolution of Seller
Exhibit "M" - Form of Estoppel Certificate
Exhibit "N" - Description of EntelCom System
Exhibit "O" - Registration Agreement, Confidentiality
Agreement - Principal and Confidentiality
Agreement - Agent dated June 1, 1995
Schedule "1" - Rent Roll
Schedule "2" - Matters pertaining to Existing Leases
Schedule "3" - Certificate of Occupancy
Schedule "4" - Schedule of Service Contracts
Schedule "5" - Schedule of Construction Contracts
Schedule "6" - Schedule of Licenses and Permits
Schedule "7" - Schedule of Warranties and Guaranties
Schedule "8" - Schedule of Trade Materials
Schedule "9" - Schedule of Legal Proceedings
Schedule "10" - Schedule of Advertising Contracts and
Contracts for Billboard Space
AGREEMENT OF SALE
THIS AGREEMENT OF SALE (this "Agreement") is made as of the
Effective Date (as defined in Section 36 hereof) between
INVESTORS LIFE INSURANCE COMPANY OF NORTH AMERICA, a Washington
corporation ("Seller"), and OMNI CONGRESS JOINT VENTURE, a Texas
joint venture ("Buyer").
RECITALS:
1. Seller owns a certain parcel of real estate situated in
the City of Austin, Travis County, Texas, as more particularly
described on Exhibit "A" attached hereto (the "Land").
2. The Land is improved with a multi-use complex (the
"Improvements") known as "Austin Centre", comprised of: (a) a
central atrium, an office tower and ground level retail space
with approximately 343,664 square feet of rentable space, an
underground parking garage with approximately 654 parking spaces
and common areas located in the atrium (the atrium, office tower
and retail space, underground parking garage and the common areas
being herein called the "Office Center"); (b) a hotel tower with
approximately 314 rooms commonly known as the "Omni Austin Hotel"
(the "Hotel"); (c) approximately 59,875 square feet of
residential rentable space located in the air space directly
above the Hotel, which is subject to residential leases (the
"Residential Space"); and (d) all other buildings, structures,
machinery and improvements located on the Land, including, but
not limited to, any and all, if any, mechanical, electrical,
heating, air-conditioning, plumbing, sprinkler, lighting,
ventilating and cooling system, together with their respective
appurtenant gas and electric ranges, refrigerators, engines,
motors, generators, pipes, wiring and other apparatus, and all
lighting fixtures, doors, cabinets, partitions, elevators,
electric motors and pumps appurtenant to, and used in connection
with the above described Office Center, Hotel and/or Residential
Space.
3. Seller has agreed to sell and assign, or cause to be
sold and assigned, to Buyer, and Buyer has agreed to purchase and
take from Seller, the Land and the Improvements together with:
(a) any and all of Seller's right, title and interest in
and to all furniture, furnishings, working supplies and articles
of personal property constructed, erected, affixed to, attached
to, installed or placed in or upon and used in connection with
the occupancy and operation of the Property (as hereinafter
defined), including, but not limited to, any and all, if any,
office furniture and equipment, partitions, vaults, safes,
electrical, fire prevention and extinguishing equipment, radio,
television and public address and amplifying systems, equipment,
parts and supplies, chairs, tables, beds, bedsprings, mattresses,
couches, lamps, waste baskets, desks, silverware, utensils, table
and bed linen, towels, blankets, dishes, glassware, mirrors,
carpets, rugs and other floor coverings, curtains, draperies,
pictures, radio and television sets, stationery and office
supplies, pianos, and all musical instruments, bars and bar
equipment, kitchen utensils, and other furniture and furnishings
for all lobbies, ballrooms, dining rooms, bedrooms, guest rooms,
baths and other private and public rooms, and the furniture,
typewriters, furnishings, equipment, tools, materials and
supplies in all storerooms and offices, (collectively, the
"Tangible Personal Property"), (a list which sets forth
substantially all of such Tangible Personal Property is attached
hereto as Exhibit "B"); provided, however, that Seller and its
affiliated companies are Tenants (as hereinafter defined) and,
therefore, "Tangible Personal Property" does not include, and
Seller is not selling to Buyer, any personal property of Seller
and its affiliated companies located on the Property that is not
being used primarily in connection with the operation or
management of the Property, including, without limitation, all
personal property on the 12th, 13th and 14th floors of the Office
Center;
(b) any and all of Seller's right, title and interest in
and to all leases, rental agreements, subleases, underleases or
agreements with respect to the Property and/or use and occupancy
thereof, together with any and all, if any, guaranties, security
deposits, or other security for performance of a tenant's
obligations thereunder, and all Amendments (as hereinafter
defined) and/or other agreements forming a part thereof affecting
or pertaining to the performance of the transactions or carrying
on of the business contemplated herein, including but not limited
to, the sale of alcoholic beverages in or on the Property
(collectively, the "Leases"), including, but not limited to, (i)
the leases set forth and described on Exhibit "C-1" attached
hereto (the "Office Leases"), (ii) the leases set forth and
described in Exhibit "C-2" attached hereto (the "Residential
Leases"), (iii) the room, ballroom, banquet, convention and other
types of use and/or rental agreements made in connection with the
Hotel (the "Hotel Leases"), (iv) the leases and/or use agreements
to Tenants (as hereinafter defined) and the Hotel for such
Tenants' and the Hotel's use of the EntelCom System (as
hereinafter defined), which leases and agreements are listed on
Exhibit "C-3" attached hereto (the "EntelCom Leases") and (v)
that certain lease agreement (which Seller shall cause FIC Realty
to assign to Buyer or Buyer's designee), dated September 30,
1994, between FIC Realty Services, Inc., a Texas corporation
("FIC Realty"), as lessor, and Atrium Beverage Corporation, a
Texas corporation, as lessee, covering the leasing of space in
the Property to sell alcoholic beverages by Atrium Beverage
Corporation (the "Atrium Beverage Lease");
(c) any and all of Seller's right, title and interest in
and to (i) security deposits and/or prepaid rentals taken from
any Tenant under any Office Lease or Residential Lease (the
"Security Deposits"), and (ii) deposits taken from any guests,
groups, conventions or others, and any other amounts prepaid in
connection with services to be rendered on or after the Closing
Date (as hereinafter defined) now in the possession of Seller or
Omni Hotel (as hereinafter defined) or hereinafter received by
Seller or Omni Hotel in connection with the running and
operations of the Hotel (the "Reservation Deposits");
(d) any and all of Seller's right, title and interest in
and to any and all, if any, agreements, and all Amendments
thereof, for construction work, materials or equipment or for
architectural services, professional engineering services or
other services, which entitles the Person (as hereinafter
defined) furnishing the same to file a lien against the Property
and which has a term expiring after the Closing Date (as
hereinafter defined) or under which any amount remains due and
owing to the applicable Person (collectively the "Construction
Contracts");
(e) any and all of Seller's right, title and interest in
and to all contracts or agreements (other than the Construction
Contracts), and Amendments thereof, for the furnishing of
management, maintenance, repairs, supplies, equipment or other
services to the Property, including, but not limited to, the
equipment leases for the EntelCom System (other than the EntelCom
Leases), which have a term expiring after the Closing Date
(collectively, the "Service Contracts"), including, but not
limited to, (i) that certain management agreement (the "FIC
Management Agreement") dated September 4, 1991 between Seller and
FIC Property Management, Inc., a Texas corporation ("FIC
Management"), (ii) that certain hotel management agreement (the
"Omni Hotel Agreement") dated May 6, 1992 between FIC Realty and
Omni Hotels Management Corporation, a Delaware corporation ("Omni
Hotel"), (which Seller shall cause FIC Realty to assign to
Buyer), (iii) that certain parking management agreement (the
"Central Parking Agreement") dated March 1, 1991 between Texas
AP, Inc., Seller's predecessor in title, and Central Parking
System of Texas, Inc. ("Central Parking") and (iv) that certain
management agreement (the "Atrium Beverage Agreement") dated
September 30, 1994 between HCD Austin Corporation, as agent for
FIC Realty d/b/a Omni Austin Hotel and Atrium Beverage
Corporation, which Seller shall cause FIC Realty to assign to
Buyer or Buyer's designee, (FIC Management, FIC Realty, Omni
Hotel, and Central Parking are hereinafter collectively referred
to as the "Managers"); provided, however, that "Service
Contracts" do not include the MCI Corporate Service Plan
Agreement between Seller and MCI Telecommunications Corporation
("MCI") dated on or about March 31, 1994 (the "MCI Agreement")
whereby MCI provides long-distance telecommunication services to
Seller, its affiliates, Tenants of the Office Center and guests
and employees of the Hotel (Seller is prohibited by the MCI
Agreement from disclosing the financial provisions of the MCI
Agreement to Buyer or any other third party);
(f) any and all of Seller's right, title and interest in
and to any and all, if any, building and other permits,
certificates, licenses, franchises, authorizations and approvals
granted by any Government Entity (as hereinafter defined)
necessary or useful in connection with the Property and/or the
operation of the Improvements or any part thereof (the "Licenses
and Permits"), excluding all liquor licenses affecting or in use
in any part of the Property, which enable liquor and alcoholic
beverages to be sold and dispensed in certain portions of the
Property (the "Liquor Licenses"), but including, but not limited
to, that certain License Agreement (herein so called) dated May
6, 1986, and recorded in Volume 9824, Page 225 of the Real
Property Records of Travis County, Texas;
(g) all of the outstanding capital stock of Atrium Beverage
Corporation (the holder of the Liquor Licenses) currently owned
by FIC Realty, which Seller shall cause to be assigned to Buyer
or Buyer's designee upon receipt of the necessary regulatory
approvals on or after the Closing Date;
(h) all goodwill owned by Seller related to the operation
of the Property, including, without limitation any and all of
Seller's right, title and interest in and to (i) the telephone
numbers and listings of the Office Center and/or Hotel, (ii) any
and all, if any, trade names, trademarks, service marks, logos
and all copyrights used exclusively in connection with the
Property or any portion thereof, except those belonging
specifically to Omni Hotel or its affiliates or any Tenants, and
(iii) any and all, if any, video tapes, films, brochures and
other advertising and promotion materials of any kind or nature
owned by Seller and used in connection with the advertising of
the Property or any portion thereof (collectively the "Trade
Materials");
(i) all books, records, Tenant, guest and customer lists
for the Office Center, Residential Space and/or Hotel owned by
Seller and in possession of Seller or any of the Managers
together with any and all files, reports, surveys, studies,
projections, budgets and strategic plans prepared for Seller in
connection solely with the operation, maintenance or management
of the Property or any portion thereof and in possession of
Seller or any of the Managers (the "Books and Records");
(j) any and all of Seller's right, title and interest in
and to any and all, if any, architects' and engineers' drawings,
plans, specifications, models and work product, studies, surveys
and other materials developed in connection with the
construction, repair and maintenance of the Property or any
portion thereof owned by Seller and in the possession of Seller
or any of the Managers (the "Plans");
(k) any and all of Seller's right, title and interest in
and to any and all, if any, unexpired warranties and guaranties
and payment and/or performance bonds provided in connection with
any work or services provided under the Construction Contracts,
Service Contracts or otherwise in connection with the
construction and/or operation of the Property (collectively, the
"Warranties and Guaranties");
(l) any and all of Seller's right, title and interest in
and to that certain parking lease agreement (the "Saint David's
Lease"), dated April 1, 1992 between Protestant Episcopal Church
Council of the Diocese of Texas and St. David's Episcopal Church,
collectively as landlord (the "Saint David's Landlord"), and
Seller, as tenant, providing for additional parking space for the
use of the Property; and
(m) all meat, fish and poultry inventories on hand at, and
other food and non-alcoholic beverage inventories at, and for use
at, the Property and owned by Seller at 12:01 a.m. on the Closing
Date (the "Consumables").
4. The Land, the Improvements, the Tangible Personal
Property, the Leases, the Security Deposits, the Reservation
Deposits, the Construction Contracts, the Service Contracts, the
Licenses and Permits, the Trade Materials, the Books and Records,
the Plans, the Warranties and Guaranties, the Saint David's Lease
and the Consumables are sometimes referred to collectively as the
"Property".
NOW THEREFORE, in consideration of the premises, and for
other good and valuable consideration, the receipt and adequacy
of which is hereby acknowledged, and intending to be legally
bound hereby, Seller and Buyer covenant and agree as follows:
1. Purchase and Sale. Seller shall, on the Closing Date,
sell, grant, convey, assign, transfer and deliver the Property to
Buyer, and Buyer agrees to purchase, acquire and accept the
Property from Seller subject to only those Encumbrances (as
hereinafter defined) listed on Exhibit "D" attached hereto (the
"Permitted Exceptions"); provided, however, nothing contained in
this Section shall affect Buyer's right to review and assert
objections to the matters set forth on Exhibit "D" and in the
Title Commitment (as hereinafter defined) during the Due
Diligence Review (as hereinafter defined).
2. Consideration. Buyer will purchase the Property and
pay therefor the sum of Sixty-Two Million Six Hundred and
Seventy-Five Thousand and No/100 Dollars ($62,675,000.00) (the
"Purchase Price"), in lawful currency of the United States of
America, as follows:
(a) A Five Hundred Thousand and No/100 Dollars
($500,000.00) earnest money deposit (the "Deposit") in cash, wire
transfer, or by cashier's or certified check, to be delivered on
September 5, 1995 to Heritage Title Company of Austin, Inc. (the
"Title Company"), as Escrow Agent, who shall hold and disburse
the Deposit in accordance with the provisions of Section 22 of
this Agreement.
(b) The Balance (herein so called), in cash or by cashier's
or certified check, or by federal funds wire, subject to closing
apportionment adjustments as hereinafter set forth, payable on
the Closing Date.
3. Documents and Deliveries at Closing; By Seller. At the
time and place of Closing (as hereinafter defined), upon payment
in full of the Purchase Price and satisfaction of all of Buyer's
obligations under this Agreement, Seller shall:
(a) Convey and deliver title to the Land and the
Improvements by Special Warranty Deed (herein so called) to
Buyer, in form substantially as that set forth in Exhibit "E"
attached hereto, duly executed and acknowledged by Seller.
(b) Assign and deliver to Buyer any and all of Seller's
right, title and interest in and to the Leases, together with any
Security Deposits, Reservation Deposits and advances and
prepayments paid by the Tenants in connection therewith, by an
Assignment and Assumption of Leases (herein so called), in form
substantially as that set forth in Exhibit "F" attached hereto,
duly executed and acknowledged by Seller.
(c) Assign and deliver to Buyer any and all of Seller's
right, title and interest in and to all Tangible Personal
Property, Trade Materials, Books and Records, the Plans and the
Consumables by a Bill of Sale (herein so called), in form
substantially as that set forth in Exhibit "G" attached hereto,
duly executed and acknowledged by Seller.
(d) Assign and deliver to Buyer any and all of Seller's
right, title and interest in and to the Construction Contracts
and the Service Contracts (hereinafter collectively referred to
as the "Contracts") (other than such of the Contracts which by
their own terms have terminated prior to or at the Closing), and
the Saint David's Lease by an Assignment and Assumption of
Contracts and Saint David's Lease (herein so called), in form
substantially as that set forth in Exhibit "H" attached hereto,
duly executed and acknowledged by Seller.
(e) To the extent assignable, assign and deliver to Buyer
any and all of Seller's right, title and interest in and to the
Licenses and Permits, excluding the Liquor Licenses, by an
Assignment and Assumption of Licenses and Permits (herein so
called), in form substantially as that set forth in Exhibit "I"
attached hereto, duly executed and acknowledged by Seller.
(f) Cause FIC Realty to assign and transfer to Buyer or
Buyer's designee all of the outstanding capital stock of Atrium
Beverage Corporation.
(g) To the extent assignable, assign and deliver to Buyer
any and all of Seller's right, title and interest in and to the
Warranties and Guaranties by an Assignment and Assumption of
Warranties and Guaranties (herein so called), in form
substantially as that set forth in Exhibit "J" attached hereto,
duly executed and acknowledged by Seller.
(h) Deliver to Buyer Notice Letters (herein so called)
originally executed by Seller and individually addressed to (i)
each Tenant under an Office Lease, Residential Lease or EntelCom
Lease, in form substantially as that set forth in Exhibit "K-1",
attached hereto, (ii) each Manager, in form substantially as that
set forth in Exhibit "K-2" attached hereto, and (iii) the
landlord under the Saint David's Lease, in form substantially as
that set forth in Exhibit "K-3" attached hereto.
(i) Deliver to Buyer a certificate of the corporate
secretary of Seller attaching to it, inter alia, a true copy of
the minutes of the board of directors of Seller evidencing then
currently effective action by such board, in form substantially
as that set forth in Exhibit "L" attached hereto.
(j) Deliver to Buyer copies of all ad valorem tax
statements for the Property for the calendar year of the Closing,
if available and if not previously presented to Buyer.
(k) In respect of the amount of all Security Deposits and
Reservations Deposits and all other sums due Buyer under the
apportionments described in Section 14 hereof, deliver to Buyer
either (x) a cashier's or certified check in good and immediately
available funds or (y) a credit against the Balance.
(l) Deliver to Buyer the originals of the Leases, the Saint
David's Lease and the Contracts, and, if available, copies of the
Licenses and Permits and the Warranties and Guaranties.
(m) Deliver to Buyer the Books and Records in Seller's
possession together with the originals and/or copies of all Plans
in Seller's possession.
(n) Deliver to Buyer an affidavit originally executed by
Seller to the effect that Seller is not a foreign person for
purposes of 26 U.S.C. 1445(b)(2).
(o) Deliver to Buyer possession of the Property, subject to
the rights of Tenants in possession of the Property under written
leases or other occupancy agreements, in writing, delivered and
assigned to Buyer at Closing, together with all keys and
passcards to the Property.
(p) Deliver to Buyer any other documents or items required
to be delivered by Seller to Buyer under the terms of this
Agreement.
The documents described in this Section 3 are hereinafter
collectively referred to as the "Seller's Closing Documents".
4. Documents and Deliveries at Closing; By Buyer. At the
time and place of Closing (as hereinafter defined), Buyer shall:
(a) Execute and deliver to Seller the documents listed in
Sections 3(a)-(g) and such other documents as may be necessary to
effect as of the Closing Date an assumption by Buyer of all
obligations of Seller under the Contracts, the Leases, the
Licenses and Permits, the Warranties and Guaranties, the Saint
David's Lease, all obligations with respect to the Security
Deposits and Reservation Deposits, and all other obligations or
liabilities of Seller or the Property to be assumed by Buyer
pursuant to the terms of this Agreement. In addition, Buyer
shall use its reasonable best efforts to obtain releases of
Seller from all such obligations referred to in the preceding
sentence. To the extent that Buyer is unable to obtain such
releases, Buyer shall indemnify and hold Seller harmless of and
from all such obligations, including all costs, expenses and
attorney fees incurred by Seller in connection therewith.
(b) Deliver to Seller such documents as Seller may
reasonably require that evidence the organization, formation, and
authority of Buyer.
(c) Deliver to Seller the Balance.
The documents described in this Section 4 are hereinafter
collectively referred to as the "Buyer's Closing Documents."
5. New Leases. During the Inspection Period (as
hereinafter defined), Seller shall have the right, without the
consent of Buyer, to enter into new leases covering space located
in the Property ("New Leases") as long as any such New Lease
provides for (i) a market rental rate for comparable space, (ii)
a term not to exceed five (5) years, (iii) a leasing commission
not to exceed four percent (4%) of gross rents for the lease
term, and (iv) a tenant finish allowance not to exceed $17.50 per
square foot contained in the leased premises. Any New Lease not
meeting the foregoing criteria must be approved by Buyer. Buyer,
at the Closing, shall reimburse Seller for all tenant concession
expenses (including without limitation all finish out expenses
and tenant relocation expenses), all brokerage commissions and
all architectural and space planning expenses with respect to any
New Lease meeting the criteria described above and any New Lease
approved by Buyer pursuant to Section 17a(c) paid by Seller prior
to Closing, and such New Lease shall become part of the Leases
assigned to, and assumed by, Buyer at Closing.
6a. Seller's Documents and Title Commitment to be Made
Available. On or before the close of business on the date that
is five (5) business days following the Effective Date of this
Agreement (the "Delivery Date"), Seller shall deliver to Buyer
Exhibits "B", "C-1", "C-2", and "C-3" and Schedules "1" through
"10" and shall deliver to Buyer or make available at the Property
copies of the documents referred to in the Exhibits and
Schedules and copies of the following documents and information:
A. Seller's existing as-built survey for improvements
(buildings, parking, utilities, etc.)
B. All fire, hazard, liability, and other insurance
policies held by Seller on the Property.
C. All of the most recent real estate and personal property
tax statements with respect to the Property.
D. All environmental, structural, and mechanical
evaluations, reports, or studies performed on the Property
in the past twenty four months.
E. The "as built" plans and specifications with respect to
the Property, if available.
F. Information on utility and repair expenses incurred by
Seller for operations of the Property for each month for the
preceding two years.
G. A commitment for Title Insurance (the "Title
Commitment") issued by the Title Company, together with a
copy of any and all instruments creating any exceptions
listed in the Title Commitment.
In addition, Seller shall make available at the Property any
and all other written material concerning the Property and its
ownership, condition, operation and maintenance, as well as all
financial records of the operation of all the assets of the
Property.
6b. Delivery of Survey and Estoppel Certificates. Within
twenty (20) days from the Effective Date of this Agreement,
Seller, at Seller's sole cost and expense, shall provide to Buyer
an updated on the ground survey (the "Survey") of the Property
dated after the Effective Date, prepared by Donald J. Kirby, a
Registered Professional Land Surveyor No. 2508, or such other
licensed professional engineer or surveyor acceptable to Seller,
Buyer and Title Company. The Survey shall be in a form
acceptable to the Title Company to modify the survey exception in
the Title Policy to read only "shortages in area". At least five
(5) business days prior to the last day of the Inspection Period
(as hereinafter defined) Seller shall deliver to Buyer Estoppel
Certificates (herein so called), in form substantially as that
set forth in Exhibit "M" attached hereto, originally executed by
at least 75% of the Tenants under the Office Leases (collectively
the "Estoppel Certificates"). To the extent any Tenants do not
execute and deliver an Estoppel Certificate, Seller shall execute
and deliver to Buyer an Estoppel Certificate with respect to such
Tenants substantially in the form of Exhibit M.
7. Closing Expenses. Seller shall pay the cost of the
Survey, the premium for the Title Policy (as hereinafter defined)
(provided, Buyer shall pay any additional premium to modify the
survey exception to read only "shortages in area") and Seller's
attorney's fees. Buyer shall pay the cost of recording the
applicable Seller's Closing Documents, the additional premium for
modifying the survey exception in the Title Policy to read only
"shortages in area", if Buyer elects to have that exception so
modified, and Buyer's attorneys' fees. Except as provided in
Section 14 below, all other costs in connection with the Closing
shall be paid by the party incurring such cost.
8. Conditions to Obligations of Buyer. The obligations of
Buyer to perform Buyer's obligations under this Agreement are and
shall be subject to the satisfaction of each of the following
conditions at or prior to the Closing:
(a) Seller shall have executed (where applicable) and
delivered the Seller's Closing Documents to be executed and
delivered by Seller.
(b) Seller, at Seller's sole cost and expense, shall
provide to Buyer at Closing an Owner's Policy of Title Insurance
issued by the Title Company in the amount of $62,675,000.00 (the
"Title Policy"), insuring good and indefeasible title to the
Property in Buyer, free and clear of all restrictions, easements,
encumbrances and liens except for the Permitted Exceptions.
(c) All of the representations and warranties of Seller
contained in this Agreement shall have been true and correct when
made in all material respects and (after giving effect to the
revised Schedules, if any, furnished to Buyer by Seller at the
Closing), shall be true and correct on the Closing Date in all
material respects with the same effect as if made on and as of
such date.
(d) Seller shall have performed, observed and complied with
all covenants, agreements and conditions required by this
Agreement to be performed, observed and complied with on its part
prior to or as of the Closing hereunder in all material respects.
(e) To the extent that any of the approvals, consents,
authorizations, licenses or permits of the Texas Alcoholic
Beverage Commission have not been received by Buyer or Buyer's
designee at or prior to the Closing, the assignment of the Atrium
Beverage Lease and Atrium Beverage Agreement and the transfer of
all of the outstanding capital stock of Atrium Beverage
Corporation to Buyer or Buyer's designee shall be postponed until
such time after the Closing as such approvals, consents,
authorizations, licenses or permits have been received by Buyer
or Buyer's designee.
(f) The FIC Management Agreement and Hotel Lease Agreement
dated August 22, 1991 between Seller, as lessor, and FIC Realty,
as lessee, shall have been terminated as of the Closing Date.
9. Conditions to Obligations of Seller. The obligations
of Seller to perform Seller's obligations under this Agreement
are and shall be subject to the satisfaction of each of the
following conditions at or prior to the Closing:
(a) Buyer shall have executed (where applicable) and
delivered the Buyer's Closing Documents to be executed and
delivered by Buyer.
(b) All of the representations and warranties of Buyer
contained in this Agreement shall have been true and correct in
all material respects when made, and shall be true and correct in
all material respects on the Closing Date with the same effect as
if made on and as of such date.
(c) Buyer shall have performed, observed and complied with
all covenants, agreements and conditions required by this
Agreement to be performed, observed and complied with on its part
prior to or as of the Closing hereunder.
10. Casualty to Property. Promptly after the occurrence of
any fire or other casualty affecting the Property or any portion
thereof occurring between the date hereof and the Closing Date
(the "Casualty"), Seller shall give Buyer written notice thereof
(the "Casualty Notice"), which Casualty Notice shall state the
type, location and amount of damage to the Property.
(a) If prior to the Closing such a Casualty shall occur and
the cost to complete repairs necessitated by such Casualty shall
equal $500,000 or more, then in any such event, Buyer or Seller
may at its sole option terminate this Agreement by written notice
to the other party (the "Casualty Termination Notice") within
twenty (20) days after the giving of the Casualty Notice
(provided, however, if the Closing is scheduled for a date which
is less than 20 days after the giving of the Casualty Notice, the
Closing shall be adjourned until 20 days after the giving of the
Casualty Notice). In the event either party gives the Casualty
Notice, the Deposit, together with all interest earned thereon,
shall be returned to Buyer, this Agreement shall be null and void
and neither party shall have any further liability or obligations
to the other (other than the obligation of Buyer to keep
confidential all documents and other material furnished to Buyer
pursuant to the transactions contemplated by this Agreement and
the indemnity obligation owed by Buyer to Seller in connection
with Buyer's Due Diligence Review, as provided in Section 16
hereof). If neither Buyer nor Seller elects to terminate this
Agreement, then the Closing shall take place as provided herein
without abatement of the Purchase Price, and at the Closing there
shall be assigned to Buyer all of Seller's rights, titles and
interests in and to any insurance proceeds covering such Casualty
and Seller shall pay to Buyer the lesser of (x) the actual cost
to complete repairs necessitated by such Casualty less the amount
of the insurance proceeds or (y) the cash amount of the
deductible under the property insurance carried by Seller.
(b) If prior to the Closing such a Casualty shall occur and
the cost to complete repairs necessitated by such Casualty shall
be less than $500,000, then, in any such event, Buyer shall have
no right to terminate its obligations under this Agreement, but
Seller shall be obligated to restore the Property to
substantially the condition as existed prior to such Casualty.
Under such circumstances, the Closing shall be postponed to a
date no later than ten (10) days after such restoration shall
have been substantially completed (substantial completion shall
mean: (i) final completion (excluding completion and correction
of all "punch list" items) of such repair, free of any liens, so
that the Property is restored to as good or better condition as
existed on the date of this Agreement, as approved by Buyer,
which approval shall not be unreasonably withheld or delayed;
(ii) that all approvals and permits required by the City of
Austin or any other political subdivision or agency thereof in
connection with the repair have been obtained; and (iii) any
interruption or impairment of services or function caused by the
Casualty or the repair work have been cured). Should such
restoration not be substantially completed six (6) months after
the occurrence of such Casualty, Buyer may at its sole option
terminate this Agreement by delivering a Casualty Termination
Notice to Seller, in which event the Deposit, together with all
interest earned thereon, shall be returned to Buyer, this
Agreement shall be null and void and neither party shall have any
further liability or obligations to the other (other than the
obligation of Buyer to keep confidential all documents and other
material furnished to Buyer pursuant to the transactions
contemplated by this Agreement and the indemnity obligation owed
by Buyer to Seller in connection with Buyer's Due Diligence
Review, as provided in Section 16 hereof). Notwithstanding the
foregoing, in the event Buyer's loan commitment allows Buyer's
proposed lender to terminate the loan commitment as a result of
any such Casualty, Buyer shall use its best efforts to obtain an
extension of such commitment, but if Buyer is not successful in
obtaining such extension, Buyer shall have the right to terminate
this Agreement by written notice to Seller within thirty (30)
days after the giving of the Casualty Notice and have the Deposit
returned to Buyer.
11. Condemnation. In the event of any taking of all or any
part of the Property by eminent domain proceedings or the
commencement of any such proceedings from the date hereof to
Closing, Seller shall promptly give Buyer written notice of such
proceeding stating the amount, type and location of such taking
or proposed taking and Buyer shall proceed as follows:
(a) Should any portion of the Improvements be condemned,
Buyer shall be permitted to terminate this Agreement by written
notice to that effect to Seller on or before the date fixed for
Closing, and the Deposit and interest earned thereon shall be
returned to Buyer. Thereafter, this Agreement shall become null
and void and neither party shall have any other liability or
obligation to the other (other than the obligations of Buyer to
keep confidential all documents and other material furnished to
Buyer pursuant to the transactions contemplated by this Agreement
and the indemnity obligation owed by Buyer to Seller in
connection with Buyer's Due Diligence Review, as provided in
Section 16 hereof).
(b) If only a portion of the Property (not comprising any
portion of the Improvements) is condemned, and the same would not
materially interfere with the present use thereof, Buyer will be
liable and obligated to take title to the remaining portion of
the Property without abatement of the Purchase Price, in which
event Seller shall assign to Buyer all of Seller's right, title
and interest in and to any award resulting from such
condemnation.
12. Real Estate Brokers. Seller shall pay to CB Commercial
Real Estate Group, Inc. ("Broker") any and all commissions, fees,
or other amounts owed to Broker in connection with the sale of
the Property pursuant to a separate agreement between Seller and
Broker. Seller shall pay to Omni Commercial Realty Advisors,
Inc. a commission of $300,000 and FIC Realty a commission of two-
tenths of one percent (0.2%) of the net sales price. Seller
shall defend, indemnify, and hold harmless, Buyer from any claim
by any party claiming under Seller for any brokerage, commission,
finder's or other fees relative to this Agreement or the sale of
the Property, and any court costs, attorneys' fees, or other
costs or expenses arising therefrom, and alleged to be due by
authorization of Seller. Buyer shall defend, indemnify, and hold
harmless Seller from any claim by any party claiming under Buyer
for any brokerage, commission, finder's, or other fees relative
to this Agreement or the sale of the Property, and any court
costs, attorneys' fees, or other costs or expenses arising
therefrom, and alleged to be due by authorization of Buyer.
Notwithstanding anything contained in this Agreement to the
contrary, the terms of this Section 12 shall survive the Closing
or earlier termination of this Agreement.
13. Closing. Consummation of the transactions contemplated
by this Agreement (the "Closing") shall be held on the first
business day (the "Closing Date") that is ten (10) days after the
earlier of (i) the date on which Buyer notifies Seller that it
has obtained the third party financing to purchase the Property
or (ii) the end of the Financing Feasibility Period as described
in Section 16(c), subject to any extension required by Section 10
hereof. The Closing shall be held at 10:00 a.m. Austin, Texas
time at a location in the City of Austin, Texas to be agreed
upon. Seller and Buyer may mutually agree in writing upon an
earlier or later date for the Closing.
14. Apportionments and Additional Payments. The following
apportionments and payments are to be made as of the Closing
Date:
(a) Real property taxes, assessments (including without
limitation assessments made by the Austin Downtown Public
Improvement District), water and waste water charges and other
municipal charges, if any, shall be apportioned on the basis of
the tax year or other period for which assessed.
(b) All (i) rents, additional rents and percentage rents
under the Office Leases, Residential Leases, EntelCom Leases and
the Atrium Beverage Lease as, when and to the extent actually
collected, all income of any type arising from the Hotel, subject
to Section 14(e) below, and (ii) all charges payable under the
Saint David's Lease and the Contracts shall be apportioned.
(c) Charges for the consumption of electricity, fuel oil on
the Property, steam, gas, telephone services and other utility
services, if any, shall be apportioned (except that no
apportionment shall be made for any such items that are furnished
and charged by the applicable utility company directly to Tenants
under Leases).
(d) At the Closing, Buyer shall pay to Seller, in cash or
by cashier's or certified check, or by federal funds wire
transfer, a sum equivalent to all monies in house banks, petty
cash and cash registers, other than monies that Atrium Beverage
Corporation owns or is entitled to receive, which it shall
retain. Such monies shall be counted jointly by representatives
of Seller and Buyer on the Closing Date.
(e) Transient rentals for guests and income from rooms and
lodging for the day and night of the Closing Date and income from
food and beverage operations for the day and night of the Closing
Date shall belong to Seller.
(f) The fees for Licenses and Permits assigned hereby shall
be apportioned.
(g) All prepaid rents, room rental deposits, and all other
deposits for advance reservations, banquets or future services
shall be paid over to Buyer.
(h) At the Closing, Buyer shall pay to Seller, in cash or
by cashier's or certified check, or by federal funds wire
transfer, a sum equivalent to the cost of all Consumables based
on an inventory of such items made by representatives of Seller
and Buyer at 12:01 a.m. on the Closing Date. Cost shall be the
cost actually paid by Seller for the Consumables as evidenced by
Seller's paid invoices for such items.
(i) Advertising expenses and unused advertising contracts
shall be apportioned, and Buyer shall assume existing contracts
for billboard space and shall be responsible for payments thereon
that accrue for the period after the Closing Date. All such
advertising contracts and contracts for billboard space are set
forth in Schedule "10" attached hereto.
(j) Trade publications and subscriptions, and hotel and
trade association dues shall be apportioned.
(k) Music and entertainment expenses, music license fees
and broadcasting charges shall be apportioned.
(l) Except as herein otherwise provided, all unpaid
commissions, fees or other charges due real estate brokers or
other Persons with respect to any Lease shall be paid by Seller
at or prior to Closing.
Except as herein otherwise provided, all apportionments
provided for in this Agreement shall be made as of 12:01 a.m. on
the Closing Date and based upon the actual number of days in the
period covered by the sum being apportioned. Seller shall use
reasonable efforts to have all utility companies and applicable
Governmental Entities provide meter readings to the Closing Date.
Closing adjustments and apportionments made pursuant to the
foregoing provisions shall be determined jointly by
representatives of Buyer and Seller tentatively at the Closing
and payment of the net figure resulting from such adjustment
shall be made by Buyer or Seller, as the case may be, by check or
by adjustment at the Closing. A final closing adjustment shall
be made by such representatives seventy-five (75) days after the
Closing, and to the extent that any additional payment or
repayment is indicated on such final closing adjustment, such
payment or repayment shall be made within five (5) days after
such final adjustment shall have been made.
15. Past Due Rents and Past Due Accounts.
(a) Omni Hotel shall act as collecting agent for Seller in
respect to the collection of all account receivable balances due
to Seller originating prior to the Closing Date from the
operations of the Hotel from tenants, guests and patrons of the
Hotel for rents and customary hotel and restaurant and cocktail
lounge charges (whether comprised of credit card receivable
payments or otherwise). All payments collected by Omni Hotel
after the Closing Date attributable to Seller's accounts
receivable shall be promptly remitted to Seller. Seller shall
contract with Omni Hotel separately for Omni Hotel to act as
Seller's agent in the collection of Seller's accounts receivable.
Seller shall have the right to institute any proceedings and take
any steps, in Seller's own name or in the name of the Managers,
to effect collection thereof; provided, however, that Seller
hereby agrees to indemnify, defend, exonerate and hold Buyer
harmless for all loss, liability, damage, cost, charge or
expenses (including Fees-and-Costs) incurred by, or asserted
against, Buyer resulting from any such action and/or Seller's
dealing with the particular Person with respect to the particular
controversy involved.
(b) Seller shall be solely responsible for the collection
of any rent, additional rent or other charges in arrears as of
the Closing Date, from any Tenant under an Office Lease,
Residential Lease or EntelCom Lease. Seller shall have the right
to institute any proceedings and take any steps, in Seller's own
name or in the name of the Managers,, to collect rent, additional
rent, or other charges due Seller in arrears as of the Closing
Date, together with the cost of collection thereof; but in no
event shall Seller seek any remedy other than collection of funds
from the particular Tenant which are in arrears as of the Closing
Date (and Seller shall not be entitled to seek a termination of
such Tenant's Lease or eviction of the Tenant); provided,
however, that Seller hereby agrees to indemnify, defend,
exonerate and hold Buyer harmless for all loss, liability,
damage, cost, charge or expense (including Fees-And-Costs)
incurred by, or asserted against, Buyer resulting from any such
action and/or Seller's dealing with the particular Person with
respect to the particular controversy involved.
(c) Neither party shall have an obligation to collect on
behalf of the other party any such past due accounts or rents
referred to in Subsection 15(a) and (b) above.
16. Inspection of the Property. (a) NOTWITHSTANDING
ANYTHING HEREIN TO THE CONTRARY, SELLER IS CONVEYING THE PROPERTY
TO BUYER "AS IS", "WHERE IS", AND WITH ALL FAULTS AND
SPECIFICALLY AND EXPRESSLY EXCEPT AS SET FORTH IN SECTION 18a,
WITHOUT ANY WARRANTIES, REPRESENTATIONS OR GUARANTEES, EITHER
EXPRESS OR IMPLIED, OF ANY KIND, NATURE, OR TYPE WHATSOEVER FROM
OR ON BEHALF OF THE SELLER. BUYER ACKNOWLEDGES AND AGREES THAT
DURING THE INSPECTION PERIOD, BUYER WILL CONDUCT ITS OWN
INDEPENDENT INVESTIGATION AND INSPECTION OF ALL ASPECTS OF THE
PROPERTY. BUYER FURTHER ACKNOWLEDGES AND AGREES THAT ANY
INFORMATION PROVIDED BY SELLER TO BUYER WITH RESPECT TO THE
PROPERTY HAS BEEN OBTAINED FROM A VARIETY OF SOURCES AND THAT
SELLER HAS NOT MADE ANY INDEPENDENT INVESTIGATION OR
VERIFICATION OF SUCH INFORMATION.
(b) Buyer shall have until 45 days after the later of (i)
the Effective Date or (ii) the date on which Seller has notified
Buyer that substantially all of the documents and information
described in Section 6a have been made available to Buyer (the
"Inspection Period") to inspect and review, at Buyer's sole cost
and expense, all matters relating to the Property (the "Due
Diligence Review"), including without limitation all plans and
specifications, the physical condition of the Property,
Contracts, Leases, Licenses and Permits, Trade Materials, Books
and Records, Plans, Warranties and Guaranties, Survey, Title
Commitment, Estoppel Certificates, ad valorem property tax
statements, as well as any reports obtained by Buyer, all
documents relating to the construction, replacement or repair of
any portion of the Improvements, and any other document or other
aspect of the Property (if the same are available to Seller).
After execution of this Agreement and delivery of the Deposit to
the Title Company, Seller shall provide reasonable access to the
Property to Buyer and Buyer's agents and Seller shall make
available to Buyer documents in Seller's or Manager's possession
relating to the Property at the offices of the Manager of the
Property, all during normal business hours. Buyer shall not
interfere with Seller's or any Tenant's business operations and
shall not contact any Tenant or Manager without the prior
approval and participation of Seller.
If Buyer, at its sole and exclusive discretion, chooses not
to proceed to Closing, Buyer shall give written notice (the
"Inspection Termination Notice") to Seller of such fact on or
before the close of business on the last day of the Inspection
Period (the "Cutoff Date"). If Buyer does not timely give the
Inspection Termination Notice to Seller, Buyer shall be deemed to
be satisfied with the Property and all matters relating thereto,
including, without limitation, the Survey, Title Commitment,
Estoppel Certificates and other documents and information made
available to Buyer during its Due Diligence Review. If Buyer
timely gives the Inspection Termination Notice to Seller, the
Deposit together with all interest earned thereon shall be
immediately returned to Buyer, less and with the exception of One
Hundred and No/100 Dollars ($100.00) of the Deposit together with
all interest earned on such $100 which shall be immediately
delivered to Seller in consideration for the Due Diligence Review
and Sellers' entering into this Agreement. If Buyer timely gives
the Inspection Termination Notice to Seller, all rights and
obligations of the parties hereto shall terminate (other than the
obligation of Buyer to keep confidential all documents and other
material furnished to Buyer pursuant to the transactions
contemplated by this Agreement and the indemnity obligation owed
by Buyer to Seller in connection with Buyer's Due Diligence
Review, as provided in this Section 16), and this Agreement shall
be null and void and of no further force and effect.
Buyer shall be solely responsible for all damage or loss of
any kind or nature whatsoever, whether to persons or to property,
which may arise as a result of or otherwise because of the acts
or omissions of Buyer or its agents in connection with the Due
Diligence Review and Buyer shall promptly and at its expense
restore the Property and repair any damage occasioned by such
review to the condition the Property was in prior to such review.
Buyer does hereby indemnify and hold Seller harmless from and
against all loss, cost, damage, claim and liability of any kind
and nature which may arise as a result of or otherwise because of
any act or omission of Buyer or its agents.
All matters reviewed or discovered by Buyer in the course of
the Due Diligence Review and all other documents and materials
furnished by or on behalf of Seller to Buyer pursuant to the
transactions contemplated by this Agreement shall be strictly
confidential and shall be deemed to be "Evaluation Material"
under the Confidentiality Agreement - Principal between Buyer and
Broker ("Confidentiality Agreement"). The Confidentiality
Agreement, the Confidentiality Agreement-Agent and the
Registration Agreement attached hereto as Exhibit "O" are
incorporated herein by reference. If no Closing occurs
hereunder, this paragraph, the preceding paragraph and the
Confidentiality Agreement shall survive the termination of this
Agreement.
(c) Buyer shall have ninety (90) days after the Effective
Date (the "Financing Feasibility Period") to obtain third party
financing upon terms acceptable to Buyer. If, after the Cut-Off
Date, Buyer determines that Buyer is unable to obtain acceptable
financing, Buyer shall give written notice (the "Financing
Termination Notice") to Seller of such fact on or before the
close of business on the last day of the Financing Feasibility
Period. If Buyer timely gives the Financing Termination Notice
to Seller, the Deposit together with all interest earned thereon
shall be immediately returned to Buyer, less and with the
exception of an amount certified by Seller equal to Seller's out
of pocket expenses incurred in connection with this Agreement and
the transactions contemplated hereby paid to third parties
including, without limitation, Seller's attorneys' fees and
expenses, costs of the Survey, and architectural and engineering
consulting expenses, and photocopying and reproduction expenses,
up to but not exceeding $40,000, which amount shall be
immediately delivered to Seller.
If Buyer timely gives the Financing Termination Notice to
Seller, all rights and obligations of the parties hereto shall
terminate (other than the obligation of Buyer to keep
confidential all documents and other material furnished to Buyer
pursuant to the transactions contemplated by this Agreement and
the indemnity obligation owed by Buyer to Seller in connection
with Buyer's Due Diligence Review, as provided in this Section
16), and this Agreement shall be null and void and of no further
force and effect.
If Buyer does not timely give the Financing Termination
Notice, the Deposit shall become fully non-refundable except for
Seller's uncured default or failure to close on the Closing Date.
17a. Covenants of Seller. Seller hereby agrees that (unless
a different period is specified) during the period between the
date hereof and the Closing Date:
(a) After the Effective Date until the Closing Date, Seller
(i) will manage the Property or cause the Property to be managed
in accordance with past practices and shall continue to offer
services and amenities in accordance with such past practices,
and (ii) continue past normal practice with respect to
maintenance and repairs of the Property and the Property will be
of at least the same quality on the Closing Date as on the
Effective Date, except for normal wear and tear and any Casualty
covered by Section 10 of this Agreement.
(b) After the Cut-Off Date until the Closing Date, Seller
will not, without the prior written consent of Buyer (which shall
not be unreasonably withheld or delayed), (i) terminate or modify
in any material way any Office Lease, Residential Lease, EntelCom
Lease, Contract, License and Permit, or Warranty and Guaranty or
(ii) enter into any new Contract.
(c) After the Cut-Off Date until the Closing Date, Seller
will not, without the prior written consent of Buyer (which shall
not be unreasonably withheld or delayed), enter into any New
Lease.
(d) Seller shall promptly notify Buyer of any material
change in any condition with respect to the Property or of any
event or circumstance which makes any representation or warranty
of Seller to Buyer under this Agreement untrue or misleading in
any material respect.
(e) Seller shall allow Buyer or Buyer's representatives
access to the Property, and to the Books and Records relating to
the Property as well as to the Leases, Contracts, Licenses and
Permits, Plans, Trade Materials, Warranties and Guaranties and
other documents required to be delivered under this Agreement
upon reasonable prior notice and at reasonable times. Seller
shall cooperate with Buyer and its representatives and allow
them, at Buyer's expense, to make extracts and photocopies from
the Books and Records and other items described in this
Subsection 17(e). Buyer's access to the Property under this
Subsection 17(e) shall be subject to the same conditions as set
forth in Section 16 above.
(f) After the Cut-Off Date, Seller shall cooperate in good
faith with Buyer to obtain all consents, authorizations, orders,
licenses, permits, certificates or approvals of (or filing or
registrations with) any federal, state, local or city
governmental or regulatory body required for the execution,
delivery and performance of the transactions contemplated by this
Agreement (including, without limitation, all approvals of the
Texas Alcoholic Beverage Commission required for the assignment
of the Atrium Beverage Lease and Atrium Beverage Agreement to
Buyer or Buyer's designee and the transfer of all of the
outstanding capital stock of Atrium Beverage Corporation to Buyer
or Buyer's designee) and to diligently and in good faith perform
and comply with or cause Atrium Beverage Corporation to perform
and comply with all requirements and conditions that may be
imposed by any such governmental or regulatory body on Buyer,
Seller or Atrium Beverage Corporation in connection with the
issuance of such approvals, consents, authorizations, licenses or
permits.
(g) Immediately upon obtaining knowledge of the institution
of any proceeding for the condemnation of the Property or any
portion thereof, or any other proceeding arising out of injury or
damage to the Property or any portion thereof, Seller will notify
Buyer of the pendency of such proceedings.
(h) Prior to termination of this Agreement, Seller will not
enter into any agreement that will dispose of the Property, or
any part thereof (other than in the ordinary course of business).
(i) Seller will not, without the prior written consent of
Buyer, create, place, or permit the placing of, any deed of
trust, mortgage, lien, security interest, encumbrance, or charge
on the Property, except for the lien for ad valorem taxes on the
Property which are not delinquent, and should any of the
foregoing become attached hereafter in any manner to any part of
the Property without the prior written consent of Buyer, Seller
will cause the same to be promptly discharged and released.
(j) Seller shall cause FIC Realty to assign the Atrium
Beverage Lease and Atrium Beverage Agreement and to transfer all
of the outstanding capital stock of Atrium Beverage Corporation
to Buyer or Buyer's designee at the Closing or as soon as
practical after the Closing when the necessary regulatory
approvals for such assignment and transfer are obtained.
(k) Seller shall complete the replacement of the roof on
the Property at Seller's sole expense, whether such completion
occurs before or after Closing. If the roof is not completed by
the Closing Date, Seller shall deposit with the Title Company as
Escrow Agent an amount sufficient to complete the roof
replacement in accordance with the roof construction contract.
(l) On or before the Delivery Date, Seller will furnish the
Buyer binders which contain a copy of each Lease, Service
Contract, Construction Contract, License and Permit and Warranty
and Guaranty.
(m) After the Cut-Off Date until the Closing Date, Seller
will, at Buyer's request, use its reasonable best efforts (i) to
obtain MCI's written consent to long distance telecommunication
services being provided pursuant to the MCI Agreement after the
Closing Date to Buyer (with separate billing to Buyer) for the
Tenants of the Office Center and guests and employees of the
Hotel or (ii) obtain for Buyer long-distance telecommunication
services from another provider at rates comparable to those under
the MCI Agreement.
17b. Covenants of Buyer. Buyer hereby agrees that:
(a) St. David's Lease. Buyer shall provide to the St.
David's Landlord such financial information as the St. David's
Landlord may require in order for it to approve or disapprove the
creditworthiness of Buyer pursuant to Section 29 of the St.
David's Lease.
(b) Omni Hotel Agreement. Buyer shall provide to Omni
Hotel such information as Omni Hotel may require in order for it
to make its determination with respect to Buyer's financial
responsibility and reputation pursuant to Section 16.3(a) of the
Omni Hotel Agreement. If Omni Hotel terminates the Omni Hotel
Agreement pursuant to Section 16.3(a) thereof effective as of the
Closing Date, Buyer shall assume all of Seller's obligations
under Articles XIX and XXI of the Omni Hotel Agreement.
(c) Property Management Staff. If Buyer does not acquire
the Property pursuant to this Agreement, Buyer agrees that for a
period of one year from the Effective Date, it will not employ
any of the property management staff of the Property currently
employed by FIC Management and its affiliates. This covenant
shall survive the termination of this Agreement.
(d) Financial Statements. Within twenty (20) days after
the Effective Date, Buyer will deliver to Seller current
financial statements of Buyer and all Persons who are or will
become general and limited partners of, and other equity
investors in, Buyer.
(e) Seller's Name and Logos. After the Closing, Buyer
shall not use the name or logos of Seller or any of Seller's
affiliated companies, including, without limitation, the word
"FIC", in connection with the Property, its advertising or
otherwise.
18a. Seller's Representations and Warranties. Seller
represents and warrants to Buyer as follows, which
representations and warranties shall be true and correct in all
material respects as of the date hereof and, after giving effect
to the revised Schedules, if any, furnished to Buyer by Seller at
the Closing, as of the Closing Date, and which shall not survive
the Closing and conveyance of title:
(a) Existing Leases.
(i) To Seller's knowledge, Exhibits C-1, C-2 and
C-3 attached hereto are lists of each and every Lease
affecting or encumbering all or a portion of the Office
Space, Residential Space or EntelCom System, respectively,
together with all Amendments thereof (such leases together
with the Atrium Beverage Lease being hereinafter
collectively referred to as the "Existing Leases").
(ii) To Seller's knowledge, Schedule "1" attached
hereto is a Rent Roll (herein so called) of the Existing
Leases, current through the date hereof, containing the
following information for the Existing Leases where
applicable: (1) the Tenant's name, (2) the suite, office or
apartment number, (3) the approximate amount of square
footage leased, (4) annual rent, (5) the amount of prepaid
rental, (6) the amount of the security deposit, (7) the date
of the Existing Lease, (8) any rent arrearages and (9)
actual current rent with respect to such leased space as of
the date of the Rent Roll.
(iii) To Seller's knowledge, except as described
on Schedule "2" attached hereto, (A) the Existing Leases are
in full force and effect; (B) no Tenant has failed and is
continuing to fail to observe or perform any agreement,
covenant or obligation under an Existing Lease, including,
but not limited to, the payment of any sum due under an
Existing Lease; and (C) Seller is not aware of any failure
of Seller, which is continuing, in the observance or
performance of any agreement, covenant or obligation on the
part of the landlord/lessor under an Existing Lease.
(iv) To Seller's knowledge, except as set forth
on Schedule "2" attached hereto, there are no material
disputes with any Tenant concerning any of the Existing
Leases presently existing or threatened.
(v) To Seller's knowledge, except for the Tenants
in the Hotel, Seller and the Managers, and except as set
forth on Schedule "2" attached hereto, there are no Persons
occupying space in the Property as tenants, subtenants or
occupants other than the Tenants specifically named in the
Existing Leases, employees and agents of such Tenants, and,
in the case of Fred Wells, who operates executive office
suites on the fifth floor of the Office Center, licensees of
Mr. Wells.
(b) Certificate or Occupancy, Law and Ordinances,
Condemnation and Zoning.
(i) The certificate of occupancy set forth in
Schedule "3" is a true and correct copy of the certificate
of occupancy for the Property.
(ii) To Seller's knowledge, no notice of any
material Violation of any zoning, building or other law,
ordinance, regulation, requirement or directive of any type
against the Property or any portion thereof has been
received by Seller.
(iii) To Seller's knowledge, no notice of a
pending condemnation, expropriation, eminent domain or
similar proceeding affecting all or any portion of the
Property has been received by Seller.
(c) Operating Statements. On or before the Delivery Date,
Seller will deliver to Buyer copies of all monthly, quarterly,
annual and other operating reports prepared by either FIC
Management or Omni Hotel covering the Office Center and Hotel,
respectively, for the years 1993 and 1994 and the first six
months of 1995, and Seller shall forward promptly to Buyer all
such future reports made after the date hereof until the earlier
of the Closing Date or the termination of this Agreement.
(d) Restrictions and Easements. To Seller's knowledge, no
material default or breach exists under any of the covenants,
conditions, restrictions, rights-of-way or easements, if any,
affecting all or any portion of the Property which are to be
performed or complied with by the owner of the Property,
including, but not limited to, the License Agreement.
(e) Service Contracts. To Seller's knowledge, (i) Schedule
"4" attached hereto sets forth a list of all Service Contracts
affecting the Property, (ii) except as set forth on Schedule
"4", there are no material disputes with the contractors, vendors
or Managers under such Service Contracts presently existing or
threatened and (iii) except as listed on Schedule "4", each such
Service Contract is terminable by Seller without penalty on not
more than thirty (30) days' prior notice.
(f) Construction Contracts. To Seller's knowledge, (i)
Schedule "5" attached hereto sets forth a list of all
Construction Contracts under which work affecting the Property is
not yet complete, and (ii) except as set forth on Schedule "5",
there are no material disputes with the contractors thereunder
presently existing or threatened.
(g) Licenses and Permits. To Seller's knowledge, (i)
Schedule "6" attached hereto sets forth a list of all Licenses
and Permits currently affecting the Property, and (ii) except as
set forth on Schedule "6", there are no material disputes with
any Government Entity or other Person thereunder presently
existing or threatened.
(h) Warranties and Guaranties. To Seller's knowledge, (i)
Schedule "7" attached hereto sets forth a list of all Warranties
and Guaranties currently covering the Property or any portion
thereof or issued and to cover the Property in the future, and
(ii) except as set forth on Schedule"7", there are no material
disputes with any Person thereunder presently existing or
threatened.
(i) Trade Materials. To Seller's knowledge, (i) Schedule
"8" attached hereto contains a description of all Trade Materials
and (ii) there are no material disputes with any Government
Entity or Person with respect to any Trade Material presently
existing or threatened.
(j) Legal Proceedings and Bankruptcy.
(i) To Seller's knowledge, except as set forth in
Schedule "9" attached hereto, there are no outstanding
judgments, orders, writs, injunctions or decrees of any
Government Entity, no pending Legal Proceedings or threats
of any material Legal Proceedings, and no proceedings to
foreclose any mortgage, security instrument, lien or other
claim against: (A) the Property; or (B) Seller in
connection with the Property.
(ii) There is not pending, with regard to Seller, any
petition or proceeding in bankruptcy or for the appointment
of a receiver or trustee nor has Seller committed any act of
bankruptcy or been adjudicated a bankrupt or entered into an
assignment for the benefit of creditors, nor is there
pending, with regard to Seller, any petition for its
reorganization, nor has Seller admitted in writing its
inability to pay its debts as they mature.
(k) FIRPTA. Seller is not a foreign person within the
meaning of Section 1445(b)(2) of the Internal Revenue Code of
1986, as amended.
(l) Authority, Actions of Seller, Authorization and
Consents. Seller is a corporation duly organized, validly
existing and in good standing under the laws of the State of
Washington. Seller has all necessary power and lawful authority
to own and operate its assets and properties, including, but not
limited to the Property, and to carry on its business. Seller
has delivered to Buyer a copy of the articles of incorporation
and by-laws of Seller together with all Amendments thereof. The
execution and delivery by Seller of this Agreement and the
Seller's Closing Documents, and the consummation by Seller of the
transactions contemplated thereby, have been duly authorized by
all necessary action of Seller and duly approved by the board of
directors of Seller. Other than the consents and/or approvals of
the shareholders and/or board of directors of Seller and those
contemplated by this Agreement, there are no other approvals,
authorizations, consents or other actions by or filings with any
Person which are required to be obtained or completed by Seller
in connection with the execution and delivery of this Agreement
or any of Seller's Closing Documents (or any other agreement or
instrument required hereunder) or in connection with any other
action required to be taken by Seller hereunder at or before the
Closing. All of the outstanding capital stock of Atrium Beverage
Corporation is owned by FIC Realty and when such stock is
transferred by FIC Realty to Buyer pursuant to this Agreement,
Buyer will acquire valid title thereto, free and clear of all
liens and encumbrances.
(m) EXCEPT AS SET FORTH IN THIS SECTION 18a, SELLER HAS NOT
MADE, DOES NOT MAKE AND SPECIFICALLY DISCLAIMS ANY AND ALL
REPRESENTATIONS, WARRANTIES, PROMISES, COVENANTS, AGREEMENTS OR
GUARANTIES OF ANY KIND OR CHARACTER WHATSOEVER, WHETHER EXPRESS
OR IMPLIED, ORAL OR WRITTEN, PAST, PRESENT OR FUTURE, OF, AS TO,
CONCERNING OR WITH RESPECT TO THE PROPERTY, INCLUDING, BUT NOT
LIMITED TO: (A) THE NATURE, QUALITY OR CONDITION OF THE PROPERTY;
(B) THE INCOME TO BE DERIVED FROM THE PROPERTY; (C) THE
SUITABILITY OF THE PROPERTY FOR ANY AND ALL ACTIVITIES AND USES
WHICH BUYER MAY CONDUCT THEREON; (D) THE COMPLIANCE OF OR BY THE
PROPERTY OR ITS OPERATION WITH ANY LAWS, RULES, ORDINANCES OR
REGULATIONS OF ANY APPLICABLE GOVERNMENTAL AUTHORITY OR BODY,
INCLUDING, BUT NOT LIMITED TO, ANY STATE OR FEDERAL ENVIRONMENTAL
LAW, RULE OR REGULATION; (E) THE HABITABILITY, MERCHANTABILITY OR
FITNESS OF THE PROPERTY FOR A PARTICULAR PURPOSE; OR (F) ANY
OTHER MATTER WITH RESPECT TO THE PROPERTY. BUYER HEREBY WAIVES
ANY SUCH REPRESENTATION, WARRANTY, PROMISES, COVENANTS,
AGREEMENTS OR GUARANTIES.
At the Closing, Seller, if necessary, may furnish to Buyer
revisions to the Schedules attached hereto so as to reflect
changes to the information presented thereon between the date of
this Agreement and the Closing Date.
18b. Buyer's Representations and Warranties. Buyer
represents and warrants to Seller as follows, which
representations and warranties shall be true and correct as of
the date hereof and as of the Closing Date, and which shall not
survive the Closing and conveyance of title:
(a) Buyer is a Texas joint venture validly existing under
the laws of the State of Texas;
(b) Buyer is duly organized, is in good standing and
authorized to do business in Texas, and has the power to carry
out its obligations under this Agreement.
(c) This Agreement is a valid and legally binding
obligation of Buyer in accordance with its terms.
(d) The execution, delivery and performance by Buyer of
this Agreement do not and will not violate any provision of law,
of any order, judgment or decree of any court or other
governmental authority, or of any agreement or other instrument
to which Buyer is a party or by which Buyer is bound, and will
not result in a breach of or constitute a default under any
agreement or other instrument which could result in the creation
or imposition of any lien, charge or encumbrance of any kind upon
the Property.
(e) No actions, suits, investigations, litigation,
bankruptcy, reorganization or other proceedings are pending at
law or in equity or before any federal, state, territorial,
municipal or other government department, commission, board,
bureau, agency, courts or instrumentality, or to its knowledge,
are threatened against or affecting Buyer which would prohibit
Buyer from purchasing the Property.
(f) The execution, delivery and performance of the
Agreement, and any and all documents to be executed by or
received by it will not constitute a breach or default under any
other agreement to which Buyer is a party or by which Buyer may
be bound or affects, or a violation of any law or court order
which may affect Buyer's ability to purchase the Property.
(g) Buyer is reasonably confident that it will be able to
obtain the third party financing it needs to consummate the
purchase of the Property from Seller pursuant to the terms of
this Agreement.
(h) Buyer has delivered to Seller a copy of its joint
venture or partnership agreement and all other documents that
govern its organization, authority and operation.
19. Safe Deposit Boxes. On the Closing Date, Seller shall
deliver to Buyer all keys to the safe deposit boxes in the Hotel,
all receipts and agreements relating to such safe deposit boxes
and a complete list of such safe deposit boxes which list shall
contain the name and room number of each depositor. On the
Closing Date, Seller shall send written notice to the guests in
the Hotel who have safe deposit boxes advising them of the sale
of the Hotel to Buyer and the procedures to be followed pursuant
to this Section 19 and requesting the removal and verification of
the contents thereof within five (5) days after the Closing Date.
Seller at its own expense shall have a representative at the
Hotel during said 5 day period. All such removals and
verifications during said 5 days shall be under the supervision
of a representative of Buyer and the representative of Seller.
Boxes of guests who have not responded to such written notice
shall be listed at the end of such 5 day period. Said boxes
shall be opened in the presence of the representatives of Buyer
and Seller and the contents recorded. Any such property so
recorded and thereafter remaining in the safe deposit boxes under
the control of Buyer shall be the responsibility of Buyer.
20. Baggage Inventory. All baggage checked with or left in
the possession of Seller shall be listed on an inventory to be
prepared in duplicate on the Closing Date and signed by
representatives of Seller and of Buyer and all books, records and
keys concerning such baggage shall be delivered by Seller to
Buyer at the Closing. Buyer shall be responsible for all baggage
listed in such inventory on the Closing Date. Any baggage or
other property of guests retained by Seller as security for
unpaid account receivables may be left on the Property for a
period of ninety (90) days after the Closing Date without any
responsibility or liability therefor on the part of Buyer and
Seller hereby agrees to indemnify, defend, exonerate and hold
Buyer harmless against any claim, cost or expense in connection
with such retained baggage.
21. Indemnity and Survival. (a) Upon the Closing, Seller
agrees to and does hereby indemnify, defend, exonerate and save
Buyer harmless from and against any and all liability, loss,
damage, claims and expenses incurred or suffered by Buyer arising
out of or incidental to the operation of the Property by Seller
prior to the Closing Date, even though same may be asserted
after the Closing Date; provided, however, Seller shall not
indemnify, defend, exonerate or save Buyer harmless from or
against any liability, loss, damage, claims or expenses incurred
or suffered by Buyer arising out of or incidental to the physical
condition of the Land, Improvements or Tangible Personal Property
(the "Physical Conditions Exception"). Buyer agrees to and does
hereby indemnify, defend, exonerate and save Seller harmless from
and against any and all liability, loss, damage, claims and
expense incurred or suffered by Seller arising out of or
incidental to the operation of the Property by Buyer after the
conveyance of the Property to Buyer.
(b) The covenants and agreements set forth in Sections 14,
15, 17a(f), 17a(k), 17a(l), 17b(b), 17b(e), 19, 20, and 21, the
indemnities set forth in Sections 4(a), 12, 15, 16, 20 and 21 and
any claim or cause of action based on fraud shall remain
operative and shall survive the Closing and the execution and
delivery of the Special Warranty Deed and shall not be merged
therein; no other representation, warranty, covenant or
agreements in this Agreement shall so survive. If no Closing
occurs hereunder, the covenants, agreements and indemnities set
forth in Sections 12, 16(b) and 17b(c) shall survive the
termination of this Agreement.
22. Deposit. (a) At the Closing, the Title Company, as
Escrow Agent, shall deliver the Deposit to Seller and deliver all
interest earned on the Deposit to Seller, and all such interest
shall be received by Seller as a credit against, and in reduction
of, the Balance.
(b) If title to the Property has not closed under this
Agreement because of the inability of Seller to close under this
Agreement, or because of a default by Seller causing a failure to
close under this Agreement or because of Buyer's termination of
this Agreement as permitted by and in accordance with the
provisions herein contained, or because any of the conditions to
the obligations of Buyer set forth in Section 8 have not been
satisfied, the Title Company shall promptly return the Deposit,
plus all interest earned thereon, to Buyer, less any amount to be
paid to Seller pursuant to Section 16, upon being notified in
writing by Buyer and Seller (i) of the amount, if any, to be paid
to Seller pursuant to Section 16 and (ii) that Buyer has returned
to Seller all documents provided by Seller or Broker to Buyer
pursuant to this Agreement and the Confidentiality Agreement.
(c) If (i) Buyer has not terminated this Agreement as
permitted by and in accordance with the provisions herein
contained and (ii) title to the Property has not closed under
this Agreement because of the inability of Buyer to close under
this Agreement, or because of a default by Buyer under this
Agreement, Seller shall retain the Deposit, plus all interest
earned thereon.
23. Termination, Default and Remedies. (a) If this
Agreement is terminated by either party pursuant to a right
expressly given it to do so hereunder (herein referred to as a
"Permitted Termination"), except for a termination by Seller
because of the default of Buyer, the Deposit together with all
interest earned thereon shall immediately be returned to Buyer,
less any amount to be paid to Seller pursuant to Section 16, upon
being notified in writing by Buyer and Seller (i) of the amount,
if any, to be paid to Seller pursuant to Section 16 and (ii) that
Buyer has returned to Seller all documents provided by Seller or
Broker to Buyer pursuant to this Agreement and the
Confidentiality Agreement
(b) Default by Seller. (i) Seller shall be in default
hereunder upon the occurrence of any one or more of the following
events:
(A) any of Sellers' warranties or representations set
forth herein are untrue or inaccurate in any material
respect; or
(B) Seller shall fail, in any material way, to meet,
comply with or perform any covenant, agreement or obligation
on its part required, within the time limits and in the
manner required in this Agreement, for any reason other than
a Permitted Termination.
(ii) In the event of a default by Seller hereunder, Buyer
may, at Buyer's option, either:
(A) terminate this Agreement by written notice
delivered to Seller at or prior to the Closing, in which
event the Deposit and all interest earned thereon shall be
paid to Buyer;
(B) enforce specific performance of this Agreement
against Seller (it being understood, however, that should an
expenditure in excess of $250,000 be required to be made in
order to remedy any such default, Seller shall be obligated
to expend no more that $250,000, and, in any event, should
such default not be remedied within 6 months after the
scheduled Closing Date, Buyer's sole remedy shall be under
either Section 23(b)(ii)(A) or 23(b)(ii)(C)); or
(C) pursue an action for damages (it being understood,
however, that the sole measure of damages in any such action
shall be recovery of Fees-And-Costs expended by Buyer in its
Due Diligence Review, such Fees-And-Costs not to exceed, in
any event, $250,000).
(iii) In the event of a default by Seller in the covenant
set forth in Section 17a(j) hereof (excluding, however,
involuntary liens or encumbrances), Buyer may, at Buyer's option,
either:
(A) enforce specific performance of this Agreement
against Seller, without any limitation on the expenditure by
Seller to cure such voluntary lien or encumbrance; or
(B) pursue Buyer's remedies under Section 23(b)(ii)(A)
or 23(b)(ii)(C).
(c) Default by Buyer. (i) Buyer shall be in default
hereunder upon the occurrence of any one or more of the following
events:
(A) any of Buyer's warranties or representations set
forth herein are untrue or inaccurate in any material
respect; or
(B) Buyer shall fail, in any material way, to meet,
comply with or perform any covenant, agreement or obligation
on its part required, within the time limits and in the
manner required in this Agreement, for any reason other than
a Permitted Termination.
(ii) In the event of a default by Buyer hereunder, Seller
may as its sole remedy terminate this Agreement by notice to
Buyer and retain the Deposit together with all interest earned
thereon, it being agreed between Buyer and Seller that such sum
shall be liquidated damages for a default by Buyer hereunder
because of the difficulty, inconvenience and uncertainty of
ascertaining actual damages for such default.
(d) Notice and Opportunity to Cure. In the event that
either party is in default under the terms of this Agreement, the
non-defaulting party shall give the defaulting party written
notice specifically setting forth such default, and the
defaulting party shall have five (5) business days to cure such
default. If the defaulting party fails to cure the default
within such five (5) business day period, the non-defaulting
party shall have the right to pursue its remedies as set forth in
this Section 23.
24. Assignment. This Agreement shall not be assigned by
either party hereto without the prior written consent of the
other party; provided, however, that Buyer may assign its rights
and obligations under this Agreement to an entity in which Buyer
or its principals are the principals, if such other entity timely
complies with Section 17b(a) and (b) and Buyer remains liable
under this Agreement.
25. Supplemental Documents. The parties agree to execute
all documents which may reasonably be required to effectuate the
terms and provisions of this Agreement.
26. Definitions. (a) In this Agreement, and in the
Exhibits and Schedules attached hereto (unless expressly defined
otherwise), the following words and phrases shall have the
following meanings:
"Amendment" means an amendment, renewal, supplement,
modification, expansion, restatement, extension, or any other
change or revision.
"Encumbrance" means any and every mortgage, security
agreement, security interest, lien, levy, lease, pledge,
hypothecation, charge, claim, license, judgment, covenant,
easement, and/or any other encumbrance or restriction of any and
every kind whatsoever.
"EntelCom System" means an enhanced telecommunications
system made available for lease by Seller to the Tenants in the
Property providing the services more particularly described on
Exhibit "N" attached hereto.
"Fees-And-Costs" means reasonable fees, charges and expenses
of attorneys, architects, engineers, expert witnesses,
consultants and other Persons, and all other charges due any of
the foregoing (including costs of photographic reproduction, word
processing, transcripts and printing of briefs and records on
appeal).
"Government Entity" means the United States, the State of
Texas, the City of Austin, Texas, any other State in which a
party to this Agreement is incorporated and any municipality or
other political subdivision of any of the foregoing, and any
agency, authority, department, court, commission or other legal
entity of any of the foregoing asserting jurisdiction over the
Property or any portion thereof or over any of the operations of
businesses located within the Property.
"Hazardous Materials" means (a) asbestos, radon gas, urea
formaldehyde foam insulation, transformers or other equipment
which contain dielectric fluid containing levels of
polychlorinated byphenyls in excess of federal or Texas safety
guidelines, whichever are more stringent, (b) any solid or liquid
wastes (including hazardous wastes), hazardous air pollutants,
hazardous substances, hazardous chemical substances and mixtures,
toxic substances, pollutants and contaminants, as such terms are
defined in the National Environmental Policy Act (42 U.S.C.
Section 4321 et seq.), the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 (42 U.S.C. Section 9601 et
seq.), as amended by the Superfund Amendments and Reauthorization
Act of 1986, the Resource Conservation and Recovery Act (42
U.S.C. Section 6901 et seq.), as amended by the Hazardous and
Solid Wastes Amendments of 1984, the Hazardous Materials
Transportation Act, the Toxic Substances Control Act, the Clean
Water Act (33 U.S.C. Section 1321 et seq.), the Clean Air Act,
the Occupational Safety and Health Act (29 U.S.C. Section 651 et
seq.), and laws of any other Government Entity having
jurisdiction over the Property regulating any of the foregoing
matters or items, as such laws and regulations may be amended
and/or supplemented from time to time, and (c) any other chemical
material or substance, exposure to which is prohibited, or, to
the extent limited or regulated, limited or regulated by any
Government Entity.
"Legal Proceeding" means any action, litigation,
arbitration, administrative proceedings, and other legal or
equitable proceeding of any kind.
"Person" means an individual person, a corporation,
partnership, trust, joint venture, proprietorship, estate,
association, Government Entity or other incorporated or
unincorporated enterprise, entity or organization of any kind.
"Seller's knowledge" means the current actual knowledge of
the officers and directors of Seller and FIC Property Management,
Inc. ("Seller's Knowledgeable Parties") and does not include
constructive knowledge. No examination, inspection or research
is required or implied, nor is there any obligation that any of
Seller's Knowledgeable Parties make any special inquiry.
However, the phrase does obligate Seller to make a reasonable
inquiry of Seller's Knowledgeable Parties to determine if any of
them have current actual knowledge relating to any of the
representations or warranties made by Seller in this Agreement.
"Tenant" means a tenant, subtenant, undertenant or occupant
under a Lease.
"Violation" means any note or notice of any violation of law
noted in or issued by any Government Entity against or with
respect to the Property.
(b) Unless specified to the contrary, references to
Sections, Exhibits and Schedules mean the particular Section,
Exhibit or Schedule in or to this Agreement, all of which
Exhibits and Schedules are made a part hereof for all purposes
the same as if set forth herein verbatim; it being expressly
understood that if any Exhibit attached hereto which is to be
executed and delivered at Closing contains blanks, the same shall
be completed correctly and in accordance with the terms and
provisions contained herein and as contemplated herein prior to
or at the time of execution and delivery thereof.
(c) Wherever used in this Agreement;
(i) the words "include" or "including" shall be
construed as incorporating, also, "but not limited to" or
"without limitation";
(ii) the word "day" means a calendar day unless
otherwise specified;
(iii) the word "party" means each and every Person on
whose behalf this Agreement has been signed at the end of
this Agreement;
(iv) the word "law" (or "laws") means any statute,
ordinance, resolution, regulation, code, rule, order,
decree, judgment, injunction, mandate or other legally
binding requirement of a Government Entity; and
(v) each reference to the Property shall be deemed to
include "and/or any portion thereof".
27. Notices. Any notice or demand provided for or given
pursuant to this Agreement shall be in writing and served on the
parties at the addresses listed below. Any notice shall be
either (a) personally delivered to the address set forth below,
in which case it shall be deemed delivered on the date of
delivery to the addressee; (b) sent by registered or certified
mail/return receipt requested, in which case it shall be deemed
delivered three (3) business days after deposited in the U.S.
Mail; (c) sent by a nationally recognized overnight courier, in
which case it shall be deemed delivered one (1) business day
after deposit with such courier; or (d) sent by
telecommunications ("Fax") in which case it shall be deemed
delivered on the day sent, provided an original is received by
the addressee by a nationally recognized overnight courier within
one (1) business day of the Fax. The addresses and Fax number
listed herein may be changed by written notice to the other
parties, provided, however, that no notice of a change of address
or Fax number shall be effective until date of delivery of such
notice. Copies of notice are for informational purposes only and
a failure to give or receive copies of any notice shall not be
deemed a failure to give notice. For purposes of notice, the
addresses of the parties shall be as follows:
If to Seller: Investors Life Insurance Company of
North America
701 Brazos, Suite 1400
Austin, Texas 78701
Attn: James M. Grace
Executive Vice President
Fax Number: (512) 404-5051
with a copy to: William D. Brown, Esq.
Sneed, Vine, Wilkerson, Selman & Perry
901 Congress Avenue
Austin, Texas 78701
Fax Number: (512) 476-1825
If to Buyer: Omni Congress Joint Venture
823 Congress Avenue
Suite 1111
Austin, Texas 78701
Attn: Tom Stacy
Fax Number: (512) 476-9099
with a copy to: Bruce T. Morrison
Attorney at Law
5929 Balcones Dr., Suite 300
Austin, Texas 78731
Fax Number: (512) 452-6395
28. Section Headings. The section headings are inserted
solely for the convenience of reference and shall not affect the
construction or interpretation of this Agreement.
29. Entire Contract. This Agreement constitutes the entire
contract between the parties hereto and there are no other
understandings, oral or written, relating to the subject matter
hereof, other than the Confidentiality Agreement, which continues
in effect. This Agreement may not be changed, modified or
amended, in whole or in part, except in writing, signed by all
parties.
30. Invalid Provisions. If any one or more of the
provisions of this Agreement, or the applicability or any such
provision to a specific situation, shall be held invalid or
unenforceable, such provision shall be modified to the minimum
extent necessary to make it or its application valid and
enforceable, and the validity and enforceability of all other
provisions of this Agreement and all other applications of any
such provision shall not be affected thereby.
31. Construction. The words "herein", "hereof",
"hereunder" and other similar compounds of the words "here" when
used in this Agreement shall refer to the entire Agreement and
not to any particular provision or section. If the last day of
any time period stated herein shall fall on a Saturday, Sunday or
legal holiday, then the duration of such time period shall be
extended so that it shall end on the next succeeding day which is
not a Saturday, Sunday or legal holiday. Whenever used in this
Agreement, the singular shall include the plural, the plural the
singular, and the use of any gender shall be applicable to all
genders. Marginal notes are inserted for convenience only and
shall not form part of the text of this Agreement.
32. Covenant Not to Record. Buyer will not record this
Agreement. An attempted recording of this Agreement shall
constitute a default hereunder on the part of Buyer.
33. Choice of Law. This Agreement shall be construed in
accordance with and enforceable under the laws of Texas and shall
be fully performable in Travis County, Texas.
34. Binding Effect. Subject to the provisions of Section
24, this Agreement and terms and conditions shall extend to and
be binding upon the parties hereto and their successors and
assigns.
35. Counterparts and Copies. This Agreement may be
executed in several counterparts, which when taken together shall
be deemed to be an original. Each executed copy shall be deemed
an original.
36. Effective Date. The date of formation of this
Agreement (herein called the "Effective Date", "date of this
Agreement" or "date hereof") shall for all purposes be September
5, 1995.
WITNESS the due execution hereof as of the day and year set
forth below.
SELLER:
INVESTORS LIFE INSURANCE COMPANY
OF NORTH AMERICA
By:/s/ Roy F. Mitte
Title: President
Date of Execution: 9-1-95
BUYER:
OMNI CONGRESS JOINT VENTURE
By:/s/ Tom Stacy
Title: Managing Venturer
Date of Execution: 9-1-95
RECEIPT OF DEPOSIT
AND AGREEMENT OF ESCROW AGENT
Escrow Agent hereby acknowledges the receipt of the
following:
(i) one (1) fully signed and executed copy of
this Agreement; and
(ii) the Deposit in the amount of $500,000.00.
Escrow Agent hereby agrees to act as Escrow Agent under and
pursuant to the terms of this Agreement.
ESCROW AGENT:
HERITAGE TITLE COMPANY OF
AUSTIN, INC.
By:/s/ Jan Cox Dwyer
Title: Senior Vice President
Date of Execution: 9-5-95
Exhibit "A"
METES AND BOUNDS DESCRIPTION OF LAND
Exhibit "B"
TANGIBLE PERSONAL PROPERTY
(to be delivered by Delivery Date)
EXHIBIT "C-1"
AUSTIN CENTRE
OFFICE LEASES
(to be delivered by Delivery Date)
EXHIBIT "C-2"
AUSTIN CENTRE
RESIDENTIAL LEASES
(to be delivered by Delivery Date)
EXHIBIT "C-3"
AUSTIN CENTRE
ENTELCOM LEASES
(to be delivered by Delivery Date)
Exhibit "D"
PERMITTED EXCEPTIONS
1. Taxes for 1995 and subsequent years.
2. Terms, conditions and stipulations set out in City of Austin
License Agreement dated May 6, 1986, recorded in Volume
9824, Page 225 in the Real Property Records of Travis
County, Texas, said Agreement having been affected by
Assignment and Assumption of License Agreement dated August
22, 1991, by and between Texas AP, Inc. and Investors Life
Insurance Company of North America, recorded in Volume
11506, Page 188 of the Real Property Records of Travis
County, Texas (pertains to rights and obligations to
maintain landscaping in the right-of-way).
3. Cable Television Installation Agreement dated October 2,
1992, recorded in Volume 11791, Page 816 of the Real
Property Records of Travis County, Texas.
4. Rights of tenants in possession under written leases or
occupancy agreements.
5. Improvements consisting of steps, vault entrances with gas
meter and water meter, thresholds, vents, lighted fabric
banners, pump test connection and fire stand pipes situated
outside of property boundary, as shown on survey dated July
15, 1991 and revised on July 30, 1991, prepared by Donald J.
Kirby, a Registered Professional Land Surveyor No. 2508.
Exhibit "E"
Grantee's Address:
Omni Congress Joint Venture
823 Congress Avenue
Suite 1111
Austin, Texas 78701
SPECIAL WARRANTY DEED
STATE OF TEXAS
KNOW ALL MEN BY THESE PRESENTS:
COUNTY OF TRAVIS
THAT INVESTORS LIFE INSURANCE COMPANY OF NORTH AMERICA, a
Washington corporation ("Grantor"), for and in consideration of
the sum of Ten Dollars ($10.00) cash and other good and valuable
consideration paid by OMNI CONGRESS JOINT VENTURE, a Texas joint
venture ("Grantee"), whose address is 823 Congress Avenue, Suite
1111, Austin, Texas 78701, HAS GRANTED, BARGAINED, SOLD and
CONVEYED, and by these present DOES GRANT, BARGAIN, SELL and
CONVEY unto Grantee all that certain land situated in Travis
County, Texas, and described on Exhibit "A" which is attached
hereto and incorporated herein by reference for all purposes,
together with all appurtenances thereon or in anywise
appertaining thereto and all buildings, structures, fixtures and
improvements located thereon (said land, improvements and
appurtenances being herein together referred to as the
"Property").
This conveyance is made subject to the Permitted Exceptions
set forth in Exhibit "B" hereto.
TO HAVE AND TO HOLD the Property unto Grantee, and Grantee's
successors and assigns forever, and Grantor does hereby bind
Grantor, and Grantor's successors and assigns to WARRANT and
FOREVER DEFEND, all and singular the Property unto Grantee and
Grantee's successors and assigns, against every person whomsoever
lawfully claiming or to claim the same or any part thereof, by,
through or under Grantor, but not otherwise.
For the same consideration, Grantor hereby GRANTS, BARGAINS,
SELLS and CONVEYS, without warranty, express or implied, all
interest, if any, of Grantor in (i) strips or gores, if any,
between the Property and abutting properties and (ii) any
easements, covenants and other rights appurtenant thereto and
(iii) any land lying in the bed of any street, road, avenue or
alley, open or closed, in front of or adjoining the Property, to
the center line thereof.
GRANTEE ACKNOWLEDGES AND AGREES THAT GRANTOR HAS NOT MADE,
DOES NOT MAKE AND SPECIFICALLY DISCLAIMS ANY AND ALL
REPRESENTATIONS, WARRANTIES, PROMISES, COVENANTS, AGREEMENTS OR
GUARANTIES OF ANY KING OR CHARACTER WHATSOEVER, WHETHER EXPRESS
OR IMPLIED, ORAL OR WRITTEN, PAST, PRESENT OR FUTURE, OF, AS TO,
CONCERNING OR WITH RESPECT TO THE PROPERTY, INCLUDING, BUT NOT
LIMITED TO: (A) THE NATURE, QUALITY OR CONDITION OF THE PROPERTY;
(B) THE INCOME TO BE DERIVED FROM THE PROPERTY;(C) THE
SUITABILITY OF THE PROPERTY FOR ANY AND ALL ACTIVITIES AND USES
WHICH GRANTEE MAY CONDUCT THEREON; (D) THE COMPLIANCE OF OR BY
THE PROPERTY OR ITS OPERATION WITH ANY LAWS, RULES, ORDINANCE OR
REGULATIONS OF ANY APPLICABLE GOVERNMENTAL AUTHORITY OR BODY,
INCLUDING, BUT NOT LIMITED TO, ANY STATE OR FEDERAL ENVIRONMENTAL
LAW, RULE OR REGULATION; (E) THE HABITABILITY, MERCHANTABILITY OR
FITNESS OF THE PROPERTY FOR A PARTICULAR PURPOSE; OR (F) ANY
OTHER MATTER WITH RESPECT TO THE PROPERTY. EXCEPT AS SET FORTH
IN THE AGREEMENT OF SALE DATED September 5, 1995 FOR THE SALE OF
THE PROPERTY, GRANTEE HEREBY WAIVES ANY SUCH REPRESENTATION,
WARRANTY, PROMISES, COVENANTS, AGREEMENTS OR GUARANTIES.
EXECUTED this day of , 1995.
GRANTOR:
INVESTORS LIFE INSURANCE COMPANY
OF NORTH AMERICA, a Washington
corporation
By:
Title:
GRANTEE:
OMNI CONGRESS JOINT VENTURE,
a Texas joint venture
By:
Title:
STATE OF TEXAS
COUNTY OF TRAVIS
This instrument was acknowledged before me on ,
1995, by , of Investors
Life Insurance Company of North America, a Washington
corporation, on behalf of said corporation.
Notary Public in and for the State
(S E A L) of Texas
STATE OF TEXAS
COUNTY OF TRAVIS
This instrument was acknowledged before me on ,
1995, by , of Omni
Congress Joint Venture, a Texas joint venture, on behalf of said
joint venture.
Notary Public in and for the State
(S E A L) of Texas
Exhibit "F"
ASSIGNMENT AND ASSUMPTION OF LEASES
THIS ASSIGNMENT AND ASSUMPTION OF LEASES (the "Assignment")
is made as of , 1995, by and between INVESTORS
LIFE INSURANCE COMPANY OF NORTH AMERICA, a Washington corporation
("Assignor"), whose mailing address is 701 Brazos, Suite 1400,
Austin, Texas 78701 and OMNI CONGRESS JOINT VENTURE, a Texas
joint venture ("Assignee"), whose mailing address is 823 Congress
Avenue, Suite 1111, Austin, Texas 78701.
Introductory Provisions:
The following provisions form a part of this
Assignment:
A. Assignor or Assignor's predecessor in title heretofore
entered into certain leases (the "Leases") with tenants covering
office space, retail space, apartment units, hotel rooms and
other hotel facilities and the use of a telephone system all
located in a certain multi-use complex known as Austin Centre,
located on certain land situated in Travis County, Texas (the
"Property") and described on Exhibit "A" which is attached hereto
and incorporated herein by reference for all purposes.
B. Attached hereto as Exhibit "B" and incorporated herein
by reference for all purposes is a true and correct copy of a
list of the Leases presently in force.
C. Assignee desires to purchase from Assignor, and
Assignor desires to sell and assign to Assignee, all of
Assignor's interest in the Leases and all of the rights, benefits
and privileges of the lessor thereunder.
THEREFORE, in consideration of the foregoing and the
agreements and covenants herein set forth, together with the sum
of Ten Dollars ($10.00) and other good and valuable consideration
this day paid and delivered by Assignee to Assignor, the receipt
and sufficiency of all of which are hereby acknowledged by
Assignor, Assignor does hereby ASSIGN, TRANSFER, SET OVER and
DELIVER unto Assignee any and all of Assignor's right, title and
interest in and to all Leases pertaining to the Property, and all
of the rights, benefits and privileges of the lessor thereunder
including without limitation those with respect to all security
deposits, prepaid rentals and reservation deposits made under
Leases and not returned to tenants, but subject to all terms,
conditions, reservations and limitations set forth in the Leases
(all such Leases, properties, rights and interests, subject as
aforesaid, being hereinafter collectively referred to as the
"Assigned Leases").
This Assignment is made subject to the Permitted
Exceptions set forth in Exhibit "C" hereto.
TO HAVE AND TO HOLD all and singular the Assigned
Leases unto Assignee, and Assignee's successors, and assigns
forever, and Grantor does hereby bind Grantor, and Grantor's
successors and assigns to WARRANT and FOREVER DEFEND, all and
singular the Property unto Grantee and Grantee's successors and
assigns, against every person whomsoever lawfully claiming or to
claim the same or any part thereof, by, through or under Grantor,
but not otherwise.
1. Words and phrases not defined herein shall have the
meanings attributed to them in that certain Agreement of Sale
(herein so called) dated September 5, 1995, executed by Assignor
and Assignee covering the sale of the Property from Assignor to
Assignee.
2. Assignor hereby agrees that, subject to the provisions
of Section 5 of the Agreement of Sale, that it shall perform all
of the terms, covenants and conditions of the Leases on the part
of the lessor therein required to be performed prior to the date
hereof (but not those required to be discharged or performed from
and after the date thereof).
3. By accepting this Assignment of Leases and by its
execution hereof, Assignee hereby assumes and agrees to perform
all of the terms, covenants and conditions of the Leases on the
part of the lessor therein required to be performed, from and
after the date hereof (but not those required to be performed
prior thereto, except as specifically provided in Section 5 of
the Agreement of Sale).
4. Assignee hereby agrees to indemnify and hold harmless
Assignor from and against and all loss, cost or expense
(including, without limitation, Fees and Costs) resulting by
reason of Assignee's failure to perform any of the obligations
assumed by Assignee hereunder. Except for the Physical
Conditions Exception as described in Section 21(a) of the
Agreement of Sale and the matters described in Section 5 of the
Agreement of Sale, Assignor hereby agrees to indemnify and hold
harmless Assignee from and against any and all loss, cost or
expense (including, without limitation, Fees and Costs) resulting
by reason of the failure of Assignor to perform any of the
obligations of the lessor under any of the Leases prior to the
date hereof.
5. All of the covenants, terms and conditions set forth
herein shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and assigns.
6. This Assignment may only be modified, altered, amended,
or terminated by the written agreement of Assignor and Assignee.
7. Any notice, request, demand, statement or consent made
hereunder or in connection herewith to any party shall be in
writing and shall be sent to the addresses and in the manner
specified in the Agreement of Sale.
8. If any term, covenant or condition of this Assignment
shall be held to be invalid, illegal or unenforceable in any
respect, this Assignment shall be construed without such
provision.
9. This Assignment shall be governed by and construed
under the laws of the State of Texas without regard to the
principles of conflicts of law.
IN WITNESS WHEREOF, Assignor and Assignee have duly executed
this Assignment as of the date first above written.
ASSIGNOR:
INVESTORS LIFE INSURANCE COMPANY
OF NORTH AMERICA
a Washington corporation
By:
Title:
ASSIGNEE:
OMNI CONGRESS JOINT VENTURE
a Texas joint venture
By:
Title:
STATE OF TEXAS
COUNTY OF TRAVIS
This instrument was acknowledged before me on ,
1995, by , of
Investors Life Insurance Company of North America, a Washington
corporation, on behalf of said corporation.
(S E A L)
Notary Public in and for the State
of Texas
STATE OF TEXAS
COUNTY OF TRAVIS
This instrument was acknowledged before me on ,
1995, by , of Omni Congress Joint
Venture, a , on behalf of said
.
(SEAL)
Notary Public in and for the State
of Texas
Exhibit "G"
BILL OF SALE
THIS BILL OF SALE (the "Bill of Sale") is executed by
INVESTORS LIFE INSURANCE COMPANY OF NORTH AMERICA, a Washington
corporation ("Assignor") to and for the benefit of OMNI CONGRESS
JOINT VENTURE, a Texas joint venture ("Assignee"), whose mailing
address is 823 Congress Avenue, Suite 1111, Austin, Texas 78701.
Introductory Provisions:
The following provisions form a part of this Bill of Sale:
A. Assignor and Assignee are parties to that certain
Agreement of Sale dated September 5, 1995 (the "Agreement of
Sale"), which provides, among other things, for the sale by
Assignor to Assignee of that certain land (the "Land") lying and
being situated in Travis County, Texas, and described on Exhibit
"A" which is attached hereto and incorporated herein by reference
for all purposes, together with the multi-use complex located on
the Land and commonly known as Austin Centre (the said Land and
the improvements thereon being herein referred to as the
"Property"), and the execution of this Bill of Sale.
B. It is the desire of Assignor hereby to sell, assign,
transfer and convey to Assignee all of Assignor's rights, titles
and interests in the below described items affixed or attached
to, or placed or situated upon, or used or acquired in any way
whatsoever in connection with the complete and comfortable use,
enjoyment, occupancy or operation of the Property, except those
not owned by Assignor.
THEREFORE, in consideration of the foregoing and Ten
Dollars ($1.00) and other good and valuable consideration in hand
paid by Assignee to Assignor, the receipt and sufficiency of
which are hereby acknowledged and confessed by Assignor, Assignor
does hereby ASSIGN, TRANSFER, SET OVER and DELIVER to Assignee
all of the following (the "Assigned Properties"):
a. any and all of Assignor's right, title and
interest in and to all fixtures, furniture, furnishings, working
supplies and articles of personal property constructed, erected,
affixed to, attached to, installed or placed in or upon and used
in connection with the occupancy and operation of the Property
including, but not limited to:(i) any and all, if any, mechanical,
elecrtical, heating, air-conditioning, plumbing, sprinkler,
lighting, ventilating and cooling systems, together with their
respective appurtenant gas and electric ranges, refrigerators,
engines, motors, generators, pipes, wiring and other apparatus,
and all lighting fixtures, doors, cabinets, partitions, elevators,
electric motors, pumps office furniture and equipment,
partitions, vaults, safes, electrical, fire prevention and
extinguishing equipment, radio, television, and public address
and amplifying systems, equipment, parts and supplies, chairs,
tables, beds, bedsprings, mattresses, couches, lamps, waste
baskets, desks, silverware, utensils, table and bed linen,
towels, blankets, dishes, glassware, mirrors, carpets, rugs,
other floor coverings, curtains, draperies, pictures, radio and
television sets, stationery and office supplies, pianos, and all
musical instruments, bars and bar equipment, kitchen utensils,
and other furniture and furnishings for all lobbies, ballrooms,
dining rooms, bedrooms, guest rooms, baths and other private and
public rooms, and the furniture, typewriters, furnishings,
equipment, tools, materials and supplies in all storerooms and
offices; and (ii) those items more particularly described on
Exhibit "B" which is attached hereto and incorporated by
reference for all purposes;
b. all goodwill owned by Assignor related to the
operation of the Property, including, without limitation any and
all of Seller's right, title and interest in and to (i) the
telephone numbers and listings of the Property or any portion
thereof, (ii) any and all, if any, trade names, trademarks,
service marks, logos and all copyrights used exclusively in
connection with the Property or any portion thereof, except those
belonging specifically to Omni Hotels Management Corporation or
its affiliates or any tenants of the Property, and (iii) any and
all, if any, video tapes, films, brochures and other advertising
and promotion materials of any kind or nature owned by Assignor
and used in connection with the advertising of the Property or
any portion thereof;
c. all books, records, tenant, guest and customer
lists for the Property or any portion thereof owned by Assignor
and in the possession of Assignor or any of the Managers,
together with any and all, if any, files, reports, surveys,
studies, projections, budgets and strategic plans prepared for
Assignor in connection solely with the operation, maintenance and
management of the Property or any portion thereof and in the
possession of Assignor or any of the Managers;
d. any and all of Seller's right, title and interest
in and to any and all, if any, architects' and engineers'
drawings, plans, specifications, models and work product,
studies, surveys and other materials developed in connection with
the construction, repair and maintenance of the Property or any
portion thereof owned by Assignor and in the possession of
Assignor or any of the Managers of the Property or any portion
thereof; and
e. all meat, fish and poultry inventories on hand at
and other food and non-alcoholic beverage inventories at, and for
use at, the Property and owned by Seller at 12:01 a.m. on the
date hereof.
This Bill of Sale is made subject to the Permitted
Exceptions set forth in Exhibit "C" hereto.
TO HAVE AND TO HOLD the Assigned Properties unto
Assignee, and Assignee's successors and assigns forever, and
Assignor does hereby bind Assignor, Assignor's successor and
assigns to WARRANT and FOREVER DEFEND, all and singular the
Assigned Properties unto Assignee and Assignee's successors and
assigns, against every person whomsoever lawfully claiming or to
claim the same or any part thereof, by, through or under
Assignor, but not otherwise.
The Assigned Properties are in a used condition, and
Assignor is neither a manufacturer nor a distributor of, nor
dealer or merchant in, the Assigned Properties.
ASSIGNEE ACKNOWLEDGES AND AGREES THAT ASSIGNOR HAS NOT MADE,
DOES NOT MAKE AND SPECIFICALLY DISCLAIMS ANY AND ALL
REPRESENTATIONS, WARRANTIES, PROMISES, COVENANTS, AGREEMENTS OR
GUARANTIES OF ANY KIND OR CHARACTER WHATSOEVER, WHETHER EXPRESS
OR IMPLIED, ORAL OR WRITTEN, PAST, PRESENT OR FUTURE, OF, AS TO,
CONCERNING OR WITH RESPECT TO THE ASSIGNED PROPERTIES, INCLUDING,
BUT NOT LIMITED TO: (A) THE NATURE, QUALITY OR CONDITION OF THE
ASSIGNED PROPERTIES; (B) THE INCOME TO BE DERIVED FROM THE
ASSIGNED PROPERTIES; (C) THE SUITABILITY OF THE ASSIGNED
PROPERTIES FOR ANY AND ALL ACTIVITIES AND USES WHICH ASSIGNEE MAY
CONDUCT THEREON; (D) THE COMPLIANCE OF OR BY THE ASSIGNED
PROPERTIES OR ITS OPERATION WITH ANY LAWS, RULES, ORDINANCES OR
REGULATION OF ANY APPLICABLE GOVERNMENTAL AUTHORITY OR BODY,
INCLUDING, BUT NOT LIMITED TO, ANY STATE OR FEDERAL ENVIRONMENTAL
LAW, RULE OR REGULATION; (E) THE HABITABILITY, MERCHANTABILITY
OR FITNESS OF THE ASSIGNED PROPERTIES FOR A PARTICULAR PURPOSE;
OR (F) ANY OTHER MATTER WITH RESPECT TO THE ASSIGNED PROPERTIES.
EXCEPT AS SET FORTH IN THE AGREEMENT OF SALE DATED September 5,
1995 FOR THE SALE OF THE PROPERTY, ASSIGNEE HEREBY WAIVES ANY
SUCH REPRESENTATION, WARRANTY, PROMISES, COVENANTS, AGREEMENTS OR
GUARANTIES.
NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, ASSIGNOR IS
CONVEYING THE ASSIGNED PROPERTIES TO ASSIGNEE "AS IS", "WHERE
IS", AND WITH ALL FAULTS AND SPECIFICALLY AND EXPRESSLY WITHOUT
ANY WARRANTIES, REPRESENTATIONS OR GUARANTEES, EITHER EXPRESS OR
IMPLIED, OF ANY KIND, NATURE, OR TYPE WHATSOEVER FROM OR ON
BEHALF OF THE ASSIGNOR
1. Words and phrases defined in the Agreement of Sale
shall have the same meaning herein.
2. If any term, covenant or condition of this Bill of Sale
shall be held to be invalid, illegal or unenforceable in any
respect, this Bill of Sale shall be construed without such
provision.
3. This Bill of Sale shall be governed by and construed
under the laws of the State of Texas without regard to the
principles of conflicts of law.
EXECUTED this day of , 1995.
ASSIGNOR:
INVESTORS LIFE INSURANCE COMPANY
OF NORTH AMERICA
a Washington corporation
By:
Title:
ASSIGNEE:
OMNI CONGRESS JOINT VENTURE
a Texas joint venture
By:
Title:
Exhibit "H"
ASSIGNMENT AND ASSUMPTION OF CONTRACTS
AND THE SAINT DAVID'S LEASE
THIS ASSIGNMENT AND ASSUMPTION OF CONTRACTS AND THE
SAINT DAVID'S LEASE (the "Assignment") is made as of
, 1995, by and between INVESTORS LIFE INSURANCE COMPANY OF NORTH
AMERICA, a Washington corporation ("Assignor"), whose mailing
address is 701 Brazos, Suite 1400, Austin, Texas 78701, and OMNI
CONGRESS JOINT VENTURE, a Texas joint venture ("Assignee"), whose
mailing address is 823 Congress Avenue, Suite 1111, Austin, Texas
78701.
Introductory Provisions:
A. Assignor and Assignee are parties to that certain
Agreement of Sale dated September 5, 1995 (the "Agreement of
Sale"), which provides, among other things, for the sale by
Assignor to Assignee of that certain tract of land located in
Travis County, Texas, as more particularly described on Exhibit
"A" attached hereto and made part hereof for all purposes,
together with the multi-use complex located thereon more commonly
known as Austin Centre (the "Property"), and the execution and
delivery of this Assignment.
B. Assignor has certain rights, title and interest in
and to:
1. the contracts or agreements, and all Amendments
thereof, for construction work, materials, or equipment or for
architectural services, professional engineering services, or
other services, which entitles the Person furnishing the same to
file a lien against the Property and which has a term expiring
after the date hereof or under which any amount remains due and
owing to the applicable Person, as more particularly described on
Exhibit "B" attached hereto and made part hereof for all purposes
(collectively the "Construction Contracts");
2. the contracts or agreements (other than the
Construction Contracts) and Amendments thereof, for the
furnishing of management, maintenance, repairs, supplies,
equipment, or other services to the Property, including but not
limited to, the equipment leases for the Entelcom System, which
have a term expiring after the date hereof, as more particularly
described on Exhibit "C" attached hereto (collectively, the
"Service Contracts"); and
3. that certain parking lease agreement (the "Saint
David's Lease"), dated April 1, 1992, between Protestant
Episcopal Church Council of the Diocese of Texas and St. David's
Episcopal Church, collectively as landlord (the "Saint David's
Landlord") and Assignor, as tenant, providing for additional
parking space for the use of the Property.
C. The Agreement of Sale requires Assignor to assign
to Assignee any and all of Assignor's right, title and interest
in and to the Construction Contracts, Service Contracts, and
Saint David's Lease and requires Assignee to assume Assignor's
obligations under the Construction Contracts, Service Contracts
and Saint David's Lease.
THEREFORE, in consideration of the foregoing and the
agreements and covenants herein set forth, together with the sum
of Ten Dollars ($10.00) and other good and valuable consideration
this day paid and delivered by Assignee to Assignor, the receipt
and sufficiency of all of which are hereby acknowledged by
Assignor, Assignor does hereby ASSIGN, TRANSFER, SET OVER and
DELIVER unto Assignee any and all of Assignor's right, title and
interest in and to the Construction Contracts, the Service
Contracts, the Saint David's Lease and any and all of the rights,
benefits and privileges of Assignor thereunder (collectively, the
"Assigned Agreements").
This Assignment is made subject to the Permitted
Exceptions set forth in Exhibit "A" attached hereto.
TO HAVE AND TO HOLD all and singular the Assigned
Agreements unto Assignee, and Assignee's successors, and assigns
forever.
1. Words and phrases defined in the Agreement of Sale
shall have the same meaning herein.
2. Assignor agrees that it shall be responsible to any
contractors and vendors under the Construction Contracts and
Service Contracts and the Saint David's Landlord under the Saint
David's Lease for the discharge or performance of any duties or
obligations to be performed or discharged by Assignor thereunder
prior to the date hereof, but Assignor shall not be responsible
to any contractors or vendors under the Construction Contracts
and Service Contracts or the Saint David's Landlord under the
Saint David's Lease for the discharge or performance of such
duties or obligations to be performed or discharged by Assignor
thereunder from and after the date hereof.
3. Assignee hereby assumes and agrees to perform all of
the terms, covenants and conditions of the Assigned Agreements on
the part of Assignor required to be performed thereunder, from
and after the date hereof (but not those required to be performed
prior thereto).
4. Assignee hereby agrees to indemnify and hold harmless
Assignor from and against any and all loss, liability, cost,
claim, damage or expense (including Fees and Costs) incurred to
enforce any rights and/or secure any remedies under this
Assignment resulting by reason of the failure of Assignee to
perform its obligations under the Assigned Agreements as
specified in this Assignment and/or Assignee's failure to perform
its obligations under this Assignment.
5. Except as to the Physical Conditions Exception
described in Section 21(a) of the Agreement of Sale, Assignor
hereby agrees to indemnify and hold harmless Assignee from and
against any and all loss, liability, cost, claim, damage or
expense (including Fees and Costs) incurred to enforce any rights
and/or secure any remedies under this Assignment resulting by
reason of the failure of Assignor to perform its obligations
under the Assigned Agreements as specified in this Assignment
and/or Assignor's failure to perform its obligations under this
Assignment.
6. Each party shall sign and give such notices and
consents as shall be necessary to confirm the provisions of this
Assignment to any other Persons having rights or obligations
under the Assigned Agreements, as the other may request from time
to time, and each party shall execute and deliver to the other
such further instruments, documents and agreements as the other
may reasonably require to make this Assignment effective.
7. All of the covenants, terms and conditions set forth
herein shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and assigns.
8. This Assignment may only be modified, altered, amended,
or terminated by the written agreement of Assignor and Assignee.
9. Any notice, request, demand, statement or consent made
hereunder or in connection herewith to any party shall be in
writing and shall be sent to the addresses and in the manner
specified in the Agreement of Sale.
10. In any term, covenant or condition of this Assignment
shall be held to be invalid, illegal or unenforceable in any
respect, this Assignment shall be construed without such
provisions.
11. This Assignment shall be governed by and construed
under the laws of the State of Texas without regard to principles
of conflicts of law.
IN WITNESS WHEREOF, Assignor and Assignee have duly executed
this Assignment as of the day and year first above written.
ASSIGNOR:
INVESTORS LIFE INSURANCE COMPANY
OF NORTH AMERICA
a Washington corporation
By:
Title:
ASSIGNEE:
OMNI CONGRESS JOINT VENTURE
a Texas joint venture
By:
Title:
Exhibit "I"
ASSIGNMENT AND ASSUMPTION OF LICENSES AND PERMITS
THIS ASSIGNMENT AND ASSUMPTION OF LICENSES AND PERMITS (the
"Assignment") is made as of , 1995, by
and between INVESTORS LIFE INSURANCE COMPANY OF NORTH AMERICA, a
Washington corporation ("Assignor"), whose mailing address is 701
Brazos, Suite 1400, Austin, Texas 78701, and OMNI CONGRESS JOINT
VENTURE, a Texas joint venture ("Assignee"), whose mailing
address is 823 Congress Avenue, Suite 1111, Austin, Texas 78701.
Introductory Provisions:
The following provisions form a part of this Assignment:
A. Assignor and Assignee are parties to that certain
Agreement of Sale dated September 5, 1995 (the "Agreement of
Sale") which provides, among other things, for the sale by
Assignor to Assignee of that certain tract of land located in
Travis County, Texas, as more particularly described on Exhibit
"A" attached hereto and made part hereof for all purposes,
together with the multi-use complex located thereon more commonly
known as Austin Centre (the "Property"), and the execution and
delivery of this Assignment.
B. Assignor has certain rights, title and interest in and
to the building and other permits, certificates, licenses,
franchises, authorizations and approvals granted by Government
Entities necessary or useful in connection with the Property
and/or the operation of the Improvements or any part thereof, as
more particularly described on Exhibit "B" attached hereto and
made a part hereof for all purposes (the "Licenses and Permits").
C. The Agreement of Sale requires Assignor to assign to
Assignee any and all of Assignor's right, title and interest in
and to the Licenses and Permits and requires Assignee to assume
Assignor's obligations under the Licenses and Permits.
THEREFORE, in consideration of the foregoing and the
agreements and covenants herein set forth, together with the sum
of Ten Dollars ($10.00) and other good and valuable consideration
this day paid and delivered by Assignee to Assignor, the receipt
and sufficiency of all of which are hereby acknowledged by
Assignor, Assignor does hereby ASSIGN, TRANSFER, SET OVER and
DELIVER unto Assignee any and all of Assignor's right, title and
interest in and to the Licenses and Permits, excluding the Liquor
Licenses, and any and all of the rights, benefits and privileges
of Assignor thereunder.
This Assignment is made subject to the Permitted Exceptions
set forth in Exhibit "C" attached hereto.
TO HAVE AND TO HOLD all and singular the Licenses and
Permits unto Assignee, and Assignee's successors, and assigns
forever.
1. Words and phrases defined in the Agreement of Sale
shall have the same meaning herein.
2. Assignor agrees that it shall be responsible to all
applicable Government Entities and Persons under the Licenses and
Permits for the discharge or performance of any duties or
obligations to be performed or discharged by Assignor thereunder
prior to the date hereof, but Assignor shall not be responsible
to any Government Entities or Persons under the Licenses and
Permits for the discharge or performance of such duties or
obligations to be performed or discharged by Assignor thereunder
from and after the date hereof.
3. Assignee hereby assumes and agrees to perform all of
the terms, covenants and conditions of the Licenses and Permits
on the part of Assignor required to be performed thereunder, from
and after the date hereof (but not those required to be performed
prior thereto).
4. Assignee hereby agrees to indemnify and hold harmless
Assignor from and against any and all loss, liability, cost,
claim, damage or expense (including Fees and Costs) incurred to
enforce any rights and/or secure any remedies under this
Assignment resulting by reason of the failure of Assignee to
perform its obligations under the Licenses and Permits from and
after the date hereof and/or Assignee's failure to perform its
obligations under this Assignment.
5. Except as to the Physical Conditions Exception
described in Section 21(a) of the Agreement of Sale, Assignor
hereby agrees to indemnify and hold harmless Assignee from and
against any and all loss, liability, cost, claim, damage or
expense (including Fees and Costs) incurred to enforce any rights
and/or secure any remedies under this Assignment resulting by
reason of the failure of Assignor to perform its obligations
under the Licenses and Permits prior to the date hereof and/or
Assignor's failure to perform its obligations under this
Assignment.
6. Each party shall sign and give such notices and
consents as shall be necessary to confirm the provisions of this
Assignment to any other Person having rights or obligations under
the Licenses and Permits as the other may request from time to
time, and each party shall execute and deliver to the other such
further instruments, documents and agreements as the other may
reasonably require to make this Assignment effective.
7. All of the covenants, terms and conditions set forth
herein shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and assigns.
8. This Assignment may only be modified, altered, amended,
or terminated by the written agreement of Assignor and Assignee.
9. Any notice, request, demand, statement or consent made
hereunder or in connection herewith to any party shall be in
writing and shall be sent to the addresses and in the manner
specified in the Agreement of Sale.
10. If any term, covenant or condition of this Assignment
shall be held to be invalid, illegal or unenforceable in any
respect, this Assignment shall be construed without such
provisions.
11. This Assignment shall be governed by and construed
under the laws of the State of Texas without regard to principles
of conflicts of law.
IN WITNESS WHEREOF, Assignor and Assignee have duly executed
this Assignment as of the day and year first above written.
ASSIGNOR:
INVESTORS LIFE INSURANCE COMPANY
OF NORTH AMERICA
a Washington corporation
By:
Title:
ASSIGNEE:
OMNI CONGRESS JOINT VENTURE
a Texas joint venture
By:
Title:
Exhibit "J"
ASSIGNMENT AND ASSUMPTION OF WARRANTIES AND GUARANTIES
THIS ASSIGNMENT AND ASSUMPTION OF WARRANTIES AND GUARANTIES
(the "Assignment") is made as of , 1995,
by and between INVESTORS LIFE INSURANCE COMPANY OF NORTH AMERICA,
a Washington corporation ("Assignor"), whose mailing address is
701 Brazos, Suite 1400, Austin, Texas 78701 and OMNI CONGRESS
JOINT VENTURE, a ("Assignee"), whose mailing
address is 823 Congress Avenue, Suite 1111, Austin, Texas 78701.
Introductory Provisions:
The following provisions form a part of this Assignment:
A. Assignor and Assignee are parties to that certain
Agreement of Sale dated September 5, 1995 (the "Agreement of
Sale"), which provides, among other things, for the sale by
Assignor to Assignee of that certain tract of land located in
Travis County, Texas, as more particularly described on Exhibit
"A" attached hereto and made part hereof for all purposes,
together with the multi-use complex located thereon more commonly
known as Austin Centre (the "Property"), and the execution and
delivery of this Assignment.
B. Assignor has certain rights, title and interest in and
to the unexpired warranties and guaranties and payment and/or
performance bonds provided in connection with any work or
services provided under the Construction Contracts, Service
Contracts or otherwise in connection with the construction and/or
operation of the Property, as more particularly described on
Exhibit "B" attached hereto and made a part hereof for all
purposes (the "Warranties and Guaranties").
C. The Agreement of Sale requires Assignor to assign to
Assignee any and all of Assignor's right, title and interest in
and to the Warranties and Guaranties and requires Assignee to
assume Assignor's obligations under the Warranties and
Guaranties.
THEREFORE, in consideration of the foregoing and the
agreements and covenants herein set forth, together with the sum
of Ten Dollars ($10.00) and other good and valuable consideration
this day paid and delivered by Assignee to Assignor, the receipt
and sufficiency of all of which are hereby acknowledged by
Assignor, Assignor does hereby ASSIGN, TRANSFER, SET OVER and
DELIVER unto Assignee any and all of Assignor's right, title and
interest in and to the Warranties and Guaranties and any and all
of the rights, benefits and privileges of Assignor thereunder.
This Assignment is made subject to the Permitted Exceptions
set forth in Exhibit "C" attached hereto.
TO HAVE AND TO HOLD all and singular the Warranties and
Guaranties unto Assignee, and Assignee's successors, and assigns
forever.
1. Words and phrases defined in the Agreement of Sale
shall have the same meaning herein.
2. Assignor agrees that it shall be responsible to all
applicable Persons under the Warranties and Guaranties for the
discharge or performance of any duties or obligations to be
performed or discharged by Assignor thereunder prior to the date
hereof, but Assignor shall not be responsible to any Persons
under the Warranties and Guaranties for the discharge or
performance of such duties or obligations to be performed or
discharged by Assignor thereunder from and after the date hereof.
3. Assignee hereby assumes and agrees to perform all of
the terms, covenants and conditions of the Warranties and
Guaranties on the part of Assignor required to be performed
thereunder, from and after the date hereof (but not those
required to be performed prior thereto).
4. Assignee hereby agrees to indemnify and hold harmless
Assignor from and against any and all loss, liability, cost,
claim, damage or expense (including Fees and costs) incurred to
enforce any rights and/or secure any remedies under this
Assignment resulting by reason of the failure of Assignee to
perform its obligations under the Warranties and Guaranties from
and after the date hereof and/or Assignee's failure to perform
its obligations under this Assignment.
5. Except as to the Physical Conditions Exception
described in Section 21(a) of the Agreement of Sale, Assignor
hereby agrees to indemnify and hold harmless Assignee from and
Against any and all loss, liability, cost, claim, damage or
expense (including Fees and Costs) incurred to enforce any rights
and/or secure any remedies under this Assignment resulting by
reason of the failure of Assignor to perform its obligations
under the Warranties and Guaranties prior to the date hereof
and/or Assignor's failure to perform its obligations under this
Assignment.
6. Each party shall sign and give such notices and
consents as shall be necessary to confirm the provisions of this
Assignment to any other Persons having rights or obligations
under the Warranties and Guaranties as the other may request from
time to time, and each party shall execute and deliver to the
other such further instruments, documents and agreements as the
other may reasonably require to make this Assignment effective.
7. All of the covenants, terms and conditions set forth
herein shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and assigns.
8. This Assignment may only be modified, altered, amended,
or terminated by the written agreement of Assignor and Assignee.
9. Any notice, request, demand, statement or consent made
hereunder or in connection herewith to any party shall be in
writing and shall be sent to the addresses and in the manner
specified in the Agreement of Sale.
10. If any term, covenant or condition of this Assignment
shall be held to be invalid, illegal or unenforceable in any
respect, this Assignment shall be construed without such
provision.
11. This Assignment shall be governed by and construed
under the laws of the State of Texas without regard to principles
of conflicts of law.
IN WITNESS WHEREOF, Assignor and Assignee have duly executed
this Assignment as of the day and year first above written.
ASSIGNOR:
INVESTORS LIFE INSURANCE COMPANY
OF NORTH AMERICA
a Washington corporation
By:
Title:
ASSIGNEE:
OMNI CONGRESS JOINT VENTURE
a Texas joint venture
By:
Title:
Exhibit "K-1"
(Closing Date)
To: (Name and address of Tenant)
Re: Your space leased at Austin Centre, Austin, Texas
Gentlemen:
This is to inform you that on (Closing Date), Omni Congress
Joint Venture ("Omni Congress") purchased the Austin Centre from
Investors Life Insurance Company of North America ("Investors"),
and that as of such date Omni Congress has succeeded to the
rights and assumed the obligations of Investors as Landlord,
under your Lease for your space at Austin Centre. Omni Congress
acknowledges receipt of your security deposit in the amount of
$ which has been delivered by Investors and will hold
such security deposit in accordance with the terms of your Lease
and the provisions of the law relating to security deposits.
Kindly make all future rent payments under the Lease payable
to the order of Omni Congress Joint Venture.
All future rent payments, formal communications and all
inquiries (including any request for return of security) should
be sent to Omni Congress Joint Venture, 823 Congress Avenue,
Suite 111, Austin, Texas 78701.
Very truly yours,
INVESTORS LIFE INSURANCE COMPANY
OF NORTH AMERICA
By:
Title:
OMNI CONGRESS JOINT VENTURE
By:
Title:
Exhibit "K-2"
(Closing Date)
To: (Name and address of Manager)
Attention:
Re: Your Management Contract with Investors Life Insurance
Company of North America in connection with Austin
Centre, Austin, Texas
Gentlemen:
This is to inform you that as of (Closing Date), Omni
Congress Joint Venture has succeeded to the rights and assumed
the obligations of Investors Life Insurance Company of North
America, as owner under the Management Contract dated
, 19 with you regarding the Austin Centre.
All future formal communications and inquiries should be
sent to Omni Congress Joint Venture, 823 Congress, Suite 1111,
Austin, Texas 78701.
Very truly yours,
INVESTORS LIFE INSURANCE COMPANY
OF NORTH AMERICA
By:
Title:
Exhibit "K-3"
(Closing Date)
To: St. David's Episcopal Church
304 West Seventh Street
Austin, Texas 78701
Attention: Business Administrator
Re: That certain Parking Lease (the "Lease") by and between
the Protestant Episcopal Church Council of the Diocese
of Texas and St. David's Episcopal Church (together,
"Landlord"), as landlord, and Investors Life Insurance
Company of North America, as tenant, dated April 1,
1992 covering the leasing to Investors Life Insurance
Company of North America of certain parking spaces (the
"Leased Premises") located in the parking garage
situated on Lots 7, 8, 9 and 10, Block 86, Old City of
Austin, Travis County, Texas
Gentlemen:
This is to inform you that as of (Closing Date), Omni
Congress Joint Venture has succeeded to the rights and assumed
the obligations of Investors Life Insurance Company of North
America, as tenant, under the Lease.
All future formal communications and inquiries should be
sent to Omni Congress Joint Venture, 823 Congress Avenue, Suite
1111, Austin, Texas 78701.
Very truly yours,
INVESTORS LIFE INSURANCE COMPANY
OF NORTH AMERICA
By:
Title:
Exhibit "L"
CERTIFICATE OF CORPORATE OFFICERS
I, , hereby certify that I
am now, and at all times mentioned herein have been, the duly
elected, qualified, and acting (Assistant) Secretary of Investors
Life Insurance Company of North America, a Washington corporation
(the "Corporation"), and, as such officer, I have access to the
records of the Corporation, which records of the Corporation
reflect that:
1. Resolutions. Attached hereto as Annex 1 and
incorporated herein by reference is a true and correct copy of
resolutions which have been duly adopted by the Board of
Directors of the Corporation in compliance with and not in
contravention of the articles of incorporation and bylaws of the
Corporation; none of such resolutions has been repealed or
modified in any respect, and all of such resolutions are in full
force and effect on the date hereof; and Exhibit A which is
attached hereto and incorporated herein by reference is a true
and correct copy of the Exhibit A referred to in such
resolutions.
2. Incumbency. The following named individuals are duly
elected, qualified and acting officers of the Corporation holding
the offices set forth opposite their respective names as of the
date hereof, and set forth opposite the respective titles of said
officers are their true, authentic signatures.
Name Title Specimen Signature
President
Executive Vice
President
Secretary
Assistant
Secretary
3. Articles of Incorporation and Bylaws. Attached hereto
as Annexes 2 and 3, respectively, and incorporated herein by
reference, are true and complete copies of the articles of
incorporation and the bylaws of the Corporation.
IN WITNESS WHEREOF, I have duly executed this Certificate
this day of , 1995.
(Assistant) Secretary
I, hereby certify that I am now the duly elected, qualified
and acting (Executive Vice) President of the Corporation; that
the person executing and delivering the foregoing Certificate is
the duly elected, qualified and acting officer of the Corporation
as indicated in such Certificate, and the signature set forth
above beside such person's name is such person's correct
signature; and that the certifications set forth above are true
and correct as of the date hereof.
ANNEX 1
WHEREAS, it is proposed that Investors Life Insurance
Company of North America, a Washington corporation (the
"Corporation"), sell to Omni Congress Joint Venture (the
"Purchaser"), the real estate more particularly described on
Exhibit "A" which is attached hereto and made a part hereof for
all purposes, together with the improvements located thereon
commonly known as "Austin Centre", comprised of: (a) a central
atrium, an office tower and ground level retail space with
approximately 343,664 square feet of rentable space, an
underground 667-car parking garage, and common areas located in
the atrium; (b) a hotel tower with 314 rooms commonly known as
the "Omni Austin Hotel;"; (c) approximately 68,474 square feet of
residential rental space located in the air space directly above
said hotel; and (d) all other items comprising the Property as
defined in that certain Agreement of Sale dated September 5,
1995, executed by the Corporation and Purchaser (the "Sale");
WHEREAS, the Special Warranty Deed, Assignment and
Assumption of Leases, Bill of Sale and other proposed papers
evidencing, creating, governing or securing the Sale, or to be
executed in connection therewith (the "Sale Documents"), have
been submitted to, and reviewed by, the directors of the
Corporation;
NOW THEREFORE, RESOLVED, that the proposed Sale and the
proposed Sale Documents be, and each is hereby, authorized and
approved, and that the President or any Vice President of the
Corporation be, and each is hereby, authorized, empowered and
directed to execute the Sale Documents for and on behalf and in
the name of the Corporation, with such changes in the terms and
provisions thereof as the officer executing the same shall, in
his sole discretion, deem necessary or desirable and in the best
interest of the Corporation, his signature being conclusive
evidence that he did so deem any such changes to be necessary or
desirable and in the best interest of the Corporation; and
FURTHER RESOLVED, that the President or any Vice President
of the Corporation be, and each is hereby, authorized, empowered
and directed to perform all acts and do all things which he may
deem necessary or desirable to consummate the transactions
contemplated by the Sale Documents, with such modifications,
amendments or further assignments, certificates and other
agreements, instruments or documents as he, in his discretion,
may deem necessary or desirable and in the best interest of the
Corporation, his taking of any such action, for and on behalf and
in the name of the Corporation, and/or his execution and
delivery, for and on behalf and in the name of the Corporation,
of any such agreement, instrument or document to be conclusive
evidence that he did so deem the same to be necessary or
desirable and in the best interest of the Corporation; and
FURTHER RESOLVED, that the Secretary and any Assistant
Secretary of the Corporation be, and each is hereby, authorized,
empowered and directed to certify and attest any documents which
such officer may deem necessary or appropriate to consummate the
transactions contemplated by the Sale Documents; but such
certification or attestation shall not be required for the
validity of the particular documents; and
FURTHER RESOLVED, that any and all transactions by any of
the officers or representatives of the Corporation, for and on
behalf and in the name of the Corporation, with Purchaser prior
to the adoption of the foregoing resolutions, including, but not
limited to, the execution of the [application for the Sale?] and
the negotiation of the Sale and the terms of the Sale Documents,
be, and they are hereby, ratified, confirmed and approved in all
respects for all purposes; and
FURTHER RESOLVED, that the foregoing powers and
authorizations shall continue in full force and effect until
written notice of revocation has been given Purchaser and its
receipt obtained therefor.
Exhibit "M"
ESTOPPEL CERTIFICATE
Date:
Re: Lease dated , 19 ("Lease") by and
between ("Tenant") and
Investors Life Insurance Company of North America
("Landlord") for the premises located at Suite
, 701 Brazos, Austin, Texas (the "Property")
To Omni Congress Joint Venture:
The undersigned Tenant understands that Omni Congress Joint
Venture intends to acquire the Property from the Landlord. The
undersigned Tenant does hereby certify to you as follows:
A. A true and correct copy of the Lease is attached hereto
as Exhibit "A".
B. The Lease is in full force and effect and has not been
modified, supplemented or amended except as follows:
C. No dispute exists between the Landlord and Tenant,
Tenant is not in default under the Lease and the Tenant
does not consider the Landlord in default under the
Lease except as follows:
D. Tenant does not claim any offsets or credits against
rents payable under the Lease except as follows:
E. Tenant has not paid a security or other deposit with
respect to the Lease, except as follows:
F. Tenant has fully paid rent due through the month of .
G. Tenant has not paid any rentals in advance except for
the current month of , 1995.
H. There are no outstanding tenant improvements as provided
for in the Lease except as follows: .
I. Tenant has no knowledge of any leasing commissions due
to any party other than as described in the Lease,
except as follows: .
J. The primary term of the Lease expires on ,
and the Tenant has no options to renew or extend the
term of the Lease except as expressly provided in the
Lease.
By:
(printed name)
Its:
Exhibit "N"
AUSTIN CENTRE TELECOMMUNICATIONS SERVICES
Advanced Telecommunications equipment and servicing system.
EXHIBIT "O"
(Copies of Registration Agreement, Confidentiality Agreement -
Principal and Confidentiality Agreement - Agent)
September 27, 1995
Omni Congress Joint Venture
823 Congress Avenue
Suite 1111
Austin, Texas 78701
Attn: Mr. Tom Stacy
Re: Agreement of Sale ("Agreement") between Investors Life
Insurance Company of North America ("Seller"), as
Seller, and Omni Congress Joint Venture ("Buyer"), as
Buyer, for the purchase and sale of Austin Centre
Dear Mr. Stacy:
Buyer has informed Seller that Buyer is not presently in a
position to deliver to Seller the financial statements that Buyer
is required by Section 17b(d) of the Agreement to deliver by
September 25, 1995. Seller is not willing to waive this
requirement of the Agreement but would be agreeable to giving
Buyer more time to fulfill that requirement.
Seller proposes to amend the Agreement by deleting Section
17b(d) of the Agreement and inserting in lieu thereof the
following:
(d) Financial Statements. On or before October 26, 1995,
Buyer will deliver to Seller current financial statements of
Buyer and all Persons who are or will become general and limited
partners of, and other equity investors in, Buyer. If Buyer does
not deliver such financial statements to Seller by October 26,
1995, Seller shall have the right to terminate this Agreement by
notice to Buyer. If Seller exercises its right to terminate this
Agreement, such termination shall be a "Permitted Termination" as
defined by Section 23(a) of this Agreement, and the Deposit shall
be returned to Buyer in accordance with said Section 23(a).
Please indicate Buyer's agreement with the foregoing
amendment to the Agreement by signing and returning to Seller a
copy of this letter agreement, whereupon the Agreement shall be
amended by this letter agreement.
Sincerely,
INVESTORS LIFE INSURANCE
COMPANY
OF NORTH AMERICA
By:/s/ James M. Grace
James M. Grace
Executive Vice President
ACCEPTED AND AGREED:
OMNI CONGRESS JOINT VENTURE
By:/s/ Tom Stacy
Tom Stacy
Managing Venturer
October 11, 1995
Omni Congress Joint Venture
823 Congress Avenue
Suite 1111
Austin, Texas 78701
Attn: Mr. Tom Stacy
Re: Agreement of Sale, as amended, ("Agreement") between
Investors Life Insurance Company of North America
("Seller"), as Seller, and Omni Congress Joint Venture
("Buyer"), as Buyer, for the purchase and sale of
Austin Centre
Dear Mr. Stacy:
Seller proposes to amend the Agreement by deleting the third
sentence of Section 6b of the Agreement and inserting in lieu
thereof the following sentence:
On or before November 16, 1995, Seller shall deliver to
Buyer Estoppel Certificates (herein so called), in form
substantially as that set forth in Exhibit "M" attached hereto,
originally executed by at least 75% of the Tenants under the
Office Leases (collectively the "Estoppel Certificates").
Please indicate Buyer's agreement with the foregoing
amendment to the Agreement by signing and returning to Seller a
copy of this letter agreement, whereupon the Agreement shall be
amended by this letter agreement.
Sincerely,
INVESTORS LIFE INSURANCE COMPANY
OF NORTH AMERICA
By:/s/ James M. Grace
James M. Grace
Executive Vice President
ACCEPTED AND AGREED:
OMNI CONGRESS JOINT VENTURE
By:/s/ Tom Stacy
Tom Stacy
Managing Venturer
Third Amendment to
Agreement of Sale
This Third Amendment to Agreement of Sale ("Third
Amendment") is entered into by and between Investors Life
Insurance Company of North America ("Seller") and Omni Congress
Joint Venture ("Buyer") and is as follows:
WHEREAS, Seller and Buyer entered into an Agreement of Sale
(the "Agreement") having an effective date of September 5, 1995,
wherein Seller agreed to sell and Buyer agreed to purchase the
real property described on Exhibit "A" attached hereto and made a
part hereof for all purposes (the "Property"); and
WHEREAS, Seller and Buyer have previously amended the
Agreement by letter agreement ("First Amendment") dated September
27, 1995, a copy of which is attached hereto as Exhibit "B" and
made a part hereof for all purposes; and
WHEREAS, Seller and Buyer have previously amended the
Agreement by letter agreement ("Second Amendment") dated October
11, 1995, a copy of which is attached hereto as Exhibit "C" and
made a part hereof for all purposes; and
WHEREAS, Seller and Buyer have agreed to further amend
certain terms and conditions of the Agreement as more
specifically set forth herein;
NOW, THEREFORE, for a good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, Seller
and Buyer do hereby agree to further amend the Agreement as
follows:
1. The third sentence of Section 6b of the Agreement is deleted
in its entirety and the following sentence shall be inserted
in lieu thereof:
On or before December 18, 1995, Seller shall deliver to
Buyer Estoppel Certificates (herein so called), in form
substantially as that set forth in Exhibit "M" attached
hereto, originally executed by at least 75% of the
Tenants under the Office Leases (collectively the
"Estoppel Certificates").
2. The language "45 days after the later of (i) the Effective
Date or (ii) the date on which Seller has notified Buyer
that substantially all of the documents and information
described in Section 6a have been made available to Buyer"
in the first sentence of Section 16(b) of the Agreement is
deleted and the date "November 27, 1995" shall be inserted
in lieu thereof.
3. The third sentence of the second paragraph of Section 16(b)
of the Agreement is deleted in its entirety and the
following sentence shall be inserted in lieu thereof:
If Buyer timely gives the Inspection Termination Notice
to Seller, the Deposit together with all interest
earned thereon shall be immediately returned to Buyer,
less and with the exception of Fifteen Thousand and
No/100 Dollars ($15,000.00) of the Deposit which shall
be immediately delivered to Seller in consideration for
the Due Diligence Review and Seller's entering into
this Agreement.
4. The first sentence of Section 16(c) of the Agreement is
deleted in its entirety and the following sentence shall be
inserted in lieu thereof:
Buyer shall have until January 4, 1996 (the "Financing
Feasibility Period") to obtain third party debt
financing upon terms acceptable to Buyer.
5. The third sentence of Section 16(c) of the Agreement is
deleted in its entirety and the following sentence shall be
inserted in lieu thereof:
If Buyer timely gives the Financing Termination Notice
to Seller, the Deposit together with all interest
earned thereon shall be immediately returned to Buyer,
less and with the exception of Forty Thousand and
No/100 Dollars ($40,000.00) of the Deposit which shall
be immediately delivered to Seller in consideration for
the Due Diligence Review, Seller's entering into this
Agreement and restricting Seller's ability to agree to
sell the Property to any Person other than Buyer until
the end of the Financing Feasibility Period.
6. Section 17b(d) of the Agreement is deleted in its entirety
and the following shall be inserted in lieu thereof:
(d) Equity Partners. On or before November 27, 1995,
Buyer will deliver to Seller (i) current financial
statements of Buyer, (ii) written commitments from all
Persons who on such date are or will become general and
limited partners of, and other equity investors in,
Buyer (collectively, "Partners and Investors") that
they will make the equity investments necessary to
purchase the Property from Seller pursuant to this
Agreement, subject only to Buyer's obtaining the third
party debt financing upon terms acceptable to Buyer,
and (iii) current financial statements of the Partners
and Investors. Such Partners and Investors shall incur
no legal liability to Seller or Buyer as a result of
such commitments. Buyer may thereafter add or
substitute Partners and Investors as Buyer deems
necessary to complete the equity structure of Buyer.
The withdrawal of any Partner or Investor of Buyer
which prevents Buyer from closing the purchase of the
Property from Seller shall constitute a default by
Buyer under this Agreement only if Buyer has not timely
given the Financing Termination Notice. If Buyer does
not deliver such financial statements and commitments
to Seller by November 27, 1995, Seller shall have the
right to terminate this Agreement by notice to Buyer.
If Seller exercises its right to terminate this
Agreement, the Deposit together with all interest
earned thereon shall be immediately returned to Buyer,
less and with the exception of Fifteen Thousand and
No/100 Dollars ($15,000.00) of the Deposit which shall
be immediately delivered to Seller in consideration for
the Due Diligence Review and Seller's entering into
this Agreement.
7. This Third Amendment may be executed in multiple
counterparts which, when combined together, shall constitute
an original of this Third Amendment. In addition, facsimile
signatures of the parties shall be effective on all
counterparts of this Third Amendment.
8. All terms and conditions of the Agreement not specifically
amended hereby are hereby ratified, confirmed, and shall
continue in full force and effect.
EXECUTED this 7th day of November, 1995.
Seller:
INVESTORS LIFE INSURANCE COMPANY OF
NORTH AMERICA
By:/s/ Roy F. Mitte
Roy F. Mitte, President
Buyer:
OMNI CONGRESS JOINT VENTURE
By:/s/ Tom Stacy
Tom Stacy, Managing Venturer
Fourth Amendment to
Agreement of Sale
This Fourth Amendment to Agreement of Sale ("Fourth
Amendment") is entered into by and between Investors Life
Insurance Company of North America ("Seller") and Omni Congress
Joint Venture ("Buyer") and is as follows:
WHEREAS, Seller and Buyer entered into an Agreement of Sale
(the "Agreement") having an effective date of September 5, 1995,
wherein Seller agreed to sell and Buyer agreed to purchase the
real property described on Exhibit "A" attached hereto and made a
part hereof for all purposes (the "Property"); and
WHEREAS, Seller and Buyer have previously amended the
Agreement by letter agreement ("First Amendment") dated September
27, 1995; and
WHEREAS, Seller and Buyer have previously amended the
Agreement by letter agreement ("Second Amendment") dated October
11, 1995; and
WHEREAS, Seller and Buyer have previously amended the
Agreement by an amendment ("Third Amendment") dated November 7,
1995; and
WHEREAS, Seller and Buyer have agreed to further amend
certain terms and conditions of the Agreement as more
specifically set forth herein;
NOW, THEREFORE, for a good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, Seller
and Buyer do hereby agree to further amend the Agreement as
follows:
1. The third sentence of Section 6b of the Agreement is deleted
in its entirety and the following sentence shall be inserted
in lieu thereof:
On or before December 27, 1995, Seller shall deliver to
Buyer Estoppel Certificates (herein so called), in form
substantially as that set forth in Exhibit "M" attached
hereto, originally executed by at least 75% of the
Tenants under the Office Leases (collectively the
"Estoppel Certificates").
2. The first sentence of Section 13 of the Agreement is deleted
in its entirety and the following sentence shall be inserted
in lieu thereof:
Consummation of the transactions contemplated by this
Agreement (the "Closing") shall be held on or before
the first business day (the "Closing Date") that is ten
(10) days after the end of the Financing Feasibility
Period as described in Section 16(c), subject to any
extension required by Section 10 hereof.
3. The date "November 27, 1995" in the first sentence of
Section 16(b) of the Agreement is deleted and the date
"December 4, 1995" shall be inserted in lieu thereof.
4. The first sentence of Section 16(c) of the Agreement is
deleted in its entirety and the following sentences shall be
inserted in lieu thereof:
Buyer shall have until the close of business on the
last day of the Financing Feasibility Period (as
hereinafter defined) to obtain third party financing
upon terms acceptable to Buyer. If Omni Hotel notifies
Seller in writing of its intended termination of the
Omni Hotel Agreement in accordance with Section 16.3
thereof, the "Financing Feasibility Period" shall end
on February 5, 1996. If Omni Hotel notifies Seller in
writing of its decision not to terminate the Omni Hotel
Agreement pursuant to Section 16.3 thereof, the
"Financing Feasibility Period" shall end on the later
of (i) January 4, 1996 or (ii) fifteen (15) days after
the date on which Seller receives such notice from Omni
Hotel, but in no event shall the "Financing Feasibility
Period" end later than January 19, 1996. If Omni Hotel
does not give either notice referred to in the
preceding two sentences within thirty (30) days of Omni
Hotel's receipt of the information required to be
furnished by Seller pursuant to Section 16.2 of the
Omni Hotel Agreement, the "Financing Feasibility
Period" shall end on the later of (i) January 4, 1996
or (ii) fifteen (15) days after the date on which said
30-day period ends, but in no event shall the
"Financing Feasibility Period" end later than January
19, 1996. If the end of the "Financing Feasibility
Period" cannot be determined with certainty because of
a dispute with Omni Hotel as to whether or when Omni
Hotel received the information required to be furnished
by Seller pursuant to Section 16.2 of the Omni Hotel
Agreement, the "Financing Feasibility Period" shall end
on January 19, 1996.
5. The last sentence of Section 21(a) of the Agreement is
deleted in its entirety and the following sentence shall be
inserted in lieu thereof:
Buyer agrees to and does hereby indemnify, defend,
exonerate and save Seller harmless from and against any
and all liability, loss, damage, claims and expense
incurred or suffered by Seller (i) arising out of or
incidental to the operation of the Property by Buyer
after the conveyance of the Property to Buyer or (ii)
as the result of any claim made against Seller relating
to any addition or deletion of any general or limited
partners of, or other equity investors in, Buyer or any
other change in the information provided pursuant to
Section 17b(b) of this Agreement or Article XVI of the
Omni Hotel Agreement.
6. This Fourth Amendment may be executed in multiple
counterparts which, when combined together, shall constitute
an original of this Fourth Amendment. In addition,
facsimile signatures of the parties shall be effective on
all counterparts of this Fourth Amendment.
7. All terms and conditions of the Agreement not specifically
amended hereby are hereby ratified, confirmed, and shall
continue in full force and effect.
Executed on this the 1st day of December, 1995.
Seller:
INVESTORS LIFE INSURANCE COMPANY OF
NORTH AMERICA
By:/s/ Roy F. Mitte
Roy F. Mitte, President
Buyer:
OMNI CONGRESS JOINT VENTURE
By:/s/ Tom Stacy
Tom Stacy, Managing Venturer
Fifth Amendment to
Agreement of Sale
This Fifth Amendment to Agreement of Sale ("Fifth
Amendment") is entered into as follows:
WHEREAS, Investors Life Insurance Company of North America
("Seller") and Omni Congress Joint Venture ("Buyer") entered
into an Agreement of Sale (the "Agreement") having an effective
date of September 5, 1995, wherein Seller agreed to sell and
Buyer agreed to purchase the real property described on Exhibit
"A" attached hereto and made a part hereof for all purposes (the
"Property"); and
WHEREAS, Seller and Buyer have previously amended the
Agreement by letter agreement ("First Amendment") dated September
27, 1995; and
WHEREAS, Seller and Buyer have previously amended the
Agreement by letter agreement ("Second Amendment") dated October
11, 1995; and
WHEREAS, Seller and Buyer have previously amended the
Agreement by an amendment ("Third Amendment") dated November 7,
1995; and
WHEREAS, Seller and Buyer have previously amended the
Agreement by an amendment ("Fourth Amendment") dated December 1,
1995; and
WHEREAS, Seller and Buyer have agreed to further amend
certain terms and conditions of the Agreement as more
specifically set forth herein;
NOW, THEREFORE, for a good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, Seller
and Buyer do hereby agree to further amend the Agreement as
follows:
1. Section 2(b) of the Agreement is hereby amended by adding
the following sentence to the end of said Section 2(b):
Seller agrees to pay One Million and No/100 Dollars
($1,000,000.00) of the Purchase Price to Buyer's reserve
account for tenant improvement costs, commissions and
capital reserves for the Property. Seller will have no
control over, beneficial interest in or responsibility for
said account.
2. The first sentence of Section 13 of the Agreement is deleted
in its entirety and the following sentence shall be inserted
in lieu thereof:
Consummation of the transactions contemplated by this
Agreement (the "Closing") shall be held on or before
March 1, 1996 (the "Closing Date"), subject to any
extension required by Section 10 hereof; provided,
however, that Buyer shall have the right to extend the
Closing Date to a date on or before March 29, 1996 if
Buyer, prior to February 26, 1996, gives notice to
Seller and the Title Company of such extension of the
Closing Date and deposits with the Title Company, as
Escrow Agent, an additional Two Hundred and Fifty
Thousand and No/10 Dollars ($250,000.00), thereby
increasing the Deposit to Seven Hundred and Fifty
Thousand and No/100 Dollars ($750,000.00).
3. Section 15(c) of the Agreement is deleted in its entirety
and the following shall be inserted in lieu thereof:
(c) After the Closing, Seller shall promptly pay to
Buyer, as collected, a fraction of the amounts
collected on all accounts receivable balances referred
to in Subsection 15(a) above, which fraction shall
consist of $250,000.00 as the numerator and the total
amount of such account receivable balances, outstanding
on the Closing Date as the denominator. Seller shall
use commercially reasonable efforts to collect such
account receivable balances.
4. Seller and Buyer acknowledge and agree that the Financing
Feasibility Period described in Section 16(c) of the
Agreement has expired. Buyer hereby waives its right to
give the Financing Termination Notice and acknowledges that
the Deposit has become fully non-refundable except for
Seller's uncured default or failure to close on the Closing
Date or the failure of Seller to satisfy the conditions in
Section 8 of the Agreement that Seller is obligated to
satisfy prior to the Closing.
5. This Fifth Amendment may be executed in multiple
counterparts which, when combined together, shall constitute
an original of this Fifth Amendment. In addition, facsimile
signatures of the parties shall be effective on all
counterparts of this Fifth Amendment.
6. All terms and conditions of the Agreement not specifically
amended hereby are hereby ratified, confirmed, and shall
continue in full force and effect.
Executed on this the 19th day of January, 1996.
Seller:
INVESTORS LIFE INSURANCE COMPANY OF
NORTH AMERICA
By:/s/ Theodore A. Fleron
Theodore A. Fleron, Senior Vice
President and Assistant Secretary
Buyer:
OMNI CONGRESS JOINT VENTURE, a
Texas General Partnership
By:/s/ Tom Stacy
Name: Tom Stacy
Title: Managing Venturer
Sixth Amendment to
Agreement of Sale
This Sixth Amendment to Agreement of Sale ("Fifth
Amendment") is entered into as follows:
WHEREAS, Investors Life Insurance Company of North America
("Seller") and Omni Congress Joint Venture ("Buyer") entered
into an Agreement of Sale (the "Agreement") having an effective
date of September 5, 1995, wherein Seller agreed to sell and
Buyer agreed to purchase the real property described on Exhibit
"A" attached hereto and made a part hereof for all purposes (the
"Property"); and
WHEREAS, Seller and Buyer have previously amended the
Agreement by letter agreement ("First Amendment") dated September
27, 1995; and
WHEREAS, Seller and Buyer have previously amended the
Agreement by letter agreement ("Second Amendment") dated October
11, 1995; and
WHEREAS, Seller and Buyer have previously amended the
Agreement by an amendment ("Third Amendment") dated November 7,
1995; and
WHEREAS, Seller and Buyer have previously amended the
Agreement by an amendment ("Fourth Amendment") dated December 1,
1995; and
WHEREAS, Seller and Buyer have previously amended the
Agreement by an amendment ("Fifth Amendment") dated January 19,
1996; and
WHEREAS, Seller and Buyer have agreed to further amend
certain terms and conditions of the Agreement as more
specifically set forth herein;
NOW, THEREFORE, for a good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, Seller
and Buyer do hereby agree to further amend the Agreement as
follows:
1. The first sentence of Section 13 of the Agreement is deleted
in its entirety and the following sentence shall be inserted
in lieu thereof:
Consummation of the transactions contemplated by this
Agreement (the "Closing") shall be held on or before
March 1, 1996 (the "Closing Date"), subject to any
extension required by Section 10 hereof; provided,
however, that Buyer shall have the right to extend the
Closing Date to a date on or before March 29, 1996 if
Buyer, prior to 10:00 a.m., Austin, Texas time, on
February 27, 1996, gives notice to Seller and the Title
Company of such extension of the Closing Date and
deposits with the Title Company, as Escrow Agent, an
additional Two Hundred and Fifty Thousand and No/10
Dollars ($250,000.00), thereby increasing the Deposit
to Seven Hundred and Fifty Thousand and No/100 Dollars
($750,000.00).
2. This Sixth Amendment may be executed in multiple
counterparts which, when combined together, shall constitute
an original of this Sixth Amendment. In addition, facsimile
signatures of the parties shall be effective on all
counterparts of this Sixth Amendment.
3. All terms and conditions of the Agreement not specifically
amended hereby are hereby ratified, confirmed, and shall
continue in full force and effect.
Executed on this the 23rd day of February, 1996.
Seller:
INVESTORS LIFE INSURANCE COMPANY OF
NORTH AMERICA
By:/s/ James M. Grace
James M. Grace, Executive Vice
President
Buyer:
OMNI CONGRESS JOINT VENTURE
By:/s/ Tom Stacy
Tom Stacy, Managing Venturer
ASSIGNMENT AND ASSUMPTION OF
AGREEMENT OF SALE
THIS ASSIGNMENT AND ASSUMPTION OF AGREEMENT OF SALE (the
"Assignment") is made as of January 19, 1996, by and between OMNI
CONGRESS JOINT VENTURE, a Texas joint venture, ("Assignor"),
whose mailing address is 823 Congress Avenue, Suite 1111, Austin,
Texas 78701 and PROPERTY ASSET MANAGEMENT INC., a Delaware
corporation, ("Assignee"), whose mailing address is 3 World
Financial Center, New York, New York 10285.
WHEREAS, Assignor has entered into that certain Agreement of
Sale dated September 5, 1995 between Investors Life Insurance
Company of North America ("Investors"), as Seller, and Assignor,
as Buyer, as amended by the First Amendment to Agreement of Sale
dated September 27, 1995, the Second Amendment to Agreement of
Sale dated October 11, 1995, the Third Amendment to Agreement of
Sale dated November 7, 1995, the Fourth Amendment to Agreement of
Sale dated December 1, 1995 and Fifth Amendment to Agreement of
Sale dated January 19, 1996 (said Agreement of Sale along with
the First Second, Third and Fourth Amendments to Agreement of
Sale being collectively referred to as the "Agreement") relating
to the sale by Investors to Assignor of the real estate in
Austin, Texas known as the Austin Centre and more particularly
described on Exhibit "A" attached hereto (the "Property");
NOW, THEREFORE, in consideration of the foregoing and the
agreements and covenants herein set forth, together with the sum
of Ten Dollars ($10.00) and other good and valuable consideration
this day paid and delivered by Assignee to Assignor, the receipt
and sufficiency of all of which are hereby acknowledged by
Assignor, Assignor does hereby ASSIGN, TRANSFER, SET OVER AND
DELIVER unto Assignee all of Assignor's right, title and interest
in and to the Agreement and all of the rights, benefits and
privileges of Assignor thereunder, but not Assignor's obligations
thereunder.
TO HAVE AND TO HOLD all and singular the Agreement unto
Assignee, and Assignee's successors and assigns forever.
1. Assignee hereby accepts the assignment of the Agreement
(other than the obligations of the Assignor under the Agreement).
This Assignment shall not be construed to currently obligate
Assignee to take any action or incur any expense or perform or
discharge any obligation, duty or liability under the Agreement.
It is agreed and understood that if Assignor fails to meet any of
its obligations pursuant to the Agreement, Assignee may, but is
not required to, assume all of the obligations of the Buyer under
the Agreement on its own behalf or on behalf of Assignor. Seller
agrees to give Buyer written notice of any default by Assignor
under the Agreement and Assignee shall have two (2) business days
to assume in writing all of the obligations of the Buyer under
the Agreement, including, but not limited to, the obligations of
Buyer under Sections 17b (a) and (b) of the Agreement. If the
time for compliance with any obligations of Buyer has expired
prior to the valid assumption of such obligation by Assignee
pursuant to the preceding sentence, Assignee shall be afforded a
reasonable period of time under the circumstances to perform such
obligation. If Assignee fails to timely assume in writing all of
the obligations of the Buyer under the Agreement, the Agreement
shall terminate and the Deposit shall be distributed to Seller in
accordance with the Agreement. Notwithstanding this Assignment,
Assignor hereby acknowledges and agrees that it shall remain
fully liable to perform all of the obligations of the Buyer under
the Agreement.
1.A Assignee acknowledges and agrees that the Financing
Feasibility Period described in Section 16(c) of the Agreement
has expired. Buyer has waived its right to give the Financing
Termination Notice, and that the Deposit has become fully non-
refundable except for Seller's uncured default or failure to
close on the Closing Date or the failure of Seller to satisfy the
conditions in Section 8 of the Agreement that Seller is obligated
to satisfy prior to the Closing.
2. Assignor shall not enter into any agreement or do or
fail to do any act under the Agreement or otherwise that will
adversely affect the rights assigned to Assignee hereunder
without the consent of Assignee.
3. Each party shall sign and give such notices and
consents as shall be necessary to confirm the provisions of this
Assignment to Investors or any other persons or entity having
rights or obligations under the Agreement, as the other may
request from time to time, and each party shall execute and
deliver to the other such further instruments, documents and
agreements as the other may reasonably require to make this
Assignment effective.
4. All of the covenants, terms and conditions set forth
herein shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and assigns.
5. This Assignment may only be modified, altered, amended
or terminated by the written agreement of Assignor and Assignee.
6. Any notice, request, demand, statement or consent made
hereunder or in connection herewith to any party shall be in
writing and shall be sent (if to any party other than PAMI) to
the addresses and in the manner specified in the Agreement, and
if to PAMI, to 3 World Financial Center, New York, New York
10285, Attention: Edward J. Meylor.
7. If any term, covenant or condition of this Assignment
shall be held to be invalid, illegal or unenforceable in any
respect, this Assignment shall be construed without such
provision.
8. This Assignment shall be governed by and construed
under the laws of the State of New York without regard to
principles of conflicts of law.
9. This Assignment may be executed in counterparts, which
when taken together shall be deemed to be an original.
10. Each party hereto acknowledges and agrees that all
parties hereto may rely upon execution of this Agreement and the
Assignment by facsimile copy.
11. Capitalized terms used but not defined in this
Assignment shall have the meanings given to them in the
Agreement.
IN WITNESS WHEREOF, Assignor and Assignee have duly executed
this Assignment as of the day and year first above written.
ASSIGNOR:
OMNI CONGRESS JOINT VENTURE, a
Texas joint venture
By:/s/ Tom Stacy
Name: Tom Stacy
Title: Managing Venturer
ASSIGNEE:
PROPERTY ASSET MANAGEMENT INC.
a Delaware corporation
By:/s/ Edward J. Meylor
Name: Edward J. Meylor
Title: Vice President
CONSENT OF SELLER
Investors Life Insurance Company of North America hereby consents
to the foregoing assignment of the Agreement from Assignor to
Assignee. By its consent, Investors Life Insurance Company of
North America agrees to accept, subject to Assignee's assumption
in writing of all of the obligations of the Buyer under the
Agreement, tender of performance by Assignee of any obligations
of Assignor as buyer under the Agreement, including without
limitation, the closing of the purchase of the Property.
INVESTORS LIFE INSURANCE COMPANY
OF NORTH AMERICA
By:/s/ Theodore A. Fleron
Name: Theodore A. Fleron
Title: Senior Vice President and
Assistant Secretary
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
Investors Life Insurance Company of North America
ILG Securities Corporation
InterContinental Life Insurance Company
ILG Sales Corporation
InterContinental Growth Plans, Inc.
InterContinental Life Agency, Inc. *
Investors Life Insurance Company of Indiana
* Wholly-owned subsidiary of InterContinental Growth Plans,
Inc.
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the
Registration Statement on Form S-8 (No. 33-71074) of
InterContinental Life Corporation of our report dated March 27,
1996 appearing on page F-2 of this Form 10-K.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
Dallas, Texas
March 27, 1996
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K FOR
THE YEAR ENDED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<DEBT-HELD-FOR-SALE> 483,606
<DEBT-CARRYING-VALUE> 14,420
<DEBT-MARKET-VALUE> 14,277
<EQUITIES> 1,559
<MORTGAGE> 14,836
<REAL-ESTATE> 15,467
<TOTAL-INVEST> 669,538
<CASH> 6,537
<RECOVER-REINSURE> 14,474
<DEFERRED-ACQUISITION> 24,926
<TOTAL-ASSETS> 1,315,293
<POLICY-LOSSES> 128,265
<UNEARNED-PREMIUMS> 10,669
<POLICY-OTHER> 544,621
<POLICY-HOLDER-FUNDS> 6,125
<NOTES-PAYABLE> 59,385
0
0
<COMMON> 1,137
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<TOTAL-LIABILITY-AND-EQUITY> 1,315,293
11,694
<INVESTMENT-INCOME> 64,781
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<OTHER-INCOME> 3,591
<BENEFITS> 42,639
<UNDERWRITING-AMORTIZATION> 3,929
<UNDERWRITING-OTHER> 15,016
<INCOME-PRETAX> 16,483
<INCOME-TAX> 5,769
<INCOME-CONTINUING> 10,714
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,714
<EPS-PRIMARY> 2.11
<EPS-DILUTED> 2.11
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
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</TABLE>
